urban-gro reported second-quarter financial results. Bradley Nattrass, Chairman and CEO commented, “I am proud of our team’s performance this quarter amid the well-documented headwinds that persist in the cannabis industry. Although our quarterly results were below our expectations, we drove a 27% increase in revenues versus the prior year period and have a robust project pipeline heading into our second half. Further, our efforts to strategically diversify our business into other sectors are helping insulate us from the broader turbulence that other ancillary industry participants are experiencing. We are actively working with some of the largest names in their respective sectors, including global consumer packaged goods, food and beverage, food-focused CEA, and healthcare. Further, we continue to leverage our unique set of capabilities within broader segments of the market and have identified an ever-larger pipeline of new opportunities.”
Mr. Nattrass added, “We remain laser-focused on navigating through this period with a sound strategic vision that is geared toward diversification and smart financial stewardship. Our go-to-market strategy, built around our professional services and end-to-end design-build solutions, is providing the commercial synergies we envisioned and visibility to new project opportunities – the combination of which is especially exciting. Our team of experts is incredibly talented, and, coupled with our cash position, we have the resources to execute against our long-term plan while remaining well positioned for any near-term volatility that may arise as clients work towards achieving their own growth objectives while optimizing their near-term capital spending.”
Second quarter 2022 financial results
Revenue was $16.3 million in the second quarter of 2022, as compared to $12.8 million in the prior year period, representing an increase of $3.5 million, or 27%. This increase was driven by the accretive acquisition of Emerald Construction Management with a $2.9 million increase in construction design-build revenue for the two months in the quarter post-acquisition, as well as the accretive acquisition of 2WR, which was the primary driver of incremental services revenue of $2.7 million. These increases were partially offset by a decrease in equipment systems revenue of $2.1 million, primarily reflecting softer equipment demand in the US Cannabis market.
Gross profit was $3.5 million, or 22% of revenue, in the second quarter of 2022, as compared to $2.9 million, or 23% of revenue, in the prior year period, representing an increase of $0.6 million. The decrease in gross profit margin was driven by mix, with an increase in the relatively lower margin construction design-build revenue.
Operating expenses were $5.4 million in the second quarter of 2022 compared to $2.7 million in the prior year period, representing an increase of $2.7 million. This increase in operating expenses was driven primarily by increased headcount to support both current and future demand for the Company’s solutions, continued investment in European growth, as well as incremental costs associated with acquisitions.
Net loss was $(1.7) million, or $(0.17) per share, in the second quarter of 2022, as compared to net income of $1.3 million, or $0.11 per share, in the prior year period, including PPP loan forgiveness of $1.0 million.
Adjusted EBITDA was negative $(0.5) million in the second quarter of 2022, compared to $0.6 million in the prior year period. The decrease in Adjusted EBITDA was driven by strategic investments in operating expenses to drive growth, which was partially offset by growth in revenue and gross profit. The largest impact comes from our previously announced investment in the European market. In this quarter, we hired a Managing Director who is based out of our newly opened office in the Netherlands, relocated US assets into place in the Netherlands, and continued to build our brand and footprint.
Summary of first six months of 2022 financial results
Revenue was $37.3 million for the first six months of 2022 compared to $24.9 million in the prior year period, representing an increase of $12.4 million, or 50%.
Net loss was $(2.4) million, or $(0.23) per share, for the first six months of 2022 compared to a net loss of $(0.3) million, or $(0.03) per share, in the prior year period.
Adjusted EBITDA was negative $(0.1) million for the first six months of 2022 compared to a positive $1.1 million in the prior year period, representing a decrease of $1.2 million.
Backlog as of June 30, 2022
Consolidated backlog is unrealized revenue represented by contractually committed construction design-build, equipment systems, and service orders. As of June 30, 2022, the total backlog was approximately $22 million, comprised of $10 million in design-build, $7 million in equipment systems, and $5 million in professional services contracts.
Updated revenue and adjusted EBITDA guidance
As a result of the dynamic macroeconomic environment, whereby inflation, supply chain issues, and oversupply issues in the US cannabis market are actively pressuring customers’ capital spending plans, the Company believes it is prudent to withdraw its previously announced full-year 2022 revenue and Adjusted EBITDA guidance, and diligently keep investors informed of significant backlog additions in the months and quarters ahead.
In place of a full-year outlook, the Company is shifting to a near-term outlook for the current forward quarter until visibility improves. For the third quarter of 2022, the Company anticipates revenue in the range of approximately $10 - $11 million and an Adjusted EBITDA loss of approximately $(2.6) - $(2.4) million.
Dick Akright, CFO, commented, “While we’ve shifted our guidance strategy to one that’s more focused on the near-term given the recent market volatility, it should not be inferred as a slowing of our opportunity pipeline. In that regard, we continue to have visibility to many large projects, several of which are with existing customers and other projects in new diversified industries. However, we believe it is prudent to position our outlook cautiously until improved visibility to customers’ capital spending plans emerges.”
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