urban-gro Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2024

There are 9 speakers on the call.

Operator

Hello, and welcome to the Urban Gro First Quarter 20 24 Earnings Conference Call. As a brief reminder, all participants are currently in a listen only mode. Following the presentation, there will be a question and answer session for those on the teleconference line. Please note that this conference call is being recorded today, April 30, 2024, and a replay will be made available on the company's website following the end of the call. At this time, I'd like to turn the conference call over to Christian Monson, Urban Growth's Executive Vice President and General Counsel.

Operator

Sir, please go ahead.

Speaker 1

Good afternoon, and thank you for joining us. Today's call will be led by Brad Mattress, Chairman and Chief Executive Officer and Dick Ackroy, Chief Financial Officer. I'd like to remind our listeners that remarks made during this call will include a discussion of non GAAP metrics, including adjusted EBITDA and backlog. These items should not be utilized as a substitute for UrbanGrow's financial results prepared in accordance with GAAP. Reconciliations of our GAAP net loss to adjusted EBITDA are available in our press release and in our Form 10 Q filed with the Securities and Exchange Commission and can be accessed from the Investor Relations section of our website at ir.urbangrow.com.

Speaker 1

On this call, we may state management's intentions, beliefs, expectations or future projections. These are forward looking statements and involve risks and uncertainties. Forward looking statements on this call are made pursuant to the Safe Harbor provisions of the federal securities laws and are based on Urban Gro's current expectations. Actual results could differ materially. As a result, you should not place undue reliance on any forward looking statements.

Speaker 1

Some of the factors that could cause actual results to differ materially from such forward looking statements are discussed in the periodic reports Urban Gro files with the Securities and Exchange Commission. These documents are available in the Investors section of the company's website and on the Securities and Exchange Commission's website. We do encourage you to review these documents carefully. Lastly, a copy of our earnings press release and website replay for today's call may be found on the Investor Relations section of our website, which again is ir. Urban

Speaker 2

gro.com.

Speaker 1

With that, I will now turn the call over to Brad.

Speaker 3

Thank you, Christian. Good afternoon, everyone, and thank you for joining us today. What a phenomenal day for the cannabis industry. As I'm sure most of you are now aware, a few hours ago, there were credible reports in the media indicating that the U. S.

Speaker 3

Drug Enforcement Agency is supporting the Department of Health's recommendation to reclassify cannabis from the most stringent Schedule 1 to the less stringent Schedule 3, in turn providing a long awaited for the cannabis industry. While there still is a review period to complete with the expected removal of the 2 ADE related tax burden and the DOJ addressing state run programs through a guidance memo, we believe many cannabis operators will realize significant increases to their working capital that in turn could be reinvested in their business infrastructure to refresh existing facilities and build out new ones. For the last 2 years, I'm proud to sit on the Board of the National Cannabis Roundtable alongside CEOs from some of the leading multistate operators in the space. It's the tireless dedication of MSO leaders like these and the lobbying efforts from organizations like NCR that have paved the way for our industry and the exciting wins along the way. As it relates to what this news and the subsequent final approval of rescheduling means for Urban Growth Future, it's significant.

Speaker 3

With over 1,000 projects completed in the cannabis market over the last 8 years and with 120 employees, which include architects, engineers, construction managers and horticulturists. Urban Gro is the leading professional services firm in the cannabis industry that refreshes existing operations, designs and or builds new dispensary and cultivation facilities, and further procures and integrates cultivation equipment solutions as well. The successful rescheduling of cannabis is a long awaited catalyst that we've anticipated to reinvigorate an industry that has been facing strong headwinds for the last couple of years. With that said and moving on, I'm excited to report that in the Q1, we had positive cash flow from operations and in turn delivered our strongest quarterly adjusted EBITDA results in 2 years. This improved performance is attributed to both the diversified revenue streams that we've been seeking and building out as well as our focused efforts throughout 2023 to reduce operating expenses on a go forward basis.

Speaker 3

Today, our multi sector focused professional services and design build firm operates out of offices in 3 states and Europe, and our targeted markets extend from the cannabis and vertical farming sectors to also include light industrial, commercial, hospitality, recreation, education and healthcare sectors. Looking at the highlights from our Q1 performance, both revenue of $15,500,000 and a slight adjusted EBITDA loss of $300,000 beat our quarterly guidance. The $3,100,000 year over year improvement in adjusted EBITDA was driven by accommodation of reduced operating expenses and strengthening margins. As it relates to the reduced expenses and as a result of the optimization efforts made in 2023, we began to benefit from the previously communicated $8,000,000 reduction in general and administrative expenses. In fact, we realized a $2,800,000 improvement in the Q1 versus Q1 of 2023.

Speaker 3

The margin growth in the Q1 was tied to both increased productivity from our professional services providers as well as the strengthening of our returns delivered by our construction business. And further backlog remains strong at $99,000,000 As a result, and relating to full year 2024, we are maintaining our guidance to recognize more than $84,000,000 in revenue and to generate positive adjusted EBITDA. I'll further note that this does not take into consideration today's rescheduling related developments as there are still unknowns, including timing that need to be clarified. Looking at market trends, diversification is most definitely assisted in insulating our business from the previously discussed headwinds that we've been facing within the cannabis and vertical farming sectors for the last couple of years. Consistent with the sector breakout in 'twenty three, in the Q1 approximately 72% of our revenues came from the commercial sectors that we serve and 28% from controlled environment ag.

Speaker 3

In the commercial sector, our client base continues to be comprised of top tier companies that include Fortune 5500 firms and revenues recognized in the quarter were from a combination of ongoing and new projects. In the cannabis sector, while the market sentiment has been stronger than it has been in more than a year, especially after today, we're actively engaged with clients on multiple fronts. However, cautious optimism has been the status quo for operators so far this year. In the interim and while we wait for the rescheduling narrative to play out in the months ahead, we're expecting to see steady activity and to continue signing both services and construction contracts and legal markets across the U. S.

Speaker 3

As operators work through persistent state level regulatory and legal delays. This being said, and in addition to today's announcement, there are a couple of key additional catalysts, which could also result in a significant and sustained positive change in momentum for our business. First, on the federal level, with prospects of successfully passing a banking related bill by year end continues to be discussed. Of particular importance, this would potentially include a capital markets clause that allows plant touching businesses to list on the larger public market exchanges, providing a more efficient path for them to access capital and create greater liquidity. This would attract institutional investors that can participate via these exchanges or provide capital directly to the issuers.

Speaker 3

And second, at the state level, while progress continues to be made on legalization in multiple states, we maintain our position that the most impactful change would be in Florida, the nation's 3rd most populous state and one of the fastest growing in the country. Now that it's confirmed to be on the ballot in November, a successful vote to allow adult use recreational sales would have a profound and sustained impact for Florida operators and we anticipate for urban growth as well. In closing, and supported by our $99,000,000 backlog, our qualified pipeline, the recognition of last year's $8,000,000 general and administrative expense reduction and today's positive regulatory development, we believe that we are well positioned to continue building momentum through the end of the year and beyond. Thank you. And with that, I will now turn the call over to Dick.

Speaker 2

Thanks, Brad. In the Q1 of 2024, we generated revenue of $15,500,000 which represents a sequential improvement of $500,000 or 4% over the $15,000,000 of revenue generated in the Q4 of 2023 and a $1,200,000 or 7% decrease over the $16,800,000 of revenue generated in the prior year period. The decrease in revenue over the prior year period was driven by a $400,000 decrease in construction design build revenue, which reflected a decrease in the number of projects and average size of projects during those periods. Equipment Systems revenue decreased by $400,000 and services revenue decreased by $300,000 which corresponds to the historical downturn in the cannabis industry. Gross profit was $3,100,000 or 20 percent of revenue in the Q1 of 2024 compared to $1,700,000 or 11 percent of revenue in the Q4 of 2023 and $2,100,000 or 17 percent of revenue in the prior year period.

Speaker 2

The increase in gross profit dollars and margin percentage for both of these comparable periods was driven by the impact of improved margins in services and construction design build revenues as we experienced improvements in delivery of services projects and started work on higher margin construction design build projects during the current quarter. Operating expenses were $5,200,000 in the Q1 of 2024, which on a sequential basis is a decrease of $1,200,000 and on a year over year basis is $2,700,000 less than operating expenses of $7,900,000 in the Q1 of 2023. Both of these decreases are associated with the company's expense optimization and resource reallocation initiative. Net loss was $2,100,000 or a negative $0.18 per diluted share in the current quarter compared to a net loss of $5,100,000 or a negative 0.48 dollars per diluted share in the prior year period. Adjusted EBITDA improved by $2,700,000 sequentially to negative $300,000 in the Q1 of 2024.

Speaker 2

This is an improvement in adjusted EBITDA of $3,100,000 compared to the prior year period. The improvement in our adjusted EBITDA for both periods was driven by lower operating expenses as previously discussed. Turning to our balance sheet. We ended the quarter with $700,000 of cash and a balance on our line of credit of 2,000,000 dollars With the support of the working capital line of credit that we put in place in December, we currently do not see the need to bring new dilutive capital into the Our total backlog as of March 31, 2024 was approximately $99,000,000 reflecting a decrease of $11,000,000 or 10% on a sequential basis. This backlog is comprised of $93,000,000 in construction design build, dollars 5,000,000 of professional services and $1,000,000 of equipment systems contracts.

Speaker 2

Breaking backlog out by sector, 76% is with clients in the CEA sector and 24% is with clients in the commercial sector. Supported by our backlog and pipeline, we remain confident that our cash position, combined with our $10,000,000 line of credit, will provide us the necessary flexibility to manage through various macroeconomic scenarios. We continue to remain focused on our execution and returning to positive adjusted EBITDA on an ongoing basis. That concludes our prepared remarks. Operator, please open the call for questions.

Operator

Certainly. At this time, we will be conducting a question and answer And the first question today is coming from Eric DelOriere from Craig Hallum. Eric, your line is live.

Speaker 4

Great. Thanks for taking my questions. So first one on the news of the day here with DEA agreeing to reschedule Kevin's for Phase III. Obviously, the 280 effect is not applying to the Spanish operators.

Operator

Apologies, Eric. Your line is just really bad quality. We will reconnect to you. We will dial out to you so that we can get a better connection if that's okay with you. And Brad, if it's okay, I'll move on to the next question and we'll reconnect Eric as soon as possible.

Speaker 3

Sounds great, Paul. Thank you.

Operator

We'll take Scott Fortune from Roth MKM. Next, Scott, your line is live.

Speaker 5

Thank you for the question. Hopefully, you can hear me better. I will leave the DAA question up for Eric. But just curious on Florida, Brad, if obviously that's up for adult use ballot vote now. It's still a big hurdle to get 60 percent of the vote.

Speaker 5

But are you seeing now that's up for a vote, are you seeing operators come in and engaging more in your services as they look to build out ahead of potential vote in Florida or is still kind of muted interest from that standpoint to wait to see if this does pass in Florida from adult use side of things. Just curious on kind of the operators kind of emphasis for moving forward now and building out potential ahead of some of these states?

Speaker 3

Thanks, Scott. Thanks for the question. Florida, it is a hurdle at the 60% and there's a lot of confidence that that will be beat. But the heavy work starts now, and it would be great for people to donate and to give to the path that Trulip's created in the state with a lot of the other multi state leaders, so they can get the word out and keep pushing hard. The pools are trending higher than 60% at this time from what I've heard.

Speaker 3

But again, it's early stage and it's important to give so we can fight that fight. In terms of uptick, yes, for sure. In terms of the uptick and the excitement and the planning moving forward to hard large orders, that's not quite here. The conversations on many fronts that we've been having are preparing to be in a good place from an equipment standpoint, some equipment needs to be ordered 4 to 6 months in advance. Others is entering the design stage for new facilities and then at some point in the future proceeding to the build, but absolutely a very positive uptick in the state so far.

Speaker 5

I appreciate color there. Thank you. And then just focus on guidance. You guys are keeping guidance at more than $84,000,000 in revenue for 2024. With the projects and the backlog in focus, you provide a little more cadence to kind of the remaining of the 2024 year?

Speaker 5

Obviously, you had some delays from 4Q, and I assume those projects are recognized here in 1Q. But just kind of step us through the year as you see your backlog come into the second half kind of loaded from the cadence standpoint to meet your revenue guidance?

Speaker 3

Yes. 1st, addressing the 3 projects that we discussed on the 2023 or Q4 'twenty three call. All three projects are active. 2 of them are recognizing revenue in Q1 and the 3rd has began recognizing for us in the Q2. So those are all on track.

Speaker 3

We remain right now, we're cautiously optimistic. We believe that we've turned the quarter and I'm excited about where we're moving and that's before today's development came to light. We are trying to under promise and over deliver in terms of our setting expectations. We're off to a good start in Q1. Backlog remains strong.

Speaker 3

Of course, we'd like to see it start to appreciate and increase again. But we're in a very good place. We feel good, especially with the right sizing of the company in terms of an SG and A standpoint. We've lowered the breakeven level for the company, Scott. So that feels good as we're going forward and we can keep growing the business as the demand increases.

Speaker 5

Perfect. I appreciate the detail and I'll jump back from the queue. Congrats on, well, still the DA moving forward today. So thanks.

Speaker 3

Thanks, Scott.

Operator

Thank you. And it looks like Eric Delaurier from Craig Hallum is reconnected and we will try his line again. Eric, your line is live.

Speaker 4

All right, great. Thank you. Is this any better?

Speaker 3

It's a little bit.

Speaker 4

All right. Well, I'll give it a try. And if this doesn't work, we'll just take my questions offline. So on the DDA, I was just wondering if you could provide us sort of an overview on the typical timing of one of your projects from your cannabis operators? What's the sort of timing for a project to go from discussion phase to pipeline to backlog and revenue?

Speaker 4

Ultimately looking to kind of understand how quickly you'll be able to have visibility into potential bona fide backup in capital expenditures in the cannabis industry? Thanks.

Speaker 3

Perfect. Eric, I got most of that. Perfect. First of all, it depends on the size, right, and zoning and where we are located, state, city and county and those requirements around the country. But typically, they could take as long as without any delays, as long as 2 years, depending on the size, probably as short as 9 months on average, a year and a half.

Speaker 3

From initial discussions, we move into the design stage, architecture and engineering and the cultivation design, civil and structural are all part of the engineering side there too. Once we have a full set of CDs, put out to bid. Our clients usually will look at multiple bids in which we're participating. And if awarded, we immediately move forward. We can cut weeks and times months off if we're proactively involved at certain stages.

Speaker 3

But overall, I'd say 9 months to 2 years is a good average without delays.

Speaker 6

And how long would you take to see that there is an increase in CapEx coming sort of industry wide. I understand that some of these projects from discussion to completion can take up to 2 years. But how long will it take you to notice if there's a bona fide capital expenditure increase in the cannabis industry resulting from the DEA?

Speaker 2

Would you have

Speaker 6

is it a few weeks of lead time of discussions picking up and leading to pipeline and deposits? Like is that a few weeks? Or is that could these discussion phases last several months that it's hard to

Speaker 2

see if there's a true pickup or not?

Speaker 3

I think on the Q2 earnings call and looking at backlog at that point from a services standpoint and new contracts that we've signed, that will be a really good indicator. And then also from an equipment standpoint, equipment in a strong cannabis market was a tremendous source of revenue for Urban Gro. When you look at 2021, it was $56,000,000 It decreased in $22,000,000 to $33,000,000 and as we reported last month in $23,000,000 it was down to $13,000,000 And so the backlog that we reported at the end of Q1 for equipment was $1,000,000 So watch the backlog at the end of Q2 as well. That should be strengthening. I think the early indicators will be on services and on equipment.

Speaker 3

But I can tell you as a result of today's announcement, I already know it's stronger. We know it's stronger. Good strong discussions with clients and some signatures today already.

Speaker 4

That's very good to hear. I'll just speak to one more question given my poor connection here. On the gross margin expansion, you called out increased productivity amongst the architects and then increased construction margins. I guess just wondering if you could higher productivity or higher construction margins? And ultimately, what I'm wondering is, do we expect some of these productivity levels to remain somewhat

Speaker 3

Jack, I'll let you take that one, please.

Speaker 2

All right. Thanks, Brad. Eric, yes, with regard to do we expect kind of that same type margin, it certainly was a very high margin for us in the Q1 of 2024. Don't necessarily expect that it's going to be exactly that high on a go forward basis. It was very low in the Q4 of 2023 as we had talked about from a construction project that we had that incurred some additional costs went over budget and we weren't able to pass all those on to a customer.

Speaker 2

Because of a couple of the construction projects that did get started in Q1, they are at very nice margins for us, above kind of what we typically see for construction project. So even though we might not expect that the Q1 margin we experienced is going to continue at that level going forward, we wouldn't expect it to fall off very much. And as always, and we talked about before, from the standpoint of our total gross profit and margin, it depends on the revenue mix that we have. So you still have to pay close attention to what happens as the equipment or services total revenue number changes over time and that's impact on the gross margin.

Speaker 3

And I'll add in on the back there, Vic, a little bit. It has been almost 2 years, Eric, since we completed the acquisition of the construction company. And so there were some legacy projects that came with the acquisition and that ended up not being what we would have hoped, right? So we call them legacy projects and they're pretty much finished now. The project that Dick alluded to in the Q4 and some surprise costs coming in was tied to one of those projects.

Speaker 3

So that's behind us. That's great. It's positive. 2nd, in the middle of 'twenty three, we had all of the acquired companies on the same ERP. We've talked about that before.

Speaker 3

And as a result, our COO and team were able to put some stronger internal controls in place, and now we're seeing the results of those moves. So definitely trending in the right direction and we don't we weren't lucky in the quarter, I guess, to answer that last question for you.

Speaker 6

Yes. That all makes sense to me. And certainly good to hear that some of these initiatives like getting everyone on the same ERP system has led to some structural changes in margins, but I understand that there will be some degree of fluctuation going forward. Very helpful. Thank you for taking my questions.

Speaker 3

Thank you. Take care.

Operator

Thank you. The next question is coming from Anthony Vendetti from Maxim Group. Anthony, your line is live.

Speaker 7

Thanks. Just a couple of questions. On the backlog of $99,000,000 at the end of March, I know today, obviously, big day to talk about cannabis and what this impact could mean in terms of future business. But in terms of the backlog, what percent of that is cannabis related? And what percent obviously non cannabis?

Speaker 3

The 72% was commercial or non cannabis. Sorry, Dick, 76%? Go ahead, Dick.

Speaker 2

Sorry. Yes, 76% of it was CEA related and 24% was commercial. That's pretty consistent with what we reported at the end of December in terms of the split by the sectors that we have. So even though our recent revenue performance has been a shift of that where we have had substantially more commercial than CEA. The backlog still continues to be more higher percentage on CEA than it is on commercial, partly due just to the size of some of the CEA projects that we have in backlog.

Speaker 7

Okay. That's helpful. And then what this could mean, obviously less stringent rules should open up investments. There's the tax benefit as well. What I know it's just happened a couple of hours ago, but have you heard from any potential customers eager to maybe speed up investments if indeed this gets passed?

Speaker 7

And maybe elaborate a little bit on what you think the timing is for a final like consent decree to come down and say, okay, boom, this is going to move from a Schedule 1 to a Schedule 3 potentially?

Speaker 3

To me, the 280E the removal of 280E is most definitely the largest benefit to a successful rescheduling. Some of the large multistate operators have publicly stated that annual savings from the removal of 280E can range from $130,000,000 to $180,000,000 plus. So it's significant funds that we believe. Some of them have also stated publicly that they're looking to reinvest those funds into the company with refreshing existing facilities and building out new ones. And so that's definitely the largest benefit there.

Speaker 3

The period that it will be open for anywhere from 3 to 5 months before the final approval would take place. But it has been stated publicly that if the DEA supported the Department of Health, it will all indicators are it will absolutely be approved in the long run. And not my opinion, but just opinions that I've read. So transformational for the industry. As for clients, yes, just as we have had increased discussions and interest and excitement from clients in Florida with the ballot addition for November.

Speaker 3

We're having the same today. And just I'm not sure if you had heard on an earlier answer, but we've had good strong interest, even had some signatures today as well. So it will take time, right? Like there's a lot of excitement today. We're buying it cool.

Speaker 3

We didn't want to increase our guidance or anything at this point. There's so many unknowns and we just want to under promise and over deliver, but exciting time for the industry and for the Urban Gro as well today.

Speaker 5

Right, right.

Speaker 7

Okay. So that way, it would be upside then. If it goes from a Schedule 1 to Schedule 3, do you think that expedites changes in the banking regulations as well?

Speaker 3

I don't believe they're related. I think any momentum in the industry is fantastic. And from a banking standpoint, you've seen all of that was the FAA bill they thought they could tie SAFR banking to. And that as of late, they've said that it won't be connected. Now that it looks like it would go to the lame duck session later in the year and that would be the best avenue to have it passed.

Speaker 3

But I think positive overall cannabis industry sentiment helps go a long way. The people are speaking and I believe from a banking standpoint, politicians, they have no option but to listen. So I do see overall it working together for better industry for sure.

Speaker 7

Okay. But separate on the banking thing. Okay. And then just in terms of productivity improvements, cost cutting, how obviously, you decreased expenses, but where are you sort of in that process halfway through completed? Maybe just give us an understanding of where you're at.

Speaker 3

From a productivity standpoint, it tied into some of the reductions in general and administrative expenses last year. When we had line of sight in the middle of last year, when they all were on the same ERP, we realized that we were we had too many service providers on the team and that's when we started to adjust. And we've got to a right size now where we're capturing a large amount of those salaries in COGS. That's the key. On the last call, we had stated that in 2023, we moved over $1,300,000 down into salaries just because of the fact that we weren't as productive as we wanted to be.

Speaker 3

So results in Q1 were very strong there. In terms of optimization, we don't anticipate at this time making any further reductions. We're right sized right now year over year from the efforts and the moves we made in 2023. We're expecting to recognize $8,000,000 in 'twenty four of savings from a G and A standpoint. And in Q1, we've already recognized $2,800,000 versus Q1 of 'twenty three.

Speaker 3

So we feel we're in a great place and we've lowered the breakeven level for the company, which is key. And we do not anticipate making additional cuts at this time. Now that being said, we're always looking at expenses, overall expenses and trimming where we can. Dick, is there anything you'd add to that?

Speaker 2

I think the only thing I'd potentially add, Anthony, is just during the Q1, there continued to be some reductions. But generally, when we hit the end of the Q1, that was the that was where we got to the headcount levels we were looking to get to. So anyways, you're thinking about things going further out. Yes, the Q1 contains a little bit high on the G and A side that there would be further reductions expected for Q2. But by the time we got to the end of the quarter, we were kind of at exactly the levels we are looking to get to.

Speaker 7

Okay, great. That's good color. Thanks guys. I'll hop back in the queue. Appreciate it.

Operator

Thank you. And the next question is coming from Eric Beder from SCC Research. Eric, your line is live.

Speaker 8

Good afternoon. Talk a little bit about something besides the phases here. Commercial, what are you seeing in terms of demand for the commercial business? Has it continued to be as robust? And have you been able to continue to expand the services you can offer for that division?

Speaker 3

We haven't expanded the services at all at this point any further. Demand is remained strong. The one area where we're watching closely is the length of time. I talked about it in Q4 as well, but the length of time that passes in between when we're being verbally awarded contracts and we're actually getting signatures. And so far in Q1, it hasn't gotten worse, but it hasn't gotten better either.

Speaker 3

So that's one area that we're watching closely. But where the nice news is we're not losing. So it'd be one thing if we're losing opportunities, but we're not losing. So it's just a timing issue. Our pipeline remains strong.

Speaker 3

We don't publicly speak about the quantity of pipeline, but it remains strong and very qualified for sure.

Speaker 8

And are you seeing when you look at kind of your top accounts here, are you seeing them give you larger contracts going forward? I'm saying I'd say kind of like because I know the commercial is a little bit it's not as much a one off sometimes as the cannabis business can be. So are you seeing that trend continue?

Speaker 3

We have seen that trend continue over or progress over the last year, not in Q1. We hit a lot of solid singles in Q1, but no triples or home runs and hence the backlog backed off a little bit 10%, right sequentially. But hitting a lot of add on contracts to existing projects where they increased the scope and some new smaller projects. But on the larger ones, we do have some that are close and out. We believe that we will secure them, but we don't have the signatures yet.

Speaker 3

But no real material increase in size in Q1 to report to you.

Speaker 4

Sure.

Speaker 8

If we can update on Europe, what are you seeing in terms of trends there? I know there's been talk about Germany. What are you seeing in terms of the European business going forward?

Speaker 3

Overall, Germany is slow and steady, right? They're just coming into themselves. They made that announcement a couple of months ago. It's social licenses to start. So there's no requirement for the design and or build of significant sized facilities.

Speaker 3

Overall, in Europe, for us, the demand remains weak. We talked on the last call about rightsizing the organization in Europe, aligning the expense structure with the size of the opportunity right now. That all being said, we believe we've rightsized it. There's definitely business to be had in Europe. We want to be a part of the European cannabis and also in the future vertical farming market.

Speaker 3

It's going to grow a lot from a cannabis standpoint. A lot of the CEOs of multi state operators who are expanding into the European market have significant forecast for where that market is going to grow over the next decade. So we know we want to be there. That being said, in Q1, there was no additional new contracts signed in Europe. However, we did have a nice services contract signed in Q2 so far.

Speaker 3

So we expect to continue signing contracts, but we don't expect any robust material improvement in the business throughout the remainder of the year.

Speaker 8

Okay. All right. Thank you and congrats.

Speaker 4

Thank you. Appreciate it.

Operator

Thank you. There were no other questions at this time. And that does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Speaker 4

Thank you.

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urban-gro Q1 2024
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