CEA Industries Reports Second Quarter 2022 Results

Boulder, Colorado, UNITED STATES

Louisville, Colorado, Aug. 11, 2022 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”) a leader in controlled environment agriculture (CEA) systems engineering and technologies, is reporting results for the three months ended June 30, 2022.

Second Quarter 2022 Financial Highlights (in $ thousands, excl. margin items):

 Q2 2022Q1 2022Q2 2021% QoQ% YoY
Revenue$3,015 $1,744 $4,510 73%-33%
Gross Profit$306 $91 $1,282 238%-76%
Gross Margin 10.2% 5.2% 28.4%500 bps-1,820 bps
Operating Expenses$2,077 $1,702 $1,166 22%78%
Net Income (Loss)$(1,761)$(1,423)$265 NANA

Management Commentary

We experienced a recovery in revenue during the quarter as sales were up more than 70% compared to Q1 2022, however compared to the prior year, the market environment remains challenged, as we continue to work through the effects of inflation and lingering supply chain challenges,” said Tony McDonald, Chairman and CEO of CEA Industries Inc. “That said, we have begun to see the benefit of our sales, marketing, and product development initiatives, as reflected by a quarter-over-quarter increase in new bookings. In Q2, we both expanded current contracts and signed multiple new customers, including a new contract with Greene Brothers Farm that has the potential to represent a multi-year engagement. We still have work to do to execute on our organic growth initiatives, however, the early results from our sales and marketing investments are encouraging.

“Looking ahead, we plan to execute on both organic and inorganic growth initiatives. Our strong balance sheet enables us to be patient and selective in our pursuit of M&A targets. Although the macro environment presents its share of challenges, it also presents a unique opportunity to acquire accretive businesses at attractive multiples that can accelerate our growth and profitability.”

Second Quarter 2022 Financial Results

Revenue in the second quarter of 2022 was $3.0 million compared to $4.5 million for the same period in 2021. The decrease was attributed to supply chain and project delays. The Company continues to expect recognizing delayed revenue in the second half of the year and currently has approximately $10 million of backlog which is expected to be recognized over the next 18 months.

Net bookings in the second quarter of 2022 grew 67% to $1.5 million compared to $0.9 million in the year-ago period. The Company’s quarter-end backlog increased 21% to $9.7 million compared to $8.0 million for the same period in 2021. The increase in the Company’s new bookings and backlog for the second quarter of 2022 was partially offset by a $2.3 million contract cancellation that resulted from the customer’s loss of funding.

Gross profit in the second quarter of 2022 was $0.3 million compared to $1.3 million for the same period in 2021. Gross margin was 10.2% compared to 28.4% in the year ago period. The decrease in gross margin was primarily driven by lower revenue and higher fixed costs.

Operating expenses in the second quarter of 2022 were $2.1 million compared to $1.2 million for the same period in 2021. The increase was primarily driven by a non-cash goodwill impairment charge related to the decline in the Company’s stock price.

Net loss in the second quarter of 2022 was $1.8 million or $(0.23) per share, compared to net income of $0.3 million or $0.17 per share for the same period in 2021.

Cash and cash equivalents increased to $20.6 million on June 30, 2022, compared to $2.2 million on December 31, 2021, while working capital increased by $17.4 million during this period. The increase was primarily driven by net proceeds from the Company’s sale of common stock and warrants of approximately $21.7 million in February 2022. At June 30, 2022, the company remained debt free.

Conference Call

CEA management will host a conference call today to discuss its financial and operating results, followed by a question-and-answer session.

Date: Thursday, August 11, 2022

Time: 4:15 p.m. ET

Dial: 1-973-528-0008
Access Code: 195138

Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/46175

Interested parties may submit questions to the Company prior to the call by emailing info@ceaindustries.com. For those unable to participate in the conference call at that time, a replay will be available for two weeks in the Investors section of the Company’s website at www.ceaindustries.com beginning on August 12, 2022, at 4:00 p.m. ET.

About CEA Industries Inc.

CEA Industries Inc. (www.ceaindustries.com), is home to industry leaders in controlled environment agriculture, with complementary and adjacent companies added to its portfolio when aligned with the company’s growth initiatives. As the global environment for indoor cultivation continues to grow, CEA Industries was formed to embrace companies that support these ecosystems.

Headquartered in Louisville, Colorado, CEA Industries knows that growth is a team sport. Through future partnerships and mergers and acquisitions, both financial and strategic, CEA Industries will continue its pursuit of companies that bring accretive value to its customers and investors.

Forward Looking Statements

This press release may contain statements of a forward-looking nature relating to future events. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect our current beliefs, and a number of important factors could cause actual results to differ materially from those expressed in this press release, including the factors set forth in “Risk Factors” set forth in our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), and subsequent filings with the SEC. Please refer to our SEC filings for a more detailed discussion of the risks and uncertainties associated with our business, including but not limited to the risks and uncertainties associated with our business prospects and the prospects of our existing and prospective customers; the inherent uncertainty of product development; regulatory, legislative and judicial developments, especially those related to changes in, and the enforcement of, cannabis laws; increasing competitive pressures in our industry; and relationships with our customers and suppliers. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. The reference to CEA’s website has been provided as a convenience, and the information contained on such website is not incorporated by reference into this press release.

Non-GAAP Financial Measures

To supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures including net bookings and backlog, as well as other significant non-cash expenses such as stock-based compensation and depreciation expenses. We believe these non-GAAP measures are helpful in understanding our past performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.

Media Contact:

Jamie English
Vice President, Marketing Communications

Investor Contact:

Sean Mansouri, CFA
Elevate IR

CEA Industries Inc.
Consolidated Balance Sheets

  June 30,  December 31, 
  2022  2021 
Current Assets        
Cash and cash equivalents $20,611,388  $2,159,608 
Accounts receivable (net of allowance for doubtful accounts of $172,760 and $181,942, respectively)  140,473   179,444 
Other receivables  78,943   - 
Inventory, net  401,757   378,326 
Prepaid expenses and other  2,887,593   1,273,720 
Total Current Assets  24,120,154   3,991,098 
Noncurrent Assets        
Property and equipment, net  84,687   77,346 
Goodwill  -   631,064 
Intangible assets, net  1,830   1,830 
Deposits  14,747   14,747 
Operating lease right-of-use asset  514,816   565,877 
Total Noncurrent Assets  616,080   1,290,864 
TOTAL ASSETS $24,736,234  $5,281,962 
Accounts payable and accrued liabilities $1,044,536  $1,345,589 
Deferred revenue  5,935,270   2,839,838 
Accrued equity compensation  46,373   83,625 
Other liabilities  37,078   37,078 
Current portion of operating lease liability  113,999   100,139 
Total Current Liabilities  7,177,256   4,406,269 
Operating lease liability, net of current portion  432,496   486,226 
Total Noncurrent Liabilities  432,496   486,226 
TOTAL LIABILITIES  7,609,752   4,892,495 
Commitments and Contingencies (Note 7)  -   - 
Series B Redeemable Convertible Preferred Stock, $0.00001 par value; 0 and 3,300 issued and outstanding, respectively  -   3,960,000 
Total Temporary Equity  -   3,960,000 
Common stock, $0.00001 par value; 200,000,000 and 850,000,000 shares authorized, respectively; 7,953,974 and 1,600,835 shares issued and outstanding, respectively  80   16 
Additional paid in capital  49,091,496   25,211,017 
Accumulated deficit  (31,965,094)  (28,781,566)
Total Shareholders’ Equity (Deficit)  17,126,482   (3,570,533)

CEA Industries Inc.
Consolidated Statements of Operations

  For the Three Months Ended June 30,  For the Six Months Ended
June 30,
  2022  2021  2022  2021 
Revenue, net $3,014,885  $4,509,505  $4,759,312  $6,876,034 
Cost of revenue  2,708,646   3,227,181   4,362,565   5,249,104 
Gross profit  306,239   1,282,324   396,747   1,626,930 
Operating expenses:                
Advertising and marketing expenses  309,690   168,042   560,705   345,187 
Product development costs  56,577   111,546   195,495   224,184 
Selling, general and administrative expenses  1,080,094   886,758   2,391,871   1,627,231 
Goodwill impairment charges  631,064   -   631,064   - 
Total operating expenses  2,077,425   1,166,346   3,779,135   2,196,602 
Operating income (loss)  (1,771,186)  115,978   (3,382,388)  (569,672)
Other income (expense):                
Other income (expense), net  -   150,518   185,000  $43,518 
Interest income (expense),net  10,600   (1,254)  13,860  $(1,972)
Total other income (expense)  10,600   149,264   198,860   41,546 
Income (Loss) before provision for income taxes  (1,760,586)  265,242   (3,183,528)  (528,126)
Income taxes  -   -   -   - 
Net income (loss) $(1,760,586) $265,242  $(3,183,528) $(528,126)
Convertible preferred series B stock dividends  -   -   (35,984)  - 
Deemed dividend on convertible preferred series B stock on down round  -   -   (439,999)  - 
Net income (loss) available to common shareholders $(1,760,586) $265,242  $(3,659,511) $(528,126)
Income (loss) per common share – basic $(0.23) $0.17  $(0.59) $(0.33)
Income/(loss) per common share – diluted $(0.23) $0.17  $(0.59) $(0.33)
Weighted average number of common shares outstanding, basic  7,801,211   1,582,998   6,220,600   1,579,938 
Weighted average number of common shares outstanding, diluted  7,801,211   1,605,526   6,220,600   1,579,938 

CEA Industries Inc.
Consolidated Statements of Cash Flows

  For the Six Months Ended June 30, 
  2022  2021 
Cash Flows From Operating Activities:        
Net loss $(3,183,528) $(528,126)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and intangible asset amortization expense  16,697   37,180 
Share-based compensation  225,396   21,748 
Common stock issued for other expense  -   67,000 
Provision for doubtful accounts  (9,182)  23,213 
Provision for excess and obsolete inventory  (34,417)  (10,945)
Loss on disposal of assets  4,060   8,042 
Amortization of ROU asset  51,061   98,913 
Goodwill impairment charges  631,064   - 
Changes in operating assets and liabilities:        
Accounts receivable  48,153   (224,183)
Inventory  10,986   (106,299)
Prepaid expenses and other  (1,692,816)  (949,152)
Accounts payable and accrued liabilities  (317,453)  124,583 
Deferred revenue  3,095,431   331,585 
Accrued interest  -   1,972 
Deposits  -   (16,122)
Operating lease liability, net  (39,870)  (130,156)
Accrued equity compensation  (37,251)  108,945 
Net cash used in operating activities  (1,231,669)  (1,141,802)
Cash Flows From Investing Activities        
Purchases of property and equipment  (13,948)  (15,316)
Proceeds from the sale of property and equipment  2,250   1,500 
Net cash used in investing activities  (11,698)  (13,816)
Cash Flows From Financing Activities        
Payment of dividends on series B preferred stock  (35,984)  - 
Redemption of series B preferred stock  (1,980,000)  - 
Cash proceeds on sale of common stock and warrants, net of expenses  21,711,131   - 
Proceeds from issuance of note payable  -   514,200 
Net cash provided by financing activities  19,695,147   514,200 
Net change in cash and cash equivalents  18,451,780   (641,418)
Cash and cash equivalents, beginning of period  2,159,608   2,284,881 
Cash and cash equivalents, end of period $20,611,388  $1,643,463 
Supplemental cash flow information:        
Interest paid $-  $- 
Income taxes paid $-  $- 
Non-cash investing and financing activities:        
Unpaid purchases of equipment and other assets $16,400  $- 
Conversion of series B preferred stock $1,980,000  $- 
Deemed dividend on series B preferred stock arising on down round $439,999  $- 
Cashless exercise of prefunded warrants $2  $- 

  Q2 2022  Q1 2022  Q2 2021  % QoQ  % YoY 
Revenue $3,015  $1,744  $4,510   73%  -33%
Gross Profit $306  $91  $1,282   238%  -76%
Gross Margin  10.2%  5.2%  28.4%  500 bps   -1,820 bps 
Operating Expenses $2,077  $1,702  $1,166   22%  78%
Net Income (Loss) $(1,761) $(1,423) $265   NA   NA 

  Q2 2022  Q1 2022  Q2 2021  % QoQ  % YoY 
Revenue $3,015  $1,744  $4,510   73%  -33%
Gross Profit $306  $91  $1,282   238%  -76%
Gross Margin  10.2%  5.2%  28.4%  500 bps   -1,820 bps 
Operating Expenses $2,077  $1,702  $1,166   22%  78%
Net Income (Loss) $(1,761) $(1,423) $265   NA   NA 

  Q2 2022  Q1 2022  Q2 2021  % QoQ % YoY
Revenue $3,015  $1,744  $4,510  73% -33%
Gross Profit $306  $91  $1,282  238% -76%
Gross Margin  10.2%  5.2%  28.4% 500 bps -1,820 bps
Operating Expenses $2,077  $1,702  $1,166  22% 78%
Net Income (Loss) $(1,761) $(1,423) $265  NA NA