CEA Industries Inc. Common Stock Q1 FY2022 earnings call

• Two strategic efforts: First, pursuing organic growth through expanded product offerings, new target markets, including the urban indoor farming market, with several new products/services in development and leads identified in the urban farming market. Second, identifying partners for industry consolidation to create shareholder value, with meetings held with potential partners in Q1 2022.
• Major progress in Q1: Successfully uplisted common shares and warrants to NASDAQ Capital Markets; raised net proceeds of approximately $22 million from the sale of common stock and warrants.
• Operational challenges: Supply chain challenges hampered revenue recognition in Q1; cost increases including higher labor/employment costs due to inflation, costs from hiring skilled new employees for future growth, and non - recurring expenses related to executive team hiring.

In Q1 2022, CEA Industries' revenue was $1.7 million, representing a 26% decrease compared to Q1 2021. The gross profit margin was 5.2% in Q1 2022, down from 14.6% in Q1 2021. The operating loss for Q1 2022 was $1.6 million compared to $686,000 in Q1 2021. The net loss for Q1 2022 was $1.4 million compared to a net loss of $793,000 in the year - ago quarter. Net bookings were approximately $2.1 million in Q1 2022, a 61% decrease compared to Q1 2021. As of March 31, 2022, the cash position was approximately $22 million compared to $2.2 million as of December 31, 2021.

• Confident that the organic growth strategy is gaining traction and will bear fruit throughout the year.
• Seeing a bounce back in orders in Q2, looking to build up the pipeline, and remaining confident in getting through supply chain and other challenges.

• Supply chain disruptions led to delays in revenue recognition, affecting gross margins as part of the cost sold is fixed due to revenue declines.
• Cost increases due to inflation and growth - related hiring could impact profitability if not offset by revenue growth.

Q: As you mentioned, costs have gone up in response to inflation. Does the company have pricing power to pass those costs on to customers? Or can we expect a permanent contraction in gross margins?

A: Our margin compression was caused by reduced revenue due to shipping delays combined with an increase in fixed costs we incurred to facilitate growth that we expect to realize later in the year.

Q: Can you offer an update on what you're seeing in the M&A and consolidation space?

A: We obviously can't get into specifics, but there's a lot of opportunity out there, and it ranges in terms of business opportunities. Getting scale in the current landscape is difficult. And as capital becomes more expensive, this trend will only continue. Companies that we were talking to understand that and are eager to find ways to work together. We are continuing to evaluate partnerships and remain disciplined in that process.

Q: Did you lose any contracts you had previously signed due to inability to ship product?

A: No, we did not. We have heard that delays in shipping product has been a recurring theme that's not unique to our company or our industry. It's something we're all working through.

Q: I'm a private shareholder. My question is about bookings. And on January 4, there was a press release that indicates there was a $3.4 million contract with [Ares Holdings] signed that day. Yet bookings are quite a bit less than that single contract. How is that?

A: Mark, I don't have a -- I don't have information at the fingertips on that. I think that project was from Q4, but I... No, we've not had a cancellation on that. I don't recall exactly when it was signed, but there's nothing on a cancellation on that contract.

Q: Just out of curiosity, I understand a lot of guys got hit with supply chain issues in Q1, midway through Q2. Are you seeing any bounce back in those orders? Or are you still seeing delays and disruptions in the supply chain?

A: Ian, do you want to speak to that? Ian Patel: Yes, sure. We are seeing a bounce back in the orders. I think, obviously, this has been a pretty volatile quarter with the Ukranian conflict and interest rates going up. But that sort of challenge that we saw initially has bounced somewhat. We're looking towards building back up our pipeline. But obviously, it's going to be something you have to continue to work harder moving forward. Funding for projects, we'll remain cautious as the Fed's recent interest rate decisions change the cost of capital. But we're working through it, and we continue to be confident that we'll get through that.

Q: And how about... A backlog on bookings are different. I missed that a little bit. Can you give us an idea of what the backlog was at the end of Q1?

A: What, $11.2 million? Is that right, Ian? Ian Patel: Correct, yes. It was $11.2 million at the end of Q1.

Q: And then how much cash did you have at the end of Q1? And then if you could just let me know what that is per cash value per share. We should get an idea on intrinsic value.

A: Ian Patel: Yes, end of cash -- end of quarter cash balance was $22 million. That implies a cash value per share of about $2.83.