CEA Industries Inc. Common Stock Q4 FY2022 earnings call

• Macro environment volatility has persisted, affecting cannabis market with pricing pressure and inflation, leading to slowed capital expenditures in cannabis sector. - Focused on diversifying customer base outside cannabis and implementing cost-saving initiatives, including reduction in force. - Q4 saw double-digit sequential reduction in operating expenses. - New contract win with Northeast cultivation facility, third consecutive contract. - Partnership with Merida Capital and Hydrobuilder Holdings, and partnership with Evoqua for water treatment solutions. - Signed engineering contracts for non-cannabis facilities (leafy greens and herbs) in Q4 and into 2023.

In Q4 2022, revenue was $1.5 million compared to $3.1 million in the year ago period. Net bookings in Q4 were $206,000 vs $4 million in the same period in 2021. Backlog at quarter end was $5.6 million vs $10.8 million in the year ago quarter. Gross profit for Q4 2022 was $200,000 or 10.3% of revenue compared to $600,000 or 18.1% of revenue in the same period in 2021. Operating expenses in Q4 decreased 6% to $1.4 million compared to $1.5 million in the year ago quarter. Net loss for Q4 2022 was $1.3 million, or negative $0.18 per share, compared to a net loss of $400,000 or negative $0.25 per share in the year ago quarter. As of December 31, 2022, cash and cash equivalents were $18.6 million.

• Remain cautious with spending and capital due to lingering supply chain and inflationary environment. - Cost-saving initiatives already producing benefits, expect to further reduce expenses and diversify customer base. - Confident in navigating challenging period with strong capital position for organic and inorganic growth initiatives.

• Macro environment volatility affecting operators and consumers. - Pricing pressure and inflationary impacts on cannabis consumers leading to slowed capital expenditures in cannabis sector. - Potential further deterioration of macro environment impacting business operations.

Q: Can you provide more color on how pricing pressure and headwinds affecting cannabis operators impacts our business?

A: CapEx projects are often among the first to be delayed or cancelled when businesses face headwinds. Cannabis companies dialing back CapEx plans impact our ability to book and forecast revenue. However, diversifying end markets with vertical ag providers will bring revenue stability long-term.

Q: How should we think about your OpEx run rate going forward?

A: Pleased with the double-digit sequential reduction in Q4 operating expenses, and these savings have carried into 2023. We aren't providing specific guidance on OpEx at this time but expect lower OpEx from current levels in 2023.

Q: What is your contingency plan if the macro environment deteriorates further? How will you balance growth and profitability?

A: We are intently focused on maximizing profitability and minimizing cash burn. We have ample runway with approximately $90 million of cash and equivalents on the balance sheet. We intend to preserve cash to be well-positioned for opportunities like M&A as the cannabis industry consolidates and to succeed when the market improves.