CEA Industries Inc. Common Stock Q1 FY2023 earnings call

• First quarter performance reflects completion of delayed projects and successful cost cutting initiatives, resulting in double-digit revenue growth and material savings in operating expenses.
• Macroenvironment poses challenges, especially in cannabis industry with pricing pressure and reduced capital expenditures affecting bookings and revenue.
• Focus on diversifying customer base outside cannabis, reduced workforce in February and implemented expense saving programs, resulting in 24% reduction in operating expenses from year-ago period and 9% from Q4 2022.
• Subsequential to quarter end, signed two contracts: largest design contract in cannabis and a contract with vertical indoor egg farming company Farm.One for HVAC system design.

In Q1 2023, revenue increased to $4.7 million compared to $1.7 million in the year-ago period. Net bookings in the first quarter were $800,000 compared to $2.1 million in the same period in 2022. Backlog at quarter end was $1.9 million compared to $11.2 million in the year-ago quarter. Gross profit for the first quarter of 2023 increased to $900,000 or 18.2% of revenue compared to $100,000 or 5.2% of revenue for the same period in 2022. Operating expenses in the first quarter decreased 24% to $1.3 million compared to $1.7 million in the year-ago quarter. Net loss for the first quarter of 2023 improved to $400,000 or negative $0.05 per share compared to a net loss of $1.4 million or negative $0.41 per share in the year ago quarter.

• Continue to focus on running a lean operation and securing new wins in cannabis and traditional agriculture verticals.
• Expect OpEx levels to further reduce in 2023 as focused on bottom line.
• Robust liquidity position and cost saving initiatives and prudent capital allocation to weather challenging macroenvironment.

• Macroenvironment presents challenges affecting both operators and consumers.
• Cannabis industry faced prolonged headwinds from pricing pressure, shrinking consumer walls and reduced capital expenditures impacting projected bookings and revenue.
• Recently notified by NASDAQ of not meeting minimum bid price as stock traded under $1 for 30 consecutive business days, with no assurance of maintaining NASDAQ listing.

Q: Given the meaningful slowdown in cannabis projects, how are you thinking about allocating your sales forces' time to find new opportunities?

A: The cannabis end market will continue to be a focus, but we are keen on diversifying customer mix, spending more time on winning projects in vertical agriculture.

Q: Of the project backlog, how much is in cannabis versus other industries?

A: The majority of our backlog is still primarily comprised of cannabis operators, but the mix is expected to evolve as we sell more to non-cannabis verticals.

Q: How should we be thinking about operating expense run rate moving forward? Can you get to under $1 million per quarter without impacting the necessary investments in people and sales to grow the business?

A: We don't assign a specific target, but we do expect to reduce OpEx further, working towards reducing OpEx run rate.

Q: Do you have any comments related to the NASDAQ delisting notice you received last month?

A: We have every intention of regaining compliance and maintaining our NASDAQ listing and plan to take appropriate steps as needed, but cannot provide assurance of maintaining the listing.

Q: You've previously spoken about M&A opportunities, given the environment for cannabis. Can you provide an update as you've evaluated the landscape over the past several months?

A: We continue to patiently identify and evaluate opportunities within both the cannabis and traditional vertical ag markets, and with our strong balance sheet, we can remain diligent in pursuit of accretive opportunities to bolster our service and product offerings.

Q: What do you see your company as, say, a year or two years from now?

A: Our vision is to continue to serve the cannabis and vertical ag markets, potentially growing along with the industry through existing business and potentially through acquisitions or partnerships.

Q: Is that the you guys have any other companies picked out? Or have you guys been approached by any other companies as a partnership?

A: I wouldn't be able to comment on any specifics, but we're active in the marketplace discussing potential opportunities with folks we see and that might see us, actively looking for good opportunities.