CEA Industries Inc. Q1 FY2022 earnings call

• Pursuing organic growth through expanded product offerings, new target markets (including urban indoor farming) with new products/services in development and leads in urban farming. - Identifying M&A partners to participate in industry consolidation. - Successfully uplisted common shares and warrants to NASDAQ Capital Markets and raised ~$22 million from stock and warrant sales. - Experienced supply chain challenges in Q1 affecting revenue recognition. - Faced cost increases due to inflation, adjusted labor costs, hired skilled employees for growth, and had nonrecurring expenses for executive team.

In Q1 2022, CEA Industries had revenue of $1.7 million, a 26% decrease compared to Q1 2021. Gross profit margin was 5.2% vs. 14.6% in Q1 2021. Operating loss was $1.6 million vs. $686,000 in Q1 2021, and net loss was $1.4 million vs. $793,000 in the year-ago quarter. Net bookings were approximately $2.1 million, a 61% decrease from Q1 2021. As of March 31, 2022, backlog was $11.2 million, an increase of $361,000 or 3% from December 31, 2021. Cash position was approximately $22 million as of March 31, 2022.

• Confident organic growth strategy will bear fruit through the rest of the year. - Seeing a bounce back in orders in Q2, working to build back pipeline. - Cautious with funding due to interest rate changes but confident in moving through supply chain challenges.

• Supply chain disruptions causing delays in revenue recognition. - Inflation leading to cost increases which could impact gross margins if revenue doesn't recover.

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: There's a lot of opportunity out there, ranges in business opportunities. Getting scale is difficult, capital becoming more expensive, continuing to evaluate partnerships and remain disciplined.

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

A: No, we did not. Delays in shipping product is a recurring theme not unique to our company or industry.

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: No cancellation on that contract, don't recall exactly when it was signed but no cancellation.

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: We are seeing a bounce back in the orders. Initial challenges have bounced somewhat, looking to build back pipeline, but will need to work harder moving forward, cautious with funding due to interest rates but confident in moving through.

Q: And how about backlog? Can you give us an idea of what the backlog was 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: Backlog at end of Q1 was $11.2 million. End of quarter cash balance was $22 million, implying a cash value per share of about $2.83.