CEA Industries Inc. Warrant Q2 FY2022 earnings call

• During Q2, over 70% top line growth and nearly doubled gross margin compared to Q1. - Made significant investments in sales, marketing, and product development initiatives with solid quarter-over-quarter bookings. - Highlighted contract with Green Brothers Farm for indoor cannabis cultivation with approx. $10M revenue over 2-3 years. - Established partnership with Merida Capital as preferred provider for their indoor cultivation facilities. - Focused on expanding into urban indoor farming market and launched partnership with CleanLeaf for odor control and air filtration products. - Mentioned states with cannabis legalization progress including Rhode Island, Maryland, New Jersey, New York, and Mississippi.

Q2 revenue was $3 million compared to $4.5 million in the year-ago period. Gross profit for Q2 2022 was $300,000 or 10.2% of revenue compared to $1.3 million or 28.4% of revenue in the same period in 2021. Net bookings in Q2 were $1.5 million compared to $900,000 in the same period in 2021. Backlog at quarter end increased 21% to $9.7 million compared to $8 million at the year-ago quarter.

• Plan to execute on organic and inorganic growth initiatives in the back half of the year. - Expect to recognize delayed revenue from supply chain and project delays in the second half of the year. - Backlog of approx. $10 million expected to be recognized over the next 18 months. - Strong balance sheet allows patient pursuit of M&A opportunities to strengthen financial profile and drive growth.

• Inflation and supply chain challenges impacting revenue and profitability. - Contract cancellation due to a customer’s loss of funding. - Cost of capital increase causing lag between asset valuation decline and private seller expectations affecting M&A and project reconsiderations.

Q: Could you please discuss if the Canna Conferences that you have been attending have led the signed projects and increased quoting activity? Also, could you add some color and please discuss regional new project activity and describe the regions or states that you are most excited about in the upcoming year? And lastly, how is the CEA and indoor food grow market growing as a percentage of your revenue versus cannabis grows?

A: We have been actively quoting from leads we have received from several trade shows. We are active in projects all across North America. Recently signed a $1.2 million contract with Green Brothers in California with a multiyear potential of $10 million total as well as several projects in the Midwest. States we are looking forward to include New York, New Jersey and Mississippi. The indoor ag market is fairly small as a percentage of revenue now but we believe it will blossom like the cannabis market did Q: Recognizing that you are beginning to see the benefit of sales and marketing in your new bookings, when will the improved sales and marketing translate to higher revenue?

A: Our sales and marketing investments are focused on driving new bookings. Revenue is driven by ability to deliver products on those projects which is affected by supply chain. We have initiatives to mitigate supply chain delays but much is out of our control Q: You have consistently mentioned M&A initiatives this year, but we haven’t seen anything materialize. What are some of the impediments you are facing to get a deal done?

A: Our business is more complex, targets are harder to locate due to various business natures. Ian added that cost of capital has gone up, causing a lag between asset valuations and private seller expectations. We are patient to ensure acquisitions create long-term value Q: Can you expand on the large client cancellation in Q2? Are there other large deals that have been booked in the past that are at risk going forward?

A: Generally, projects can be canceled. This was the only large cancellation in recent years. Ian added that with increased cost of capital, smaller private investors are reconsidering projects, but we have well-capitalized customers with long-term plans so backlog isn't completely immune but less concerned