CEA Industries Inc. Warrant Q1 FY2023 earnings call

• Completion of previously delayed projects and successful implementation of strategic cost cutting initiatives led to double-digit revenue growth and material savings in operating expenses.
• Macroenvironment challenges, especially in the cannabis industry with pricing pressure and reduced capital expenditures, impacted projected bookings and revenue.
• Focus on diversifying customer base outside of cannabis, with recent contract wins in vertical agriculture (e.g., largest design contract in cannabis and contract with Farm.One for vertical farming HVAC system).
• Reduced workforce in February and other expense saving programs resulted in 24% reduction in operating expenses compared to year-ago period and 9% reduction from Q4 2022.
• Q1 revenue increase due to improvements in supply chain and deployments of project work from prior delayed projects.

Q1 revenue increased to $4.7 million compared to $1.7 million in the year-ago period. Gross profit for Q1 2023 increased to $900,000 or 18.2% of revenue compared to $100,000 or 5.2% of revenue in the same period in 2022. Operating expenses in Q1 decreased 24% to $1.3 million compared to $1.7 million in the year-ago quarter. Net loss for Q1 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 to weather challenging macroenvironment.

• Macroenvironment challenges affecting both operators and consumers.
• Prolonged headwinds in cannabis industry including pricing pressure, shrinking consumer walls, and reduced capital expenditures impacting projects.
• NASDAQ delisting notice due to stock trading under $1 for 30 consecutive business days.

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 is still a focus, but more time is being spent on vertical agriculture to diversify customer mix.

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

A: Majority of backlog is primarily cannabis, but mix is expected to evolve as more non-cannabis verticals are targeted.

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

A: Not assigning specific target, but expect to reduce OpEx further and working towards that run rate.

Q: Any comments related to the NASDAQ delisting notice?

A: Intend to regain compliance and maintain NASDAQ listing, but cannot guarantee.

Q: Comments on M&A opportunities in cannabis environment?

A: Actively evaluating opportunities in cannabis and traditional vertical ag markets, looking for accretive opportunities to bolster service and product offerings.

Q: What does the company strive to become in a year or two years with cash?

A: Continue to serve cannabis and vertical ag markets, potentially through acquisitions or partnerships to grow along with the industry.

Q: Any other companies picked out or approached for partnership?

A: Active in marketplace discussing potential opportunities, but no specifics to comment on.