CEA Industries Q2 2023 Earnings Call Transcript

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August 14, 2023

There are 3 speakers on the call.

Operator

We begin, please be advised that this call may contain statements of a forward looking nature relating to future events. These forward looking statements are based on what we believe are reasonable assumptions, which ultimately could prove to be inaccurate and are subject to the inherent uncertainties in predicting future results and conditions. Are. These statements reflect CEA Industries' current beliefs and a number of important factors could cause actual results to differ materially from those expressed in this call, are, including the risk factors set forth in the company's Form 10 ks, which was previously filed with the SEC. Are.

Operator

Please refer to their SEC filings for a more detailed discussion of the risks and uncertainties associated with their business. The forward looking statements that the company has made are intended to be within the meaning of forward looking statements in Section 27A of the Securities Act of 1933 as amended. Are. Also, please note that the company filed its quarterly report on Form 10 Q and issued a press release announcing 2nd quarter results earlier today. These documents can be found on the Investor Relations section of the company's website at ceaindustries.com.

Operator

If you would like to be added to the company's e mail distribution, so please send an e mail to infoseaindustries.com. It is now my pleasure to turn the floor over to Tony McDonald, Chairman and CEO of CEA Industries. Sir, the floor is yours.

Speaker 1

Thank you, and good afternoon, everyone. The volatility in the broader cannabis environment has continued as operators contend with the prolonged effects of pricing and inflationary pressures. Are subject to the impact of the company's financial statements. We have also witnessed a reduction in investment in and reorganization within the controlled environment agricultural sector. Are subject to capital expenditures across both sectors remain reduced resulting in delayed, reduced or eliminated construction projects.

Speaker 1

Are subject to the impact of our operating expenses. These conditions have had an adverse impact on our net bookings and revenue over the last year. As a result of the challenges this year, we preemptively implemented a series of are cost cutting initiatives that have reduced our operating expenses by more than 60% compared to the year ago period. Are. We have taken a disciplined approach to capital allocation with respect to product development, marketing and personnel.

Speaker 1

We plan to identify additional savings are in the months ahead as we remain intently focused on maintaining this lean cost structure without compromising the high level of service our customers expect. Are. Despite dialing back our marketing spend, we are well equipped to continue sourcing and evaluating new opportunities as well as servicing are our current contracts as we further diversify our customer base across the cannabis and traditional agriculture sectors. Are subject to the financial statements. As we announced alongside our Q2 results earlier today, we have initiated a review of strategic alternatives, including a sale, are a merger or other potential strategic or financial transaction to protect and maximize shareholder value.

Speaker 1

Our Board of Directors has retained ROTH Capital Partners as our financial advisor to assist in the review process. We are committed to executing on the best path forward for our shareholders, customers and employees. Are subject to the future. We will not be commenting further on this until the Board has concluded that disclosure is appropriate or required. Looking ahead, we will be mindful of the challenging environment are as we seek additional cost savings and secure new contract wins in the cannabis and traditional agriculture verticals.

Speaker 1

We have taken the necessary measures to navigate these uncertain are subject to the challenges we have in place. And we believe these initiatives coupled with our strong balance sheet will enable us to continue servicing our customers while we seek to maximize shareholder value. Are subject to the financial results. I will now hand it over to Ian Patel, our Chief Financial Officer, to discuss financial highlights for the quarter before wrapping up with closing remarks. Are.

Speaker 1

Ian?

Speaker 2

Thanks, Tony, and good afternoon, everyone. Jumping right into our results. Q2 revenue was $1,100,000 compared to 3 are $1,000,000 in the year ago period. The decrease was primarily attributed to lower revenue recognition from our backlog and an overall reduction in capital expenditures are by cannabis and controlled agricultural operators. Net bookings in the second quarter were approximately $200,000 as compared to $1,500,000 in the same period in 2022.

Speaker 2

Our quarter end backlog was $1,100,000 as compared to $9,700,000 in the year ago quarter. The decrease in net bookings and backlog was again primarily driven by fewer capital projects are subject to the financial statements and expenditures in the industry. Gross profit for the Q2 of 2023 was approximately $79,000 or 7.4 percent of are expected to be a negative $300,000 or 10.2 percent of revenue for the same period in 2022. Are. The decrease in gross margin was primarily driven by an increase in fixed costs as a percentage of revenue, which includes the cost of services, are in the Q2 of 2019, and we believe that we are in

Operator

the Q2 of 2019, we

Speaker 2

are in the Q2 of 2019, and we are in the Q2 of 2019, and we are in

Speaker 1

the Q2 of 2019.

Speaker 2

Operating expenses in the Q2 decreased 62% are subject to approximately $800,000 compared to $2,100,000 in the year ago quarter. The decrease was primarily driven by lower product development expenses, are reduced personnel and marketing costs as well as a $632,000 goodwill impairment that occurred in the year ago period. Are expected to be a result of our OpEx. It's worth noting that our OpEx decreased 38% from Q1 of 2023, reflecting a continued benefit from the cost saving are the most important initiatives implemented over the past few months. Net loss for the Q2 of 2023 improved to approximately $700,000 are negative $0.09 per share compared to a net loss of $1,800,000 or negative $0.23 per share in the year ago quarter.

Speaker 2

Are subject to the financial statements. As of June 30, 2023, cash and cash equivalents were $14,200,000 compared to $18,600,000 as of are expected to be in December 31, 2022, while working capital decreased by approximately $900,000 during this period. Are subject to the financial statements. At June 30, 2023, we remain debt free. This concludes my prepared remarks.

Speaker 2

I'll pass it back to you, Tony.

Speaker 1

Thank you, Ian. Are. As we look to the back half of the year, we will continue to run a lean operation while targeting new contract wins in both the cannabis are in the range of our business and traditional agriculture verticals. Between our robust balance sheet, optimized cost structure and prudent approach to capital allocation, are well positioned to navigate this challenging environment and deliver value to our customers and shareholders alike. Operator, at this time, we will open the floor for questions.

Operator

Are. Thank you. Ladies and gentlemen, the floor is now open for questions. Are on your webcast player window to submit a question. Are.

Speaker 1

Are subject to the future. As we wait for people to enter the queue, I will field some questions received via e mail and the webcast.

Operator

Are subject

Speaker 1

to the future. Question, are you planning to report updates on the strategic alternatives and if so, how frequently? The answer is we will provide updates are on the process as our Board deems appropriate. Question on the M and A front, what characteristics are you looking for in a partner or acquirer? Ansser, we are casting a wide net to ensure the greatest outcome for shareholders, consistent with our Board's established guidance.

Speaker 1

Are. This includes partners both inside and outside the cannabis and CEA Industries. Are subject to the question. Has your ability to win new contracts been impacted by the reduction in your sales and marketing investment? Are subject to the financial statements.

Speaker 1

As we mentioned in our prepared remarks, we've seen a slowdown in contract opportunities and as such have reduced our sales and marketing efforts accordingly. We will continue to evaluate new business opportunities and we will of course continue servicing our customers for current and new projects. Question. Given the challenges in the indoor agriculture and cannabis sectors, do you plan to pivot to any new or any adjacent or new categories? Anssa, as I mentioned earlier, the Board is casting a wide net for this strategic review process.

Speaker 1

Are subject to the impact of the company's financial statements. That includes targeting opportunities in cannabis and agriculture as well as other industries that can drive the greatest shareholder value. Are. That concludes the pre submitted questions. Operator, are there any questions from the lines at this time?

Operator

There were no questions from the lines at this time.

Speaker 1

Well, thank you very much. This concludes today's conference call.

Operator

Are. An audio replay of this call will be available on ceaindustries.com/investors beginning on August 14 at 5:15 p. M. Eastern Time and remain available are until August 28, 2023. You may disconnect your lines at this time and have a wonderful day.

Operator

Thank you for your participation.

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Earnings Conference Call
CEA Industries Q2 2023
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