CEAD CEA Industries Inc

CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), a leader in controlled environment agriculture (CEA) systems engineering and technologies, is reporting results for the three months ended September 30, 2022.

Third Quarter 2022 Financial Highlights (in $ thousands, excl. margin items):

		Q3 2022				Q2 2022				Q3 2021				% QoQ				% YoY
Revenue		$	5,063			$	3,015			$	3,706				68%				37%
Gross Profit		$	597			$	306			$	747				95%				-20%
Gross Margin			11.8%				10.2%				20.2%				160 bps				-840 bps
Operating Expenses		$	1,656			$	2,077			$	1,190				-20%				39%
Net Income/(Loss)		$	(1,042	)		$	(1,761	)		$	(408	)			NA				NA

Management Commentary

“Q3 was highlighted by strong revenue growth on a sequential and year-over-year basis, reflecting both the benefit of our investments in sales and marketing this year and less disruption to our operations from past supply chain issues,” said Tony McDonald, Chairman and CEO of CEA Industries Inc. “We recently signed contracts with two non-cannabis vertical agriculture companies, which reflects our focus on diversifying the customer base beyond our traditional cannabis customers. Although we are proud of our sales growth, we acknowledge that the macro environment continues to present challenges as we work through a prolonged inflationary environment and certain residual supply chain headwinds.

“Last week, we announced a significant new non-equity strategic alliance with Hydrobuilder Holdings LLC, a leading omnichannel platform with 22 retail locations and 10 warehouses serving the indoor and outdoor CEA and hydroponics industry. This alliance will combine our industry-leading CEA systems engineering and technologies with Hydrobuilder Holdings’ expansive commercial-first omnichannel platform, creating a one-stop-shop solution for cultivation companies across North America.

“As we look ahead, we plan to continue executing on both our organic and inorganic growth initiatives. We have been judicious in our approach to M&A and our patience has paid off given the contraction in valuation multiples for many of the targets we have evaluated. We will continue to exercise diligence in identifying targets that will be accretive to our business and accelerate growth and profitability for the future.”

Third Quarter 2022 Financial Results

Revenue in the third quarter of 2022 increased 37% to $5.1 million compared to $3.7 million for the same period in 2021. The increase was primarily attributed to some recovery in the supply chain that enabled delivery of products with fewer delays.

Net bookings in the third quarter of 2022 were $2.2 million compared to $5.6 million in the year-ago period. The Company’s quarter-end backlog was $6.8 million compared to $9.9 million for the same period in 2021. This quarter-end backlog is expected to generate revenue over the next 18 months. The decrease in the Company’s net bookings and backlog for the third quarter of 2022 was primarily driven by fewer new orders to replace the Company’s backlog as it recognized revenue during the quarter.

Gross profit in the third quarter of 2022 was $0.6 million compared to $0.7 million for the same period in 2021. Gross margin was 11.8% compared to 20.2% in the year ago period. The decrease in gross margin was primarily driven by an increase in variable costs (which include the cost of equipment, external engineering costs, shipping and handling, and travel and warranty costs) as a percentage of revenue, as well as the reallocation of certain operating expenses to cost of goods sold.

Operating expenses in the third quarter of 2022 were $1.7 million compared to $1.2 million for the same period in 2021. The increase was primarily driven by higher selling, general and administrative expenses in support of organic and inorganic growth initiatives, and an increase in advertising and marketing expenses.

Net loss in the third quarter of 2022 was $1.0 million or $(0.13) per share, compared to a net loss of $0.4 million or $(1.69) per share for the same period in 2021. Net loss per share for the third quarter of 2022 was lower than the net loss per share in the year-ago quarter due to higher issued and outstanding shares as of the third quarter of 2022.

Cash and cash equivalents were $21.1 million on September 30, 2022, compared to $2.2 million on December 31, 2021, while working capital increased by $16.4 million during this period. The increase was primarily driven by net proceeds from the Company’s sale of common stock and warrants of approximately $24 million in February 2022. At September 30, 2022, the company remained debt free.

Conference Call

CEA management will host a conference call today to discuss its financial and operating results, followed by a question-and-answer session.

Date: Monday, November 14, 2022Time: 4:15 p.m. ETDial: 1-973-528-0008 Access Code: 712632Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/46837 

Interested parties may submit questions to the Company prior to the call by emailing info@ceaindustries.com. For those unable to participate in the conference call at that time, a replay will be available for two weeks in the Investors section of the Company’s website at www.ceaindustries.com beginning on November 15, 2022, at 5:00 p.m. ET.

About CEA Industries Inc.

CEA Industries Inc. (www.ceaindustries.com), is home to industry leaders in controlled environment agriculture, with complementary and adjacent companies added to its portfolio when aligned with the company’s growth initiatives. As the global environment for indoor cultivation continues to grow, CEA Industries was formed to embrace companies that support these ecosystems.

Headquartered in Louisville, Colorado, CEA Industries knows that growth is a team sport. Through future partnerships and mergers and acquisitions, both financial and strategic, CEA Industries will continue its pursuit of companies that bring accretive value to its customers and investors.

Forward Looking Statements

This press release may contain statements of a forward-looking nature relating to future events. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect our current beliefs, and a number of important factors could cause actual results to differ materially from those expressed in this press release, including the factors set forth in “Risk Factors” set forth in our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), and subsequent filings with the SEC. Please refer to our SEC filings for a more detailed discussion of the risks and uncertainties associated with our business, including but not limited to the risks and uncertainties associated with our business prospects and the prospects of our existing and prospective customers; the inherent uncertainty of product development; regulatory, legislative and judicial developments, especially those related to changes in, and the enforcement of, cannabis laws; increasing competitive pressures in our industry; and relationships with our customers and suppliers. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. The reference to CEA’s website has been provided as a convenience, and the information contained on such website is not incorporated by reference into this press release.

Non-GAAP Financial Measures

To supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures including net bookings and backlog, as well as other significant non-cash expenses such as stock-based compensation and depreciation expenses. We believe these non-GAAP measures are helpful in understanding our past performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.

Media Contact:

Jamie EnglishVice President, Marketing CommunicationsJamie.english@ceaindustries.com (303) 993-5271

Investor Contact:

Sean Mansouri, CFAElevate IRinfo@ceaindustries.com(720) 330-2829

CEA Industries Inc.Condensed Consolidated Balance Sheets(in US Dollars except share numbers)

		September 30,				December 31,
		2022				2021
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	21,083,549			$	2,159,608
Accounts receivable (net of allowance for doubtful accounts of $275,442 and $181,942, respectively)			77,143				179,444
Inventory, net			614,623				378,326
Prepaid expenses and other			1,102,138				1,273,720
Total Current Assets			22,877,453				3,991,098
Noncurrent Assets
Property and equipment, net			76,224				77,346
Goodwill			-				631,064
Intangible assets, net			1,830				1,830
Deposits			14,747				14,747
Operating lease right-of-use asset			488,960				565,877
Total Noncurrent Assets			581,761				1,290,864
TOTAL ASSETS		$	23,459,214			$	5,281,962
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		$	2,256,111			$	1,345,589
Deferred revenue			4,435,481				2,839,838
Accrued equity compensation			69,560				83,625
Other liabilities			37,078				37,078
Current portion of operating lease liability			115,943				100,139
Total Current Liabilities			6,914,173				4,406,269
Noncurrent Liabilities
Operating lease liability, net of current portion			405,265				486,226
Total Noncurrent Liabilities			405,265				486,226
TOTAL LIABILITIES			7,319,438				4,892,495
Commitments and Contingencies (Note 6)			-				-
TEMPORARY EQUITY
Series B Redeemable Convertible Preferred Stock, $0.00001 par value; 0 and 3,300 issued and outstanding, respectively			-				3,960,000
Total Temporary Equity			-				3,960,000
SHAREHOLDERS’ EQUITY (DEFICIT)
Common stock, $0.00001 par value; 200,000,000 and 850,000,000 shares authorized, respectively; 7,953,974 and 1,600,835 shares issued and outstanding, respectively			80				16
Additional paid in capital			49,146,840				25,211,017
Accumulated deficit			(33,007,144	)			(28,781,566	)
Total Shareholders’ Equity (Deficit)			16,139,776				(3,570,533	)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)		$	23,459,214			$	5,281,962

CEA Industries Inc.Condensed Consolidated Statements of Operations(in US Dollars except share numbers)(Unaudited)

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2022				2021				2022				2021
Revenue, net		$	5,063,079			$	3,706,436			$	9,822,391			$	10,582,470
Cost of revenue			4,465,888				2,959,264				8,828,453				8,208,368
Gross profit			597,191				747,172				993,938				2,374,102
Operating expenses:
Advertising and marketing expenses			304,600				224,393				865,305				569,580
Product development costs			58,978				98,623				254,473				322,807
Selling, general and administrative expenses			1,292,746				866,699				3,684,617				2,493,930
Goodwill impairment charges			-				-				631,064				-
Total operating expenses			1,656,324				1,189,715				5,435,459				3,386,317
Operating income (loss)			(1,059,133	)			(442,543	)			(4,441,521	)			(1,012,215	)
Other income (expense):
Other income (expense), net			6,358				35,934				191,358				79,452
Interest income (expense),net			10,725				(1,296	)			24,585				(3,268	)
Total other income (expense)			17,083				34,638				215,943				76,184
Income (Loss) before provision for income taxes			(1,042,050	)			(407,905	)			(4,225,578	)			(936,031	)
Income taxes			-				-				-				-
Net income (loss)		$	(1,042,050	)		$	(407,905	)		$	(4,225,578	)		$	(936,031	)
Convertible Preferred Series B Stock Redemption Value Adjustment		$	-			$	(2,262,847	)		$	-			$	(2,262,847	)
Convertible preferred series B stock dividends			-				(1,447	)			(35,984	)			(1,447	)
Deemed dividend on convertible preferred series B stock on down round			-				-				(439,999	)			-
Net income (loss) available to common shareholders		$	(1,042,050	)		$	(2,672,199	)		$	(4,701,561	)		$	(3,200,325	)
Income (loss) per common share – basic and diluted		$	(0.13	)		$	(1.69	)		$	(0.69	)		$	(2.02	)
Weighted average number of common shares outstanding, basic and diluted			7,953,974				1,583,511				6,804,741				1,581,142

CEA Industries Inc.Condensed Consolidated Statements of Cash Flows (in US Dollars except share numbers)(Unaudited)

		For the Nine Months Ended September 30,
		2022				2021
Cash Flows From Operating Activities:
Net loss		$	(4,225,578	)		$	(936,031	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization expense			24,731				54,973
Share-based compensation			280,739				51,055
Common stock issued for other expense			-				67,000
Provision for doubtful accounts			93,500				20,975
Provision for excess and obsolete inventory			(5,332	)			(13,764	)
Loss on disposal of assets			4,489				8,042
Amortization of ROU asset			76,917				149,597
Goodwill impairment charges			631,064				-
Changes in operating assets and liabilities:
Accounts receivable			8,801				(19,740	)
Inventory			(230,966	)			(139,481	)
Prepaid expenses and other			171,582				(119,296	)
Accounts payable and accrued liabilities			910,523				(107,604	)
Deferred revenue			1,595,644				(664,663	)
Deposits			-				(24,183	)
Operating lease liability, net			(65,157	)			(197,085	)
Accrued equity compensation			(14,065	)			108,945
Net cash used in operating activities			(743,108	)			(1,761,260	)
Cash Flows From Investing Activities
Purchases of property and equipment			(30,348	)			(15,316	)
Proceeds from the sale of property and equipment			2,250				1,500
Net cash used in investing activities			(28,098	)			(13,816	)
Cash Flows From Financing Activities
Payment of dividends on series B preferred stock			(35,984	)			-
Redemption of series B preferred stock			(1,980,000	)			-
Cash proceeds on sale of common stock and warrants, net of expenses			21,711,131				-
Payments on convertible notes payable							1,259,874
Proceeds from issuances of convertible notes							514,200
Net cash provided by financing activities			19,695,147				1,774,074
Net change in cash and cash equivalents			18,923,941				(1,002	)
Cash and cash equivalents, beginning of period			2,159,608				2,284,881
Cash and cash equivalents, end of period		$	21,083,549			$	2,283,879
Supplemental cash flow information:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
Non-cash investing and financing activities:
Adjustment of carrying value of series B preferred stock to redemption value		$	-			$	2,262,847
Conversion of series B preferred stock		$	1,980,000			$	-
Subscription receivable - series B preferred stock		$	-			$	1,365,000
Options issued for accrued equity compensation		$	-			$	128,434
Accrued Series B dividend payable settled in shares of common stock		$	-			$	1,447
Deemed dividend on series B preferred stock arising on down round		$	439,999			$	-
Cashless exercise of prefunded warrants		$	2			$	-
Options issued for accrued equity compensation liability		$	78,938			$	-