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 |
|
|
$ |
- |
|
CEA Industries (NASDAQ:CEAD)
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From Aug 2023 to Aug 2024