CEA Industries Inc. Reports Second Quarter 2023 Results and Initiates Review of Strategic Alternatives
08/14/2023 - 04:05 PM
- Management to Host Conference Call Today at 4:15pm E.T. -
Louisville, Colorado, Aug. 14, 2023 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), is reporting results for the three months ended June 30, 2023.
“The cannabis market environment continues to present challenges as operators contend with the prolonged effects of pricing and inflationary pressure,” said Tony McDonald, Chairman and CEO of CEA Industries. “The controlled agricultural sector is also experiencing reorganization and reduced investment. As a result, capital expenditures across both sectors remain suppressed, which is impacting our net bookings. To offset these headwinds, we preemptively implemented a series of cost-cutting initiatives that have reduced our operating expenses by more than 60% compared to the year-ago period. We plan to maintain this lean cost structure moving forward, while targeting new contracts in both the cannabis and traditional agriculture sectors.
“In addition to pursuing new contracts, given the current environment we have begun to review strategic alternatives, including a sale, merger or other potential strategic or financial transaction, to protect and maximize shareholder value. We will pursue a path that we believe will maximize value for our shareholders and ensure a successful outcome for our customers and employees.”
The Company’s Board of Directors has retained Roth Capital Partners as financial advisor to assist in its review of strategic alternatives. There can be no assurance regarding the results or outcome of this review.
McDonald continued, “Between our robust balance sheet and prudent approach to capital allocation, we are well positioned to navigate this environment and deliver value to our shareholders and customers alike.”
Second Quarter 2023 Financial Summary ( in $ thousands , excl. margin items) :
Q 2 2023 Q 1 202 3 Q 2 2022 Revenue $ 1,064 $ 4,683 $ 3,015 Gross Profit $ 79 $ 853 $ 306 Gross Margin 7.4 % 18.2 % 10.2 % Operating Expenses $ 783 $ 1,299 $ 2,077 Net Income/(Loss) $ (694 ) $ (431 ) $ (1,761 )
Second Quarter 2023 Financial Results
Revenue in the second quarter of 2023 was $1.1 million compared to $3.0 million for the same period in 2022. The decrease was primarily attributed to lower revenue recognition from the Company’s backlog and an overall reduction in capital expenditures by cannabis operators.
Net bookings in the second quarter of 2023 were $0.2 million compared to $1.5 million in the year-ago period. The Company’s quarter-end backlog was $1.1 million compared to $9.7 million for the same period in 2022. The decrease in the Company’s net bookings and backlog for the second quarter of 2023 was primarily driven by fewer capital projects and expenditures by cannabis operators.
Gross profit in the second quarter of 2023 was $79,000 compared to $0.3 million for the same period in 2022. Gross margin was 7.4% compared to 10.2% in the prior year period. The decrease in gross margin was primarily driven by an increase in fixed costs as a percentage of revenue, which include the cost of services, engineering, manufacturing and project management.
Operating expenses in the second quarter of 2023 decreased 62% to $0.8 million compared to $2.1 million for the same period in 2022. The decrease was primarily driven by lower product development expenses, reduced personnel and marketing costs, as well as a $0.6 million goodwill impairment that occurred in the year-ago period.
Net loss in the second quarter of 2023 improved to $0.7 million or $(0.09) per share, compared to a net loss of $1.8 million or $(0.23) per share for the same period in 2022.
Cash and cash equivalents were $14.2 million on June 30, 2023, compared to $18.6 million on December 31, 2022, while working capital decreased by $0.9 million during this period. At June 30, 2023, the Company remained debt free.
Conference Call
CEA Industries management will host a conference call today to discuss its financial and operating results, followed by a question-and-answer session.
Date: Monday, August 14, 2023https://www.webcaster4.com/Webcast/Page/2893/48719
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 August 14, 2023, at 5:15 p.m. ET.
About CEA Industries Inc.
CEA Industries Inc. (www.ceaindustries.com ) is home to industry leaders that provide a suite of complementary and adjacent offerings to the controlled environment agriculture industry. The Company’s comprehensive solutions, when aligned with industry operators’ product and sales initiatives, support the development of the global ecosystem for indoor cultivation.
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 and products that bring accretive value to its customers.
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.
Investor Contact:
Sean Mansouri, CFAinfo@ceaindustries.com
CEA Industries Inc. Condensed Consolidated Balance Sheets ( in US Dollars except share numbers)
June 30, December 31, 2023 2022 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 14,197,485 $ 18,637,114 Accounts receivable, net 293,767 2,649 Inventory, net 397,155 348,411 Prepaid expenses and other 520,256 1,489,921 Total Current Assets 15,408,663 20,478,095 Noncurrent Assets Property and equipment, net 53,225 68,513 Intangible assets, net 1,830 1,830 Deposits 14,747 14,747 Operating lease right-of-use asset 409,981 462,874 Total Noncurrent Assets 479,783 547,964 TOTAL ASSETS $ 15,888,446 $ 21,026,059 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Current Liabilities Accounts payable and accrued liabilities $ 798,624 $ 1,207,258 Deferred revenue 625,911 4,338,570 Accrued equity compensation - 89,970 Current portion of operating lease liability 122,272 118,235 Total Current Liabilities 1,546,807 5,754,033 Noncurrent Liabilities Operating lease liability, net of current portion 319,247 376,851 Total Noncurrent Liabilities 319,247 376,851 TOTAL LIABILITIES 1,866,054 6,130,884 Commitments and Contingencies (Note 6) - - SHAREHOLDERS’ EQUITY Preferred stock, $0.00 001 par value; 25,000,000 shares authorized; 0 shares issued and outstanding - - Common stock, $0.00 001 par value; 200,000,000 authorized; 8,076,372 and 7,953,974 shares issued and outstanding, respectively 81 80 Additional paid in capital 49,426,065 49,173,836 Accumulated deficit (35,403,754 ) (34,278,741 ) Total Shareholders’ Equity 14,022,392 14,895,175 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 15,888,446 $ 21,026,059
CEA Industries Inc. Condensed Consolidated Statements of Operations ( in US Dollars except share numbers) (Unaudited)
For the Three Months Ended June 30, For the Six Months Ended June 30, 2023 2022 2023 2022 Revenue, net $ 1,063,714 $ 3,014,885 $ 5,746,287 $ 4,759,312 Cost of revenue 985,021 2,708,646 4,814,318 4,362,565 Gross profit 78,693 306,239 931,969 396,747 Operating expenses: Advertising and marketing expenses 33,091 309,690 235,414 560,705 Product development costs 74 56,577 76,487 195,495 Selling, general and administrative expenses 750,156 1,080,094 1,770,858 2,391,871 Goodwill impairment charges - 631,064 - 631,064 Total operating expenses 783,321 2,077,425 2,082,759 3,779,135 Operating loss (704,628 ) (1,771,186 ) (1,150,790 ) (3,382,388 ) Other income (expense): Other income (expense), net 2,074 - 7,778 185,000 Interest income (expense), net 8,979 10,600 17,999 13,860 Total other income (expense) 11,053 10,600 25,777 198,860 Loss before provision for income taxes (693,575 ) (1,760,586 ) (1,125,013 ) (3,183,528 ) Income taxes - - - - Net loss $ (693,575 ) $ (1,760,586 ) $ (1,125,013 ) $ (3,183,528 ) Convertible preferred series B stock dividends - - - (35,984 ) Deemed dividend on convertible preferred series B stock on down round - - - (439,999 ) Net loss available to common shareholders $ (693,575 ) $ (1,760,586 ) $ (1,125,013 ) $ (3,659,511 ) Loss per common share – basic and diluted $ (0.09 ) $ (0.23 ) $ (0.14 ) $ (0.59 ) Weighted average number of common shares outstanding, basic and diluted 8,076,372 7,801,211 8,074,064 6,220,600
CEA Industries Inc. Condensed Consolidated Statements of Cash Flows ( in US Dollars except share numbers) ( Unaudited )
For the Six Months Ended June 30, 2023 2022 Cash Flows From Operating Activities: Net loss $ (1,125,013 ) $ (3,183,528 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and intangible asset amortization expense 14,988 16,697 Share-based compensation 162,260 225,396 Provision for doubtful accounts 2,096 (9,182 ) Provision for excess and obsolete inventory 60,574 (34,417 ) Loss on disposal of assets 100 4,060 Amortization of operating lease ROU asset 52,893 51,061 Goodwill impairment charges - 631,064 Changes in operating assets and liabilities: Accounts receivable (293,214 ) 48,153 Inventory (109,318 ) 10,986 Prepaid expenses and other 969,665 (1,692,816 ) Accounts payable and accrued liabilities (408,634 ) (317,453 ) Deferred revenue (3,712,659 ) 3,095,431 Operating lease liability, net (53,567 ) (39,870 ) Accrued equity compensation - (37,251 ) Net cash provided by (used in) operating activities (4,439,829 ) (1,231,669 ) Cash Flows From Investing Activities Purchases of property and equipment - (13,948 ) Proceeds from the sale of property and equipment 200 2,250 Net cash provided by (used in) investing activities 200 (11,698 ) Cash Flows From Financing Activities Payment of dividends on series B preferred stock - (35,984 ) Redemption of series B preferred stock - (1,980,000 ) Net cash proceeds on sale of common stock and warrants, net of expenses - 21,711,131 Net cash provided by financing activities - 19,695,147 Net change in cash and cash equivalents (4,439,629 ) 18,451,781 Cash and cash equivalents, beginning of period 18,637,114 2,159,608 Cash and cash equivalents, end of period $ 14,197,485 $ 20,611,388 Supplemental cash flow information: Interest paid $ - $ - Income taxes paid $ - $ - Non-cash investing and financing activities: Unpaid purchases of equipment and other assets $ - $ 16,400 Conversion of series B preferred stock - $ 1,980,000 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 $ 89,970 $ 83,625
