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 2022Q2 2022Q3 2021% QoQ% YoY
Revenue$5,063$3,015$3,70668% 37%
Gross Profit$597$306$74795%-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)NANA 
        

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.