CEA Industries Inc. Reports Fourth Quarter and Full Year 2023 Results
- Revenue decreased in Q4 2023 to $0.3 million from $1.5 million in Q4 2022.
- Net loss improved to $1.0 million in Q4 2023 compared to $1.3 million in Q4 2022.
- The company is focused on expense reduction and capital preservation.
- CEA Industries is exploring strategic alternatives, including a potential sale or merger.
- Cash and cash equivalents were $12.5 million at the end of 2023, with no debt.
- The company enacted headcount reductions to achieve annualized cost savings of ~$230,000.
- Revenue decline in Q4 2023 due to lower bookings and reduced sales efforts.
- Gross margin decreased to (113.8%) in Q4 2023 from 10.3% in Q4 2022.
- Operating expenses decreased mainly due to reduced personnel and marketing costs.
- Working capital decreased by $2.6 million from December 2022 to December 2023.
Insights
The reported financial results of CEA Industries reflect a significant downturn in revenue year-over-year, with a marked decrease from $1.5 million in Q4 2022 to just $0.3 million in Q4 2023. This steep decline is indicative of underlying challenges in the company's operations and market conditions. The gross margin has turned negative, which is highly unusual and suggests that the fixed costs are not being covered by the revenue generated. This is a red flag for investors, as it points to a lack of scalability in the business model.
The company's efforts to reduce operating expenses by 51% and the subsequent improvement in net loss from $(1.3) million to $(0.9) million show management's commitment to cost control. However, the effectiveness of these measures is yet to be seen, especially since the revenue continues to decline. The cash position has also decreased significantly, which could impact the company's ability to invest in growth or weather further market downturns.
Investors should be cautious about the company's future prospects, particularly given the shrinking backlog from $5.6 million to $0.4 million, which could signal a drying up of future revenue streams. The exploration of strategic alternatives by the Board may offer some hope for a turnaround or an exit, but this also introduces uncertainty regarding the company's future direction.
The reported decrease in net bookings and backlog suggests a contraction in the market demand, particularly in the cannabis sector that CEA Industries serves. A reduced sales effort and lower capital expenditures by cannabis operators are likely contributing factors. This industry-specific context is important for understanding the company's performance. The cannabis market has been volatile, with regulatory changes and oversupply issues impacting operators' investment decisions.
For stakeholders, the company's current position might represent an opportunity to reassess the market strategy and possibly pivot towards more sustainable revenue streams. The industry's challenges are not unique to CEA Industries and a broader market analysis could help identify new growth areas or innovative product offerings that could differentiate the company from its competitors.
It's also worth noting that the cannabis industry is still relatively young and may face further regulatory changes that could either hinder or boost CEA Industries' growth. Investors should keep an eye on such developments as they can have a significant impact on the company's performance.
Louisville, Colorado, March 28, 2024 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), is reporting results for the three and twelve months ended December 31, 2023.
Fourth Quarter 2023 Financial Summary (in $ thousands, excl. margin items):
| Q4 2023 (unaudited) | Q3 2023 (unaudited) | Q4 2022 (unaudited) | |||||||
| Revenue | $ | 251 | $ | 914 | $ | 1,461 | |||
| Gross Profit | $ | (286 | ) | $ | (104 | ) | $ | 151 | |
| Gross Margin | (113.8 | %) | (11.4 | %) | 10.3 | % | |||
| Operating Expenses | $ | 709 | $ | 703 | $ | 1,433 | |||
| Net Income/(Loss) | $ | (988 | ) | $ | (799 | ) | $ | (1,272 | ) |
Full Year 2023 Financial Summary (in $ thousands, excl. margin items):
| FY 2023 | FY 2022 | |||||
| Revenue | $ | 6,911 | $ | 11,283 | ||
| Gross Profit | $ | 542 | $ | 1,145 | ||
| Gross Margin | 7.8 | % | 10.1 | % | ||
| Operating Expenses | $ | 3,495 | $ | 6,869 | ||
| Net Income/(Loss) | $ | (2,912 | ) | $ | (5,497 | ) |
“We continue to operate under the lean cost structure implemented during 2023, with a focus on expense reduction and capital preservation, as we manage through our remaining backlog,” said Tony McDonald, Chairman and CEO of CEA Industries. “Subsequent to year-end we enacted additional headcount reductions, which we anticipate will result in annualized cost savings of ~
Mr. McDonald continued: “As previously announced on August 14, 2023, the Board of Directors remains steadfast in their examination of strategic alternatives, including a sale, merger, or other potential strategic or financial transaction. We will provide updates on any material developments that result from this process.”
Fourth Quarter 2023 Financial Results
Revenue in the fourth quarter of 2023 was
Net bookings in the fourth quarter of 2023 were
Gross profit in the fourth quarter of 2023 was
Operating expenses in the fourth quarter of 2023 decreased
Net loss in the fourth quarter of 2023 improved to
Cash and cash equivalents were
About CEA Industries Inc.
CEA Industries Inc. (www.ceaindustries.com) provides 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.
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, CFA
Elevate IR
info@ceaindustries.com
(720) 330-2829
CEA Industries Inc.
Condensed Consolidated Balance Sheets
(in US Dollars except share numbers)
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 12,508,251 | $ | 18,637,114 | ||||
| Accounts receivable, net | 18,655 | 2,649 | ||||||
| Contract assets, net | 224,414 | - | ||||||
| Inventory, net | 296,404 | 348,411 | ||||||
| Prepaid expenses and other | 313,115 | 1,489,921 | ||||||
| Total Current Assets | 13,360,839 | 20,478,095 | ||||||
| Noncurrent Assets | ||||||||
| Property and equipment, net | 38,558 | 68,513 | ||||||
| Intangible assets, net | 1,830 | 1,830 | ||||||
| Deposits | 14,747 | 14,747 | ||||||
| Operating lease right-of-use asset | 356,109 | 462,874 | ||||||
| Total Noncurrent Assets | 411,244 | 547,964 | ||||||
| TOTAL ASSETS | $ | 13,772,083 | $ | 21,026,059 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 624,724 | $ | 1,207,258 | ||||
| Deferred revenue | 499,800 | 4,338,570 | ||||||
| Accrued equity compensation | - | 89,970 | ||||||
| Current portion of operating lease liability | 126,724 | 118,235 | ||||||
| Total Current Liabilities | 1,251,248 | 5,754,033 | ||||||
| Noncurrent Liabilities | ||||||||
| Operating lease liability, net of current portion | 259,627 | 376,851 | ||||||
| Total Noncurrent Liabilities | 259,627 | 376,851 | ||||||
| TOTAL LIABILITIES | 1,510,875 | 6,130,884 | ||||||
| Commitments and Contingencies (Note 10) | - | - | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, | - | - | ||||||
| Common stock, | 81 | 80 | ||||||
| Additional paid in capital | 49,451,419 | 49,173,836 | ||||||
| Accumulated deficit | (37,190,292 | ) | (34,278,741 | ) | ||||
| Total Shareholders’ Equity | 12,261,208 | 14,895,175 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 13,772,083 | $ | 21,026,059 | ||||
CEA Industries Inc.
Condensed Consolidated Statements of Operations
(in US Dollars except share numbers)
| For the Three Months Ended December 31, | For the Years Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenue | $ | 251,093 | $ | 1,460,798 | $ | 6,910,951 | $ | 11,283,189 | ||||||||
| Cost of revenue | 536,919 | 1,309,796 | 6,368,872 | 10,138,249 | ||||||||||||
| Gross profit | (285,826 | ) | 151,002 | 542,079 | 1,144,940 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising and marketing expenses | 16,445 | 292,566 | 273,409 | 1,157,871 | ||||||||||||
| Product development costs | - | 65,514 | 76,487 | 319,987 | ||||||||||||
| Selling, general and administrative expenses | 693,023 | 1,075,248 | 3,145,328 | 4,759,865 | ||||||||||||
| Goodwill impairment charges | - | - | - | 631,064 | ||||||||||||
| Total operating expenses | 709,467 | 1,433,328 | 3,495,224 | 6,868,787 | ||||||||||||
| Operating loss | (995,293 | ) | (1,282,326 | ) | (2,953,145 | ) | (5,723,847 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income (expense), net | - | - | 7,778 | 191,358 | ||||||||||||
| Interest income (expense), net | 7,774 | 10,729 | 33,816 | 35,314 | ||||||||||||
| Total other income (expense) | 7,774 | 10,729 | 41,594 | 226,672 | ||||||||||||
| Loss before provision for income taxes | (987,519 | ) | (1,271,597 | ) | (2,911,551 | ) | (5,497,175 | ) | ||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (987,519 | ) | $ | (1,271,597 | ) | $ | (2,911,551 | ) | $ | (5,497,175 | ) | ||||
| 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 | $ | (987,519 | ) | $ | (1,271,597 | ) | $ | (2,911,551 | ) | $ | (5,973,158 | ) | ||||
| Loss per common share – basic and diluted | $ | (0.12 | ) | $ | (0.18 | ) | $ | (0.36 | ) | $ | (0.84 | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | 8,076,372 | 7,094,410 | 8,075,228 | 7,094,410 | ||||||||||||
CEA Industries Inc.
Condensed Consolidated Statements of Cash Flows
(in US Dollars except share numbers)
| For the Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (2,911,551 | ) | $ | (5,497,175 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and intangible asset amortization expense | 29,655 | 32,442 | ||||||
| Share-based compensation | 187,615 | 307,736 | ||||||
| Provision for doubtful accounts | (2,056 | ) | (54,708 | ) | ||||
| Provision for excess and obsolete inventory | 121,791 | (20,472 | ) | |||||
| Loss on disposal of assets | 100 | 4,489 | ||||||
| Operating lease expense | 106,765 | 103,003 | ||||||
| Goodwill impairment charges | - | 631,064 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (13,950 | ) | 231,504 | |||||
| Contract assets | (224,414 | ) | - | |||||
| Inventory | (69,784 | ) | 50,387 | |||||
| Prepaid expenses and other | 1,176,806 | (216,202 | ) | |||||
| Accounts payable and accrued liabilities | (582,534 | ) | (175,409 | ) | ||||
| Deferred revenue | (3,838,771 | ) | 1,498,732 | |||||
| Operating lease liability, net | (108,735 | ) | (91,279 | ) | ||||
| Accrued equity compensation | - | 6,345 | ||||||
| Net cash used in operating activities | (6,129,063 | ) | (3,189,543 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | - | (30,348 | ) | |||||
| Proceeds from the sale of property and equipment | 200 | 2,250 | ||||||
| Net cash provided by (used in) investing activities | 200 | (28,098 | ) | |||||
| 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 | (6,128,863 | ) | 16,477,506 | |||||
| Cash and cash equivalents, beginning of period | 18,637,114 | 2,159,608 | ||||||
| Cash and cash equivalents, end of period | $ | 12,508,251 | $ | 18,637,114 | ||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| 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 | $ | - | ||||
FAQ
What was CEA Industries' revenue in Q4 2023?
What was the net loss for CEA Industries in Q4 2023?
What strategic alternatives is CEA Industries exploring?
How much were cash and cash equivalents for CEA Industries at the end of 2023?
What cost-saving measures did CEA Industries implement?
