CEA Industries (NASDAQ:CEAD) releases its third-quarter financial statements showing revenue growth but fears next quarters may witness revenue shrinking.
According to Tony McDonald, Chairman, and CEO of CEA Industries Inc., “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. We just inked contracts with two non-cannabis vertical agriculture companies, which demonstrates our goal of extending the range of our clientele beyond just the cannabis industry. Despite our pride in the progress of our sale, we recognize that the macro climate still poses difficulties as we deal with a protracted inflationary environment and some lingering supply chain headwinds.
“Last week, we announced a significant new non-equity strategic agreement with Hydrobuilder Holdings LLC, a premier omnichannel platform that serves the indoor and outdoor CEA and hydroponics industries. Hydrobuilder Holdings LLC has 22 retail locations and 10 warehouses. Through this agreement, agricultural businesses in North America will have access to our sector-leading CEA systems engineering and technologies as well as the extensive commercial-first omnichannel platform of Hydrobuilder Holdings.
“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 financial results for 2022
In comparison to the same period in 2021, revenue grew 37% to $5.1 million in the third quarter of 2022. The supply chain’s recovery, which allowed for faster product delivery, was mostly to blame for the increase.
Net bookings dropped from $5.6 million in the same time last year to $2.2 million in the third quarter of 2022. In comparison to the same period in 2021, the Company’s backlog at quarter’s end was $6.8 million rather than $9.9 million. Over the following 18 months, revenue is anticipated to be generated from this quarter’s end backlog. Fewer new orders to replace the Company’s backlog as it shrank during the third quarter of 2022 were the main cause of the Company’s net bookings and backlog decline.
In the third quarter of 2022, gross profit was $0.6 million as opposed to $0.7 million in the corresponding quarter of 2021. The gross margin was 11.8% as opposed to 20.2% in the same time last year. The increase in variable costs as a percentage of revenue (which includes the cost of equipment, external engineering costs, shipping and handling, and travel and warranty costs) as well as the reallocation of some operating expenses to cost of goods sold were the main causes of the decline in gross margin.
Operating costs were $1.7 million in the third quarter of 2022 as opposed to $1.2 million in the corresponding quarter of 2021. Higher selling, general, and administrative costs supporting inorganic and organic growth initiatives were the main causes of the increase.
In comparison to a net loss of $0.4 million or $(1.69) per share for the same time in 2021, the third quarter of 2022 saw a net loss of $1.0 million or $(0.13) per share. Due to more shares being issued and outstanding as of the third quarter of 2022, net loss per share for the third quarter of 2022 was lower than the net loss per share for the third quarter of the previous year.
Working capital increased by $16.4 million over this time period, while cash and cash equivalents increased to $21.1 million on September 30, 2022 from $2.2 million on December 31, 2021. The roughly $24 million in net proceeds from the company’s sale of common stock and warrants in February 2022 were the main factor in the increase.
Image provided by CEA Industries