CEA Industries Inc.

Good afternoon, ladies and gentlemen, and welcome to the CEA Industries Q2 2023 Earnings Conference Call. Joining us today are the company's Chairman and CEO, Tony MacDonald, as well as the company's CFO, Ian Patel. At this time, all participants have been placed in a listen-only mode, and we will open the floor for your questions at the end. If you would like to ask a question via the phone lines, you may press star 1 to enter the queue at any time. Should your question be answered and you wish to leave the queue, please press star 2. If you have joined via the webcast, please use the Ask Question button on your webcast viewer window. Before we begin, please be advised that this call may contain statements of a forward-looking nature relating to future events. These forward-looking statements are based on what we believe are reasonable assumptions, which ultimately could prove to be inaccurate and are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect CEA Industries' current beliefs and a number of important factors could cause actual results to differ materially from those expressed in this call, including the risk factors set forth in the company's Form 10-K, which was previously filed with the SEC. Please refer to their SEC filings for a more detailed discussion of the risks and uncertainties associated with their business. The forward-looking statements that the company has made are intended to be within the meaning of forward-looking statements in Section 27A of the Securities Act of 1933 as amended. Also, please note that the company filed its quarterly report on Form 10-Q and issued a press release announcing second quarter results earlier today. These documents can be found on the Investor Relations section of the company's website at ceaindustries.com. If you would like to be added to the company's email distribution list, please send an email to info at ceaindustries.com. It is now my pleasure to turn the floor over to Tony McDonald, Chairman and CEO of CEA Industries. Sir, the floor is yours.

Thank you and good afternoon, everyone. The volatility in the broader cannabis environment has continued as operators contend with the prolonged effects of pricing and inflationary pressures. We have also witnessed a reduction in investment in and reorganization within the controlled environment agricultural sector. As a result, capital expenditures across both sectors remain reduced, resulting in delayed, reduced, or eliminated construction projects. These conditions have had an adverse impact on our net bookings and revenue over the last year. As a result of the challenges this year, 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 have taken a disciplined approach to capital allocation with respect to product development, marketing, and personnel. We plan to identify additional savings opportunities in the months ahead as we remain intently focused on maintaining this lean cost structure without compromising the high level of service our customers expect. Despite dialing back our marketing spend, we are well equipped to continue sourcing and evaluating new opportunities as well as servicing our current contracts as we further diversify our customer base across the cannabis and traditional agriculture sectors. As we announced alongside our Q2 results earlier today, we have initiated a review of strategic alternatives, including a sale, merger, or other potential strategic or financial transaction to protect and maximize shareholder value. Our board of directors has retained Roth Capital Partners as our financial advisor to assist in the review process. We are committed to executing on the best path forward for our shareholders, customers, and employees. We will not be commenting further on this until the board has concluded that disclosure is appropriate or required. Looking ahead, we will be mindful of the challenging environment as we seek additional cost savings and secure new contract wins in the cannabis and traditional agriculture verticals. We have taken the necessary measures to navigate these uncertain times, and we believe these initiatives, coupled with our strong balance sheet, will enable us to continue servicing our customers while we seek to maximize shareholder value. I will now hand it over to Ian Patel, our Chief Financial Officer, to discuss financial highlights for the quarter before wrapping up with closing remarks. Ian?

Thanks, Tony, and good afternoon, everyone. Jumping right into our results, Q2 revenue was $1.1 million compared to $3 million in the year-ago period. The decrease was primarily attributed to lower revenue recognition from our backlog and an overall reduction in capital expenditures by cannabis and controlled agricultural operators. Net bookings in the second quarter were approximately $200,000 compared to $1.5 million in the same period in 2022. Our quarter end backlog was $1.1 million compared to $9.7 million in the year-ago quarter. The decrease in net bookings and backlog was again primarily driven by fewer capital projects and expenditures in the industry. Gross profit for the second quarter of 2023 was approximately $79,000, or 7.4% of revenue, compared to $300,000, or 10.2% of revenue for the same period in 2022. The decrease in gross margin was primarily driven by an increase in fixed costs as a percentage of revenue, which includes the cost of services, engineering, manufacturing, and project management. Adam Petrea, OPEX, Operating expenses in the second quarter decreased 62% to approximately $800,000 compared to $2.1 million the year ago quarter. Adam Petrea, OPEX, The decrease is primarily driven by lower product development expenses reduced personnel and marketing costs, as well as a $632,000 goodwill impairment that occurred in the year ago period. Adam Petrea, OPEX, it's worth noting that our opex decreased 38% from Q1 of 2023. reflecting a continued benefit from the cost-saving initiatives implemented over the past few months. Net loss for the second quarter of 2023 improved to approximately $700,000, or negative 9 cents per share, compared to a net loss of $1.8 million, or negative 23 cents per share, in the year-ago quarter. As of June 30, 2023, cash and cash equivalents were $14.2 million compared to $18.6 million as of December 31, 2022, while working capital decreased by approximately $900,000 during this period. At June 30, 2023, we remain debt-free. This concludes my prepared remarks. I'll pass it back to you, Tony.