Surna Reports Q1 2019 Results
Enters into $5 million sales contract in April/May 2019 for multi-facility operator expansion project
and announces Strategic Plan for Acquisitions and Funding
Boulder, Colorado, May 13, 2019 (GLOBE NEWSWIRE) -- Surna Inc. (SRNA) announced today operating and financial results for the three months ended March 31, 2019.
We will be hosting an investor conference call to discuss our Q1 2019 financial results, provide an update on our recent business developments, and explain our strategic acquisition and capital markets plan in more detail. Prior to the earnings call, we intend to file our Q1 2019 Investor Presentation and a Q1 2019 Fact Sheet with the U.S. Securities and Exchange Commission (“SEC”). The Q1 2019 Investor Presentation and Q1 2019 Fact Sheet will also be available on the Investor Relations section of our website. The call will be held on Tuesday, May 21, 2019 at 4:00 p.m. Eastern Time.
To access the investor call via telephone:
Dial-In Number: 1-973-528-0008
Access Code: 872019
To access the investor call via the Internet:
Webcast URL: https://www.webcaster4.com/Webcast/Page/2020/30082
Interested parties, with contact information supplied, may submit questions to the Company prior to the call to investor@Surna.com. These questions, along with all live questions, will be answered in the time available.
Revenue for Q1 2019 was $1,771,000 compared to $2,055,000 for Q1 2018, a decrease of $284,000, or 14%. Our Q4 2018 revenue was $2,195,000, representing a quarter-over-quarter decrease of $424,000, or 19%.
Our Q1 2019 gross profit margin was 27.7% compared to 18.6% for Q1 2018, an increase of 9.1 percentage points. Our Q4 2018 gross profit margin was 20.4%, representing a quarter-over-quarter increase of 7.3 percentage points.
We realized a Q1 2019 net loss of $900,000 compared to a Q1 2018 net loss of $1,884,000, a decrease of $984,000, or 52%. After excluding non-cash equity-related compensation expenses, debt-related items and depreciation expense, our Q1 2019 net loss was $512,000 compared to a Q1 2018 net loss of $1,222,000, a decrease of $710,000, or 58%.
Our Q4 2018 net loss was $816,000, representing a quarter-over-quarter increase of $84,000, or 10%. After excluding non-cash equity-related compensation expenses and depreciation expense, our Q4 2018 net loss was $811,000, representing a quarter-over-quarter decrease of $299,000, or 37%.
As of March 31, 2019, we had cash and cash equivalents of $465,000, compared to cash and cash equivalents of $253,000 as of December 31, 2018, an increase of $212,000, or 84%.
Tony McDonald, the Company’s CEO stated: “In late 2018, we announced and subsequently launched a re-set for Surna, with a focus on cost reductions and a revised organic growth plan. We believe this plan is being reflected in our modest quarter-over-quarter revenue declines and our cost savings, which reduced our operating cash burn by nearly $300,000 over the prior quarter. We also had net bookings of $4.8 million in Q1 2019, surpassing our previous quarterly high set in Q1 2018. More importantly, since year end we are recording new orders/bookings for retrofit and expansion projects. These projects have a more accelerated, predictable completion cycle and revenue stream and should provide revenue momentum over the next couple of quarters as the projects are completed and revenue is recognized.”
Historically, we have experienced cash flow inconsistency and unpredictability and, as a result, our expense, cash and working capital management were adversely impacted. With our new strategy, however, we are pursuing more opportunities to bid on retrofit and expansion projects and are also targeting larger project sizes with multi-facility operators. Although we have had only one full quarter to begin implementation of our new organic growth plan, we believe we have made important progress in its implementation, as evidenced by the following:
Including contracts booked in April and May 2019, we have booked three sales contracts, each of which has a contract value of $2.0 million or more. Two of these contracts are with a single multi-facility operator that is completing a two-phase facility expansion. See additional detail in Bookings and Backlog and Recent Developments below.
We completed our first retrofit consulting project for a multi-facility cultivator and received a $1.3 million sales order to supply equipment to several of their cultivation facilities that have been operating inefficiently. We are also offering our facility assessment, analysis and consulting program to expand our retrofit and “lifecycle” opportunities.
We launched our SentryIQTM sensors, controls and automation platform in April 2019. We now offer a turnkey, single vendor HVAC equipment and controls integration solution to our new build projects. We also are offering our HVAC controls systems to existing facilities in the startup and operation phases. We are currently in contract discussions and negotiations with a number of prospective customers interested in our controls platform. This product line is a new source of incremental revenue.
As part of our $2.2 million new build project in Michigan, which we booked in the first quarter of 2019, we sold a comprehensive engineering/design services package that included mechanical, electrical and plumbing engineering.
We sold our first custom-designed ducted air handling system, which can now be sold as an alternative to our new and improved ductless fan coil units. Our ability to offer larger capacity air handling systems should provide greater opportunities for us to work with multi-facility operators.
We improved our gross margins by 7.3 percentage points, from 20.4% in the fourth quarter of 2018 to 27.7% in the first quarter of 2019. This improvement was largely the result of our focus on fiscal discipline.
We generated $212,000 in cash flow from our operating activities in the first quarter of 2019. We also reduced our adjusted operating loss from $830,000 in the fourth quarter of 2018 to $534,000 for the first quarter of 2019, an improvement of $296,000, or 36%. Our adjusted operating loss, which is our GAAP operating loss after addback for our non-cash equity compensation expenses and depreciation expense, is one of our key management metrics as we attempt to achieve operating cash flow breakeven.
Overall, we continue to remain focused on the core objectives of our organic growth plan:
Reduce our reliance on new build facility projects which generate inconsistent revenue and cash flow;
Increase our emphasis on retrofit and expansion opportunities, which provide a more predictable and accelerated completion and revenue stream;
Establish revenue from “lifecycle” operational and facility management offerings;
Seek to increase our gross margin by shifting our focus to value-added technology services and proprietary, customized equipment;
Operate with more disciplined expense, cash and working capital management; and
Become financially self-sustaining by attempting to achieve operating cash flow breakeven and profitability.
Bookings and Backlog
Our net bookings (as defined below) for the three months ended March 31, 2019 increased $2,946,000 (or 160%) from $1,838,000 in the fourth quarter of 2018 to $4,785,000 in the first quarter of 2019. As a result, our backlog increased $3,013,000, or 35%, from December 31, 2018, with our backlog at March 31, 2019 rising to $11,543,000, the highest quarter-end backlog in our history.
Our backlog at March 31, 2019, however, includes booked sales orders of $2,815,000 that we do not expect to be realized until 2021, if at all. This includes combined contract orders of $1,761,000 that we booked in early 2018 with a large, multi-state customer that has put on hold two projects in states where the current market conditions, including wholesale cannabis prices, are not favorable. We believe the sales orders in this portion of our backlog may be abandoned by our customer or ultimately cancelled.
The following table sets forth: (i) our beginning backlog (the remaining contract value of outstanding sales contracts for which we have received an initial deposit as of the previous period), (ii) our net bookings for the period (new sales contracts executed during the period for which we received an initial deposit, net of any adjustments including cancelations and change orders during the period), (iii) our recognized revenue for the period, and (iv) our ending backlog for the period (the sum of the beginning backlog and net bookings, less recognized revenue). https://finance.yahoo.com/news/surna-reports-q1-2019-results-201500951.html