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Surna Reports Q2 2018 Results

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Surna Reports Q2 2018 Results

PR Newswire

BOULDER, Colorado, Aug. 14, 2018 /PRNewswire/ -- Surna Inc. (OTCQB: SRNA) announced today operating and financial results for the three and six months ended June 30, 2018.  Surna Inc. designs, engineers and manufactures application-specific environmental control and air sanitation systems for commercial, state- and provincial-regulated indoor cannabis cultivation facilities in the U.S. and Canada.

Summary Financial Results for Q2 2018

  • Our Q2 2018 revenue was $2,008,000, a decrease of $47,000, or 2%, compared to Q1 2018.  
  • We had Q2 2018 net bookings of $3,867,000, a decrease of $756,000, or 16%, compared to Q1 2018.  See "Project Life-Cycle and Backlog" below.
  • Our ending backlog as of June 30, 2018 was $8,883,000, an increase of $1,859,000, or 26%, compared to our March 31, 2018 backlog, and our largest quarter-end backlog. 
  • Our Q2 2018 gross profit margin was 26%, an increase of seven percentage points from our Q1 2018 gross profit margin. 
  • We realized a Q2 2018 net loss of $1,401,000 as compared to a Q1 2018 net loss of $1,884,000, a decrease of $483,000, or 26%.  The Q2 2018 net loss included $853,000 of non-cash, stock-based compensation expenses as compared to $641,000 of non-cash, stock-based compensation expenses and $21,000 of non-cash gain related to debt instruments in Q1 2018.
  • As of June 30, 2018, we had cash and cash equivalents of $1,629,000, compared to cash and cash equivalents of $881,000 as of March 31, 2018.  The $748,000 increase in cash and cash equivalents during Q2 2018 was primarily the result of cash provided by our financing activities of $816,000, which includes our private placement offering of $1,210,000, offset by our common share repurchase of $400,000.

Financial Summary Results for First Half of 2018

  • Revenue for the first half of 2018 was $4,062,000 compared to $3,335,000 for the first half of 2017, an increase of $727,000, or 22%. 
  • During the first half of 2018, we entered into sales orders for 23 projects, each with a sales value over $100,000, which we refer to as commercial-scale projects.  These commercial-scale projects represented aggregate net bookings of $8,584,000 for the first half of 2018.  This compares to 21 commercial-scale projects representing aggregate net bookings of $6,749,000 for the entire 2017 year.
  • We had a net loss of $3,284,000 for the first half of 2018, as compared to a net loss of $2,074,000 for the first half of 2017, an increase of $1,210,000, or 58%. The net loss included $1,493,000 of non-cash, stock-based compensation expenses in the first half of 2018 as compared to non-cash, stock-based compensation expense of $392,000 and debt-related expenses of $291,000 in the first half of 2017.

Chris Bechtel, the Company's CEO stated:  "We are pleased with the continued pace of demand for our products and services, as evidenced by strong net bookings in the first half of 2018.  Going into Q3 2018 with our largest backlog in history, we look forward to growing recognized revenues over the next two quarters as these projects move towards completion.  While we are excited about our growing backlog, we also remain focused on providing better visibility to our shareholders and improving our ability to predict with some level of certainty when and how much of our backlog will be converted into revenue over time."  

Results of Operations

Revenue for the three months ended June 30, 2018 was $2,008,000 compared to $1,742,000 for the three months ended June 30, 2017, an increase of $266,000, or 15%.  Although our net bookings trended favorably and our backlog grew during 2018, revenue recognition continues to be impacted by our long and uncertain project life-cycle and delays faced by our customers in the construction of new cultivation facilities.   

Cost of revenue increased by $155,000, or 12%, from $1,329,000 for the three months ended June 30, 2017 to $1,484,000 for the three months ended June 30, 2018.  The gross profit for the three months ended June 30, 2018 was $523,000 compared to $413,000 for the three months ended June 30, 2017. Gross profit margin increased by two percentage points from 24% for the three months ended June 30, 2017 to 26% for the three months ended June 30, 2018. This increase was due primarily to higher gross profit margin on our equipment sales, which were offset by lower gross profit margins on our engineering services and shipping and handling. 

Operating expenses increased by 21% from $1,610,000 for the three months ended June 30, 2017 to $1,941,000 for the three months ended June 30, 2018, an increase of $331,000. The operating expense increase consisted of: (i) an increase in selling, general and administrative expenses ("SG&A expenses") of $356,000, and (ii) an increase in advertising and marketing expenses of $14,000, offset by (iii) a decrease in product development expense of $39,000.

The increase in SG&A expenses for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, was due primarily to: (i) an increase of $542,000 in stock-related compensation paid to employees, (ii) an increase of $73,000 in salaries and benefits, (iii) an increase of $235,000 in consulting fees (of which $193,000 were paid in stock), offset by (iv) a decrease $37,000 in accounting, legal and other professional fees, and (v) a decrease of $442,000 in stock-related compensation paid to our independent directors.

We had an operating loss of $1,417,000 for the three months ended June 30, 2018, as compared to an operating loss of $1,197,000 for the three months ended June 30, 2017, an increase of $220,000, or 18%. The operating loss included $853,000 of non-cash, stock-based compensation expenses in the three months ended June 30, 2018 as compared to $262,000 for the three months ended June 30, 2017. Excluding these non-cash items, our operating loss decreased by $371,000.

Overall, we had a net loss of $1,401,000 for the three months ended June 30, 2018 as compared to a net loss of $1,073,000 for the three months ended June 30, 2017, an increase of $328,000, or 31%. The net loss included $853,000 of non-cash, stock-based compensation expenses in the three months ended June 30, 2018 as compared to non-cash, stock-based compensation expense of $262,000 and debt-related income (net) of $123,000 in the three months ended June 30, 2017.

Increased Commercial-Scale Project Bookings

Recent and anticipated regulatory changes involving medicinal and/or recreational cannabis use in various jurisdictions, such as California and Canada, tend to be a leading indicator for the granting of licenses for new facility construction.  As more new cultivation facilities become licensed, we in turn have an expanded set of potential customers that might buy our climate control systems.

For 2018, we are pursuing customers seeking to build larger indoor cannabis cultivation facilities in all regulated markets, with special focus in California and Canada.  In Canada, medicinal use of cannabis is federally legal, and the Canadian federal government recently legalized recreational use effective October 2018.  On June 26, 2018, Oklahoma voters approved a medical cannabis ballot initiative.  We also believe that Michigan will offer opportunities in 2018 as the state attempts to move to a recreational use regulated market, with the second-largest medical cannabis patient base in the U.S.  In November 2018, voters in Michigan will consider an initiative legalizing and regulating recreational use of cannabis.  Utah voters will also decide on a medical cannabis ballot measure in November 2018.

During the three months ended June 30, 2018, we entered into sales orders for 12 commercial-scale projects, each with a sales value over $100,000.  These commercial-scale projects represented aggregate net bookings of $4,145,000 for the three months ended June 30, 2018.  For the six months ended June 30, 2018, we entered into sales orders for 23 commercial-scale projects with aggregate net bookings of $8,584,000.  This compares to 21 commercial-scale projects representing aggregate net bookings of $6,749,000 for the year ended December 31, 2017.  The California and Canadian markets each showed signs of strength for us through the first half of 2018, and we expect this trend to continue through the remainder of 2018.  The following table sets forth our net bookings of commercial-scale projects for each cohort period presented (meaning, the commercial-scale contracts executed during each period for which we received an initial deposit, adjusted for any change orders or cancellations for that cohort group to date) by country/state.   

 














For the Six Months Ended June 30, 2018


For the Year Ended December 31, 2017


Number of
New
Commercial-
Scale Projects


Total
Commercial-
Scale Project
Net Bookings


Average
Commercial-
Scale Project
Net Bookings


Number of
New
Commercial-
Scale Projects


Total
Commercial-
Scale Project
Net Bookings


Average
Commercial-
Scale Project
Net Bookings

Canada

6


$      2,125,613


$        354,269


7


$      3,302,917


$        471,845

California

7


$      2,063,184


$        294,741


1


$         262,336


$        262,336

Colorado 

-


$                    -


$                   -


3


$         421,948


$        140,649

Arizona

-


$                    -


$                    -


3


$         785,547


$        261,849

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