Good afternoon, ladies and gentlemen. And welcome to the Surna Inc. Q1 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we’ll open the floor for your questions after the presentation. [Operator Instruction] It is now my pleasure to turn the floor over to your host, Surna CEO, Tony McDonald.

Sir, the floor is yours..

Thank you and good afternoon. Welcome to Surna's first quarter 2021 earnings call. My name is Tony McDonald, I’m the company's Chairman and CEO. Please refer to our investor presentation, which you can see on this webinar.

This presentation has been filed with the SEC as of this morning, and is also available at the Investor Relations section of our website at www.surna.com.

First ever letter to stockholders in March of 2019, we made a number of promises to our shareholders, one of which was to implement a full Investor Relations program, and establish a robust two-way communications program in the form of quarterly earnings calls open to all members of the investment community and with a short script and fulsome Q&A.

We made good on that promise in 2019, but we fell short last year as the pandemic hit and we were compelled to curtail our Investor Relations activities, which cost time and money that had to be prioritized elsewhere.

As our business has recovered, we have resumed our Investor Relations activities, and today we are resuming our quarterly earnings calls, with one exception please ask any questions you wish. As you may know we are currently in a proxy solicitation process with our annual meeting scheduled for May the 28th.

On direction of our SEC Counsel, I may not answer questions related to the proposals on the proxy. As the next supplement to our Investor Relations activities, we will be sending out email notifications regarding Surna news, developments and SEC filings directly to interested parties.

If you would like to be on our email distribution list, please use the link on the last page of this presentation, or send an email directly to me at tony@surna.com. Before we begin, please be advised this call may contain statements of a forward looking nature relating to future events.

These forward-looking statements are subject to the inherit 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 call, including the risk factors set forth in our Form 10-K, which we filed with the SEC in March.

Please refer to our SEC filings for more detailed discussion of the risks and uncertainties associated with our business. Please note that we filed our quarterly report on Form 10-Q and issued a press release announcing first quarter 2021 results on May 11, 2021. These documents can be found at our website at www.surna.com/investor-relations.

While we will highlight some key information contained in the press release and the 10-Q, the primary purpose of this call are to articulate our recently updated strategic and organic growth plans and our key operating metrics.

Before we move further on the investor presentation, I will cover recent financial highlights from our first quarter, as presented in the Form 10-Q. The associated earnings press release, and our preliminary first quarter results, press release from April 22.

We are pleased to report that during the fourth quarter, we had the second best bookings quarter in our history of $5.5 million. This result was up 388% over the same period last year and was 51% higher than in Q4 of 2020.

The combined Q1 2021 and Q4 2020 bookings together represent a two consecutive quarter growth of 114% over the comparable year-over-year period. In the trailing three quarters booking performance was up 94% over the comparable year-over-year period.

Notably the quarter’s bookings included the single largest contract in our history, and the contract for a non-cannabis facility. Our Q1 2021 revenue was $2.4 million, which represents a 31% increase compared to Q1 2020 revenue. For Q1 2021, our operating loss and net loss was $686,000 and $793,000, respectively.

This compared to Q1 2020, operating loss and net loss of $946,000 and $938,000, respectively. Our Q1 2021 adjusted net loss was $650,000 compared to a Q1 2020 adjusted net loss of $718,000. Our Q1 2021 gross profit margin was 14.6% compared to 25.2% for Q1 2020, a decrease of 10.7 percentage points.

As of March 31st, 2021, our cash, cash equivalents and restricted cash was $3,271,000 compared to $2,285,000 as of December 31st, 2020. We generated $484,000 in cash flow from our operating activities during Q1 2021. Our project backlog is now at the second highest level ever and is 37% higher than where we finished Q4 2020.

Our cash position is also nearly $1 billion higher than where we ended 2020. Unfortunately, our revenues, and therefore gross margins were hampered by production and shipping delays from certain vendors, but we are confident that these will be caught up in Q2 and Q3 2021.

We believe that the sales momentum that has been built during the last three quarters will only be accelerated by our newly announced organic growth strategy and our partnership with RSX enterprises. Point b, Corporate strategy. Please refer to the corporate strategy slide of our presentation.

I assumed this role in late 2018, and during my first year at Surna, we formulated the goal for the company, and three initiatives for its accomplishment. The goal was to grow the company into a widely held, actively traded and fully valued NASDAQ listed company by the end of 2020.

Today Surna is widely held with around 16,000 retail shareholders, although with no institutional investors. Our stock is also actively traded for an issue of our size. After an outstanding year of growth in 2019, where our revenue was up nearly 60%, and we had our first cash flow positive year.

We were optimistic that we would be able to uplift in 2020, but our plans were disrupted by the COVID pandemic and its impact on our operations. However, our bookings performance during the last three quarters, have demonstrated our continued success at growing the company.

And we believe that our goal is valid, even if it was delayed due to unusual circumstances. To reach our goal, we set out three key pillars of our corporate strategy for growing the company and increasing shareholder value. First, pursue aggressive organic growth.

Second, seek strategic relationships, mergers and acquisitions to add to our existing business. And third, pursuing uplisting to a national exchange and seek additional growth capital. First, pursue aggressive organic growth.

We serve a market for the construction and expansion of controlled environment agricultural facilities and businesses that is projected to grow at a 20-plus percent compound annual growth rate for the foreseeable future.

Our primary vertical market of cannabis cultivation facilities has been joined by the similarly rapidly growing urban vertical farming market to create two market opportunities segments that we are positioned to serve. Two, seek strategic relationships, mergers and acquisitions to add to our existing business.

We enjoy wide-brand recognition in the cannabis cultivation industry because of our longevity in the market segment 15 years and the number of cultivation projects over 800, including over 200 projects with licensed commercial facilities we have served.

Our core expertise is engineering the environmental controls of these facilities, which is a sophisticated engineering challenge due to the high humidity, latent heat and heat load, sensible heat within these facilities.

Not only are the loads high, but the environmental conditions within these facilities must be held within limits that the facilities managers request.

Engineering to meet these limits requires us to consider all of the primary components within the facility, lighting, irrigation, HBACD, fertigation, sensors, controls, co2 dosing, monitoring and alarms, facility physical limits, such as power availability and energy consumption.

We believe that the expertise gained in working with many of the primary component provides us with a uniquely well-informed view of the efficacy of the many primary components on offer in the marketplace.

We further believe that this knowledge will help us make wise choices of which products to pursue for strategic relationships, and which providers to potentially merge with or acquire. For smaller component providers, we believe that our publicly traded platform, and our existing sales and marketing reach will make us an attractive partner.

Third, pursuing uplisting to a national exchange and the growth supporting capital raise. In 2019, our revenue grew 60% year-over-year and we had our first ever cash flow positive year.

Despite the challenges brought on by the COVID-19 pandemic in the first half of 2020, we believe that our revenue growth in 2019 and then in the Q3 2020 through Q1 2021 period validates our market opportunity, and our business model.

We also believe that the costs of being a small public company are substantial and require cash that could otherwise be used to sustain and grow the business. There is only one solution to this issue, rapid revenue and margin growth.

We believe that we have growth opportunities, but we are capital constrained and must seek upward side financing to pursue the growth we believe we can achieve. A capital raise is in potentially dilutive to our existing shareholders and options holders, which include our directors, officers, executives and all of our employees.

As such, our insiders interests are aligned with those of our external shareholders, and we do not take the prospect of dilution likely. We do so with the firm conviction that with additional capital, we can create increased shareholder value. The company has not raised capital in nearly three years.

In that time, our management has operated the business with financial discipline, which included reducing headcount and deferring compensation as needed. Despite this financial discipline, we achieved record revenue growth. With more capital, we are confident that we can achieve much more.

Uplisting to a national exchange will enhance our stock as a currency for both potential investors, and for potential acquisition targets, as well as enhancing our credibility in the eyes of potential customers. Uplisting will likely require a reverse split of our stock.

We believe that these initiatives will allow us to achieve our goal, and create increased shareholder value. Please refer to Slide 12, Controlled Environment Agriculture. On May 4, we filed a press release that updated our organic growth strategy, which consists of three components. First, new markets.

The market we primarily serve today is for indoor cannabis cultivation, which is forecast to continue to grow over 20% for the foreseeable future.

With respect to new markets, we have decided to also serve the non-cannabis Controlled Environment Agriculture market, in particular the urban vertical farming market, the skills, products and services we have developed, can be readily applied to this market. And indeed we have served a few such facilities over the years.

Just last quarter, we entered into a contract with a non-cannabis facility, and we believe that we can be successful serving this market. Please now refer to Slide 13, CEA Infrastructure Opportunities. Two, new products and services.

We will expand our product and service range, expanding from exclusively environmental controlled to include most of the CEA technical infrastructure and from facility selection to full lifecycle support after construction. In addition, we will increase our product and service range in each product category.

We already provide some of these products and services, as may be seen on the slide. As we do with environmental control, we will act as technology agnostic engineers and assess each customer application, offering alternative designs and a select range of curated technologies. Please now refer to Slide 14, Trade Name Update.

Finally, on May 4, we announced that we have enhanced our branding to Surna Cultivation Technologies to capture the changes in our abilities and markets and to make it easier for prospects to find this.

In summary, we are pleased with the increased bookings we have achieved over the last three quarters, and we look forward to converting more of our backlog into revenue and profitability.

We are very optimistic about the updated organic growth strategy we announced recently, and we are confident that it will help us achieve our overall corporate goals. Surna’s leadership team and employees appreciate the support of all of our shareholders. This concludes today's prepared remarks and we will open the floor for questions.

Let me reiterate that I can’t answer any questions about the proposals in our proxy solicitation. At this time, I would like to ask our operator to provide instructions for the Q&A session..

Thank you. Ladies and gentlemen, the floor is now open for questions [Operator Instructions].

As we wait for people to enter the queue, I will field some questions received by email and during the webcast. First question. Is the market for retrofits lower than expected for Surna or not as attractive a market as originally viewed? Answer.

The retrofit market has not developed as quickly as we would have preferred, but we still believe that over the long term, it will be a steady market for us. Cultivation facilities are still fairly new and as the age, we believe that opportunities will develop force. Next question.

In previous presentations, there was an annual sales forecast of $20 million to $40 million in revenue. Has that changed for 2021? Answer. We do not and have not provided sales forecasts, but we have previously cited revenue goals for the company. And for this year, our goal is around $20 million of organic revenue.

We would like to add that much in required revenue as well. But again, that is a goal, not a forecast. Next question. It's just the end in partnership began have any new dehumidifier products been developed, or Surna cobranding the current and in product lineup? Answer.

Surna has partnered with and into supply and the dehumidifiers incorporated into Surna design systems. This partnership does not include co development. That concludes the pre submitted questions. Operator, are there any questions from the lines at this time..

There were no questions from the lines at this time..

Very good. Then this concludes today's conference call. We look forward to presenting our second quarter results in mid August. Thank you for your continued interest in Surna..

An audio replay of this call will be available on surna.com/investor-relations, until May, 27, 2021. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation..