Executive Summary

Revenue of $2.50M, up 205% year over year; gross margin expanded to 43.6% from 10.8% and the company delivered its first-ever operating income of $0.37M in Q1 2016, a clear operational inflection point .
Deferred revenue (backlog proxy) rose to $1.40M from $0.99M at year-end, and cash increased to $1.14M, indicating improving liquidity and order momentum .
Net loss of $0.75M was driven by non-cash losses on derivative liabilities and financing costs; management emphasized pricing optimization, product mix, and exiting low-margin installation work as key drivers behind margin gains .
Leadership transition announced (Trent Doucet to CEO; Stephen Keen to Director of Technology) with strategic priorities: expand core product sales, commercialize Reflector, and pilot hybrid building; potential stock catalysts include Reflector shipments and backlog conversion .

What Went Well and What Went Wrong

What Went Well

First operating profit: operating income of $0.365M; Stephen Keen: “we nearly tripled revenue compared to the prior year’s quarter and delivered operating income for the first time in the company’s history” .
Pricing/mix uplift: gross margin jumped to 43.6% vs 10.8% YoY, citing favorable product mix and new pricing schedule; mgmt is exiting installation to focus on core competencies .
Commercial traction and IP: $725K Cloud 9 contract (~550 tons cooling), 4 design patents granted on the Reflector, and 8 pending patent applications .

What Went Wrong

Bottom line still negative: net loss of $0.75M due to $0.42M non-cash derivative mark-to-market and financing costs; reliance on convertible notes persists .
Execution delays: Reflector delivery was postponed due to licensing/construction delays; mgmt incorporated interactive control features and expects shipments to begin in the quarter .
Controls/going concern risks: material weaknesses in internal controls remain and the company disclosed going concern risks given working capital deficits and dependence on financing .

Financial Results

Metric	Q2 2015 (oldest)	Q3 2015	Q1 2016 (newest)
Revenue ($USD)	$1,677,950	$3,634,091	$2,498,604
Gross Margin ($USD)	$351,181	$679,421	$1,088,660
Gross Margin %	—	—	44%
Operating Income (Loss) ($USD)	$(690,773)	$(540,406)	$364,979
Net Income (Loss) ($USD)	$(976,610)	$(1,335,422)	$(746,214)
EPS (Basic, $)	$(0.01)	$(0.01)	$(0.01)

YoY comparison (Q1 2016 vs Q1 2015):

Revenue: $2,498,604 vs $819,063 (+205%)
Gross margin: $1,088,660 vs $88,299 (+$1.00M)
Gross margin %: 43.6% vs 10.8% (+32.8pp)
Operating income: $364,979 vs $(879,546) (+$1.24M)

KPIs and balance indicators:

KPI	Q2 2015 (oldest)	Q3 2015	Q1 2016 (newest)
Cash ($USD)	$145,502	$979,309	$1,140,823
Deferred Revenue ($USD)	$1,423,321	$1,489,781	$1,395,818
Accounts Receivable (Net) ($USD)	$818,643	$954,965	$299,351
Inventory ($USD)	$569,466	$879,159	$1,073,573

Estimates vs. actuals:

Wall Street consensus (S&P Global): unavailable for CEAD; therefore no estimate comparison shown. Values retrieved from S&P Global were unavailable for this ticker mapping.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY/Quarter	None provided	None provided	Maintained (no formal guidance)
Gross Margin	FY/Quarter	None provided	Focus on favorable mix and pricing (no numeric guidance)	Maintained (qualitative only)
OpEx	FY/Quarter	N/A	Mgmt seeks lower OpEx as % of revenue; absolute expenses to rise with growth	Qualitative update
Product/Shipments	Q2 2016	Reflector shipments TBD	Expect shipments to begin this quarter	Raised expectations qualitatively
Capital	FY 2016	N/A	Continued deleveraging via conversions; evaluating funding options	Qualitative update

Earnings Call Themes & Trends

(Note: No transcript available in our document set; themes summarized from Q2/Q3 2015 and Q1 2016 filings/press releases.)

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q1 2016)	Trend
Product commercialization (Reflector)	Q2: prototype/testing and pre-orders ; Q3: strong sales growth but still development	Nearing fulfillment of >400 Reflectors; shipments expected; added interactive control system	Improving execution
Pricing/mix strategy	Q2/Q3: margin pressure, installation drag	New pricing schedule + high-margin product mix; exit installation	Margin expansion
Regulatory/macro tailwind	Q2/Q3: legalization drives demand	“Capitalizing on positive regulatory environment”	Supportive
Backlog/orders (Deferred revenue)	Q2: $1.42M; Q3: $1.49M	$1.40M deferred revenue	Stable-high
Capital structure/derivatives	Q3: significant debt discounts, derivatives	Loss on change in derivative liabilities ($0.42M); continued note conversions	De-risking via conversions but costs persist
Internal controls/going concern	Q3: not effective controls ; going concern	Controls not effective; going concern disclosure	Unchanged risk

Management Commentary

Stephen Keen (CEO): “we nearly tripled revenue compared to the prior year’s quarter and delivered operating income for the first time in the company’s history” .
On Reflector shipments: “we seized the opportunity to advance the Reflector and incorporate an interactive control system… We believe we will begin shipments this quarter” .
Trent Doucet (incoming CEO): “We have greatly improved operations and are on the path toward consistent operational profitability... strategic priorities are expanding sales, demonstrating our hybrid building, capitalizing on the positive market” .

Q&A Highlights

No earnings call transcript was available in our document set. The company hosted a call on May 16, 2016 with replay/webcast access, but we were unable to retrieve the transcript to extract Q&A themes .

Estimates Context

S&P Global consensus estimates for CEAD were unavailable in our system due to missing CIQ mapping; therefore comparisons to Street consensus could not be performed. We searched for “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q1 2016, but no mapping was found for CEAD, indicating no accessible consensus in S&P Global for this microcap OTC issuer at that time.

Key Takeaways for Investors

Bold operational inflection: first operating profit and gross margin step-up reflect pricing discipline and a shift to higher-margin core products; watch for confirmation in subsequent quarters .
Backlog conversion is the near-term catalyst: $1.40M deferred revenue plus the $725K Cloud 9 contract and expected Reflector shipments support near-term revenue visibility .
Financing/derivative headwinds remain: net losses are driven by non-cash derivative revaluations and financing costs; continued conversions help de-risk balance sheet over time .
Execution risk on Reflector: delays tied to licensing/construction underline project timing risk; successful shipments and installations will be key validation milestones .
Governance/controls: material weaknesses in internal controls and going concern disclosures warrant caution; monitor remediation plans and capital access .
Customer/vendor concentration: elevated concentration and vendor reliance amplify operational risk; margin gains suggest progress, but diversification would strengthen resilience .
Leadership transition focus: Doucet’s emphasis on commercialization and operational efficiency aligns with margin improvement trajectory; track product mix and recurring service monetization .

CEA Industries Inc. (CEAD)·Q1 2016 Earnings Summary