EFOI - Energy Focus Inc. Reports First Quarter 2023 Financial Results

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SOLON, Ohio, May 11, 2023 -- Energy Focus, Inc. (NASDAQ:EFOI),a leader in sustainable, energy-efficient lighting and control systemsproducts for the commercial, military maritime and consumer markets,today announced financial results for its first quarter ended March31, 2023.

First Quarter 2023 FinancialHighlights:

• Net sales of $0.9 million, decreased 54.9%compared to the first quarter of 2022, reflecting a $0.3 million, or34.3%decrease in military sales, and a $0.8 million, or 71.7% decreasein commercial sales, year-over-year. As compared to the fourth quarterof 2022, net sales increased by 40.3%, primarily due to a $0.3 millionincrease in military sales, while commercial sales remainedflat.
• Positive gross profit margin of 1.8%, up from negativegross profit margins of 1.3% in the first quarter of 2022 dueprimarily to significantly reduced fixed costs, offsetting the impactof lower sales volumes. Sequentially, gross profit was upsignificantly as compared to negative 35.9% in the fourth quarter of2022, due to reduced variable costs.
• Loss from operations of$1.2 million, compared to a loss from operations of $2.7 million inthe first quarter of 2022 and to a loss from operations of $2.0million in the fourth quarter of 2022.
• Net loss of $1.3million, or $(0.08) per basic and diluted share of common stock,compared to a net loss of $2.8 million, or $(0.44) per basic anddiluted share of common stock, in the first quarter of 2022.Sequentially, the net loss decreased by $1.0 million compared to netloss of $2.3 million, or $(0.24) per basic and diluted share of commonstock in the fourth quarter of 2022.
• Cash of $0.3 million,included in total availability (as defined under “Non-GAAPMeasures” below) of $0.4 million, each as of March 31, 2023, ascompared to cash of $0.1 million and total availability of $0.1million as of December 31, 2022.
• Strategic investmentcompleted in January 2023 resulting in net proceeds of $2.1 millionand conversion of additional $1.5 million outstanding on promissorynotes into common stock.
• Private placements of additional $955thousand of common stock during the first quarter of2023.
• Paid down $1.0 million on secured inventory lendingfacility and agreed to terminate accounts receivable lending facility,reducing borrowing costs during 2023.
• Restructured unsecuredpromissory note, paying down $500 thousand exchanging an additional$250 thousand for common stock and extending payments into2024.

“First quarterhas set the stage for growth in 2023 for Energy Focus,” said LesleyMatt, Chief Executive Officer. “The work we accomplished in thethree months ended March 31, 2023 has started to transform EnergyFocus to drive sales and new product development that we hope willshow in our full year 2023 results and beyond. Although our firstquarter profit margin was not where we wanted to be, turning topositive margin reflects our hard work on past inventory reserves.There is always room for improvement in sales numbers, and I amoptimistic that we have our biggest hurdles behind us and are primedand ready to deliver in the quarters ahead. After the strategicinvestment from Sander Electronics was completed in January, the teamsworked together to get our best-selling, higher margin products backinto the production pipeline while collaborating on new marketopportunities in LED and energy solutions products. During this time,we were also able to significantly reduce operating expenses and cleanup our balance sheet to improve stockholder equity and deploy cashflows in operations. Although there is a tremendous amount of workstill to be done, I believe that we are focusing back on sales, newproduct development and innovation.”

First Quarter 2023 Financial Results:

Net saleswere $0.9 million for the first quarter of 2023, compared to $2.1million in the first quarter of 2022, a decrease of $1.1 million, or54.9%. Net sales from military maritime products were approximately$0.6 million, or 65.5% of total net sales, for the first quarter of2023, compared to $0.9 million, or 45.0% of total net sales, in thefirst quarter of 2022, (including $0.3 million of deferred revenuerecognized in that prior period). Sequentially, military maritimesales were up $0.3 million, or 48%, compared to fourth quarter of2022, reflecting the building impact of our renewed focus on militarysales commenced mid-year 2022 with the strategic hire of a head of MMMsales. Net sales from commercial products were approximately $0.3million, or 34.5% of total net sales, for the first quarter of 2023,as compared to $1.1 million, or 55.0% of total net sales, in the firstquarter of 2022, reflecting lower sales volumes and market adjustedpricing.

Gross profit margin was$17 thousand, or 1.8% of net sales, for the first quarter of 2023.This compares with negative gross profit margin of $26 thousand, or(1.3)% of net sales, in the first quarter of 2022. Sequentially, thiscompares with negative gross profit of $238 thousand, or (35.9)% ofnet sales, in the fourth quarter of 2022. The year-over-year increasein gross margin rate was driven by a $488 thousand decrease in fixedcosts, partially offset by the $288 thousand impact from lower volume.In the first quarter of 2022, we also included a $129 thousandadjustment to the inventory reserve to impair slow moving inventory inthe first quarter of 2022. The quarter-over-quarter increase in grossmargin rate was driven primarily by better product mix from additionalmilitary sales, which provided a $442 thousand impact to gross margin.

Adjusted grossmargin, as defined under “Non-GAAP Measures” below, was negative0.3% for the first quarter of 2023, compared to 5.0% in the firstquarter of 2022, primarily driven by low sales volume in the firstquarter of 2023. The decline in revenue was significantly offset bylower fixed costs, which were 23% of sales in the first quarter of2023 and 27% of sales in the first quarter of 2022. Variable costsremained constant at 25% of sales for both quarters.

Sequentially, thenegative 0.3% adjusted gross margin in the first quarter of 2023 is amarked improvement compared to adjusted gross margin of negative 55.8%in the fourth quarter of 2022. The increase from the fourth quarter of2022 was primarily driven by lower variable costs as well as increasedsales during the first quarter of 2023.

Operating loss was $1.2 million for the firstquarter of 2023, compared to an operating loss of $2.7 million in thefirst quarter of 2022. Sequentially, this compares to an operatingloss of $2.0 million in the fourth quarter of 2022. Net loss was $1.3million, or $(0.08) per basic and diluted share of common stock, forthe first quarter of 2023, compared with a net loss of $2.8 million,or $(0.44) per basic and diluted share of common stock, in the firstquarter of 2022. Sequentially, this compares with a net loss of $2.3million, or $(0.24) per basic and diluted share of common stock, inthe fourth quarter of 2022.

Adjusted EBITDA, as defined under “Non-GAAPMeasures” below, was a loss of $1.2 million for the first quarter of2023, compared with a loss of $2.6 million in the first quarter of2022 and a loss of $1.8 million in the fourth quarter of 2022. Theimproved adjusted EBITDA loss in the first quarter of 2023, ascompared to the adjusted EBITDA loss for the first quarter of 2022,was due to the lower costs, primarily salaries and related payrollcosts.

Cash was$0.3 million as of March 31, 2023. This compares with cash of $0.1million as of December 31, 2022. As of March 31, 2023, the Company hadtotal availability, as defined under “Non-GAAP Measures” below, of$0.4 million, which consisted of $0.3 million of cash and $0.1 millionof additional borrowing availability under its credit facilities. Thiscompares to total availability of $1.1 million as of March 31, 2022and total availability of $0.1 million as of December 31, 2022. Duringthe quarter ended March 31, 2023, we reduced the maximum capacity onour inventory facility to $500 thousand and agreed to pay it down over2023, as well as agreed with our receivables lender to terminate ouraccounts receivable lending facility. Our net inventory balance of$4.9 million as of March 31, 2023, decreased $0.5 million from our netinventory balance as of December 31, 2022.

Earnings ConferenceCall:

TheCompany will host a conference call and webcast today, May 11, 2023,at 11 a.m. ET to discuss the first quarter 2023 results, followed by aQ & A session.

You can access the live conference call by dialing thefollowing phone numbers:

• Toll Free: 1-877-451-6152 or

• International: 1-201-389-0879

• Conference ID#:13738656

Theconference call will be simultaneously webcast. To listen to thewebcast, log onto it at: https://viavid.webcasts.com/starthere.jsp?ei=1614200&tp_key=fdff475ce4 .The webcast will be available at this link through May 26, 2023.Financial information presented on the call, including this earningspress release, will be available on the investors section of EnergyFocus’ website: investors.energyfocus.com.

About EnergyFocus

Energy Focus is an industry-leading innovator ofsustainable light-emitting diode (“LED”) lighting and lightingcontrol technologies and solutions. As the creator of the firstflicker-free LED lamps, Energy Focus develops high quality LEDlighting products and controls that provide extensive energy andmaintenance savings, as well as aesthetics, safety, health andsustainability benefits over conventional lighting. In 2023, EFOIannounced plans to add high efficiency GaN (gallium nitride) powersupply products to its product portfolio. Energy Focus isheadquartered in Solon, Ohio. For more information, visit our websiteat energyfocus.com.

Forward-Looking Statements:

Forward-looking statements in this release are made pursuant tothe safe harbor provisions of the Private Securities Litigation ReformAct of 1995. These statements can generally be identified by the useof forward-looking terminology, including the terms “believes,”“estimates,” “anticipates,” “expects,” “feels,”“seeks,” “forecasts,” “projects,” “intends,”“plans,” “may,” “will,” “should,” “could” or“would” or, in each case, their negative or other variations orcomparable terminology. These forward-looking statements include allmatters that are not historical facts and include statements regardingour intentions, beliefs or current expectations concerning, amongother things, our results of operations, financial condition,liquidity, prospects, growth, strategies, capital expenditures, andthe industry in which we operate. By their nature, forward-lookingstatements involve risks and uncertainties because they relate toevents and depend on circumstances that may or may not occur in thefuture. Although we base these forward-looking statements onassumptions that we believe are reasonable when made in light of theinformation currently available to us, we caution you thatforward-looking statements are not guarantees of future performanceand that our actual results of operations, financial condition andliquidity, and industry developments may differ materially fromstatements made in or suggested by the forward-looking statementscontained in this release. We believe that important factors thatcould cause our actual results to differ materially fromforward-looking statements include, but are not limited to: (i) ourneed for and ability to obtain additional financing in the near term,on acceptable terms or at all, to continue our operations; (ii) ourability to regain and maintain compliance with the continued listingstandards of The Nasdaq Stock Market (iii) our ability to refinance orextend maturing debt on acceptable terms or at all; (iv) our abilityto continue as a going concern for a reasonable period of time; (v)our ability to realize synergies with our strategic investor; (vi)instability in the U.S. and global economies and businessinterruptions experienced by us, our customers and our suppliers,particularly in light of supply chain constraints and other long-termimpacts of the coronavirus pandemic; (vii) the competitiveness andmarket acceptance of our LED lighting and control technologies andproducts; (viii) our ability to compete effectively against companieswith lower prices or cost structures, greater resources, or more rapiddevelopment capabilities, and new competitors in our target markets;(ix) our ability to extend our product portfolio into new applicationsand end markets; (x) our ability to increase demand in our targetedmarkets and to manage sales cycles that are difficult to predict andmay span several quarters; (xi) the timing of large customer orders,significant expenses and fluctuations between demand and capacity aswe manage inventory and invest in growth opportunities; (xii) ourability to successfully scale our network of sales representatives,agents, distributors and other channel partners to compete with thesales reach of larger, established competitors; (xiii) our ability toimplement plans to increase sales and control expenses; (xiv) ourreliance on a limited number of customers for a significant portion ofour revenue, and our ability to maintain or grow such sales levels;(xv) our ability to add new customers to reduce customerconcentration; (xviii) our ability to attract and retain a new chieffinancial officer; (xvii) our ability to manage the size of ourworkforce while continuing to attract, develop and retain qualifiedpersonnel, and to do so in a timely manner; (xviii) our ability todiversify our reliance on a limited number of third-party suppliersand development partners, our ability to manage third-party productdevelopment and obtain critical components and finished products onacceptable terms and of acceptable quality despite ongoing globalsupply chain challenges, and the impact of our fluctuating demand onthe stability of such suppliers; (xix) our ability to timely,efficiently and cost-effectively transport products from ourthird-party suppliers by ocean marine and other logistics channelsdespite global supply chain and logistics disruptions; (xx) the impactof any type of legal inquiry, claim or dispute; (xxi) themacro-economic conditions, including rising interest rates andrecessionary trends, in the United States and in other markets inwhich we operate or secure products, which could affect our ability toobtain raw materials, component parts, freight, energy, labor, andsourced finished goods in a timely and cost-effective manner; (xxii)our dependence on military maritime customers and on the levels andtiming of government funding available to such customers, as well asthe funding resources of our other customers in the public sector andcommercial markets; (xxix) business interruptions resulting fromgeopolitical actions such as war and terrorism, natural disasters,including earthquakes, typhoons, floods and fires, or from healthepidemics, or pandemics or other contagious outbreaks; (xxx) ourability to respond to new lighting and control technologies and markettrends; (xxxi) our ability to fulfill our warranty obligations withsafe and reliable products; (xxxii) any delays we may encounter inmaking new products available or fulfilling customer specifications;(xxxiii) any flaws or defects in our products or in the manner inwhich they are used or installed; (xxix) our ability to protect ourintellectual property rights and other confidential information, andmanage infringement claims by others; (xxx) our compliance withgovernment contracting laws and regulations, through both direct andindirect sale channels, as well as other laws, such as those relatingto the environment and health and safety; (xxxi) risks inherent ininternational markets, such as economic and political uncertainty,changing regulatory and tax requirements and currency fluctuations,including tariffs and other potential barriers to international trade;and (xxix) our ability to maintain effective internal controls andotherwise comply with our obligations as a public company. Foradditional factors that could cause our actual results to differmaterially from the forward-looking statements, please refer to ourmost recent annual report on Form 10-K and quarterly reports on Form10-Q filed with the Securities and Exchange Commission.

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Non-GAAP Measures

In addition to theresults in this release that are presented in accordance withgenerally accepted accounting principles in the United States (“U.S.GAAP”), we provide certain non-GAAP measures, which presentoperating results on an adjusted basis. These non-GAAP measures aresupplemental measures of performance that are not required by orpresented in accordance with U.S. GAAP and, include:

• totalavailability, which we define as our ability on the period end date toaccess additional cash if necessary under our short-term creditfacilities, plus the amount of cash on hand on that samedate;
• adjusted EBITDA, which we define as net income (loss)before giving effect to restructuring expenses, financing charges,income taxes, non-cash depreciation, stock non-cash compensation,accrued incentive compensation, non-routine charges to other income orexpense, and change in fair value of warrant liability;and
• adjusted gross margins, which we define as our grossprofit margins during the period without the impact from excess andobsolete, in-transit and net realizable value inventory reservemovements that do not reflect current period inventorydecisions.

We believe that ouruse of these non-GAAP financial measures permits investors to assessthe operating performance of our business relative to our performancebased on U.S. GAAP results and relative to other companies within theindustry by isolating the effects of items that may vary from periodto period without correlation to core operating performance or thatvary widely among similar companies, and to assess liquidity, cashflow performance of the operations, and the product margins of ourbusiness relative to our U.S. GAAP results and relative to othercompanies in the industry by isolating the effects of certain itemsthat do not have a current period impact. However, our presentation ofthese non-GAAP measures should not be construed as an indication thatour future results will be unaffected by unusual or infrequent itemsor that the items for which we have made adjustments are unusual orinfrequent or will not recur. Further, there are limitations on theuse of these non-GAAP measures to compare our results to othercompanies within the industry because they are not necessarilystandardized or comparable to similarly titled measures used by othercompanies. We believe that the disclosure of these non-GAAP measuresis useful to investors as they form part of the basis for how ourmanagement team and Board of Directors evaluate our operatingperformance.

Total availability, adjusted EBITDA and adjusted gross marginsdo not represent cash generated from operating activities inaccordance with U.S. GAAP, are not necessarily indicative of cashavailable to fund cash needs and are not intended to and should not beconsidered as alternatives to cash flow, net income and gross profitmargins, respectively, computed in accordance with U.S. GAAP asmeasures of liquidity or operating performance. Reconciliations ofthese non-GAAP measures to the most directly comparable financialmeasures calculated and presented in accordance with U.S. GAAP areprovided below for total availability, adjusted EBITDA and adjustedgross margins, respectively.

Contact Details

InvestorRelations

+1 440-715-1300

ir@energyfocus.com

CompanyWebsite

https://energyfocus.com/

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