EFOI - Energy Focus Inc. Reports Fourth Quarter and Fiscal Year 2022 Financial Results

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Energy Focus, Inc.(NASDAQ:EFOI), a leader in sustainable, energy-efficient lighting andcontrols systems products for the commercial, military maritime andconsumer markets, today announced financial results for its fourthquarter and fiscal year ended December 31, 2022.

Full-Year 2022 andSubsequent Business Highlights

• Net sales of $6.0million, down 39.5% from 2021, reflecting limited product availabilityfrom supply chain constraints, entering 2022 with a declining militarysales pipeline, and continuing fluctuations in the timing, pace, andsize of commercial and military projects
• Negative gross profitmargin of (5.3)%, down from gross profit margin of 17.2% in 2021,primarily driven by diminished sales and discounted pricing andimpairment write-offs in connection with our inventory reductionproject.
• Loss from operations of $9.3 million, compared to aloss from operations in 2021 of $8.7 million.Net loss of $10.3million, or $(1.27) per basic and diluted share of common stock,compared to a net loss of $7.9 million, or $(1.73) per basic anddiluted share of common stock in 2021.
• Cash of $52 thousand asof December 31, 2022, included in total availability (as defined under“Non-GAAP Measures” below) of $107 thousand, as compared to cashof $2.7 million and total availability of $4.4 million as of December31, 2021.
• Unsecured promissory notes issued during September2022, October 2022, November 2022, and December 2022 resulted in netaggregate proceeds of $1.5 million.
• 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 $650 thousandof common stock in January to February 2023.
• Paid down $1.0million on secured inventory lending facility and agreed to terminateaccounts receivable lending facility, reducing borrowing costs during2023.
• Restructured and paid down $500 thousand on outstandingbridge financing promissory note during 2023.

“2022 was a year for Energy Focus toreset,” said Lesley Matt, Chief Executive Officer. “Theorganization was defined by leadership transition, right-sizing andsignificant supply chain constraints throughout 2022. I joined inSeptember 2022 following almost nine months of interim leadership,with great thanks to our Lead Independent Director Steve Socolof. Our2022 results are not at the revenue or margin levels we believe EnergyFocus can deliver. We struggled to secure a consistent supply of ourbest-selling products which greatly impacted our year. We did overhaulour inventory position while reducing our operating square footage andresultant real estate expenses, and our operating results reflect theoverwhelming impact of promotional pricing and scrap activity. Wedramatically reduced our operating workforce. While it waschallenging to part ways with almost two-thirds of our colleagues fromthe beginning of the year, the remaining team is laser focused ondriving the business forward in the most efficient manner. All ofthese changes were critical to prime Energy Focus for turnaround. Thestrategic investment from Sander Electronics that we completed inJanuary validates this hard work, and brings us not only much neededfinancing, but also deep expertise in sourcing and new marketopportunities in LED and energy solutions products.”

"Our lessons goinginto 2023 are to focus on our core business in commercial and militarymaritime retrofit lighting and controls systems, identifyopportunities to innovate while controlling costs and delivering highvalue, and cautiously evaluate adjacent technologies that can leverageour existing sales channels. We entered 2022 with high hopes that ourultraviolet-C light disinfection (“UVCD”) products would pivot usto a direct-to-consumer product company. After evaluating marketdemand and supply chain challenges for our UVCD products, we revisedour business strategy to primarily focus back on LED lighting andcontrols products for our military maritime and commercial andindustrial lighting and control products. Critically, in May 2022 wereinvested in our government sales channel with a strategic hire of aU.S. Navy veteran focused on military and government sales. Heimmediately began rebuilding our sales pipeline for marine maritimesales, reversing a decline in orders and revenue that challenged muchof 2022. Military sales are a long lead-time, often built to ordersales pipeline where revenue trails orders by multiple quarters, somuch of this impact will fall into 2023.”

Full-Year 2022Financial Results

Net sales were $6.0 million for 2022, compared with $9.9million for 2021. Net sales from commercial products were $3.7million, or 62.8% of total net sales, for 2022, compared with $4.7million, or 47.5% of total net sales, for 2021. The decrease in netsales of commercial products reflects continuing fluctuations in thetiming, pace and size of commercial projects, including impacts of theCOVID-19 pandemic. Net sales of our commercial products decreased in2022 due to limited product availability impacts from supply chainconstraints and continuing fluctuations in the timing, pace, and sizeof commercial products. Net sales from military and maritime market(“MMM”) products were $2.2 million, or 37.2% of total net sales,for 2022, compared with $5.2 million, or 52.5% of total net sales, for2021. The decrease in net MMM product sales in 2022, as compared to2021 was mainly due to a reduced military sales pipeline at thebeginning of 2022 combined with delayed timing of expected shipmentsin fourth quarter of 2022 that were a result of supply chainconstraints.

Gross loss was $0.3 million, or (5.3)% of net sales, for 2022,compared with gross profit of $1.7 million, or 17.2% of net sales, for2021. The year-over-year decrease in gross margin was driven primarilyby lower sales, resulting in an overhang in fixed costs against thelower sales volume of $1.2 million, or 20% of net sales, and anunfavorable increase in variable costs. The company primarily focusedon selling inventory on hand, which carried a higher cost. As aresult, variable costs increased 29%, as compared to 2021, to 92% ofnet 2022 sales. Gross margin for 2021 included favorable price andusage variances for material and labor of $31.3 thousand, or 1.75% ofnet sales. Adjusted gross margin, as defined under “Non-GAAPMeasures” below, was (4.8)% for full-year 2022, compared to 18.8% inthe prior year, primarily driven by low sales in 2022.

Operating loss was $9.3million for 2022. This compares with an operating loss of $8.7 millionfor 2021. Net loss was $10.3 million, or $(1.27) per basic and dilutedshare of common stock, for 2022. This compares with a net loss of $7.9million, or $(1.73) per basic and diluted share of common stock, for2021, which included a non-cash, pre-tax income of $0.8 million fromthe forgiveness of the Company’s Paycheck Protection Program loan,as well as other income recorded relating to the Employee RetentionTax Credit (“ERTC”) of $0.9 million ($431 thousand of which wasreceived during the fourth quarter of 2021).

Adjusted EBITDA, asdefined under “Non-GAAP Measures” below, was a loss of $8.7million for 2022, compared with a loss of $7.9 million for 2021. Theincreased Adjusted EBITDA loss in 2022, as compared to 2021, wasprimarily due to lower sales and the overhang of fixed costs over thelower sales volume.

Cash was $0.1 million as of December 31, 2022 as compared to$2.7 million as of December 31, 2021. As of December 31, 2022, theCompany had total availability, as defined under “Non-GAAPMeasures” below, of $107 thousand, which consisted of $52 thousandof cash and $55 thousand of additional borrowing availability underits credit facilities. This compares to total availability of $4.4million as of December 31, 2021.

Fourth Quarter 2022 Financial Results:

Net sales were $0.7million for the fourth quarter of 2022, down 72.4% compared with $2.4million for the fourth quarter of 2021. Net sales from commercialproducts were $0.3 million, or 52.7% of total net sales, for thefourth quarter of 2022, an increase when compared to net sales fromcommercial products of $1.2 million, or 48.6% of total net sales, forthe fourth quarter of 2021, reflecting the continuing impacts on ourcustomers of the COVID-19 pandemic due to decreased demand incommercial space and commercial lighting. Net sales from MMM productswere $0.3 million, or 47.3% of total net sales, for the fourth quarterof 2022, down from $1.2 million, or 51.4% of total net sales, in thefourth quarter of 2021. Sales were higher in the prior period due to alarger focus on military sales in 2021.

Gross loss was $0.2 million, or (35.9)% ofnet sales, for the fourth quarter of 2022, compared with gross profitof $0.2 million, or 7.9% of net sales, for the fourth quarter of 2021.Sequentially, this compares with a gross loss of $0.2 million, or(9.2)% of net sales, in the third quarter of 2022. The year-over-yeardecline in gross margin was primarily driven by lower sales, anoverhang of fixed costs of $0.5 million, or 13.4% of net sales,against the lower sales volume, and higher variable cost. Variablecosts increased 57%, as compared to the fourth quarter of 2021, to123% of sales. As the company conserved cash, it primarily soldinventory on hand, which carried higher unit costs.

Adjusted gross margin,as defined under “Non-GAAP Measures” below, was (55.8)% for thefourth quarter of 2022, compared to 14.7% for the fourth quarter of2021 and compared sequentially to 3.2% in the third quarter of 2022.The decrease in adjusted gross margin from the fourth quarter of 2021and third quarter of 2022 is mainly due to higher variable costs andsales of inventory on hand.

Operating loss was $2.0 million for the fourthquarter of 2022, compared with an operating loss of $2.4 million forthe fourth quarter of 2021. Sequentially, this compares to anoperating loss of $2.4 million in the third quarter of 2022. Theyear-over-year decrease in the quarterly operating loss was primarilyattributable to significant cost containment measures.

Net loss was $2.3million in the fourth quarter of 2022, compared with net loss of $2.6million in the fourth quarter of 2021. Sequentially, this compares toa net loss of $2.7 million in the third quarter of 2022.

Net loss per basic anddiluted share of common stock was $(0.24) for the fourth quarter of2022, compared with net loss per basic and diluted share of commonstock of $(0.50) in the fourth quarter of 2021. Sequentially, thiscompares to a net loss per basic and diluted share of common stock of$(0.29) in the third quarter of 2022.

Adjusted EBITDA, as defined under “Non-GAAPMeasures” below, was a loss of $1.8 million for the fourth quarterof 2022, compared with a loss of $2.2 million in the fourth quarter of2021 and a loss of $2.3 million in the third quarter of 2022.

ConferenceCall:

TheCompany will host a conference call and webcast today, March 23, 2023at 11 a.m. ET to review the fourth quarter and full-year 2022 results,followed by a Q&A session. To participate in the call, please dialtoll-free 1-877-413-2411 or international 1-201-389-0879, andreference conference ID 13737275.

The conference call will be simultaneously webcast.To listen to the webcast, log on to it at: https://viavid.webcasts.com/starthere.jsp?ei=1605371&tp_key=714b45be50 .The webcast will be available at this link through April 8, 2023.Financial information presented on the call, including the earningspress release, will be available on the investors section of EnergyFocus’ website at investors.energyfocus.com.

About EnergyFocus

EnergyFocus is an industry-leading innovator of sustainable light-emittingdiode (“LED”) lighting and lighting control technologies andsolutions. As the creator of the first flicker-free LED lamps, EnergyFocus develops high quality LED lighting products and controls thatprovide extensive energy and maintenance savings, as well asaesthetics, safety, health and sustainability benefits overconventional lighting. In 2023, EFOI announced plans to add highefficiency GaN (gallium nitride) power supply products to its productportfolio. Energy Focus is headquartered in Solon, Ohio. For moreinformation, visit our website at www.energyfocus.com.

Forward-LookingStatements:

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 end markets,including consumer products; (x) our ability to increase demand in ourtargeted markets and to manage sales cycles that are difficult topredict and may span several quarters; (xi) the timing of largecustomer orders, significant expenses and fluctuations between demandand capacity as we manage inventory and invest in growthopportunities; (xii) our ability to successfully scale our network ofsales representatives, agents, distributors and other channel partnersto compete with the sales reach of larger, established competitors;(xiii) our ability to implement plans to increase sales and controlexpenses; (xiv) our reliance on a limited number of customers for asignificant portion of our revenue, and our ability to maintain orgrow such sales levels; (xv) our ability to add new customers toreduce customer concentration; (xviii) our ability to attract andretain a new chief financial officer; (xvii) our ability to manage thesize of our workforce while continuing to attract, develop and retainqualified personnel, and to do so in a timely manner; (xviii) ourability to diversify our reliance on a limited number of third-partysuppliers and development partners, our ability to manage third-partyproduct development and obtain critical components and finishedproducts on acceptable terms and of acceptable quality despite ongoingglobal supply chain challenges, and the impact of our fluctuatingdemand on the stability of such suppliers; (xix) our ability totimely, 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 tothe results 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,loss on impairment, income taxes, non-cash depreciation, stockcompensation, and incentive compensation; and
• adjusted grossmargins, which we define as our gross profit margins during the periodwithout the impact from excess and obsolete, in-transit and netrealizable value inventory reserve movements that do not reflectcurrent period inventory decisions.

We believe that our use of these non-GAAPfinancial measures permits investors to assess the operatingperformance of our business relative to our performance based on U.S.GAAP results and relative to other companies within the industry byisolating the effects of items that may vary from period to periodwithout correlation to core operating performance or that vary widelyamong similar companies, and to assess liquidity, cash flowperformance of the operations, and the product margins of our businessrelative to our U.S. GAAP results and relative to other companies inthe industry by isolating the effects of certain items that do nothave a current period impact. However, our presentation of thesenon-GAAP measures should not be construed as an indication that ourfuture results will be unaffected by unusual or infrequent items orthat 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 margins do not represent cashgenerated from operating activities in accordance with U.S. GAAP, arenot necessarily indicative of cash available to fund cash needs andare not intended to and should not be considered as alternatives tocash flow, net income and gross profit margins, respectively, computedin accordance with U.S. GAAP as measures of liquidity or operatingperformance. Reconciliations of these non-GAAP measures to the mostdirectly comparable financial measures calculated and presented inaccordance with U.S. GAAP are provided below.

ContactDetails

Investor Relations

+1 440-715-1300

ir@energyfocus.com

CompanyWebsite

https://energyfocus.com/

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