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

(NewsDirect)

Energy Focus, Inc.(NASDAQ:EFOI), a leader in energy-efficient lighting and controlsystem products for the commercial market and military maritime market(“MMM”), today announced financial results for its third quarterended September 30, 2023.

ThirdQuarter 2023 Financial Highlights:

• Net sales of $1.3 million, decreased24.1% compared to the third quarter of 2022, reflecting a decrease of$0.8 million, or 61.3%, in commercial sales, partially offset by a$0.4 million, or 76.7%, increase in military sales period-over-period.Sequentially, net sales increased by 26.9%, primarily reflecting a$0.1 million and $0.2 million increase in commercial and militarysales, respectively, as compared to the second quarter of2023.
• Gross loss margin of 3.6% decreased from a gross lossmargin of 9.2% in the third quarter of 2022, and decreased from grossprofit margin of 17.0% in the second quarter of 2023. Theperiod-over-period changes, as compared to the third quarter of 2022,were driven mainly by a favorable impact from variable cost whichincluded a one-time adjustment taken during the period of 2022 for ascrap write-off. Sequentially, the decrease quarter-over-quarter, ascompared to the second quarter of 2023, primarily relates to anunfavorable impacts from variable cost such as change in inventoryreserves, as well as from increase of fixed cost and lower sellingprices than the purchase prices as the Company tried to sell longoutstanding items in the inventory.
• Loss from operations of$0.9 million improved as compared to loss from operations of $2.4million in the third quarter of 2022, and loss from operations of $1.1million in the second quarter of 2023.
• Net loss of $0.9million, or $(0.27) per basic and diluted share of common stock,compared to a net loss of $2.7 million, or $(2.03) per basic anddiluted share of common stock, in the third quarter of 2022.Sequentially, the net loss decreased by $0.3 million compared to a netloss of $1.2 million, or $(0.42) per basic and diluted share of commonstock, in the second quarter of 2023.
• Cash of $1.7 million,included in total availability (as defined under “Non-GAAPMeasures” below) of $1.7 million, each as of September 30, 2023, ascompared to cash of $52 thousand and $41 thousand and totalavailability of $107 thousand and $210 thousand as of December 31,2022 and September 30, 2022, respectively.
• Private placementof an additional $1.8 million of common stock was completed during thethird quarter of 2023.

“We believe the third quarter has been the startof our reposition for Energy Focus,” said Chiao Chieh Jay Huang,Chief Executive Officer. “In order to deepen our relationships withcustomers, we are in the process of re-establishing our service model,aiming to provide richer and more targeted customer service. Webelieve that by increasing our interaction with the customers, we canbetter understand their needs, provide better services and productsportfolios, and thereby enhance their loyalty to our brand.Additionally, we have made changes to our sales team structure tobetter align with growth and the future development. As we marchtowards increasing revenue by providing customers with innovativeenergy solution products, we continue to look at ways to improve ouroverall operation.”

Third Quarter 2023 Financial Results:

Net sales of $1.3million for the third quarter of 2023 decreased $0.5 million, or24.1%, compared to third quarter of 2022 net sales of $1.8 million,primarily driven by a decrease in commercial sales of $0.8 million, or61.3%, that was partially offset by an increase in MMM product salesof $0.4 million, or 76.7%. MMM sales have increased due to improvedsales pipeline as management replaced the head of MMM sales mid-year2022. The MMM sales cycle is prolonged and starts to reverse itsnegative trend in the middle of the fourth quarter of 2022. Netcommercial product sales decreased in the third quarter of 2023compared to the same period in 2022, primarily due to the lack ofavailability in high-margin, high-demand commercial products as aresult of supply chain interruptions. Sequentially, net sales were up26.9% compared to $1.1 million in the second quarter of 2023,reflecting a slight increase in the sales in MMM orders with thecommercial sales flat.

Gross loss was $48 thousand, or (3.6)% of net sales, for thethird quarter of 2023. This compares with a gross loss of $0.2million, or (9.2)% of net sales, in the third quarter of 2022. Theperiod-over-period increase in gross profit was driven mainly by the$0.5 million favorable impact from fixed labor costs which wasslightly offset by an unfavorable impact of $0.1 million from lowersales prices.

Sequentially, gross loss of $48 thousand for the third quarterof 2023 compares with gross profit of $179 thousand, or 17.0% of netsales, in the second quarter of 2023. The decreasequarter-over-quarter primarily relates to a favorable net impact ofapproximately $0.1 million related to the change in inventoryreserves, which was exceeded unfavorable impacts of $0.4 million insales and product mix and $0.1 million in fixed costs.

Adjusted gross margin,as defined under “Non-GAAP Measures” below, was 1.0% for the thirdquarter of 2023, compared to 3.2% in the third quarter of 2022, suchdecrease is primarily driven by lower sales prices during the thirdquarter of 2023 as compared to the third quarter of 2022.Sequentially, this compares to adjusted gross margin of 6.8% in thesecond quarter of 2023. The deterioration from the second quarter of2023 was primarily driven by lower sales prices and lower variablemargins in the third quarter of 2023.

Operating loss was $0.9 million for the thirdquarter of 2023, an improvement as compared to an operating loss of$2.4 million in the third quarter of 2022, and an operating loss of$1.1 million in the second quarter of 2023. Net loss was $0.9 million,or $(0.27) per basic and diluted share of common stock, for the thirdquarter of 2023, compared with a net loss of $2.7 million, or $(2.03)per basic and diluted share of common stock, in the third quarter of2022. Sequentially, this compares with a net loss of $1.2 million, or$(0.42) per basic and diluted share of common stock, in the secondquarter of 2023.

Adjusted EBITDA, as defined under “Non-GAAP Measures”below, was a loss of $0.9 million for the third quarter of 2023,compared with a loss of $2.3 million in the third quarter of 2022 anda loss of $1.1 million in the second quarter of 2023. The smalleradjusted EBITDA loss in the third quarter of 2023, as compared to thethird quarter of 2022, was primarily due to improved margins and loweroperating expenses.

Cash was $1.7 million as of September 30, 2023. This compareswith cash of $52 thousand and $41 thousand as of December 31, 2022 andSeptember 30, 2022, respectively. As of September 30, 2023, theCompany had total availability, as defined under “Non-GAAPMeasures” below, of $1.7 million, which consisted of $1.7 million ofcash and $0.0 million of additional borrowing availability under itscredit facilities. This compares to total availability of $107thousand as of December 31, 2022 and $0.2 million as of September 30,2022. Our net inventory balance of $4.9 million as of September 30,2023 decreased $0.6 million and $1.3 million from our net inventorybalance as of December 31, 2022 and September 30, 2022, respectively.

Forward-Looking Statements:

Forward-looking statements in this release aremade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. These statements can generally beidentified by the use of forward-looking terminology, including theterms “believes,” “estimates,” “anticipates,”“expects,” “feels,” “seeks,” “forecasts,”“projects,” “intends,” “plans,” “may,” “will,”“should,” “could” or “would” or, in each case, theirnegative or other variations or comparable terminology. Theseforward-looking statements include all matters that are not historicalfacts and include statements regarding our intentions, beliefs orcurrent expectations concerning, among other things, our results ofoperations, financial condition, liquidity, prospects, growth,strategies, capital expenditures, and the industry in which weoperate. By their nature, forward-looking statements involve risks anduncertainties because they relate to events and depend oncircumstances that may or may not occur in the future. Although webase these forward-looking statements on assumptions that we believeare reasonable when made in light of the information currentlyavailable to us, we caution you that forward-looking statements arenot guarantees of future performance and that our actual results ofoperations, financial condition and liquidity, and industrydevelopments may differ materially from statements made in orsuggested by the forward-looking statements contained in this release.We believe that important factors that could cause our actual resultsto differ materially from forward-looking statements include, but arenot limited to: (i) our need for and ability to obtain additionalfinancing in the near term, on acceptable terms or at all, to continueour operations; (ii) our ability to maintain compliance with thecontinued listing standards of The Nasdaq Stock Market (iii) ourability to refinance or extend maturing debt on acceptable terms or atall; (iv) our ability to continue as a going concern for a reasonableperiod of time; (v) our ability to realize synergies with ourstrategic investor; (vi) instability in the U.S. and global economiesand business interruptions experienced by us, our customers and oursuppliers, particularly in light of supply chain constraints and otherlong-term impacts of the coronavirus pandemic; (vii) thecompetitiveness and market acceptance of our LED lighting and controltechnologies and products; (viii) our ability to compete effectivelyagainst companies with lower prices or cost structures, greaterresources, or more rapid development capabilities, and new competitorsin our target markets; (ix) our ability to extend our productportfolio into new applications and end markets; (x) our ability toincrease demand in our targeted markets and to manage sales cyclesthat are difficult to predict and may span several quarters; (xi) thetiming of large customer orders, significant expenses and fluctuationsbetween demand and capacity as we manage inventory and invest ingrowth opportunities; (xii) our ability to successfully scale ournetwork of sales representatives, agents, distributors and otherchannel partners to compete with the sales reach of larger,established competitors; (xiii) our ability to implement plans toincrease sales and control expenses; (xiv) our reliance on a limitednumber of customers for a significant portion of our revenue, and ourability to maintain or grow such sales levels; (xv) our ability to addnew customers to reduce customer concentration; (xviii) our ability toattract and retain a new chief financial officer; (xvii) our abilityto manage the size of our workforce while continuing to attract,develop and retain qualified personnel, and to do so in a timelymanner; (xviii) our ability to diversify our reliance on a limitednumber of third-party suppliers and development partners, our abilityto manage third-party product development and obtain criticalcomponents and finished products on acceptable terms and of acceptablequality despite ongoing global supply chain challenges, and the impactof our fluctuating demand on the stability of such suppliers; (xix)our ability to timely, efficiently and cost-effectively transportproducts from our third-party suppliers by ocean marine and otherlogistics channels despite global supply chain and logisticsdisruptions; (xx) the impact of any type of legal inquiry, claim ordispute; (xxi) the macro-economic conditions, including risinginterest rates and recessionary trends, in the United States and inother markets in which we operate or secure products, which couldaffect our ability to obtain raw materials, component parts, freight,energy, labor, and sourced finished goods in a timely andcost-effective manner; (xxii) our dependence on military maritimecustomers and on the levels and timing of government funding availableto such customers, as well as the funding resources of our othercustomers in the public sector and commercial markets; (xxix) businessinterruptions resulting from geopolitical actions such as war andterrorism, natural disasters, including earthquakes, typhoons, floodsand fires, or from health epidemics, or pandemics or other contagiousoutbreaks; (xxx) our ability to respond to new lighting and controltechnologies and market trends; (xxxi) our ability to fulfill ourwarranty obligations with safe and reliable products; (xxxii) anydelays we may encounter in making new products available or fulfillingcustomer specifications; (xxxiii) any flaws or defects in our productsor in the manner in which they are used or installed; (xxix) ourability to protect our intellectual property rights and otherconfidential information, and manage infringement claims by others;(xxx) our compliance with government contracting laws and regulations,through both direct and indirect sale channels, as well as other laws,such as those relating to the environment and health and safety;(xxxi) risks inherent in international markets, such as economic andpolitical uncertainty, changing regulatory and tax requirements andcurrency fluctuations, including tariffs and other potential barriersto international trade; and (xxix) our ability to maintain effectiveinternal controls and otherwise comply with our obligations as apublic company. For additional factors that could cause our actualresults to differ materially from the forward-looking statements,please refer to our most recent annual report on Form 10-K andquarterly reports on Form 10-Q filed with the Securities and ExchangeCommission.

Condensed Consolidated Balance Sheets

(inthousands)

CondensedConsolidated Balance Sheets

(in thousands)

Condensed Consolidated Statements of Operations

(in thousands, exceptper share data)

(unaudited)

Condensed Consolidated Statements of CashFlows

(inthousands)

(unaudited)

CondensedConsolidated Statements of Cash Flows - continued

(inthousands)

(unaudited)

Sales by Product

(in thousands)

(unaudited)

Non-GAAPMeasures

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:

• total availability, which we define asour ability on the period end date to access additional cash ifnecessary under our short-term credit facilities, plus the amount ofcash on hand on that same date;
• adjusted EBITDA, which wedefine as net income (loss) before giving effect to financing charges,income taxes, non-cash depreciation, stock non-cash compensation,accrued incentive compensation, non-routine charges to other income orexpense; and
• adjusted gross margins, which we define as ourgross profit margins during the period without the impact from excessand obsolete, in-transit and net realizable value inventory reservemovements that do not reflect current period inventorydecisions.

We believe that our use of these non-GAAP financial measurespermits investors to assess the operating performance of our businessrelative to our performance based on U.S. GAAP results and relative toother companies within the industry by isolating the effects of itemsthat may vary from period to period without correlation to coreoperating performance or that vary widely among similar companies, andto assess liquidity, cash flow performance of the operations, and theproduct margins of our business relative to our U.S. GAAP results andrelative to other companies in the industry by isolating the effectsof certain items that do not have a current period impact. However,our presentation of these non-GAAP measures should not be construed asan indication that our future results will be unaffected by unusual orinfrequent items or that the items for which we have made adjustmentsare unusual or infrequent or will not recur. Further, there arelimitations on the use of these non-GAAP measures to compare ourresults to other companies within the industry because they are notnecessarily standardized or comparable to similarly titled measuresused by other companies. We believe that the disclosure of thesenon-GAAP measures is useful to investors as they form part of thebasis for how our management team and Board of Directors evaluate ouroperating performance.

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.

AboutEnergy Focus

Energy Focus is an industry-leading innovatorof sustainable 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 www.energyfocus.com.

Contact Details

InvestorRelations

+1 440-715-1300

ir@energyfocus.com

CompanyWebsite

https://energyfocus.com/

Copyright (c) 2023 TheNewswire - All rights reserved.