Energy Focus, Inc. Reports 3Q22; Sales Drop 36%, Cost Cutting Continues

Energy Focus, Inc. (NASDAQ:EFOI), a leader in sustainable, energy-efficient lighting and controls systems products for the commercial, military maritime and consumer markets, today announced financial results for its third quarter ended September 30, 2022.

Third Quarter 2022 Financial Highlights:

  • Net sales of $1.8 million decreased 35.8% compared to the third quarter of 2021, reflecting a $0.8 million, or 61.2%, decrease in military sales, as well as a decrease of $0.2 million, or 15.4%, in commercial sales. As compared to the second quarter of 2022, net sales increased by 19.2%, primarily reflecting a $313 thousand increase in commercial sales.
  • Negative gross profit margin of (9.2)% was down from gross profit margins of 20.5% in the third quarter of 2021 and 7.4% in the second quarter of 2022. The year-over-year decrease was driven by lower sales, less favorable product mix and an unfavorable impact from the net change in inventory reserves and third quarter scrap write-off from the ongoing inventory reduction project which began in the second quarter of 2022. Sequentially, despite increased sales and positive impacts from the mix of products sold, the decrease in gross profit margin primarily relates to unfavorable changes in inventory reserves as well as the impact of the third quarter scrap write-off from the ongoing inventory reduction project.
  • Loss from operations of $2.4 million increased 33.0% as compared to the third quarter of 2021 loss from operations of $1.8 million. Loss from operations increased slightly as compared to a loss from operations of $2.2 million in the second quarter of 2022.
  • Net loss of $2.7 million, or $(0.29) per basic and diluted share of common stock, compared to a net loss of $1.1 million, or $(0.22) per basic and diluted share of common stock, in the third quarter of 2021. Sequentially, the net loss increased by $0.2 million compared to net loss of $2.5 million, or $(0.35) per basic and diluted share of common stock, in the second quarter of 2022.
  • Cash of $41 thousand, included in total availability (as defined under “Non-GAAP Measures” below) of $210 thousand, each as of September 30, 2022, as compared to cash of $2.7 million and total availability of $4.4 million as of December 31, 2021.
  • Unsecured promissory notes issued in September 2022, October 2022 and November 2022 resulted in net aggregate proceeds of $1.1 million.

Lesley Matt, Chief Executive Officer, commented, “Having joined Energy Focus at the end of the third quarter, I understand there is much work to be done to improve our results. Our cost-cutting and inventory refresh efforts are ongoing, but have not yet started to contribute positively. Despite the third quarter results, we believe our continued emphasis on reinvestment in our military maritime market sales channel and building commercial sales pipeline will lead us to revenue and margin improvements as we finish out the year and look to early 2023. We continue to aggressively execute cost-cutting measures to right-size the organization, eliminate redundancies and improve operational efficiencies and expect to see contributions to the bottom line in the fourth quarter. Our enhanced ‘white light’ offerings and our refreshed RedCap® solution have been delayed by a challenging supply chain environment and are expected to begin coming available in the next two quarters. We expeditiously converted a healthy backlog going into the third quarter resulting from customer project timing and supply chain constraints that impacted timing of certain second quarter orders, and finished the third quarter with a growing backlog, particularly in the military maritime arena, which we believe reflects the reinvigoration of this sales channel. I believe the future of Energy Focus needs to expand beyond traditional lighting, and diversify into new products that are centered around energy savings and are complementary to our existing sales channels and markets.”

Mr. Stephen Socolof, Chairman of the Board of Directors and previously the Interim Chief Executive Officer, added, “The Board of Directors is extremely excited to have Lesley now at the helm. Under her guidance, the company has aggressively pursued further cost reduction opportunities and sales opportunities. We are focusing on engineering and supply chain management initiatives, including supplier diversification, that we expect will reduce our cost of goods and make us more competitive. Our SG&A and operating expenses declined both year-over-year and sequentially when compared to the prior quarter, demonstrating our commitment to expense management. While sales improved sequentially compared to the second quarter, on a year-over-year basis, reduced sales in the third quarter resulted in continued cash burn. We believe the continued cost reduction efforts are critical, but most importantly improved sales initiatives will be imperative if we are to result in a reduction in our cash burn in the next quarters as sales improve and cost management impacts have full-period impacts.”

Third Quarter 2022 Financial Results:

Net sales were $1.8 million for the third quarter of 2022, compared to $2.7 million in the third quarter of 2021, a decrease of approximately $1.0 million, or 36%. Net sales from commercial products were approximately $1.3 million, or 73% of total net sales, for the third quarter of 2022, as compared to $1.5 million, or 55% of total net sales, in the third quarter of 2021, reflecting (i) volatility of sales to large institutional customers; (ii) fluctuations in the timing and pace of commercial projects; and (iii) lingering macroeconomic supply chain impacts as a result of the COVID-19 pandemic. Net sales from military maritime products were approximately $0.5 million, or 27% of total net sales, for the third quarter of 2022, compared to $1.2 million, or 45% of total net sales, in the third quarter of 2021, primarily due to delayed timing of orders and project funding and lingering effects of reduced military maritime market pipeline development over the past year. Sequentially, net sales were up 19%, compared to $1.5 million in the second quarter of 2022, reflecting primarily an increase in commercial orders.

Gross loss was $(0.2) million, or (9)% of net sales, for the third quarter of 2022. This compares with gross profit of $0.6 million, or 21% of net sales, in the third quarter of 2021. The year-over-year decrease in gross profit was driven by (i) lower sales volume, an unfavorable impact of $0.3 million, or 20% of net sales; (ii) an unfavorable product mix impact of approximately $0.2 million, or 13% of net sales; (iii) an unfavorable net impact of $0.3 million, or 16% of net sales, from our inventory reduction project; and (iv) a favorable impact from the reduction in fixed costs of $0.1 million or 2% of net sales. Gross loss for the third quarter of 2022 also included unfavorable freight-in variances of $0.1 million, or 6% of net sales.

Sequentially, gross loss of $(0.2) million for the third quarter of 2022 compares with gross profit of $0.1 million, or 7% of net sales, in the second quarter of 2022. Despite increased sales volumes (a favorable impact of approximately $18 thousand, or 1% of net sales), a favorable product mix impact of approximately $0.2 million, or 15% of net sales, and a favorable impact of approximately $46 thousand, or 7% of net sales, from the reduction of fixed costs, the decrease in gross profit quarter-over-quarter primarily relates to the approximately $0.4 million, or 23% of net sales, unfavorable net impact of the ongoing inventory reduction project.

Adjusted gross margin, as defined under “Non-GAAP Measures” below, was 3% for the third quarter of 2022, compared to 18% in the third quarter of 2021, primarily driven by lower sales in the third quarter of 2022 in combination with a negative product mix impact during the third quarter of 2022 as compared to the third quarter of 2021. Sequentially, this compares to adjusted gross margin of (5)% in the second quarter of 2022.

Operating loss of $2.4 million for the third quarter of 2022 increased as compared to an operating loss of $1.8 million in the third quarter of 2021. Sequentially, the operating loss increased slightly as compared to an operating loss of $2.2 million in the second quarter of 2022. Net loss was $2.7 million, or $(0.29) per basic and diluted share of common stock, for the third quarter of 2022, compared with a net loss of $1.1 million, or $(0.22) per basic and diluted share of common stock, in the third quarter of 2021. Sequentially, this compares with a net loss of $2.5 million, or $(0.35) per basic and diluted share of common stock, in the second quarter of 2022.

Adjusted EBITDA, as defined under “Non-GAAP Measures” below, was a loss of $2.3 million for the third quarter of 2022, compared with a loss of $1.7 million in the third quarter of 2021 and a loss of $2.1 million in the second quarter of 2021. The larger adjusted EBITDA loss in the third quarter of 2022, as compared to the third quarter of 2021, was primarily due to the gross margin reductions from lower sales and less favorable product mix.

Cash was $41 thousand as of September 30, 2022. This compares with cash of $2.7 million as of December 31, 2021. During the third quarter of 2022, the Company added to its liquidity position with $450 thousand in proceeds in connection with the issuance of an unsecured promissory note in September 2022. As of September 30, 2022, the Company had total availability, as defined under “Non-GAAP Measures” below, of $210 thousand, which consisted of $41 thousand of cash and total borrowing availability of $169 thousand under its credit facilities. We believe there remains opportunities to secure financing from strategic or financial investors that can sustain operations in the near term. This compares to total availability of $2.1 million as of September 30, 2021 and total availability of $2.5 million as of June 30, 2022. Our net inventory balance of $6.2 million as of September 30, 2022 decreased $1.7 million from our net inventory balance as of December 31, 2021. As part of our expense reduction initiatives, we have significantly decreased our warehouse space beginning in the third quarter of 2022. In connection with the space reduction, in the second quarter of 2022, we began disposing of a substantial portion of our excess and obsolete commercial finished goods inventory that was highly reserved. As of September 30, 2022, approximately $563 thousand, on a gross value basis, of such inventory had been disposed of, releasing an offsetting reserve of $555 thousand. Additional inventory management efforts are expected to continue in the fourth quarter of 2022.

Earnings Conference Call:

The Company will host a conference call and webcast today, November 10, 2022, at 11 a.m. ET to discuss the third quarter 2022 results, followed by a Q & A session.

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

  • Toll free 1-877-451-6152 or
  • International 1-201-389-0879
  • Conference ID# 13733410

The conference call will be simultaneously webcast. To listen to the webcast, log onto it at: https://viavid.webcasts.com/starthere.jsp?ei=1574602&tp_key=5ecc63bfd9. The webcast will be available at this link through November 25, 2022. Financial information presented on the call, including this earnings press release, will be available on the investors section of Energy Focus’ website, investors.energyfocus.com.

About Energy Focus

Energy Focus is an industry-leading innovator of sustainable light-emitting diode (“LED”) lighting and lighting control technologies and solutions. As the creator of the first flicker-free LED lamps, Energy Focus develops high quality LED lighting products and controls that provide extensive energy and maintenance savings, as well as aesthetics, safety, health and sustainability benefits over conventional lighting. Our EnFocus™ lighting control platform enables existing and new buildings to provide quality, convenient and affordable, dimmable and color-tunable, circadian and human-centric lighting capabilities. Energy Focus’ customers include U.S. and U.S. ally navies, U.S. federal, state and local governments, healthcare and educational institutions, as well as Fortune 500 companies. Since 2007, Energy Focus has installed approximately 900,000 lighting products across the U.S. Navy fleet, including tubular LEDs, waterline security lights, explosion-proof globes and berth lights, saving more than five million gallons of fuel and 300,000 man-hours in lighting maintenance annually. Energy Focus is headquartered in Solon, Ohio. For more information, visit our website at www.energyfocus.com.

 

Share on facebook
Share on twitter
Share on linkedin