Energy Focus, Inc. Reports Second Quarter 2023 Financial Results

Energy Focus, Inc. (NASDAQ:EFOI), a leader in energy-efficient lighting and control system products for the commercial market and military maritime market (“MMM”), today announced financial results for its second quarter ended June 30, 2023.

Second Quarter 2023 Financial Highlights:

  • Net sales of $1.1 million, decreased 28.7% compared to the second quarter of 2022, reflecting a decrease of $0.5 million, or 54.7%, in commercial sales, partially offset by a $0.1 million, or 21.4%, increase in military sales period-over-period. Sequentially, net sales increased by 13.4%, primarily reflecting a $0.1 millionincrease in commercial sales, with military sales remaining flat, as compared to the first quarter of 2023.
  • Gross profit margin of 17.0% increased from 7.4% in the second quarter of 2022, and 1.8% in the first quarter of 2023. The period-over-period increase, as compared to the second quarter of 2022, was driven mainly by a favorable impact from lower fixed costs, offset slightly by an unfavorable impact from the change in inventory reserves. Sequentially, the increase quarter-over-quarter, as compared to the first quarter of 2023, primarily relates to a favorable impact from the change in inventory reserves due to orders received in the second quarter of 2023 that are expected to be fulfilled during the third quarter of 2023.
  • Loss from operations of $1.1 million improved as compared to loss from operations of $2.2 million in the second quarter of 2022, and $1.2 million in the first quarter of 2023.
  • Net loss of $1.2 million, or $(0.42) per basic and diluted share of common stock, compared to a net loss of $2.5 million, or $(2.43) per basic and diluted share of common stock, in the second quarter of 2022. Sequentially, the net loss decreased by $0.2 million compared to a net loss of $1.3 million, or $(0.58) per basic and diluted share of common stock, in the first quarter of 2023.
  • Cash of $1.3 million, included in total availability (as defined under “Non-GAAP Measures” below) of $1.5 million, each as of June 30, 2023, as compared to cash of $52 thousand and $938 thousand and total availability of $107 thousand and $2.5 million as of December 31, 2022 and June 30, 2022, respectively.
  • Subsequent to approval by the Company’s stockholders and pursuant to the ratio approved by the Company’s Board of Directors on June 15, 2023, a 1-for-7 reverse stock split became effective on June 16, 2023 wherein every seven shares of common stock issued and outstanding automatically combined into one validly issued, fully paid and non-assessable share of common stock. No fractional shares were issued as a result of the reverse stock split.
  • Private placement of additional $1.3 million of common stock was completed during the second quarter of 2023.

 

“We believe the second quarter has been the start of a true turn around for Energy Focus,” said Lesley Matt, Chief Executive Officer. “The arrival of fresh inventory late in the quarter allowed for us to begin showing improvement in both our topline sales and gross profit. As more inventory continues to arrive, we are optimistic to continue this trend. Additionally, we have made changes to our sales team structure to better align with growth and the future. As we march towards increasing revenue by providing customers with innovative energy solution products, we continue to look at ways to improve our overall operation.”

Second Quarter 2023 Financial Results:

Net sales of $1.1 million for the second quarter of 2023 decreased $0.4 million, or 28.7%, compared to second quarter of 2022 net sales of $1.5 million, primarily driven by a decrease in commercial sales of $0.5 million, or 54.7%, that was partially offset by an increase in MMM product sales of $0.1 million, or 21.4%. MMM sales have increased due to improved sales pipeline as management replaced the head of MMM sales mid-year 2022. The MMM sales cycle is prolonged and started to reverse its negative trend in the middle of the fourth quarter of 2022. Net commercial product sales decreased in the second quarter of 2023 compared to the same period in 2022, primarily due to the lack of availability in high-margin, high-demand commercial products as a result of supply chain interruptions. Sequentially, net sales were up 13.4% compared to $0.9 million in the first quarter of 2023, reflecting a slight increase in commercial sales with the sales in MMM orders flat.

Gross profit was $0.2 million, or 17.0% of net sales, for the second quarter of 2023. This compares with gross profit of $0.1 million, or 7.4% of net sales, in the second quarter of 2022. The period-over-period increase in gross profit was driven mainly by a favorable impact from lower fixed costs of $0.2 million, or 15.3% of net sales. The $0.1 million favorable impact from product mix was offset by an unfavorable impact of $0.1 million from lower sales. Additionally, there was an overall net unfavorable impact from the change in inventory reserves of $0.1 million, or 7.5% of net sales, versus the second quarter of 2022, which included a one-time adjustment from a scrap write-off.

Sequentially, gross profit of $0.2 million for the second quarter of 2023 compares with gross profit of $17 thousand, or 1.8% of net sales, in the first quarter of 2023. The increase quarter-over-quarter primarily relates to a favorable net impact of approximately $0.1 million, or 8.1% of net sales, related to the change in inventory reserves and favorable impacts of $0.1 million in sales and product mix, together. The change in inventory reserves relates mainly to orders received during the second quarter of 2023 that are expected to be fulfilled during the third quarter of 2023.

Adjusted gross margin, as defined under “Non-GAAP Measures” below, was 6.8% for the second quarter of 2023, compared to (5.1)% in the second quarter of 2022, primarily driven by lower fixed costs during the second quarter of 2023 as compared to the second quarter of 2022. Sequentially, this compares to adjusted gross margin of (0.6)% in the first quarter of 2023. The improvement from the first quarter of 2023 was primarily driven by higher variable margins and lower fixed costs in the second quarter of 2023.

Operating loss was $1.1 million for the second quarter of 2023, an improvement as compared to an operating loss of $2.2 million in the second quarter of 2022, and an operating loss of $1.2 million in the first quarter of 2023. Net loss was $1.2 million, or $(0.42) per basic and diluted share of common stock, for the second quarter of 2023, compared with a net loss of $2.5 million, or $(2.43) per basic and diluted share of common stock, in the second quarter of 2022. Sequentially, this compares with a net loss of $1.3 million, or $(0.58) per basic and diluted share of common stock, in the first quarter of 2023.

Adjusted EBITDA, as defined under “Non-GAAP Measures” below, was a loss of $1.0 million for the second quarter of 2023, compared with a loss of $2.1 million in the second quarter of 2022 and a loss of $1.2 million in the first quarter of 2023. The smaller adjusted EBITDA loss in the second quarter of 2023, as compared to the second quarter of 2022, was primarily due to improved margins and lower operating expenses.

Cash was $1.3 million as of June 30, 2023. This compares with cash of $52 thousand and $938 thousand as of December 31, 2022 and June 30, 2022, respectively. As of June 30, 2023, the Company had total availability, as defined under “Non-GAAP Measures” below, of $1.5 million, which consisted of $1.3 million of cash and $0.2 million of additional borrowing availability under its credit facilities. This compares to total availability of $107 thousand as of December 31, 2022 and $2.5 million as of June 30, 2022. Our net inventory balance of $5.3 million as of June 30, 2023 decreased $0.2 million and $1.9 million from our net inventory balance as of December 31, 2022 and June 30, 2022, respectively.

Earnings Conference Call:

The Company will host a conference call and webcast today, August 10, 2023, at 11 a.m. ET to discuss the secondquarter 2023 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# 13739842

The conference call will be simultaneously webcast. To listen to the webcast, log onto it at: https://viavid.webcasts.com/starthere.jsp?ei=1623732&tp_key=af4459857f. The webcast will be available at this link through August 25, 2023. 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.

 

Condensed Consolidated Balance Sheets

(in thousands)

June 30, 2023 December 31, 2022
(Unaudited)
ASSETS
Current assets:
Cash $

1,316

$

52

Trade accounts receivable, less allowances of $79 and $26, respectively 841 445
Inventories, net 5,304 5,476
Short-term deposits 630 592
Prepaid and other current assets 217 232
Receivable for claimed Employee Retention Tax Credit

 

445
Total current assets 8,308 7,242
Property and equipment, net 60 76
Operating lease, right-of-use asset 1,034 1,180
Total assets $

9,402

$

8,498

LIABILITIES
Current liabilities:
Accounts payable $

2,908

$

2,204

Accrued liabilities 116 145
Accrued legal and professional fees 89

 

Accrued payroll and related benefits 268 261
Accrued sales commissions 32 76
Accrued warranty reserve 146 183
Operating lease liabilities 210 198
Promissory notes payable, net of discounts and loan origination fees 1,335 2,618
Related party promissory notes payable

 

814
Credit line borrowings, net of loan origination fees 284 1,447
Total current liabilities 5,388 7,946
Operating lease liabilities, net of current portion 915 1,029
Total liabilities 6,303 8,975
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, par value $0.0001 per share:
Authorized: 5,000,000 shares (3,300,000 shares designated as Series A Convertible Preferred Stock) at June 30, 2023 and December 31, 2022
Issued and outstanding: 876,447 at June 30, 2023 and December 31, 2022

 

 

Common stock, par value $0.0001 per share:
Authorized: 50,000,000 shares at June 30, 2023 and December 31, 2022
Issued and outstanding: 3,495,924 at June 30, 2023 and 1,406,920* at December 31, 2022

 

1
Additional paid-in capital 154,624 148,545
Accumulated other comprehensive loss (3) (3)
Accumulated deficit (151,522) (149,020)
Total stockholders’ equity (deficit) 3,099 (477)
Total liabilities and stockholders’ equity (deficit) $

9,402

$

8,498

* Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

 

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

Three months ended Six months ended June 30,
June 30, 2023 March 31, 2023 June 30, 2022 2023 2022
Net sales $ 1,055 $ 930 $ 1,480 $ 1,985 $ 3,541
Cost of sales 876 913 1,371 1,789 3,458
Gross profit 179 17 109 196 83
Operating expenses:
Product development 147 154 353 301 856
Selling, general, and administrative 1,132 1,066 1,964 2,198 4,091
Total operating expenses 1,279 1,220 2,317 2,499 4,947
Loss from operations (1,100) (1,203) (2,208) (2,303) (4,864)
Other expenses (income):
Interest expense, net 69 123 260 192 444
Other income (16) (16) (30)
Other expenses 14 7 18 21 29
Net loss $ (1,167) $ (1,333) $ (2,486) $ (2,500) $ (5,307)
Net loss per common share – basic and diluted:
Net Loss $ (0.42) $ (0.58) $ (2.43) $ (0.98) $ (5.45)
Weighted average shares of common stock outstanding:
Basic and diluted* 2,766 2,310 1,024 2,539 973
* Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Three months ended Six months ended
June 30,
June 30,2023 March 31,2023 June 30,22 2023 2022
Cash flows from operating activities:
Net loss ($1,167) ($1,333) ($2,486) ($2,500) ($5,307)
Adjustments to reconcile net loss to net cash used in operating activities:
Other income

 

 

 

 

(30)
Depreciation 8 8 43 16 87
Stock-based compensation 23 26 54 49 98
Provision for doubtful accounts receivable 21 29 5 50 (4)
Provision for slow-moving and obsolete inventories (107) (23) (185) (130) (56)
Provision for warranties 3 (40) 51 (37) 21
Amortization of loan discounts and origination fees 47 62 91 109 160
Changes in operating assets and liabilities (sources / (uses) of cash):
Accounts receivable 93 (496) 184 (403) 101
Inventories (259) 562 384 303 754
Short-term deposits

 

(23) 47 -23 59
Prepaid and other assets 454 6 96 460 116
Accounts payable 884 (27) (777) 857 (716)
Accrued and other liabilities (152) 66 (149) (86) (360)
Deferred revenue

 

 

 

 

(268)
Total adjustments 1,015 150 (156) 1,165 (38)
Net cash used in operating activities (152) (1,183) (2,642) (1,335) (5,345)
Cash flows from investing activities:
Acquisitions of property and equipment

 

 

(2)

 

(37)
Net cash used in investing activities

 

 

(2)

 

(37)
Cash flows from financing activities (sources / (uses) of cash):
Proceeds from the issuance of common stock and warrants 1,304 3,025 3,500 4,329 3,500
Offering costs paid on the issuance of common stock and warrants

 

 

(334)

 

(334)
Costs related to reverse stock-split (16)

 

 

(16)

 

Principal payments under finance lease obligations

 

 

 

 

(1)
Proceeds from exercise of stock options and employee stock purchase plan purchases

 

 

5

 

5
Payments on the 2021 Streeterville Note

 

 

(410)

 

(1,025)
Proceeds from the 2022 Streeterville Note

 

 

2,000

 

2,000
Payments on the 2022 Streeterville Note

 

(500)

 

(500)

 

Deferred financing costs

 

 

(234)

 

(234)
Net payments on proceeds from the credit line borrowings – Credit Facilities (121) (1,093) (1,170) (1,214) (273)
Net cash provided by financing activities 1,167 1,432 3,357 2,599 3,638
Net increase (decrease) in cash 1,015 249 713 1,264 (1,744)
Cash, beginning of period 301 52 225 52 2,682
Cash, end of period $

1,316

$

301

$

938

$

1,316

$

938

 

Sales by Product

(in thousands)

(unaudited)

Three months ended Six months ended

June 30,

June 30, 2023 March 31, 2023 June 30, 2022 2023 2022
Net sales:
Commercial $ 442 $ 321 $ 975 $ 763 $ 2,109
Military maritime products 613 609 505 1,222 1,432
Total net sales $ 1,055 $ 930 $ 1,480 $ 1,985 $ 3,541

 

Non-GAAP Measures

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

  • total availability, which we define as our ability on the period end date to access additional cash if necessary under our short-term credit facilities, plus the amount of cash on hand on that same date;
  • adjusted EBITDA, which we define 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 or expense; and
  • adjusted gross margins, which we define as our gross profit margins during the period without the impact from excess and obsolete, in-transit and net realizable value inventory reserve movements that do not reflect current period inventory decisions.

We believe that our use of these non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the industry by isolating the effects of items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies, and to assess liquidity, cash flow performance of the operations, and the product margins of our business relative to our U.S. GAAP results and relative to other companies in the industry by isolating the effects of certain items that do not have a current period impact. However, our presentation of these non-GAAP measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. Further, there are limitations on the use of these non-GAAP measures to compare our results to other companies within the industry because they are not necessarily standardized or comparable to similarly titled measures used by other companies. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance.

Total availability, adjusted EBITDA and adjusted gross margins do not represent cash generated from operating activities in accordance with U.S. GAAP, are not necessarily indicative of cash available to fund cash needs and are not intended to and should not be considered as alternatives to cash flow, net income and gross profit margins, respectively, computed in accordance with U.S. GAAP as measures of liquidity or operating performance. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP are provided below for total availability, adjusted EBITDA and adjusted gross margins, respectively.

As of
(in thousands) June 30, 2023 December 31, 2022 June 30, 2022
Total borrowing capacity under credit facilities $ 500 $ 1,567 $ 3,568
Less: Credit line borrowings, gross(1) (296) (1,512) (2,015)
Excess availability under credit facilities(2) 204 55 1,553
Cash 1,316 52 938
Total availability(3) $ 1,520 $ 107 $ 2,491
(1) Forms 10-Q and 10-K Balance Sheets reflect the Line of credit net of debt financing costs of $12, $65 and $23, respectively.
(2) Excess availability under credit facilities – represents difference between maximum borrowing capacity of credit facilities and actual borrowings.
(3) Total availability – represents Company’s ‘access’ to cash if needed at point in time.

 

Three months ended Six months ended

June 30,

(in thousands) June 30, 2023 March 31, 2023 June 30, 2022 2023 2022
Net loss $ (1,167) $ (1,333) $ (2,486) $ (2,500) $ (5,307)
Interest 69 123 260 192 444
Other income (16) (30)
Depreciation 8 8 43 16 87
Stock-based compensation 23 26 54 49 98
Other incentive compensation 23 (28) 33 (5) 28
Adjusted EBITDA $ (1,044) $ (1,204) $ (2,096) $ (2,264) $ (4,680)

 

Three Months Ended
(in thousands) June 30, 2023 March 31, 2023 June 30, 2022
($) (%) ($) (%) ($) (%)
Net sales $

1,055

$

930

$

1,480

Actual gross profit $

179

17.0 % $

17

1.8 % $

109

7.4 %
E&O, in-transit and net realizable value inventory reserve changes, net of scrap write-off for inventory reduction (107) (10.1) % (23) (2.5) % (185) (12.5) %
Adjusted gross profit (loss) $

72

6.8 % $(6) (0.6) % $(76) (5.1) %

 

  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. In 2023, EFOI announced plans to add high efficiency GaN (gallium nitride) power supply products to its product portfolio. Energy Focus is headquartered in Solon, Ohio. For more information, visit our website at www.energyfocus.com.