ENERGY FOCUS, INC/DE Q3 FY2021 earnings call

Management Statement and Operational Highlights

• Legacy LED Lighting: Facing challenges due to pandemic, retrofitting lower priority, project delays in school and hospital sectors, and intense competition in LED tube market.
• Suncycle Circadian Lighting: Upcoming product marries lighting products with EnFocus power line control, expected to launch in early 2022 for residential and commercial markets.
• Military Business: Third quarter military sales impacted by budget availability, but expanded product development for Navy, completed high-bay LED lighting development and delivered to Navy with potential $5M orders in 5 years.
• Innovation and UV-C Disinfection: Developed network nUVo Air Disinfection devices, received third-party validation and safety certifications, expected to be available in Q4 2021.
• Financials: Net sales in Q3 2021 were $2.7M, down 53.9% y/y but up 32.5% q/q. Gross profit $0.6M, down 59.1% y/y but up 43.3% q/q. Operating loss $1.8M, net loss $1.1M. Inventory increased due to supply chain challenges.

Segment Performance

• Commercial Products: Net sales for the nine months ended September 30, 2021, decreased 17.3% compared to the same period in 2020. Sequentially, sales increased 41.2% in Q3 2021 compared to Q2 2021. Contributed 55.4% of total net sales in Q3 2021.
• Military Products: Net sales for the nine months ended September 30, 2021, decreased 55.3% compared to the same period in 2020. Sequentially, sales increased 20.2% in Q3 2021 compared to Q2 2021. Contributed 44.6% of total net sales in Q3 2021.

Guidance

• New products like nUVo disinfectors and Suncycle circadian lighting expected to contribute to top and bottom line starting 2022.
• Anticipate gross margins to be in mid-twenties near term and approach high twenties with new products.
• No specific quarterly revenue guidance yet, but expecting impact from nUVo product launch in Q4 2021.

Risks

• Pandemic Impact: Ongoing challenges in commercial lighting due to pandemic-related delays and reduced spending.
• Supply Chain Issues: Global supply chain challenges leading to inventory buildup and longer lead times.
• Regulatory and Certification: Delays in obtaining safety certifications for UV-C products could impact launch timelines.

Question and Answer

• **Q: When will the nUVo products be available?

A: Expected in Q4 2021, waiting on nUVo Tower certification.**

• **Q: Targeted market for nUVo products?

A: New category, starting in consumer side, expanding to retail outlets.**

• **Q: Gross margin outlook?

A: Anticipate high twenties as new products become larger part of mix.**

• **Q: Navy bid details?

A: Potential up to $5M orders for high-bay LED lighting in 5 years.**

• **Q: Army contracts?

A: Opportunities exist, but waiting for funding.**

• **Q: Cash position and financing?

A: Evaluating capital options, waiting for product launches to create favorable valuation for future funding.