ENERGY FOCUS, INC/DE Q1 FY2022 earnings call

• Reorganized the company to drive focus on lines of business, engineering, and sales. - Working on new product introductions like RedCap next-gen, refreshed traditional products, patented power line control technology, and nUVo UVC disinfection solutions. - Initiatives to improve engineering, supply chain, sales execution, and cost reduction. - Signed a lease extension reducing annual rent costs by ~$415,000 to $425,000 starting July 2022.

Net sales for the first quarter of 2022 were $2.1 million, down 21.8% from Q1 2021. Commercial products contributed $1.1 million (55% of total net sales), up $221,000 from Q1 2021. Military product sales decreased due to delayed government funding. Gross profit was negative $26,000 in Q1 2022 vs. positive $600,000 in Q1 2021. Non-GAAP adjusted gross margin was 5% in Q1 2022 compared to 24.3% in Q1 2021.

• Expect improved financial results in the second half of 2022. - If quarterly sales > $3.5M-$4M, initially expect mid-20s gross margins, moving to high 20s with new products and value engineering. - Working on monetizing obsolete inventory through liquidators.

• Delayed government funding impacting military product sales. - Supply chain challenges, especially with electronics for disinfection products. - Inflationary pressures on freight costs affecting gross margins.

Q: How should we think about gross margin expectations down the line?

A: Efforts to reduce fixed costs, freight, and value engineering; expecting mid-20s gross margins with sales growth.

Q: Is liquidity an overhang for winning contracts?

A: No feedback from sales team that balance sheet is affecting sales.

Q: What's the pipeline/backlog for legacy offerings?

A: Good pipeline, some backlog but not significant, ship as orders come.

Q: Status of Suncycle/EnFocus product?

A: Expected to roll out late second quarter to early third quarter.

Q: Disinfection tower unit status?

A: Supply issue with boards, waiting for replacement boards to test.