SOLON, Ohio—Energy Focus, Inc. (NASDAQ:EFOI) has announced financial results for its first quarter ended March 31, 2023.
First Quarter 2023 Financial Highlights:
- Net sales of $0.9 million, decreased 54.9% compared to the first quarter of 2022, reflecting a $0.3 million, or 34.3%decrease in military sales, and a $0.8 million, or 71.7% decrease in commercial sales, year-over-year. As compared to the fourth quarter of 2022, net sales increased by 40.3%, primarily due to a $0.3 million increase in military sales, while commercial sales remained flat.
- Positive gross profit margin of 1.8%, up from negative gross profit margins of 1.3% in the first quarter of 2022 due primarily to significantly reduced fixed costs, offsetting the impact of lower sales volumes. Sequentially, gross profit was up significantly as compared to negative 35.9% in the fourth quarter of 2022, due to reduced variable costs.
- Loss from operations of $1.2 million, compared to a loss from operations of $2.7 million in the first quarter of 2022 and to a loss from operations of $2.0 million in the fourth quarter of 2022.
- Net loss of $1.3 million, or $(0.08) per basic and diluted share of common stock, compared to a net loss of $2.8 million, or $(0.44) per basic and diluted share of common stock, in the first quarter of 2022. Sequentially, the net loss decreased by $1.0 million compared to net loss of $2.3 million, or $(0.24) per basic and diluted share of common stock in the fourth quarter of 2022.
- Cash of $0.3 million, included in total availability (as defined under “Non-GAAP Measures” below) of $0.4 million, each as of March 31, 2023, as compared to cash of $0.1 million and total availability of $0.1 million as of December 31, 2022.
- Strategic investment completed in January 2023 resulting in net proceeds of $2.1 million and conversion of additional $1.5 million outstanding on promissory notes into common stock.
- Private placements of additional $955 thousand of common stock during the first quarter of 2023.
- Paid down $1.0 million on secured inventory lending facility and agreed to terminate accounts receivable lending facility, reducing borrowing costs during 2023.
- Restructured unsecured promissory note, paying down $500 thousand exchanging an additional $250 thousand for common stock and extending payments into 2024.
“First quarter has set the stage for growth in 2023 for Energy Focus,” said Lesley Matt, Chief Executive Officer. “The work we accomplished in the three months ended March 31, 2023 has started to transform Energy Focus to drive sales and new product development that we hope will show in our full year 2023 results and beyond. Although our first quarter profit margin was not where we wanted to be, turning to positive margin reflects our hard work on past inventory reserves. There is always room for improvement in sales numbers, and I am optimistic that we have our biggest hurdles behind us and are primed and ready to deliver in the quarters ahead. After the strategic investment from Sander Electronics was completed in January, the teams worked together to get our best-selling, higher margin products back into the production pipeline while collaborating on new market opportunities in LED and energy solutions products. During this time, we were also able to significantly reduce operating expenses and clean up our balance sheet to improve stockholder equity and deploy cash flows in operations. Although there is a tremendous amount of work still to be done, I believe that we are focusing back on sales, new product development and innovation.”
First Quarter 2023 Financial Results:
Net sales were $0.9 million for the first quarter of 2023, compared to $2.1 million in the first quarter of 2022, a decrease of $1.1 million, or 54.9%. Net sales from military maritime products were approximately $0.6 million, or 65.5% of total net sales, for the first quarter of 2023, compared to $0.9 million, or 45.0% of total net sales, in the first quarter of 2022, (including $0.3 million of deferred revenue recognized in that prior period). Sequentially, military maritime sales were up $0.3 million, or 48%, compared to fourth quarter of 2022, reflecting the building impact of our renewed focus on military sales commenced mid-year 2022 with the strategic hire of a head of MMM sales. Net sales from commercial products were approximately $0.3 million, or 34.5% of total net sales, for the first quarter of 2023, as compared to $1.1 million, or 55.0% of total net sales, in the first quarter of 2022, reflecting lower sales volumes and market adjusted pricing.
Gross profit margin was $17 thousand, or 1.8% of net sales, for the first quarter of 2023. This compares with negative gross profit margin of $26 thousand, or (1.3)% of net sales, in the first quarter of 2022. Sequentially, this compares with negative gross profit of $238 thousand, or (35.9)% of net sales, in the fourth quarter of 2022. The year-over-year increase in gross margin rate was driven by a $488 thousand decrease in fixed costs, partially offset by the $288 thousand impact from lower volume. In the first quarter of 2022, we also included a $129 thousand adjustment to the inventory reserve to impair slow-moving inventory in the first quarter of 2022. The quarter-over-quarter increase in gross margin rate was driven primarily by better product mix from additional military sales, which provided a $442 thousand impact to gross margin.
Adjusted gross margin, as defined under “Non-GAAP Measures” below, was negative 0.3% for the first quarter of 2023, compared to 5.0% in the first quarter of 2022, primarily driven by low sales volume in the first quarter of 2023. The decline in revenue was significantly offset by lower fixed costs, which were 23% of sales in the first quarter of 2023 and 27% of sales in the first quarter of 2022. Variable costs remained constant at 25% of sales for both quarters.
Sequentially, the negative 0.3% adjusted gross margin in the first quarter of 2023 is a marked improvement compared to adjusted gross margin of negative 55.8% in the fourth quarter of 2022. The increase from the fourth quarter of 2022 was primarily driven by lower variable costs as well as increased sales during the first quarter of 2023.
Operating loss was $1.2 million for the first quarter of 2023, compared to an operating loss of $2.7 million in the first quarter of 2022. Sequentially, this compares to an operating loss of $2.0 million in the fourth quarter of 2022. Net loss was $1.3 million, or $(0.08) per basic and diluted share of common stock, for the first quarter of 2023, compared with a net loss of $2.8 million, or $(0.44) per basic and diluted share of common stock, in the first quarter of 2022. Sequentially, this compares with a net loss of $2.3 million, or $(0.24) per basic and diluted share of common stock, in the fourth quarter of 2022.
Adjusted EBITDA, as defined under “Non-GAAP Measures” below, was a loss of $1.2 million for the first quarter of 2023, compared with a loss of $2.6 million in the first quarter of 2022 and a loss of $1.8 million in the fourth quarter of 2022. The improved adjusted EBITDA loss in the first quarter of 2023, as compared to the adjusted EBITDA loss for the first quarter of 2022, was due to the lower costs, primarily salaries and related payroll costs.
Cash was $0.3 million as of March 31, 2023. This compares with cash of $0.1 million as of December 31, 2022. As of March 31, 2023, the Company had total availability, as defined under “Non-GAAP Measures” below, of $0.4 million, which consisted of $0.3 million of cash and $0.1 million of additional borrowing availability under its credit facilities. This compares to total availability of $1.1 million as of March 31, 2022 and total availability of $0.1 million as of December 31, 2022. During the quarter ended March 31, 2023, we reduced the maximum capacity on our inventory facility to $500 thousand and agreed to pay it down over 2023, as well as agreed with our receivables lender to terminate our accounts receivable lending facility. Our net inventory balance of $4.9 million as of March 31, 2023, decreased $0.5 million from our net inventory balance as of December 31, 2022.
Earnings Conference Call:
The conference call will be simultaneously webcast. To listen to the webcast, log onto it here. The webcast will be available at this link through May 26, 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)
| March 31, 2023 | December 31, 2022 | ||
| (Unaudited) | |||
| ASSETS | |||
| Current assets: | |||
| Cash | $
301 |
$
52 |
|
| Trade accounts receivable, less allowances of $58 and $26, respectively | 909 | 445 | |
| Inventories, net | 4,938 | 5,476 | |
| Short-term deposits | 615 | 592 | |
| Prepaid and other current assets | 226 | 232 | |
| Receivable for claimed ERTC | 445 | 445 | |
| Total current assets | 7,434 | 7,242 | |
| Property and equipment, net | 68 | 76 | |
| Operating lease, right-of-use asset | 1,111 | 1,180 | |
| Total assets | $
8,613 |
$
8,498 |
|
| LIABILITIES | |||
| Current liabilities: | |||
| Accounts payable | $
2,177 |
$
2,204 |
|
| Accrued liabilities | 229 | 145 | |
| Accrued payroll and related benefits | 235 | 261 | |
| Accrued sales commissions | 29 | 76 | |
| Accrued warranty reserve | 143 | 183 | |
| Operating lease liabilities | 205 | 198 | |
| Credit line borrowings, net of loan origination fees | 388 | 1,447 | |
| Related party promissory notes payable | — | 814 | |
| Promissory notes payable, net of discounts and loan origination fees | 1,277 | 2,618 | |
| Total current liabilities | 4,683 | 7,946 | |
| Operating lease liabilities, net of current portion | 975 | 1,029 | |
| Total liabilities | 5,658 | 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 March 31, 2023 and December 31, 2022 | |||
| Issued and outstanding: 876,447 at March 31, 2023 and December 31, 2022 | — | — | |
| Common stock, par value $0.0001 per share: | |||
| Authorized: 50,000,000 shares at March 31, 2023 and December 31, 2022 | |||
| Issued and outstanding: 19,243,610 at March 31, 2023 and 9,848,438 at December 31, 2022 | 2 | 1 | |
| Additional paid-in capital | 153,311 | 148,545 | |
| Accumulated other comprehensive loss | (3) | (3) | |
| Accumulated deficit | (150,355) | (149,020) | |
| Total stockholders’ equity (deficit) | 2,955 | (477) | |
| Total liabilities and stockholders’ equity (deficit) | $
8,613 |
$
8,498 |
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| Three months ended | |||||
| March 31, 2023 | December 31, 2022 | March 31, 2022 | |||
| Net sales | $ 930 | $ 663 | $ 2,061 | ||
| Cost of sales | 913 | 901 | 2,087 | ||
| Gross profit (loss) | 17 | (238) | (26) | ||
| Operating expenses: | |||||
| Product development | 154 | 269 | 503 | ||
| Selling, general, and administrative | 1,066 | 1,255 | 2,127 | ||
| Loss on impairment | — | 262 | — | ||
| Total operating expenses | 1,220 | 1,786 | 2,630 | ||
| Loss from operations | (1,203) | (2,024) | (2,656) | ||
| Other expenses (income): | |||||
| Interest expense | 123 | 275 | 184 | ||
| Other income | — | — | (30) | ||
| Other expenses | 7 | 7 | 11 | ||
| Loss before income taxes | (1,333) | (2,306) | (2,821) | ||
| Benefit from income taxes | — | 4 | — | ||
| Net loss | $ (1,333) | $ (2,310) | $ (2,821) | ||
| Net loss per common share attributable to common stockholders – basic: | |||||
| From operations | $ (0.08) | $ (0.24) | $ (0.44) | ||
| Weighted average shares of common stock outstanding: | |||||
| Basic and diluted | 16,172 | 9,583 | 6,437 | ||
Condensed Consolidated Statements of Cash Flows
| Three months ended | |||||
| March 31, 2023 | December 31, 2023 | March 31, 2022 | |||
| Cash flows from operating activities: | |||||
| Net loss | ($1,333) | ($2,310) | ($2,821) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||
| Other income | — | — | (30) | ||
| Capitalized interest on promissory notes payable | — | 40 | — | ||
| Depreciation | 8 | 30 | 44 | ||
| Stock-based compensation | 26 | 2 | 44 | ||
| Provision for doubtful accounts receivable | 29 | 17 | (9) | ||
| Provision for slow-moving and obsolete inventories | (23) | (132) | 129 | ||
| Provision for warranties | (40) | (58) | (30) | ||
| Amortization of loan discounts and origination fees | 62 | 117 | 69 | ||
| Loss on dispositions of property and equipment | — | 262 | — | ||
| Changes in operating assets and liabilities (sources / (uses) of cash): | |||||
| Accounts receivable | (496) | 543 | (83) | ||
| Inventories | 562 | 812 | 370 | ||
| Short-term deposits | (23) | 171 | 12 | ||
| Prepaid and other assets | 6 | 85 | 20 | ||
| Accounts payable | (27) | 91 | 61 | ||
| Accrued and other liabilities | 66 | (135) | (211) | ||
| Deferred revenue | — | (7) | (268) | ||
| Total adjustments | 150 | 1,838 | 118 | ||
| Net cash used in operating activities | (1,183) | (472) | (2,703) | ||
| Cash flows from investing activities: | |||||
| Acquisitions of property and equipment | — | — | (35) | ||
| Proceeds from the sale of property and equipment | — | 25 | — | ||
| Net cash flows from investing activities | — | 25 | (35) | ||
| Cash flows from financing activities (sources / (uses) of cash): | |||||
| Proceeds from the issuance of common stock and warrants | 3,025 | — | — | ||
| Principal payments under finance lease obligations | — | — | (1) | ||
| Proceeds from exercise of stock options and employee stock purchase plan purchases | — | 1 | — | ||
| Payments on the 2021 Streeterville Note | — | (205) | (615) | ||
| Deferred financing costs | 215 | — | |||
| Payments on the 2022 Streeterville Note | (500) | — | — | ||
| Proceeds from the related party promissory note payable | — | 350 | — | ||
| Proceeds from promissory notes payable | — | 650 | — | ||
| Deferred financing costs paid for Streeterville Notes | — | — | |||
| Net (payments) proceeds from the credit line borrowings – Credit Facilities | (1,093) | (553) | 897 | ||
| Net cash provided by financing activities | 1,432 | 458 | 281 | ||
| Net increase (decrease) in cash | 249 | 11 | -2,457 | ||
| Cash, beginning of period | 52 | 41 | 2,682 | ||
| Cash, end of period | $
301 |
$
52 |
$
225 |
||
Sales by Product
(in thousands)
(unaudited)
| Three months ended | |||||
| March 31, 2023 | December 31, 2022 | March 31, 2022 | |||
| Net sales: | |||||
| Commercial | $ 321 | $ 349 | $ 1,134 | ||
| MMM products | 609 | 313 | 927 | ||
| Total net sales | $ 930 | $ 662 | $ 2,061 | ||
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 restructuring expenses, financing charges, income taxes, non-cash depreciation, stock non-cash compensation, accrued incentive compensation, non-routine charges to other income or expense, and change in fair value of warrant liability; 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) | March 31, 2023 | December 31, 2022 | March 31, 2022 | ||
| Total borrowing capacity under credit facilities | $ 500 | $ 1,567 | $ 4,026 | ||
| Less: Credit line borrowings, gross (1) | (400) | (1,512) | (3,175) | ||
| Excess availability under credit facilities (2) | 100 | 55 | 851 | ||
| Cash | 301 | 52 | 225 | ||
| Total availability (3) | $ 401 | $ 107 | $ 1,076 | ||
| (1) Forms 10-Q and 10-K Balance Sheets reflect the Line of credit net of debt financing costs of $29, $65 and $66, 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 | |||||
| (in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | ||
| Net loss | $ (1,333) | $ (2,310) | $ (2,821) | ||
| Interest | 123 | 275 | 184 | ||
| Loss on Impairment | — | 262 | — | ||
| Other income | — | — | (30) | ||
| Income tax benefit | — | 4 | — | ||
| Depreciation | 8 | 30 | 44 | ||
| Stock-based compensation | 26 | 2 | 44 | ||
| Other Incentive Compensation | — | (19) | (5) | ||
| Adjusted EBITDA | $ (1,176) | $ (1,756) | $ (2,584) | ||
| Three Months Ended | ||||||||
| (in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||
| ($) | (%) | ($) | (%) | ($) | (%) | |||
| Net sales | $
930 |
$
663 |
$
2,061 |
|||||
| Reported gross profit | 17 | 1.8 % | -238 | (35.9) % | (26) | (1.3) % | ||
| E&O, in-transit and net realizable value inventory reserve changes | (20) | (2.2) % | (132) | (19.9) % | 129 | 6.3 % | ||
| Adjusted gross margin | $(3) | (0.3) % | $(370) | (55.8) % | $
103 |
5.0 % | ||