Energy Focus, Inc. Reports Third Quarter 2018 Financial Results

Energy Focus, Inc. Reports Third Quarter 2018 Financial Results

November 7, 2018

SOLON, Ohio, Nov. 07, 2018 (GLOBE NEWSWIRE) -- Energy Focus, Inc. (NASDAQ:EFOI), a leader in advanced LED retrofit technologies, today announced financial results for its third quarter, which ended September 30, 2018.

Third Quarter 2018 Highlights:

  • Net sales were $5.2 million, compared to $5.2 million in the second quarter of 2018.
  • Gross profit was 25% of net sales, compared to 25% in the second quarter of 2018.
  • Net loss was ($1.9) million, including a $0.3 million executive severance charge, compared with ($1.8) million, in the second quarter of 2018.

“Revenue growth remains our top priority to achieve break-even. In Q3, we achieved several important milestones that should lead to increased revenue starting next year,” said Dr. Ted Tewksbury, Chairman, Chief Executive Officer and President of Energy Focus, Inc. “First, we completed cost reductions of our legacy products enabling us to offer customers our industry-leading quality and performance at competitive prices; second, we introduced a new shipboard retrofit kit and shipped our first units for revenue; and third, sales of new products introduced since the start of our turnaround reached their highest level to date.”

Third Quarter 2018 Financial Results:

Net sales were $5.2 million for the third quarter of 2018. This compares with $5.2 million in the second quarter, and $5.0 million in the third quarter of 2017. Net sales from commercial products were $2.3 million, down from $3.0 million in the second quarter and $3.9 million in the third quarter of 2017.  The changes are primarily due to a pause in the timing of a major healthcare provider’s roll outs of retrofit projects. Net sales from military and maritime products were $2.9 million, up from $2.2 million in the second quarter and $1.1 million in the third quarter of 2017.

Gross profit was $1.3 million, or 25% of net sales, for the third quarter, compared with $1.3 million, or 25% of net sales in the second quarter, and $1.1 million, or 23% of net sales in the third quarter of 2017.

Operating loss, which included a $0.3 million executive severance charge, was ($1.9) million for the quarter. This compares with an operating loss of ($1.8) million in the second quarter and ($1.8) million in the third quarter of 2017.

Net loss was also ($1.9) million in the quarter, compared with ($1.8) million in the second quarter and ($1.8) million in the third quarter of 2017. Net loss per share was ($0.16), compared with ($0.15) in the second quarter and ($0.15) in the third quarter of 2017.

Adjusted EBITDA, as defined under “Non-GAAP Measures” below, was a loss of ($1.2) million, compared with ($1.4) million in the second quarter and ($1.6) million in the third quarter of 2017.

Cash and cash equivalents were $7.1 million as of September 30, 2018, compared with $8.6 million at the end of the second quarter of 2018.

“With a sales team that now has nationwide coverage, cost reductions completed and new products ramping, we are focused on converting the sales pipeline to revenue while simultaneously developing our next generation smart lighting portfolio,” said Dr. Tewksbury. “We remain confident that our turnaround is on the right track to create shareholder value.”

Earnings Conference Call:

Energy Focus, Inc. will host a conference call and webcast on November 7, 2018 at 11:00 a.m. ET to review the third quarter 2018 financial results, followed by a Q & A session. To participate in the call, please dial 877-451-6152 if calling within the United States, or 201-389-0879 if calling internationally. A replay will be available until November 14, 2018, which can be accessed by dialing 844-512-2921 if calling within the United States, or 412-317-6671 if calling internationally. Please use passcode 13684558 to access the replay. The call will additionally be broadcast live and archived for 90 days over the internet accessible in the Company section of the Energy Focus website, http://investors.energyfocus.com/. To access the recording link, click on “Company” in the top menu bar of the Energy Focus corporate website, then select “Investors” from the dropdown menu.

Forward Looking Statements:

Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, these statements can be identified by the use of words such as “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could,” “would” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  These forward-looking statements include all matters that are not historical facts and include statements regarding our current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, capital expenditures and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this release. We believe that important factors that could cause our actual results to differ materially from forward-looking statements include, but are not limited to: (i) our history of operating losses and our ability to effectively implement cost-cutting measures and generate sufficient cash from operations or receive sufficient financing, on acceptable terms, to continue our operations; (ii) our reliance on a limited number of customers, in particular our historical sales of products for the U.S. Navy, for a significant portion of our revenue, and our ability to maintain or grow such sales levels; (iii)  the entrance of new competitors in our target markets; (iv) general economic conditions in the United States and in other markets in which we sell our products; (v) our ability to implement and manage our growth plans to diversify our customer base, increase sales, and control expenses; (vi) our ability to increase demand in our targeted markets and to manage sales cycles that are difficult to predict and may span several quarters; (vii) the timing of large customer orders and significant expenses, and fluctuations between demand and capacity, as we invest in growth opportunities; (viii) our dependence on military maritime customers and on the levels of government funding available to such customers, as well as funding resources of our other customers in the public sector and commercial markets; (ix) market acceptance of LED lighting technology; (x) our ability to respond to new lighting technologies and market trends, and fulfill our warranty obligations with safe and reliable products; (xi) any delays we may encounter in making new products available or fulfilling customer specifications; (xii) our ability to compete effectively against companies with greater resources, lower cost structures, or more rapid development efforts; (xiii) our ability to protect our intellectual property rights and other confidential information, and manage infringement claims by others; (xiv) the impact of any type of legal inquiry, claim, or dispute; (xv) our reliance on a limited number of third-party suppliers, our ability to obtain critical components and finished products from such suppliers on acceptable terms, and the impact of our fluctuating demand on the stability of such suppliers; (xvi) our ability to timely and efficiently transport products from our third-party suppliers to our facility by ocean marine channels; (xvii) our ability to successfully scale our network of sales representatives, agents, and distributors to match the sales reach of larger, established competitors; (xviii) any flaws or defects in our products or in the manner in which they are used or installed; (xix) our compliance with government contracting laws and regulations, through both direct and indirect sale channels, as well as other laws, such as those relating to the environment and health and safety; (xx) risks inherent in international markets, such as economic and political uncertainty, changing regulatory and tax requirements, currency fluctuations and potential tariffs and other barriers to international trade; (xxi) our ability to attract and retain qualified personnel, and to do so in a timely manner; and (xxii) our ability to maintain effective internal controls and otherwise comply with our obligations as a public company and under Nasdaq listing standards.

About Energy Focus

Energy Focus is an industry-leading innovator of energy-efficient LED lighting technology. As the creator of the first UL-verified flicker-free LED products, Energy Focus’ products provide extensive energy and maintenance savings, as well as safety, health and productivity benefits over conventional lighting.  Our customers serve the commercial, industrial, healthcare, education and military markets.

Energy Focus is headquartered in Solon, Ohio. For more information, visit our website at www.energyfocus.com

Investor Contact:

Jim Fanucchi
Darrow Associates, Inc.
(408) 404-5400
ir@energyfocus.com


       
       
       
Condensed Consolidated Balance Sheets      
(In thousands)      
       
  September 30,   December 31,
    2018       2017  
ASSETS      
Current assets:      
Cash and cash equivalents $ 7,054     $ 10,761  
Trade accounts receivable less allowances of $27 and $42, respectively   2,962       3,595  
Inventories, net   6,434       5,718  
Prepaid and other current assets   1,255       596  
Assets held for sale         225  
Total current assets   17,705       20,895  
       
Property and equipment, net   713       1,097  
Other assets   147       159  
Total assets $ 18,565     $ 22,151  
       
LIABILITIES      
Current liabilities:      
Accounts payable $ 3,002     $ 1,630  
Accrued liabilities   125       53  
Accrued payroll and related benefits   476       394  
Accrued severance   274        
Accrued legal and professional fees   196       77  
Accrued sales commissions   134       124  
Accrued restructuring - short-term   95       170  
Accrued warranty reserve   260       174  
Deferred revenue   9       5  
Total current liabilities   4,571       2,627  
       
Other liabilities   152       232  
Total liabilities   4,723       2,859  
       
STOCKHOLDERS' EQUITY      
Preferred stock, par value $0.0001 per share:      
Authorized: 2,000,000 shares in 2018 and 2017      
Issued and outstanding: no shares in 2018 and 2017          
Common stock, par value $0.0001 per share:      
Authorized: 30,000,000 shares in 2018 and 2017      
Issued and outstanding: 12,071,044 at September 30, 2018 and
11,868,896 at December 31, 2017
  1       1  
Additional paid-in capital   128,160       127,493  
Accumulated other comprehensive loss   (1 )     2  
Accumulated deficit   (114,318 )     (108,204 )
Total stockholders' equity   13,842       19,292  
Total liabilities and stockholders' equity $ 18,565     $ 22,151  
       

 

                   
Condensed Consolidated Statements of Operations                  
(In thousands, except per share data)                  
                   
  Three months ended   Nine months ended
  September 30,   June 30,   September 30,   September 30,
    2018       2018       2017       2018       2017  
Net sales $ 5,158     $ 5,172     $ 5,002     $ 14,989     $ 15,119  
Cost of sales   3,877       3,876       3,865       11,596       11,920  
Gross profit   1,281       1,296       1,137       3,393       3,199  
                   
Operating expenses:                  
Product development   638       673       732       1,940       2,266  
Selling, general, and administrative   2,543       2,421       2,393       7,611       8,802  
Restructuring expenses (credits)   1       3       (200 )     (46 )     1,534  
Total operating expenses   3,182       3,097       2,925       9,505       12,602  
Loss from operations   (1,901 )     (1,801 )     (1,788 )     (6,112 )     (9,403 )
                   
Other expenses (income):                  
Interest expense   2       1       1       4       1  
Other expenses (income)   17       2       (16 )     (2 )     5  
                   
Loss from operations before income taxes   (1,920 )     (1,804 )     (1,773 )     (6,114 )     (9,409 )
Provision for income taxes                            
Loss from continuing operations   (1,920 )     (1,804 )     (1,773 )     (6,114 )     (9,409 )
                                       
Net loss $    (1,920 )   $    (1,804 )   $    (1,773 )   $    (6,114 )   $    (9,409 )
                   
                   
Net loss per share - basic and diluted $ (0.16 )   $ (0.15 )   $ (0.15 )   $ (0.51 )   $ (0.80 )
                   
Weighted average shares used in computing net loss per share:                  
Basic and diluted   12,059       11,949       11,856       11,970       11,789  
                   

 

                   
                   
Condensed Consolidated Statements of Cash Flows                  
(In thousands)                  
  Three months ended   Nine months ended
  September 30,   June 30,   September 30,   September 30,
    2018       2018       2017       2018       2017  
               
Cash flows from operating activities:              
Net loss $   (1,920 )   $   (1,804 )   $   (1,773 )   $   (6,114 )   $   (9,409 )
                   
Adjustments to reconcile net loss to net cash used in operating activities:                  
Depreciation     105         143         166         399         514  
Stock-based compensation     276         235         192         706         625  
Stock-based compensation reversal    —        —        —        —        (270 )
Provision for doubtful accounts receivable     (4 )       11        18         (15 )      19  
Provision for slow-moving and obsolete inventory     (123 )       78         (373 )       (532 )       (644 )
Provision for warranties     31         48         108         46         152  
Loss on disposals of property and equipment     19         4         3         4         108  
Changes in assets and liabilities:                  
Accounts receivable     411         171         459         648         2,638  
Inventories     (572 )       (209 )       1,495         (184 )       3,334  
Prepaid and other assets     (212 )       (161 )       (39 )       (647 )       (161 )
Accounts payable     (24 )       73         (998 )       1,447         (1,173 )
Accrued and other liabilities     470         (132 )       (792 )       391         (433 )
Deferred revenue     (3 )       (14 )      (2 )       5        16  
Total adjustments     374         247         237         2,268         4,725  
    Net cash used in operating activities     (1,546 )       (1,557 )       (1,536 )       (3,846 )       (4,684 )
                   
Cash flows from investing activities:                  
Acquisitions of property and equipment    —        —         (39 )       (57 )       (154 )
Proceeds from the sale of property and equipment    —        (4 )      25        240        97  
    Net cash (used in) provided by investing activities    —         (4 )       (14 )       183         (57 )
                   
Cash flows from financing activities:                  
Proceeds from the exercise of stock options/ESPP    —        21        —        21         105  
Common stock withheld to satisfy income tax withholding on vesting of restricted stock units    (21 )      (7 )      —        (60 )      (49 )
    Net cash (used in) provided by financing activities     (21 )       14        —         (39 )       56  
                   
Effect of exchange rate changes on cash    2        (6 )      (2 )      (5 )      (9 )
                   
Net decrease in cash and cash equivalents    (1,565 )      (1,553 )       (1,552 )      (3,707 )       (4,694 )
Cash and cash equivalents at beginning of year     8,619         10,172         13,487         10,761         16,629  
Cash and cash equivalents at end of period $   7,054     $   8,619     $   11,935     $   7,054     $   11,935  
                   
Classification of cash and cash equivalents:                  
Cash and cash equivalents     6,712         8,277         11,593         6,712         11,593  
Restricted cash held     342         342         342         342         342  
Cash and cash equivalents at end of period $   7,054     $   8,619     $   11,935     $   7,054     $   11,935  
                   

 

             
             
Sales by Products            
(In thousands)            
  Three months ended   Nine months ended
  September 30,     June 30,     September 30,   September 30,
    2018     2018     2017     2018     2017
Commercial products $ 2,292   $ 2,972   $ 3,947   $ 7,469   $ 12,204
Military maritime products   2,866     2,200     1,055     7,520     2,915
Total net sales $ 5,158   $ 5,172   $ 5,002   $ 14,989   $ 15,119
             
             

Non-GAAP Measures                                                                                    

In addition to the results provided in accordance with U.S. GAAP, we may provide certain non-GAAP measures, which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and, for the three and nine months ended September 30, 2018 and 2017, include adjustments for our restructuring expenses, and for depreciation and stock compensation expenses that do not have a current period impact on cash flow.

We believe that our use of 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 cash flow performance of the operations 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 which do not have a current period cash flow impact. However, our inclusion of these adjusted 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. 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.

These non-GAAP financial measures are not intended to replace U.S. GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. 

(In thousands) Three months ended   Nine months ended
  September 30,   June 30,   September 30,   September 30,
    2018       2018       2017       2018       2017  
Total operating expenses $ 3,182     $ 3,097     $ 2,925     $ 9,505     $ 12,602  
Less: Restructuring   (1 )     (3 )     200       46       (1,534 )
Operating expenses, excluding restructuring $ 3,181     $ 3,094     $ 3,125     $ 9,551     $ 11,068  
                   
                   
  Three months ended   Nine months ended
  September 30,   June 30,   September 30,   September 30,
    2018       2018       2017       2018       2017  
Net loss $ (1,920 )   $ (1,804 )   $ (1,773 )   $ (6,114 )   $ (9,409 )
Restructuring (expenses) credits   (1 )     (3 )     200       46       (1,534 )
Net loss, excluding restructuring   (1,919 )     (1,801 )     (1,973 )     (6,160 )     (7,875 )
Depreciation   105       143       166       399       514  
Stock-based compensation   276       235       192       706       625  
Severance and benefits   313       6       44       325       93  
Adjusted EBITDA $ (1,225 )   $ (1,417 )   $ (1,571 )   $ (4,730 )   $ (6,643 )
                   

 

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Source: Energy Focus, Inc.