Q4 2019 Earnings Call
[music].
Greetings and welcome to the energy focus 2019 fourth quarter and yearend conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Brett Mouse with Hayden IR. Thank you you may begin.
Thank you operator, and good morning, everyone. Joining me dollar called today to discuss prepared remarks, as James to Chairman and Chief Executive Officer, and Todd Nestor, President and Chief Financial Officer Energy focus for begin today's call I'd like to remind you that will make certain forward looking statements. These statements are based upon information that represents the company's current expectations or beliefs.
The results realize may differ materially from those stated for a discussion of the risks that could affect our results. Please refer to discussion under heading risk factors. Our most recent 10-K filed with the FCC.
Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law also please note. The during this call and the accompanying press release certain financial metrics are presented on both GAAP and non-GAAP adjusted basis reconciliations of the adjusted results to the GAAP results are available in the tables.
Attached to the earnings release, which is posted on our corporate web site at WD Dot energy focus dot com and the Investor Relations section on the site knowledge and all the color James James closures.
Thanks, Brett.
Good morning, everyone and thank you for joining our fourth quarter and full year, two sunlight <unk> earnings conference call.
Before I start discussing our 2019 before year end fourth quarter results.
On behalf of and the Trakas staffs and board of directors I like to wish you the best coping with the I'm going outbreak, Oh corolla virus or cope with my team.
It's an unprecedented type or all of us and maintaining safety and health is the foundation.
Prosperity.
Well this call I will also touch up on what we're doing what we expect thing at the moment that old Guy. They shouldn't do is bound to cope with 19 outbreak.
As you have heard about pets, Phil quarterly earnings calls.
During 2019, we spend a great a portion of that year transforming a number of key elements you know businesses.
Part of a broader program until we launch and the focus with superior sales and operating infrastructure.
Well drive in the late you know innovative and competitive performances and achieve sustainable long term girls.
So that's a year into our retirement plan.
Because if it can progress has been might.
I'm encouraged by the momentum we are building and the opportunities we're pursuing the enterprise El <unk> lighting markets.
Now seeing accelerating adoption.
<unk>.
The girls substantially.
Oh, yeah, we'd be writing technologies expand beyond interest savings into human and animal health impacts.
For the fourth quarter 2000 lighting, we came in right above.
Hi end of our revenue expectation was $3.5 million sales.
Which are up.
21% from 2.9 media in the third quarter of 2019.
The sequential improvement was due to increased net sales in both our commercial military and married type business.
And lesser extent military sales that would have been recognized in Q3, but I mean Q4 against that.
On the commercial side about business mess elsewhere.
$2 million up 18% sequentially from $1.7 million into third quarter of 2000 lighting.
This increase was.
Due primarily to.
Net new sales to several colleges and create tool control school districts.
Well proven locked up for a 10 year warranty solutions are clear differentiate us.
As we position ourselves focus on serving and users and contracting partners. We increased sales of our Red Kap emergency picked up product.
Which has been a top fit.
Then the emergency lighting solution I, leading national Energy Service company.
Sales off almost 75 replacement 82 products, which are now in the early stage of being rolled out buyer.
Premium national retail channel, it's more than eight holder stores also started to get picked up.
Our military business also starting to grow again during the fourth quarter two southern lights up.
Since our corporate relaunch in April 2000, my team, we have been focusing on enhancing our overall competitive enough in the Navy business.
Strengthening our.
Engineering design.
Improving supply chain efficiency and lowering production cost.
The result is simple and powerful.
We started winning more control.
As we stated in the earnings release, we received.
$7.6 million of new contracts from the U.S. Navy and the flooring ally maybe over the past six miles.
Which represents our highest although rates for our military American type business.
As 2016.
Which demonstrates our strengthening leadership and competitiveness in the Navy ecosystem.
So it's going to southern seven.
How much focus has always been a trusted uniting supplier to the U.S. Navy and the Navy Shipbuilding defense contractors as the market continues to evolve over the past few years, we'd be not.
Now we are confident that and the focus is back on track to be an all around either to supply the U.S. and El <unk> Navy.
Events.
We need lighting systems.
We are excited.
Well, the continuing recovery and renewed growth in our military business.
Overall I'm business development, we continue.
To execute our strategy of providing high quality in most trusted that would be lighting products in the marketplace and we continue.
To expand our sales team internally through adding new regional sales managers and externally through new and customers and contracting distribution partners.
Meanwhile, we have also been expanding all Brent I'll rich with increasing media exposure so industry publications.
Okay, that's all industry expertise and leadership and that you can't all the target customers up all the value and importance.
Oh, sustainable Oh EDI lighting.
[noise], another exciting and expanding every alpha image focus during the quarter he's on the operation.
As a premier yeah, we'd be writing, Brian one of the keys to our sustainable growth is distancing ourselves from the commoditized landscape of lighting.
And its focus has always been focus on developing high quality high value added and customer centric or with the lighting products and solutions that differentiate us from the competition.
As we mentioned in the last earnings call.
We're very excited about coming wireline.
Steaming and call it the only control product portfolio I was glad to launch by the end of this malls.
And start to Delever later in Q2.
Over the past feel models, we completed the strength in all product designs and expand El Penon portfolio surrounding this control platform, which we call in focus.
And our initial pilot installations continues to generate very positive feedback from customers.
You can replace existing wall switched and well listen or to go eat these without control package line crew switches and yeah, we'd be lags without requiring additional wiring and electrical paper.
We have filed several provisional patents around being focus which is slated to be launch.
Why do you know this models was first product they really expected by the second.
End of second quarter.
As we mentioned previously we believe and the true Infocus won't be the most disruptive acknowledge we have ever introduced and will further differentiate us from the competition by bringing to end users. So you can then what kind of human health safety and productivity benefits.
[noise] ER responses, we have been getting from our large strategic accounts.
We have showcase to have been although many positive indicating significant demand across multiple verticals, including the educational space.
Well I see installation as could be impossible to classrooms.
And health care facilities.
Government in other commercial industrial businesses.
In the meantime, we continue to make because a significant improvements to our supply chain consolidating it where appropriate and focusing on developing and launching differentiated products to stay away from commoditized market that could be.
Two excessive inventory build up and called caught up quarter swings you know gross margins due to inventory reserve accounting.
Although we believe that gross margin dollars.
In a lot more to us think girls.
Margin percentage at this point when all the head is significant.
Our goal is to achieve and maintain gross margins in the 25% to 30% range over the long term.
Continuing optimization of our product design and supply chain networks.
Well as introducing new higher margin products, such as those from the Infocus family.
Moving onto our operating expenses a teen instead of you know a relaunch program is the streamlining of operations with a focus on reducing our delivery and overhead cost.
As you might recall, we took drastic managers in the second and third quarter.
Last year, Threed emanate operational redundancies, <unk> inefficiencies and to implement big of a spending approval process.
As a result, we reduced operating expenses by nearly 30% from the first quarter two a second quarter and then not unlike for saying from the second quarter <unk> third quarter of 2019.
Hi, clinging up and clear out some of the noise and accessing our infrastructure will now.
Hi, bone to identify the resources needed for a higher functioning higher performance.
Organization.
In the third quarter, we started opening hiring.
Well specific needs and positions that will drive growth, most notably engineering and sales staff.
And the other chief financial and operational positions that will support growth.
As a result, our operating expenses increased 14% sequentially to 2.1 million.
For the fourth quarter over to southern my team.
However, this remains significantly lower than a year ago when operating expenses.
Well, a $3 million for the fourth quarter of 2018.
Lower left sales as a result, we narrow our year over year malls from.
Operations by 60% from $3 million in the fourth quarter of 2018.
The $1.2 million into fourth quarter, which was on lighting.
We have now filled most of the loan sales positions and looking ahead, we only expect continuing and more sit at the same hiring sales related stuff that could boost up sales.
And our operating losses should shrink from here as we grow sales in the coming quarters.
Obviously, we are actively following the development of the Kobe Nitin outbreak and we'll make for the cost adjustment as timely as possible to balance outgrowth initiatives with the need to preserve our capital.
Last but not least earlier in the.
First quarter of two southern 20, we issue approximately 3.4 million shares of common stock that direct offering price at the market for gross proceeds of approximately <unk> 0.7 $5 million.
We also you show an equal number of warrants that could be exercised the future at 60 cents 67 cents per.
Sure.
To provide additional capital.
Infusion in the future when our stock price rises above that level.
The equity capital proved to be a timely support off off balance sheet.
To prepare us to meet with the challenges impacts we my experience from Corbett 19 coming mouse.
Regarding our first quarter of 2020.
As we stated in the press release, we expect net sales to be in the range of 3.6 median.
Two or $3.7 million, representing eight starting to 16% growth over the first quarter of 2000 lighting.
As a reminder, at this point of time I'll business is comprised of <unk> small number of large accounts that drive the majority of all sales and the ongoing.
For a lot virus outbreak could steal impact all remaining part of the first quarter.
Before closing my remarks, I'd like to summarize our perspective, the ongoing coffee 19, anthemic, which clearly poses.
Unprecedented and certainty for the global economy and business.
Although our military sales have not been impacted.
Started.
Commercial projects being put on hold.
Well as minor supply chain disruptions caused by the pet pandemic.
We have been diversifying our supply chain sources over the past my models. So we're not totally subject to any particular countries supply chain bottlenecks.
Nonetheless, it is challenging for us to force the health of Pent, then it will impact our business over the ensuing six to 12 months until the virus clearly is under control and economic activities.
Resumed close to normal.
Well, we will do is to stay extremely vigilant the development of the but then again as I mentioned, we stand ready to adjust and scale operations in the dynamic and timely manner.
Ensure that the business can be run an expanded sustainably.
With that I'll turn the call to top to review our financial performance during the quarter top.
Thank you James.
Net sales for the full year 2019 were 12.7 million compared with 18.1 million in 2018.
Year over year decrease of 29.8%.
This decrease was driven by lower sales from our military globe flood light fixture and then Pell Hello, two product lines and it's mostly due to a one time large order in 2018 as long as the decrease in sales of our commercial products, reflecting fluctuations and the timing pacing Pfizer projects in that market.
2019 full year net loss was 7.4 million or 60 cents per basic or 67 loss per basic diluted share compared with the full year loss of 9.1 million or 76 cents loss per basic diluted share in 2018.
However, most importantly, and very relevant might we believe it is important for investors to look closely at the study and meaningful improvements we made from the second through fourth quarter 2019 to reinvigorate sales reduced costs and create a substantial platform for growth and improved financial results in the future while medical.
Getting the bottom line losses experienced in 2019 total.
Sales for the fourth quarter of 2019 were 3.5 million compared with 2018 fourth quarter sales were 3.1 billion, an increase in 13.2% year over year.
One compared to two when compared to 2.9 million and then third quarter 2019 sales were up 21.7 on a sequential basis.
The sequential increase in sales can be attributed primarily to traction we are gaining from the introduction of new Paul that's an increase in our direct sales team a shift in our sales mix, which it was weighted more heavily towards the commercial market the timing of military sales, which had been delayed from prior quarters due to budgetary constraints.
The defense Logistics agency, and then increase value proposition, primarily from our commercial partners.
These increases were partially offset by a decline in sales to a major north East, Ohio Hospital system.
From the Mets perspective in the fourth quarter military sales were 1.5 million, representing approximately 42.5% of total sales for the fourth quarter of 2019 compared to 1.9 million or 61% of total sales for the fourth quarter of 2018, and 1.2 million or 40.
40.5% of total sales for the third quarter of 2019.
The sequential increase in the percentage mix the military sales as a percentage of our total sales quarter on quarter is primarily due to the timing and military sales, which has been delayed and a third quarter due to budgetary constraints should fit the deal by.
The year over year decrease was driven primarily by reduced sales to one large distributor to the navy.
Sales to commercial customers were $2 million, representing approximately 57.5% of total sales for the fourth quarter of 2019 compared to 1.2 million or 38.3% total sales for the fourth quarter of 2018, and 1.7 million well 59% of total.
Sales for the third quarter 2019.
Increase in dollar sales was mainly due to a new sales to several school districts in colleges as walls increases in sales of our webcast products.
Gross profit for the fourth quarter of 2019 was $950000 compared with $19000 a year ago corn, a significant increase mainly driven by unfavorable excess and obsolete and related reserve adjustments in the fourth quarter of 2018 of $590000 honest.
Sequential basis gross profit was roughly flat compared to 1 million in the third quarter 2019.
That's a percentage of revenue gross profit margin was 27.1 person in the fourth quarter 2019 compared to your 0.6% in the fourth fourth quarter of 2018 and 35.3% in the third quarter 2019.
Hello, when adjusted gross profit margins for excess and obsolete and related reserves, our actual gross profit margins because 29.3% for the fourth quarter of 2019 compared to 18.2% in the fourth quarter of 2018 and 23.6% and.
Before the third quarter 2019.
The sequential decrease in gross profit margin was it was all the fluctuations in our excess in obsolete reserves, which may experience from quarter to the corner.
Moving forward, we expect our normalized gross margins to be in the mid twenties in the near term and begin to approach the low 30% range as we introduce new product to make further improvements to our supply chain.
However, depending on the sales back and inventory valuations, we may see some fluctuations from quarter to the corner.
Operating expenses on the fourth quarter of 2019, with 2.1 million compared to 3 million in a year ago corridor, a decrease of $865000, 29% year over year, which was driven by both of our product development and selling general and administrative expenses and the inclusion of restructuring expense.
In the fourth quarter 2018.
Taking those one by one product development expenses decreased by 408000 year over year <unk> $249000 in the fourth quarter 2019. It was the result of lower salaries and related benefits driven by a lower headcount, which resulted from office closures in San Jose in Taiwan.
On the first half of 2019 and lower outside testing fees.
S.G.N. expense decreased 15% to 1.9 million in the fourth quarter of 2019, compared to 2.2 million and a year ago quota.
The decrease was a direct result of our director that starts to streamline our operations and create an agile infrastructure support sustainable long term goal.
Key drivers of the decrease were lower salaries, including stock based compensation related benefits and lower headcount was often resulting from office closures on San Jose in Taiwan, and the first half in 2019, which were partially offset by an increase in recruitment and legal costs.
Sequentially operating expenses increased 14.3% compared to 1.9 million and the third quarter 2019.
This increase was primarily driven by an increase in salaries and related benefits and increased legal in recruitment costs as James said most of the new headcount we added in the fourth quarter 2019 were related to sales driven activities and we consider all hires made is an investment more future growth.
Loss from operations during the fourth quarter of 2019 was 1.2 million an improvement of 1.8 million compared to a loss from operations and 3 million and the fourth quarter of 2018.
Sequentially. This compares to a loss of all of operations of 833000 in the third quarter of 2019.
[laughter] sequential increase from a loss was due primarily to lower gross margins, resulting from inventory valuations in an increased investment in sales driven asked DNA salaries and related benefit costs.
As James mentioned, we encourage investors and analysts still looked a directional longer term trends of our business and they actions, we're taking to accelerate growth and there are losses, along a trajectory there will ultimately returns towards sustainable profitability.
Net loss for the fourth quarter of 2019 improved 1.3 million or 11 cents loss per basic and diluted share compared with a loss of $3 million or 25 loss per basic and diluted share in a year ago corridor, and then that loss of 946000 or 8% loss per share.
Third quarter of 2019.
Now I would like to turn to the balance sheet.
As of December 31st 2019, we had cash and cash equivalents, a 350000 compared to $6.3 million at the end of 2018 and roughly in line with the 634000 of cash and cash equivalents at the end of third quarter 2019.
We continue to maintain a low yet acceptable minimum cash balance from working capital and other short term needs as part of our financial strategy to optimize the appointment of cash and reduced borrowing cost as much as possible.
As as we have set in the past, we no longer and play the packaged salad dressing up the balance sheet can be adding passion dapple, leaving net debt on change on the balance sheet.
They used to be I used in the past hobbled that although December 31st 2019, including short term credit line borrowings of $715000 and convertible notes outstanding of $2.6 million or told that balance of $3.3 million or net data.
$3 million. This compares to 2.2 million in total debt as of December 31st 2018.
Which was comprised solely of credit line borrowings, while 6.3 million a cash that hot on the balance for a negative net debt balance.
Starting now and moving forward, we would like to introduce you to a metric. We view is very important and there's a metric we call total availability.
We determine total availability at any point in time by taking the cash on hand, plus any access borrowing capability, we have on a short term borrowing facility.
Secondly, this is a measurement of our access to cash in any given point in time and as much more relevant metric that simply looking at a cash balance.
As of December 31st 2019, we had a total availability of $2 million, which consisted about $400000 of cash and $1.6 million of additional borrowing availability on our credit facility.
Also as of September Thirtyth 2019, we had a total availability of $1.3 million, which consisted of $600000 in cash and $700000 of additional borrowing availability on our credit facility.
We intend to continue to communicate this matter to you and future earnings releases in phones.
Also as James mentioned during the fourth quarter, we raised additional capital of 1.1 million and not proceeds through the issuance of a single note to sing along to and subsequent to year end, we raised additional capital through private placement of 3.4 million shares of our common stock and then at the market purchase price.
I'm 79.9 push centsper share and unregistered warrants to purchase up to 3.4 million shares of common fault and then exercise price 67.4 cents per share for gross proceeds of $2.7 million and net proceeds after expenses of $2.4 million.
And finally $2.1 million after a mandatory debt repayment on the note to a single London from alone and for the first quarter.
Proceeds from these offerings will provide short term funding for our operations and initiatives for growth. We continue to annualize analyze our cash needs considering sales prospects current operations and our plans for continual improvement is our current views that we may need additional external file.
Enhancing going 20 twond.
We expect to exploring consider a variety of financing sources, given the timing of one and email and some market conditions at the time.
Our operating cash burn for the fourth quarter slowed the $464000 largely driven by very effective working capital management.
Accounts receivable were 2.3 million at the end of 2019 compared to 2.2 million at the end of 2018, a modest decline of $136000.
Watching the decline in sales as well as continue the effective collection of accounts receivable.
Inventories declined to 6.2 million as of December 31st 2019, compared to 8.1 known at the end of 2018.
The decrease was due to low chairman and the first half in 2019. It was all the purchasing freeze implemented by the management team.
During the second half of 2019, we also negotiated cost reduction turns from suppliers on certain products and introduced the price investment strategy on products, we have an excess inventory, which resulted in that reduction of our gross inventory levels in excess inventory reserves of $1.9 million compared to 2018.
Please bear in mind, as we launch new products and typically popular product inventory will begin purchasing more inventory late in the fourth quarter of 2019 and ended the first quarter of this year.
Accounts payable declined significantly to $1.3 million as of December 31st 2019 down from 3.6 million as of the end of 2018, which reflects the large build up in inventory doing 2018, and the need to pay suppliers for those goods during 2019.
One other significant change to the balance sheet between 2018 in 2019. This increase in client assets, resulting from adoption of new changes from period to period, you see on the earnings release, our because of the adoption of the new standards the lease accounting.
And finally I wanted to update you on chess cares continues to be manageable for energy focus with no material impact on our business.
With only about $140000 for the entirety of 2019.
In fact recently, we've been able to eliminate 25% tariffs on electronic components charge towards the end of 2019 by sourcing some alternate alternate ultimate suppliers in 2020.
Also we continue to work with our vendors on price reductions to mitigate the need to increase prices and also evaluating alternative sourcing locations in choices as necessary.
Currently we have no need to pass along the minimum level of terrorists, we've incurred from the products, we source out of China at this time, but we'll continue to monitor.
The situation and we'll respond accordingly finally, the recent U.S. Chinese settlement deferred plan test that would have impacted some of our products with shovels favorable outcome for us.
Our other potential meaningful liability remains manageable and not material and as our warranty liability the combination of very well failure rates of our teams in replacement you and replacement. She was identified from existing customer has allowed us to continue to experience minimal cost for warranties and still be able to afford to offer.
Very valuable tenure and five year warranties to our customers.
Lastly, as James mentioned today, we have not experienced any significant disruption in either our supply chain or sales due to Corona vivus pandemic.
However, we.
We have had to make some significant adjustments in our supply chain to ensure we can change originally product in a timely and affordable fashion and we readily acknowledged that there isn't much too early to assess how the corona violence virus will impact our sales as we move forward.
This is a very dynamic and changing world. We turned currently living and our plans will have to be real time, and we will respond to <unk>.
With that we would like to open the call to questions.
[noise] thinking at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question Kim.
You mean for start to if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Amit.
With H.C. Wainwright. Please proceed with your question.
Thank you good morning, Jim's heightened.
You know.
Pretty good guidance.
Given these plus quartered human you know look the market environment.
What would be the mix Jim's roughly four this 3.6 to 2.7 <unk> similar to what you so maybe before <unk>.
Yeah, I would say that probably.
Little bit higher on the military side are pretty similar.
Okay.
And obviously you know obviously your.
Right.
All right.
Good.
<unk>.
No I Wasnt sure that's going to say that you can see from our military.
Contract wins in the past few months, so obviously, a where you're going to see me that's sort of business start picking up throughout the year.
Oh and the commercial business, obviously it depends on if there are impacts from the phone coping 19.
Obviously, we were looking to give it took a very strong year no because of the 19, we hope to see how how that you pick OEM customers.
Yeah, I was what I was going to touch on Jim's you know, especially in the context of hospitals and schools being you know coupon of that commercial opportunity for you right now.
What are you seeing in terms of discussions.
These types of customers pushing out some of these plans on the students with them.
You know sticking to Rome previous.
You know deployments sort of timelines.
Yes, So I think if you look at the as I said earlier.
We started to see some not because of gun some projects being held up.
You know a especially from schools or you know the does some of the school shutdown a has just stuff happening. This week some last week, but mostly this week.
And we'll start to see some of the schools that are trying to frenzy scramble and see you know, what's going on and put everything on whole and Thats come back on the other had you can imagine that most schools I'm doing the year, it's a I'll sort of summer, it's hard to do lighting retrofits.
Because they always do then.
Teachers and know that Oh, you might be open it up a few months Oh. The time, that's a facility managers can actually get to the retrofit projects. So it's a little bit too early to see how if this is actually going to help us a expect X, but by the project.
We see both sides of that we see that right away right now some schools up putting projects downloads because they just they just one of them make sure that this whole new reality.
Settles in and Dave I prepared for that I've got it hadnt, if you're looking at this oh, coes or <unk> or the school closures last thing you know a these point obviously everybody is expecting a few weeks, but he might go.
Longer I, if it goes longer obviously opens up the facility for retrofit so it might actually generate.
More near term opportunity, so I think so to get already too.
To say well watching very closely obviously on the hospital side.
How does the hospitals that going to be very busy.
And I do think that hospital remain an opportunity or some again, some hospital might be putting putting the retrofit projects on hold.
Because of you know the though it's hard to victory Hector I could take expanded activities now in the hospital.
An increasingly so, but but they're still using them or we'd be actually has a much longer life that tend to reduce the maintenance that time to replace that for Wesson and hospital today is still very thinly.
Penetrated by the Oh estimate.
Just 10% so the we'd be actually can help the them you know I'm a free up the time for maintenance staff. So I see that as an opportunity that should continue so at the bottom lines. They probably have a bit early to tell the exact impact.
The right now we are we have flipped.
On different scenarios, but preparing for wars or a worst case scenarios, but we are watching it.
The 30 day by day, and see how things could settle down when it starts moving again.
Right.
And you know you had some interesting product launches planned.
How is that no you know being sort of.
Executed you moved on the screen or.
Life when it happens anymore you for you maybe the listings of Johnson those Oh.
You brought up given trends and you know.
Are you thinking about some of those things.
Yep Yep, most trade shows have been canceled in the next few months cancel or postpone so that obviously impact how we reach out to customers. So and Oh, we are still launching you know by the end of the smoke basically a wisco stuff the green Cody sales and demos so starting now.
Next week.
Obviously, a lot of the meetings when they'll be virtual but we are coming to introduce this product out the facilities will come back and people will come back to the facilities and Oh I think these you know you you'll see the up the balance side, which is obviously you know the stand still off all economic activities.
Yeah, you also see the upside what are the facility managers have more time to evaluate a these technology.
So we got a competing all campaign email campaigns that are a marketing programs no sales outreach Ah that's not going to stop the only thing I think that's impacted the physical trade shows a that are just not happening in the next few months.
And James I'll, just I'll add to that we we've actually.
Placed pianos to start bringing the product and so the supply chain as we mentioned on our call is able to supply the new product then we will be selling.
And just one final one for me in terms of their own manufacturing operations I mean.
Are you seeing people, who are being able to come in you know just moved from warm situation. How are you doing that's great.
I probably wouldn't take that.
Can you repeat that one I'm sorry.
No just a you know.
In terms of manufacturing and assuming and if your facilities you know people who are new employees, who can come in how are you managing through sort of you know daus changes you know in terms of your normal oak revisions are people coming in right now I'm sort of you know on them.
Scene.
People aren't able to come in.
So we have put in place can plan I'm that we implemented beginning of this week. We continue to refine it is we learn new best practices and people are coming in each day, whether we're following CDC guidelines.
As far as social this then.
Some examples of best practices is we're taking temperatures every day and logging them to ensure you know people don't have fevers, if people don't feel well, we're asking them to stay home and not return without having been tested first.
So we are taking great precautions, we have no ultra violet buffer tools, we have a bolt has evolved there were sanitizing equipment I'm. So we're doing everything possible to ensure we keep the operation going keep people say.
And listen to people, we have daily calls to go through this I speak to the plant manager everyday frequently.
To ensure that we're protecting our employees to the grace extent possible and continuing the operation. So that's that's our current plan absent government mandates. Our intentions are to continue to adopt best practices employ them keep our employee safe and keep the operation down.
Thank you for that drug that's on our news. Thank you.
Good luck with them.
I'm getting this environments I appreciate it thank you.
Thank you figure limit.
Thank you. Our next question comes on line of my Gosh, Sudan with do you investing. Please proceed with your question.
Well you guys. Thanks for taking the question [noise].
My two questions I guess James <unk> when do you asked a question from James.
I'm showing a clarification I'm early right knee bedding here and then here quite clearly.
It seem like you had said maybe you might receive money in 2020 I wasn't quite sure I heard that right maybe clarify what are your capital needs for 2020 other above what you.
Kind of happening on your balance sheet and if you were to reach the money happy Finance group in 2020.
How would you maybe looking definitely that so.
Yeah, I'll I'll answer and then talking to it so.
So no our plan.
Don't have the plane to raise equity capital.
Now I'll, what we are well down now as Tom mentioned is to expand our credit facility, which we have being working out over the past your models. Our current credit facility is pretty low against our receivables and inventory.
So we believe that there's oh much about capital accessible for us.
Oh, you know for all throughout the course, it's clearly facility standpoint.
We are as I've mentioned in your home or two point.
$7 million that we raised in the equity critical or give us a lot of.
Let me over.
It is challenging time I also emphasize that as I said, India.
Oh gosh script.
But.
Oh.
You know.
Ill stay on top of what's going out and if we see a dramatic changes sales patterns forecast, we will have to make some operating expenses just as well. So oh. So what was left just staying on top of what's going out and we will Oh, well, we'll make sure that.
So it'll take actions.
Tiny pardon me I mean manner.
Todd <unk>, Yeah, I'll I'll add on to that I think to build on what James said were.
Now that that metric of capacity a war, we're making great efforts to increase that so it isn't really you know raising capital per se, it's increasing our access to capital and then to build on his points about.
The other source of capital is what we do and how we operate the business and James and I and the team are working very much on contingency planning given this corona virus and specific action plans and the and different ways out how it might impact our business in different actions that we will take.
Okay great.
On the before the next question I guess.
I know you can't give guidance.
If you could you give us an idea like where do you break even.
You know revenue point might be level might be.
Well. They would then you would yeah on the construction yeah.
Obviously modules, even though it's a dynamic question right or.
What we expect the sales to be and we've built up the upward in infrastructure to to me that till the band.
Of growth, which you know a again before coping 19, we we have pretty aggressive growth plan as you're already seeing that where you don't really taking the lead to resign and we'd like to do laying a commercial side this year, especially with the new folks or somebody or product launch.
So I would say that if you look at our current you know overheads.
And I'd be looking at you know say.
You know anywhere between $7 million on quarterly basis for probably looking study.
On the other had you know it you know.
If we see that we're not getting their very quickly you know.
We will have to adjust our operating expenses right. So is that dynamic you know situation.
Buttery, because either way, but we have pretty aggressive growth plan Oh and.
Obviously the scope the nice thing is oh, so that monkeys, French so we.
We need to be dynamic you know how claims not to rate that capital you know into working.
Hi, My last question then.
Basically on the competitive landscape now I know.
There's been lots teams in the capella landscape.
<unk>.
Last five six years and it kind of hurt you then you kind of Medicare advantage now.
Are you didn't do you see this coal good I'm not situation can you just take landscape, maybe actually to your favorite potentially.
Direct competitors and also what does the need for something that distribution channel at distributors and being able to continue to function or to lean.
Yeah.
The.
Obviously, the lighting industry landscape is changing very fast.
Oh.
As a as even though you know we've always position as a high quality Oh, you already you know wafer no and getting this whole new family.
If you focus.
It's another breakthrough from our point of view.
So I believe that the or the overall market has been settling down you know there I'll always people that would go for commodity products, but they are always institutions that one.
Hi, good quality product and the most important thing I think right now happening over the coming years.
No quarters than yours is is this a expansion of the benefits of where we'd be writing.
Oh, you know Oh facilities, and and I would say that I do that for the first for decades since 2010, what comes right today.
I have done it's always been focusing on energy savings and I think.
What's what are you gonna see going forward.
Which benefits, where you know I'm liking focus.
People more convenience comfort for deeming kinda tuning, so tatum read them Oh type of capabilities to impact the human performances.
And then you can expand.
'cause into it more broader building I O T. A platform that could include you know occupancy sensing a traffic monitoring it seems like that you kind of status thing that really that's exciting next chapter I know, you're writing and we are positioned to tap into that market Oh.
It started doing birch oh, so so again despite of the 12 igniting situation, we're pushing for ongoing focus a lounge and we believe that you. It yeah, yeah, yeah. It will unlock a pretty large market and which is why we have a great growth plan.
Oh considerably.
I don't know it's about peers are all your question, but it's it's a pretty complex landscape and it'll be up because he and I will say over the next generation to either from families already from lighting to lighting technology I think that's probably the.
Very oh wait to see what's going out.
Yes, actually I color it was great, but what I was really I also want didn't know too, though I mean, you did you basically little Sean company would allow US you know actually since you've been there.
And you put your second shrunken positions to compete you were seasonally weaker competitors.
Maybe I'm not being able to repeat right now are leading the industry because it.
You know the disruption Nicole benign.
Yeah, Yeah, I think I know that's the that's the point I think.
I think if you look at the lighting landscape.
Well, the nice thing impact or might you.
You know last multiple months and obviously I would say that the companies that focus more on new construction, probably will take the first hit right because oh. These activities will be put on hold and the economic activities will be covers slowly right gradually no I don't think it's gonna have to suddenly.
So on the obviously you know what different kind of hypothesis now you know you might take 12 to 18 miles you know for effective seem to come out and to really start.
Putting this virus you know two bad.
So you feel that's the case, then you're looking at pretty prolonged economic Oh stuff with us and I think the that will impact the new construction is this a lot more than the retrofit site on the retrofit solvency People's budget was still be in fact impacted right, but if you look at our current focus which is the government military.
Schools hospitals or.
For the most part they should not be impacted right because <unk> functional annual budgets and all of that so I would hope it's not our and market is not a obviously in the next few weeks just things have to say, we're bound but we hope the hour or our end customers you know continue to need lighting and.
They they might take this as an opportunity to actually upgrade their facilities that though that's our hope and that's that's what we're looking at now so we're probably less impacted by.
Other lighting companies that really interesting commercial property market.
Construction market, which is never our focus so far I'm done this outcome in assessment.
So in terms of <unk> <unk> I know previously you had relied heavily on distributors.
You know if you put your customers and then you I guess genes to sort of trying to get more the direct kind of one to customers not yet I think you're back doing a little bit both now.
In terms you need to shouldn't years your religion, I mean, how much of what are the EMS assumption there in terms of their.
There ability to go out there maybe.
Getting new accounts for you.
I guess, that's another question.
I I <unk> and his focus or have you know when that was it was as much focus with distributor was never a focus for the company. The previous management. They put a lot of focus and nothing to really work out and when they come back last year, we really start focusing on I'm going back to.
The end customer engagements and customers and the end customers I'm not just the end users right a lot of contracting on those the Escos energy service companies, we love to work with them because they have the project. They they you know you know really Uh huh.
Guaranteeing the performance of the project so as soon as we can be more price competitive Ah. We there's no reason why our quality products not a welcome.
And that's that's up or can it at the size of the company today, we're just scratching the surface of this whole <unk>.
The good thing is that as I've mentioned earlier you know this industry Commoditization has filed against settling down it Oh I think there cannot be oh.
But I appreciate that one data quality products and our go over the past pretty much six and they must be more competitive pricing and which we have been doing and this launch our focus is oh you know.
It was another step up of our technology platform that can be a pretty unique in the marketplace and that's when I think some other distributors mine.
I want to distribute this product and and <unk>. You know you know, we Oh, we wont stop people distributing our products right, we have clear pricing disciplines.
And by some some distributors are willing to distribute this product and let's see the uniqueness of it and they don't we don't my working with distributors, but the key is that we want to protect a you know every step of our customers. They you know, we especially protein by their body that they're buying from us right.
Even though it's always about pretty much how you bye.
So you know your goodbye for now in the store or you can buy online you can buy a distributor wholesaler.
It's it's everywhere, but there are probably think this plane is based on how much bother you bye.
In the end of they the end customer education is critical and that's what the tissue Bhutto's, Oh have not being able to do a and I have no idea if they cannot be able to do it.
The pick labs kinda really felt very fast we opened for business to work with all the channels. Our focus right now is still getting to the schools hospitals the.
Government agency to ask those are the lighting contractors those up our bread and butter.
Great.
James I remember questions well good luck in most <unk>.
Thanks, Thanks again.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question Q. Please press star one on your telephone keypad. Our next question comes from line and I've Edward Gilmore with Little grain Fine. Please proceed with your question.
Hi, James Thanks for taking my call said, just that's where of course learning quickly if I can.
So are you planning to decrease your operating cash burn even further than the the 464000 or so from the previous quarter.
Oh, Florida feet. So.
Yeah, Yeah that so that was largely due that was our operating a.
Cash from operations and as I mentioned that was largely a function of our working capital management. So I would I would call back you know I'm a bit of an anomaly for the quarter. It will be a function of our ability to reduce the loss from operations. They had working capital management as well.
Mentioned, we will be reinvesting some inventory so I wouldn't look for that number to go down in the near term as we mentioned we are investing back in inventory on the new product and to rebuild and replenish some popular products. So I wouldn't count on that going down at this point.
Okay. Thank you and then the next question was actually on inventory can you give a sense of what what does an optimal inventory level for you to happen then oh, so what was that the sell through for Q4 versus Q3.
Well we.
We optimize Robyn I would just kind of put that in layers.
We have a long lead time on our supply chain we.
Import a lot of components on finished goods from a foreign countries. We do have some come from the U.S., but a lot also comes from outside the U.S.
Okay. The majority comes from outside the U.S. sort of a long lead time comes it comes mostly on ocean freight.
So its ocean Pago, primarily so that you know has a long transportation pipeline and then we also in where we have to pay for it once it's put on you know on the 40 years.
So it's on our books effectively when it hits the Dol overseas.
So we have a longer lead time than most.
And then we have components, where we have to have a mom you know basically stored for one build for the military we primarily only build products for military customers. There are some products, we build for commercial costs the ones that most emotional probably come in finished.
So for commercial products. It will turn more quickly we will come to you know only order products that we have high probability of sale for.
So if you look at the commercial products, we will problem. They have a supply on that bubble optimally target of let's say no more than I'm trying to have some safety supply you know more hob well paid 90 to 120 days on the military side it will be longer terms will have component.
So I'm right now our total inventories higher because we're still whittling down that that's an important that James and I inherited we do still have some of that all hands I would say in general are expected to still come down and we're well while finalize that we're still working on that within focus coming in but I do expect based on.
What we've seen a bit interest that product will turn pretty quickly based on the interest we've seen very quickly originally.
Thank you that's helpful. Just two more quick questions what next on the on pipeline.
It seems like there's a cadence to a onetime large orders and you guys seem to do a good job with that and I'm. Just curious if it does that just happening AD hoc or is there a pipeline of these kind of larger orders that you think of a reasonable chance that to close over the next next 12 months.
I think the ER.
So if you look at the Oh it means sales today, that's still some customers the accounting for big part of it right.
EXEMBOL military.
It always deal.
Just because it's comparable up business or the U.S., but oh. So so you're gonna have continued to have those of you know a larger customers probably I would say you know four or five of them that exert some significant impact on a particular quarter and an obviously out.
I would go and they'll but that's pretty much six spots, where we start rebuilding the salesforce and all of that is to diversify and get more than the customer, which we have been and you know you look at that number of University, what getting now on the school districts. So obviously that those up obviously being diversified.
I would say that you have to see until we get to say you know double what are we on the revenues go see much less a quarterly fluctuations by these large opportunities I also want to mention again, you know that we have not seen.
We have not last October.
Right.
I think that I think that risk nowadays projects being put on hold.
Okay. Good. Thank you and James just one last question that we've spoken before on the E Com site.
Can you just comment on how the ecommerce sales are going and then I'm. Just curious is there any increase so through from from E. Com like in the this month of March because of the current affairs.
Oh, we haven't really a would've been walk down the ecommerce platform, we have a full body launch it yet.
We have plenty to do a lounge that in the oney part of makes next quarter, which is no second quarter Oh, we.
I do think that that could become a real increasingly oh seeking the can channel for us Oh, especially as it focuses on watched but I wouldn't I wouldn't because just because the nature of up as this is b to b right. The I think it's a very.
If he should be a very effective channel for small orders for a large orders are people still prefer obviously.
So people contact right. The human touch is still being pulled them just because the large old there's usually a involved with projects that I live in more complex. The ecommerce is great for small orders for small to medium sized business that are doing it though you know ad hoc basis retrofit or <unk>.
Yes.
That's how we position.
We are so.
Obviously it was the share was formally launch that.
<unk> for a second quarter.
Okay. Thanks for the update thanks for taking my call today.
Thanks, Ed.
Thank you.
Hi, this time I'd like to turn the floor back over to Mr. two for any final comments.
Thank you again for your time to listen to all conference call. A we look to afford to updating with you more progress in the coming quarters.
Good day.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.