Half Year 2020 Energy Focus Inc Earnings Call
[music].
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 systems. During the conference. Please press star zero under telephone keypad. As a reminder, this conference is being recorded I'd now like turn the conference over to your host Mr., Brett Maas with Hayden IR. Thank you you may begin.
Thank you operator, and good morning, everyone. Joining me on the call today, our James to Executive Chairman and Chief Executive Officer, Todd Nestor, President and Chief Financial Officer before we begin todays call up we'd like the writer everyone that we'll be making certain forward looking statements. These statements are based upon information that represents the company's current expectations or beliefs.
The results realized may differ materially from those stated for discussion of the risks that could affect our results. Please refer to the discussion under the heading risk factors. Our most recent 10-Q as well as our 10-K and most recently filed thank you sorry with the FCC. The company our takes no obligation to publicly update or revise any forward looking statements.
[laughter], whether as a result of new information future events or otherwise except as required by law also please note that during this call and in the accompanying press releases 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 energy.
He focused dot com and Investor Relations section of the site well now turn the call over James James. Please go ahead.
Thank you Brett.
Good morning, everyone and thank you for joining Holistically quota.
Thank you Tony earnings Conference call.
Oh I hope you all they safe and healthy has called me lighting academic continues to rage across the country over the past Shimon.
They will pay essential business, we have continued operations during the second quarter was normal.
Some of them and that I called out virus contingency plans or PPP.
And then they temperature, taking mask, Wyoming, and social distancing involvement in central facility and our corporate office.
Fortunate that no problems and probably so far have come truck that probably like.
I appreciate the hard work from all falling pony.
That's why I'm all customers.
That's a poor up all the players in this unprecedented Todd.
Oh, we are continuing to enforce CCP until we believe that probably not king is no longer a CLIA public health <unk>.
Now, having said that we view about the good quarter Panty Toby performance.
He was a challenging and encouraging quotable energy book.
Well all the financial results were impacted by the previously announced that shift revenue.
The second quarter into the third quarter.
We continued to make an exciting progress towards this thing health business well sustainable.
Profitable.
Despite a significant amount of well being shifted from Q2 Q3 and multiple little down all commercial activities. They called me type thing.
That's helpful 3.3 million in Q2 steel to 8.2% year over year over the second quarter 2000 lighting.
Hello My job.
The casino to improve.
Well I'll walk from operation the quite significantly from 2.2 million to 1 million.
Excluding quality wallin fail Bedi will jump.
Oh continuing growth during the second quarter was supported by a more we really haven't made up a bit though.
Which school.
Sometime last quarter, and how long it 39% from the same quarter a year ago.
Well, we mentioned in the last earnings call.
It's all encompassing all innovation.
Yeah, we have dramatically improve our competitive in the maybe market.
Which also had not been impacted by coffee lighting like the commercial market.
In the foreseeable future as well as I have long time basis.
We remain excited and optimistic about I'll be happy to capture the l., we'd be lighting up another you from the U.S. maybe.
<unk> for retrofit or no ship construction.
On the commercial side as we come into play that over the past your mouth.
The company lighting Pandemics definitely impacted our results in the second quarter.
Lending lighting I played quite yet what the late.
As we manage has remained extremely cautious on making significant capital investment decision.
Due to uncertainty on occupancy level.
Both long time and she'll come basis.
That said judging from the countries that suffer from called me not do not feel mountain before the U.S.
And I have seen does that mean logically supply general commercial activity, mostly recover close to pre called the nice thing level outside of the hardest hit sectors, such as travel entertainment and brick and mortar we pill.
Therefore, we of course are we caught up to the I'm optimistic that most organizations will gradually be wrong. They have planned biting upgrade project over the coming on a quarter one called me lighting side.
Meanwhile were very pleased to report that I wasn't focused lighting control Planful continues to meet these positive I'm enthusiastic responses.
From the market club.
Oh in pockets like off.
Yeah, I think you though.
I'm not sure service company, well logs and use those in government healthcare and education industry.
In addition in June in focus we see the top product off the year award from energy and violent but either way.
Well its outstanding.
I thought to be Buddy.
The ability to facilitate the patriot and human centric lighting.
Buildings of all combined with a simple change of the land that's switches.
Such recognition by a globally influential although I vision in energy sustainability.
Reflects a true accomplishment.
Ingenuity and holiday.
Our engineering team.
By all chips, but at this juncture <unk> VP of product management, Simon Chang and the rest of engineering correctly.
Yeah, Oh, clearly a from exemplifies the superior environmental sustainability of land base l. you'd be lighting system.
That's that's integrated pictures.
Which has recently popularity over the past decade, but could generate substantial amount of environmental weight.
But the whole fixtures need to be replaced.
When the M.D. go out into the become outdated.
In fact.
Like about probably I don't see both new pay I knew about the past low.
In the coming model.
Monday.
Manufacturer.
To change lighting system design, so that the light sources can be reporting.
Effectively paying insight into quite a fixture endorsing land based mazzola system.
The rise or rather the revival of I always the land well only I celebrate from from here on regulation and investments.
That's been a bit duthie continued to grow rapidly across the world in the face of what's going on climate change impact.
We believe that energy focus with no debt to pay the innovation and proven leadership L. you land and now then they lighting control technology center around in poker.
Yeah, well position.
To capitalize on this they've made change that well income path depends really on the land.
Fixtures in the world over the coming years.
In addition to environmental sustainability, bringing the opinion lighting to the mass market globally Watney focus is uniquely capable.
By using the existing power line in focus is able to provide digital communication between the switch and alike.
Inevitably lead go free Dimmable and call it the ownable lighting without changing the fixtures.
Oh, introducing wireless communication protocol or requiring complex commissioning and system integration.
Therefore, we called only about a 36.
What are the lighting control systems cool and only takes a fraction of time required to install.
Hey, completely safe from hectic offset the security threats.
Over the past decade reimbursed Bobby has proven that depending on lighting.
And that represents artificial fighting with optimal lumens intensity and color temperatures based on the Cardium read them, our internal 24 hour biological clock.
Dramatically improved fuel my comfort.
Pivoting learning lead as well as physiological emotional that's emotional wellbeing.
In focus now has the potential bring such nice to be positive.
Sure Mike impact to building all cotton.
And all over the world.
He called me Vulcan such as Nick.
Powerful in highly demanded product line over the past two miles since we launched we've been focusing on rapidly expanding health distribution network.
Starting up and engaging with new channel partners.
That include National and regional distributors.
Ethical and lighting agencies across anyway.
Over the past few weeks will also be installing product samples in numerous customer pilot sites.
And well being in focus being specified into more and more new lighting project file customers.
With all those just received alphas picking up with an older important focus product.
I'm, a big government agency and we expect this initial older to lead to additional all those events on top of agencies nearly.
For media, let's see yourself to that these nothing.
Oh this talk with both our company that we will be in focus about generating meaningful sales once the pollen overhang on the lighting upgrade.
On the call the nice thing impact subside and business in general more normalized.
Oh, we believe that in focus its strong potential to become the leading lighting control and human centric lighting technology.
For existing building.
Not only in the U.S., but also across the world.
Additionally, we have made very exciting truck with over the past the among the lumping all be pulling the vitamin all the you'll be Gemma Fido irradiation, our movie G.I. product.
The first part I wont be launching Q4, this year and this new category, where I'm, telling you and focus powered you'll be troffer.
That would provide both recovery dimmable unseasonable lighting as well a movie G. I add disinfection cut up it up.
No. We saw studies have shown that probably my team can be spread so that's really my call droplet.
That could travel fog distances and they India for hours.
In addition, the risk of transmission and infection its software to be even though it environment then outdoor.
The most you'll be jet product, but I do that take a long time, it's a good when call the design and commission or couldn't now if in fact, the air when people are present.
I simply replacing existing too, but who or to buy for well less than or l. you'd be fixtures and the Walker ridge within focused product.
[noise] facilities such as hospital.
Nothing at home schooling offices retail stores and please don't could offer the best caught up in human centric lighting wild constantly disinfecting be air against airborne pathogens such.
That's true that team, yeah, influenza and most notably viruses.
Such a fall thing called me my thing.
Because the retrofit proposition so it's important that without the need to have an equipment. That's the fire system integrator, our specialty technician involved we believe that infocus, you'll be chopper, he's going to be one of the most affordable and effective disinfection products in the marketplace today.
And because they are probably going to be until then those two by two and two by four four with them citrus installed worldwide.
You'll be talk or is also ideal for rapid deployment and adoption with no or minimal Cup the migration made it across different countries.
To help organizations of all size everywhere in the world reduced bylaws and flu infection risk in the most timing timely manner.
[noise], we have filed provisional patents around doing focus you'll be chocolate technologies in late 2020, trendy and over the past the amount we have achieved critical technical breakthroughs required to facilitate the functionality of feature of the product and.
I started five down into prototype.
At this point, we entered to formally launch and stopped selling the product in the fourth quarter plenty plenty.
Well, we look forward to show only few more details about the infocus, you'll be chopper as well as other you read you guys. We did the products under development.
The near future.
With regard to <unk> business outlook as noted in the press announcement of our results in July we expect third quarter sales in the range of $6 million to $7 million.
This range includes the 1.7 million in dollars instruments, which was shifted from the second quarter into third quarter.
Eliminating the timing factor of these treatments our combined Q2 in Q3 sales in 2020.
Well in coming in between $9.3 million to $10.3 million compared with $6 million doing the same field to probably my team and represent 55% to spend of 2% year over year growth.
[noise] Lob, then we're pleased to have a pain, our new credit facilities that together immediately provide.
Over $3 million of additional growth capital in this crucial time.
We are developing and launching a theory oh.
Highly impactful and potential product.
And we appreciate the hard work from I'll find that.
We believe that this additional credit availability you will be sufficient.
To support our growth plan for the foreseeable future without unnecessarily diluting our stock and evaluation that we believe does not reflect the true potential of what's to come for the company.
With that I'll turn the call to top to review our financial performance during the quarter Paul [noise].
Thanks James.
Net sales for the second quarter of 2020 were 3.3 million compared with 2019 second quarter not sales of 3.1, though.
An increase of 8.2% year over year.
The year over year increase in that sales was primarily driven by an increase in military sales.
When compared to 3.8 million in the first quarter of 20, Twond net sales were down 11.8% on a sequential basis due in large part to the shift of a portion of certain military contract or from the second for the truth that third quarter as James mentioned previously.
Sales to our top 10 customers increased 34.1% and sales to our top 20 customers increased 20.7% each compared to the second quarter last year.
From a mix perspective in the second quarter military sales were 2.3 million, representing 68.3% of total net sales compared to 951000 or 30.9% of total net sales for the second quarter of 2019.
The year over year increase in military sales was primarily due to increased sales to two of our top 10 customers compared to the second quarter or the last year and one particular customer representing most of the anchors.
Sales to commercial customers were 1.1 billion, representing approximately 31.7 and total net sales for the second quarter of 2020 down from 2.1 million or 69.1% of total net sales for the second quarter of 2019.
The year over year decrease in commercial sales was mainly due to the impact to covert 19 as Jim spoke about earlier.
Overall sales to our top 10 commercial customers declined 51% year over year and sales to our top 20 commercial customers declined 50%.
This was more than offset by our military segment.
Sales to our top 10 military customers increased 152% and sales to our top 20 military customers increased 141%.
Gross profit for the second quarter, pointing 20, it was $1.3 million compared with the gross profit loss of 109000 inclusive inclusive of 500000 unfavorable inventory reserves than a year ago quarter, a significant year over year increase driven by higher military sales and.
Lower material cost of sales.
On a sequential basis gross profit was also higher higher compared to $1 million in the first quarter of 20 Twond.
As a percentage of revenue gross profit margin was 40.3% in the second quarter of 2020 compared to a negative gross profit margin than the second quarter of 2019 and 27.3% in the first quarter 2020.
Adjusted gross profit margins for excess and obsolete in transit and then RV inventory reserve results on an adjusted gross margins of 33.0% for the second quarter 2020, compared to 23.4% in the second quarter of 2019, and 25.2% and the first quarter 20.
20.
We continue to expect our gross margins to be in the mid Twentys twentys in the near term and begin to approach the high twentys or thirtys percentage range as we introduce new products that make further improvements to our supply chain, depending on her sales mix and inventory valuations make RENASYS. However, we may see fluctuations from quarter to quarter.
As we've seen this quarter.
Operating expenses and the second quarter of 2020 were 2.3 million or 68.2% of sales compared to 2 million or 66.2% of sales in a year ago core an increase of 232000 or 11.4% year over year, which was driven by higher pay.
Payroll expenses and legal fees, partially offset by lower sales and marketing expenses.
Primarily tradeshow expenses due to cancelled or postpone events as a result of code of 19.
Product development expenses decreased slightly by $5000 year over year to 313000 into second quarter 2020.
Sequentially product development expenses increased compared to 282000, and the first quarter 2020.
Actually in a expenses increased 23.7% to 2 million in the second quarter of 2020 compared to 1.6 million in a year ago corridor.
The increase was a direct result of increases in payroll expenses and approximately $277000 and legal fees related to corporate activities like the reverse stock split and the new lines of credit lines of credit, partially offset by decreases in travel and Tradeshow expenses due to covert 19.
Sequentially X gene <unk> expenses decreased approximately 3% from the first quarter of 2020.
While our initial efforts to reduce costs were quite straightforward and consisted of simply eliminated wasteful spending we're now targeting several expense lines with best DNA, How best stream day with more strategic in Directorate efforts for further reductions through various strategic sourcing sourcing initiatives.
Loss from operations during the second quarter of 2020 was 929000, an improvement of 1.2 million compared to a loss from operations of 2.1 billion in the second quarter of 2019.
The loss also improved 334000 sequentially from 1.3 million in the first quarter 2020.
Net loss for the second quarter of 2020 was 4.3 million or $1.36 loss per share compared with a loss of 2.3 million 91 loss per share in a year ago corridor.
Importantly, the net loss in the current quarter includes a below the line non operational and noncash adjustment and the fair value of outstanding warrants of $3.3 million.
Excluding this adjustment on that loss would have been 1 million or 33 cents per share loss per basic and diluted share an improvement of nearly 1.3 million year over year.
Adjusted EBITDA, which excludes depreciation and amortization interest expense stock based another incentive compensation.
And a loss of 3.3 million related to the fair value of warrants.
Improved to a loss of 746000 dollar for the second quarter of 2020, compared with a loss of 2 million in the second quarter of 2019, and a loss of 1.1 million in the first quarter of 2020.
Now I would like to turn to the balance sheet.
As of June Thirtyth 2020, we had cash of 2.7 million compared to 350000 at the end of 2019.
The increase in cash was primarily due to the issuance of new capital through a shelf registered sale of equity in the first quarter.
We continue to annualize our analyze our cash needs considering sales prospects current performance of the business and our targets for continued improvement.
Simultaneously. We also can they continue to explore consider a variety of financing sources should the need arise for additional external financing.
Total that excluding the warranty as at June Thirtyth 2020.
Included short term credit line borrowings of 1.3 million outstanding notes payable of 603000, and the PPP long for 795000 for total debt outstanding of $2.7 million.
And we had cash of 2.7 million as of June Thirtyth 2020, resulting in net debt of approximately zero at the ended the second quarter.
This compares to 3.4 million of total back as of December 31, 2019, which was comprised of short term credit line borrowings of $715000 convertible notes outstanding of $1.7 million and notes payable of 1 million netted against cash of 350000 Don.
Dollars, we had a net debt position of 3.8 million at year end.
As a reminder, total availability as a measurement of our access to cash at any given point in time is a much more relevant metrics in some simply looking at a cash balance on the balance sheet.
While access borrowing availability on our credit facility represents the difference between the maximum borrowing capacity of credit to the credit facility and actual borrowings on the credit facility.
We increased our total availability from the second quarter of 2019 into the ended the second quarter of 2020 from 2.5 million to 3.9 million respectively, primarily as a result of the increase in our cash balance.
Accordingly as of June Thirtyth 2020, we had total availability of 3.9 million, which consisted of 2.7 million of cash and 1.2 million of excess borrowing availability under our credit facility.
Subsequent to the ended the quarter, we've closed to new credit facilities with new lenders as we've mentioned.
The net result is a significant increase in our current borrowing capacity with access to additional capital as we continue to grow our business.
Importantly, we secured this added adding capacity while simultaneously improving our credit terms.
In addition, our all in blended borrowing costs will be lower.
Total borrowing capacity under new facilities at closing the closing also expanded from 1.7 million to 4.1 million or by $2.4 million with additional room to expand.
In addition, one of the key benefits refinancing our credit agreements was increasing the total available availability under the new lines of credits.
As I mentioned earlier, the total availability for energy focus as at June Thirtyth 2020 was $3.9 million under the prior credit facility.
However, the date of closing we're off were able to increase total availability from 2.6 million to 4.9 million simply due to our new credit facilities, a 1.86 times or 2.3 million dollar improvement.
This increase borrowing capacity this increase in borrowing capacity is critical funding her future growth for our new as well as popular high turnover products and inventories such as in focus tubes and Swiss switches.
Our popular Red Kap product and our other innovative products will be launching in the future.
Accounts receivable were 2.5 million. The ended the second quarter of 20, Twond compared to 2.3 million at the end of 2019, an increase of 181000 on higher sales.
That inventories declined to 5.9 million as of June Thirtyth 2020, compared to 6.2 million at the end of 2019.
The decrease was due to our continued efforts to reduce slow moving inventory as well as prudent lowering inventory needed for future sales.
Accounts payable increased to 2.6 million as of June Thirtyth 2020 up from 1.3 million as of the end of 2019.
This increase was driven in large part by buying higher turning inventory and supportive revenue growth.
Now the cash cash flow statement cash used in operations was 703000. The first six months of 2020, then that loss was 4.9 million inclusive of non cash items, such as depreciation stock based compensation and a 2.4 million dollar change and.
Fair value of the warrants.
We generated cash from working capital of 1.8 million.
1.3 million was generated from accounts payable and 600000 from inventories both driven by timing of inventory receipts.
Net cash provided by financing activities was 3.2 million driven primarily by the equity raise in January.
Our product warranty liability remains manageable and not material.
The combination of low failure rates of our troops has allowed us to continue to experience minimal costs for our warranties and still be able to offer valuable tenure and five year warranties to our customers.
Energy focus is hallmark quality remains a strong selling point for our products and is reflected in our ability to offer these warranties.
In the current environment I like to provide updates of the impact on covered 19 on our business.
We continue to operate under our customized covert 19 contingency plan.
At the company with employees alternating working at the platinum from home.
We are constantly learning from others in adopting best practices to keep our employee safe and to make sure. We do what is necessary to keep the company operating safely.
James and I've already discussed the impact of covered 19 on the commercial business and we continue to experience, but develop solutions and workarounds to the challenges posed by the pandemic pandemic to our supply chain.
There's no doubt October 19% presents a lot of uncertainty for many businesses right now.
But energy focus is DNA is very entrepreneurial and we're very good at adapting and responding to change effectively quickly and efficiently.
The new word in our vocabulary, how react to covert nineteens impact is safely as well.
With that we would like to open the call to questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask your question. Please press star one under telephone keypad, a confirmation turn will indicate your line is in the question Q.
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 keys.
First question comes from line of I met.
With H.C. Wainwright. Please proceed with your question.
Thank you good morning, Jim's morning, daughter will you guys Hey, good morning. Thank you.
I'm good thank you.
So just thinking about and focus you know again are pretty exciting launch for you guys.
[music].
Contribution in Threeq and Fourq, you have 2020, it looks like from the commentary in.
Not much contribution into third quarter from in focus would bring into the fourth quarter and even into 2021, how you're preparing for the ramp and you know how should we assume gluten free goods sort of being are an important driver for growth.
For you guys from a contribution perspective.
Yeah.
Definitely.
The question was asking ourselves every day right because the I think in the no more time.
In focus probably would have been a much bigger product already in Q3.
And just based on the feedback with got from.
Burton, but when we described earlier.
Various type of users channel partners. They love. It I mean this is the lighting control system. The finally people can afford and people are willing to put in the building and I would say that thats really worldwide right. I mean, we have got interesting inquiries from.
Over 30 countries.
And so.
This would have been the as much because part of by now, but because of coming I think we just don't know that.
The sort of the momentum when the momentum of the business activities will stop taking up.
I'll guess is that they like fourth quarter, we should be which is passing.
Some projects being implemented we we mentioned that there is already being testify in some projects.
And so.
I think fourth quarter is a little bit uncertain.
And a lot depends on when the facility managers are ready to make decisions.
That that's the question that it's very hard to predict.
Which is part of reasons why I'm why we have been focusing on developing the you'll be products as soon as we can.
The urgency element to that because.
People I do the F. fulfill the manager today and what they have concerns about safety of their occupancy or how do you get people back to to the building.
And and I think there are not a lot of options out there that are really effective.
So in focus you'll be chopper.
He's going to be one of those solutions, but we believe it is very affordable barely.
Effective and can be probably very quickly right I mean, youre getting here as I mentioned, the only ending awesome specify a designer in between you can basically replaced the pictures and and the switches and then you've got.
Very effective this this infection in the room.
You know the three in the building. So so that that has a urgency immediacy to it in terms of getting sale.
So we're hopeful that when we launch in Q4 equally contributing.
North because in clean from Q1, and it's it's early to any detail if we can.
Make some of the shipment orders.
If some older before the shipments in Q4.
So so that's probably the best answer we could we could do right now in terms of the Q4 month immediate impact.
We do not without a once the cloud lifted or at least a stabilized.
We could see please substantial.
Meaningful.
Sales in focus and focus.
You'd be thesis I know anything else no.
Yes.
No precision in underpins a lack of visibility right now because of current circumstances, but just you know again on the Infocus sales and marketing side.
Are you taking control of would that.
More.
Well that process, we begin to remove resources and dean.
Are you.
Gary MBOED.
Selling them would traditionally weve I'm I'm, just you'll see a visit anything you are doing that allows you a little bit consumable assumes forces.
Yeah, when it comes to up part of the vitamin D. I mentioned, we are we have a very strong team internally and we are expanding that engineering team as much as we can aggressively.
And we also work with our suppliers leveraging their.
Let us stage engineering capabilities their resources.
That said, we put the UBI.
Determine in a top priority because it's not only good for our business right I mean right now that's our people outcomes and about that's what people are willing to buy that's where people they get they can get money fund the federal from this day.
Subsidies.
So that's good for our business right, but it's also the business I mean, it's just about people need you can you can help save.
Live reduce infection.
We want to make that Pep already so we put all resources there to launch the product in.
The first product as I mentioned is in focus will be chocolate there will be other products and we'll be announcing in the coming month.
That will continue to expand our portfolio in UBI jiyai, So that's probably a very big I.
I will say a strategic.
Plus for the company, we now have a very strong our lighting portfolio and then a web building aggressively on whether you'll be dji portfolio.
When you talk to Infocus sales and you'll be Jay.
Product sales.
They they date, we are then being as I mention aggressively on the.
Channel partnership network.
That is the one thing that is very different than a couple of months ago before we launching focus squarely focused both on our end users and and the contractors.
No we are reaching out to as many agents and distributors and contractors as possible to help us.
No that even the product to the projects that already working on so that's the best leverage of everybody's time, and so if you look at that same amount back and versus today.
The customers were talking to a vessel the larger right.
Many more customers talking to and I will see that trend continue to evolve to to strengthen over the coming model as we expand the distribution.
The then moving to the gross margin James for Threeq you could these gross margins remain a rigid with contributions from new Jersey suits.
The remaining strong.
Yes, I would I would say that.
The recent quarter is.
I wouldn't say it'll be a normal quarter. It was it was higher because of the mix.
The high military mix for the quarter Omnovas. So you know we will expect in the mid to higher Twentys generally as as the commercial sector becomes a higher portion on the mix as we grow and focus on them we will expect.
Sure at a higher twentys to be more of the range. We do have a focus on our gross profit dollars and so some of these larger volume opportunities are there you know that is a very important element of our growth.
And we believe the incremental dollars available to us that hadn't been there in the past.
We'll have a good blend of rate and dollars flowing to the bottom line. So we still believe that range of the mid twentys to the high Twentys low Thirtys is where you'll see us on more of a normalized basis.
And then just one last question with respect to sort of the fluid impacted environment.
You know are you seeing issues with deployment has that sort of environment improves for you.
And then on the.
No. The collection side are you comfortable with you know how you are able to.
Finally on accounts receivables and certainly in this environment.
I'll handle the receivable side. The we have had so we have a couple of where the beneficiaries of our good luck.
On that there's two two aspects, we we implemented an insurance program on our accounts receivables last late last year. So the timing of that couldn't have been better.
So that but at the same time, we haven't experienced I'm really any material default dealer.
We do a very good job of assessing the credits upfront.
One of the reasons, we did go to the partner we're working with on that was they have a very robust stability to assess the credits of our customers. So we we think we have very good quote unquote credit review and US credit line process. So we provide the proper lines of credit and then the collection.
We're quite good at so we have very very low default rates. It's one of the reasons. We received such favorable terms on the recent a our borrowing facility we just refinanced.
So we continue to experience very good receivable collections and I'd say more favorable than probably most commercial entities, we have not experience abnormal default rates.
But at what was your first part of question I missed that Im sorry, the first our resisting or any any challenges you know from our deployment perspective, obviously access to facilities et cetera. In the second quarter may have been tougher I was just thinking you spent has improved so you guys.
Hopefully.
Hello do that.
Revenues as well.
Yes, I think upbeat act.
I think people are working right. It's not like the first in the managers are not working they are working that just not making as many decisions.
They usually do.
They are you mentioned your hospitals schools government agencies, the state government agencies.
Your budget are likely going to be.
Constrained and Youre worried about how much money is going to get next year right.
Because the fate, having huge deficit now at the moment.
So so thats the uncertainty that overhang and hospitals you know you would think that the company 19 with good businesses as hospitals. The their business. This is not good because they're not having the usual business.
Because the currently 19 and.
Well I'm not going to hospitals notch also so these are the budget the concern over the facility managers. So.
So the excess is not an issue is the.
Is the decision, making that we have come function with right.
Which again you know we have literally using the UBI JPY product portfolio to offset that silicon softness right the softness might linger for among four quarters, we don't know.
We could also see like what we have like I would mention earlier.
That some countries that already that has seen that probably 19 cases drop.
You know to the minimum level they are seeing people coming back in most of the facilities. So if we are three months away from that we could be resurgence of business. Then so that that's really been uncertainty where we're looking at on into how we are very.
Excited about the Uli product because it help people come back to the facility right and it's going to reach out to you had.
The capital the outside of the usual organizational pivotal budget.
To get that from federal from the founding now for probably nothing really.
To implement these technologies these products.
So so.
That's why we're planning to two two to several upset the short term uncertainty on the focus or typical lamb, our product side on the commercial in the commercial market.
And that's on our greatest thank you so much remember Kroger appreciate.
Thanks Summit Thank summit.
Thank you, ladies and gentlemen, as a reminder, if you'd like to during the question Q. Please press star one on your telephone keypad.
Next question comes from line of Jason Revland with Revlimid wealth Advisors. Please proceed with your question.
Hi, everyone. Good day could run rates, particularly thanks for taking my call.
From a new shareholder.
As a few weeks back and.
Well they got to notice story story will.
And after listening to todays call I really gets a sense that you are gearing up for for something significant as far as satisfying demand given the balance sheet. The credit line activities the targeting a larger distribution partners. So I'm very encouraged to hear that today.
My first question is.
My first question is whether what are the engineering or testing steps that are left.
In place before you can.
After we sold the you'd be product and have you tried it with the with any of your partnership.
As the the first the first part of the question is the engineering side, and which I already mentioned that we have.
Overcome the key challenges on the engineering side, so it's being fine tune right now are the product is working.
Is working as we'd like but we're fine tuning to make it you know finalized right.
Our plan is to finalize the product the design next month I would just September and then we really could start going into production in Q4 and stuff sailing.
As early as early Q4, so it depends on.
End of the process of for of the you the UL process how long. It's got taken we are that's why we're projecting Q4.
We obviously as we as I mentioned, we right we want to get this product al as soon as possible to not only for the business both for the better good.
The in terms of failing the product we have already.
Our.
Obviously consulted with some of our customers are already customers and just like what we believe within focus.
Earlier through Mt four month lag gray.
That.
You know how they think about the product and I can say that is a pretty good.
A level of interest again, we haven't shown people product yet less during the prototyping phase were finalizing that next month.
So, but so far the only indications are telling us that.
People one this product.
Great.
Last question is is there any.
Sort of federal funding or state level funding opportunities that might assist you in the sale of that you'd be product in some way.
Yes, we have not explore that actively we have been so focused on developing its product eventually.
I mean, it's it's very straightforward for this product works, we don't need the founding right.
On that that now we have the product set up that have pretty much growth to finalization, we might start actually speaking federal and state assistance in terms of getting this product to more places faster right, we don't necessarily need to do.
Such funding, we have already spend that money and we have already did the work.
That's one aspect of it right how do we get this product to more agencies more schools more hospitals as fast as weekend and number two is that.
There are other UBI jet products in the work that has already under well under development that I haven't talked about.
Those are the projects that we were.
Likely see.
Federal support as well.
But again, we don't need it we can we get those support.
So it help us move faster, we will we will be growing those options.
And if I might just asked to a more as far as some of the very large late manufactures do you see any possible opportunities to let's say partner with them.
License out the IP that now seems to have some much added protection.
Just maybe expand the market through let's say a much larger partner at some point.
Yes, that's a very good question and very important question actually because we.
We have computer obviously you'd licensing in focus in the future. We have just been focusing on getting the product how asking piloting sampling without cousin current customers, we like to get the product.
Even more facilities you know over the next few months in quarters and and then we can consider licensing the.
The platform, we do see a clear potential of that.
The other thing is that you know this this this platform we so unique and so powerful that we could continue to be better than more products on top of it.
The best resemble is that you'll be g. I, often focus troffer right.
This troffer leverages among the in focus capability. So you can bring and UBI JCI equipment into.
A room for example, a building, but how do you control it right. It's not come. So aspect is is going to involve call. It's got involved with the design and everything.
Our wireless sometimes but then you've got the.
Protocol you have to deal with.
This this infocus platform enabled that you've been product to to go into an existing building very quickly with the simple.
You know change of switch.
That that that enable a lot of rapid deployment of advanced lighting.
Just like the Infocus newly JPY troffer.
We obviously are you know already starting to develop additional product.
On top of Infocus.
So we'll continue to do that we'll continue.
To move forward to expand the product.
And we will be considering.
Licensing it over the next month and quarters after we.
Tim enough sales and more facility.
Implementing our products and I'd like to just build on that with two additional short comments change.
One is that it would also be in focus platform allows it to be done affordably sort of in whole UGI capability is done affordably versus any of the current alternatives and on the partnership front that can take many forms noxious licensing.
Theres, many forms were considering and talking about.
Two leveraged our intellectual property across the world.
So to deploy it quickly and leverage our intellectual property.
Great James. Thank you it's great to have you back on board to this has been a great call. Thank you very much.
Thank you for interest and well Dunbar again.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. two for any final comments.
Thanks, everyone for your participation our call and it looks to look forward to talking to you certainly in the next earnings call stay tune and have a great weaken.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.