Q1 2021 Energy Focus Inc Earnings Call
Greetings and welcome to the energy focus the first quarter 2021 earnings conference call at the.
At the time, all participants are in a 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.
As a reminder, the conference is being recorded.
It's now my pleasure to introduce Brett Maas of I hate and I are thank you you may begin.
Thank you operator, and good morning, everyone. Joining me today on the call is James to Executive Chairman and Chief Executive Officer, Tod Nester, President and Chief Financial Officer before we begin todays call I'd like to remind everyone that we'll make certain forward looking statements. These statements are based upon information that represents the companys current expectations or beliefs. The results realized may differ materially from those stated.
For a discussion of these risks that could affect our results. Please refer to the discussion and under the heading risk factors as well as forward looking statements and our most recent 10-K. In addition to the forward looking statements. Our most recently filed 10-Q with the SEC the.
The company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of the new information future events or otherwise except required by law also please note. The during this call and and the company press releases any potential of certain financial metrics are presented on both GAAP and non-GAAP adjusted basis reconciliations of the adjusted results to GAAP results are of.
Payable on the tables attached to the earnings release, which is posted on our corporate website and energy focus dot com and the Investor Relations section on the site and we'll now turn the call over James.
Thank you Brad good morning, everyone and thank you for joining our first quarter 2021 earnings conference call.
And you'll have seen from our earnings release. This morning during the first quarter of our Q1 was on Tony on the financial results reflect the continuing significant impact of the pandemic on the lighting retrofit market, where the budget for such projects could be pool all of postpone immediately there too.
Capital conservation or uncertainty on occupancy.
In addition to the continuing industry headwinds we experienced in all of the commercial sector. The quota was also impacted by the fluctuations and the timing of me that's the only older and government funding.
The result was an approximate 30% decline in revenue on.
The first quarter of 2020, which predated the widespread impact of the pandemic.
And the lowest sales balance of driving reduced operating margin because they frequently.
Freezing our cash balance as we continue to aggressively invest in all of new product development efforts.
That being said, it's that'll show up on the operational and financial setback.
The team has expanded its amazing dedication and creativity and speak to the it's unprecedented industry challenge caused by COVID-19 by transforming the company in many ways.
First of all over the past 12 months, we have developed exciting new line of state of the art technologically advanced solutions and both are in focus of lighting control platform and UV disinfection part of the portfolios, which we believe will propel our growth.
The second half of the year.
And these new products will not only expand our addressable market and also diversify our sales into the consumer market as well as the rapidly emerging UV disinfection market.
Second we have the celebrated our efforts the weaves together and income passing distribution and partnership network and that will help us take up of products to the market with pocket.
Especially in light of the new products of the lodging in the next few months.
Specifically, we partner with Valkyrie.
The $5 billion building service company.
To provide all of lighting products today of lighting retrofit projects and we signed a distribution agreement with batteries plus several hundreds of store retail chain that focuses on power and lighting products.
We also established a partnership with the with two new and South agencies did spend out of distribution not covered the territory, including Montana, Wyoming, Nevada, Georgia, Alabama and Florida.
In addition, we.
The company and to pursue additional significant channel partners that.
And we hope to share with you as these partnerships.
The realized.
We believe these additional channel engagement.
Speak volumes to the unique in the <unk>.
Hey, Dave and compelling offerings of our product portfolio that is drawing significant interest and endorsement from the sizable channel partners.
These exciting.
Existing.
And forthcoming punish it will help us get our products to the end users being the commercial or residential customers and.
And the more timely and scalable manner.
Third.
We've also continued to strengthen the leadership and talent and teams across the board.
We believe that these hard times all of the best times for the real talents that fit outside of any culture of the shop.
And the brain the company and so the next phase of growth.
And I'm incredibly grateful and proud of our whole team for what we had accomplished to get us ready for sustainable growth of that.
So despite of the unbelievably challenging environment, we have faced over the past year and optimistic for the long term potential for energy focus of I have ever been and.
And I believe the investment thesis and the energy focus remain sound.
And the meantime over the past months also with the go to see initial improvement in the commercial market.
And uptake in bidding and pipeline of activity.
Capital and put them on projects, which were frozen for most of the last year as people work from home are beginning to loosen up of business and stuff starting to prepare for and we tend to work until the new normalcy.
All of the events lighting technology solutions, and a more complete with unique products such as the rack cap and focus of that and control systems and the incoming you'd be product could be a powerful part of the new building paradigm.
And in the field of UV disinfection.
And we just launched our pilots move crew robot disinfection services last week and Cleveland.
And we look forward to reporting on the progress of the as part of service in the coming months.
In addition, we've also received you can see the definitely the balance and interest and also pursuing our forte.
Purchasing our new robot, which constantly superior performance and affordability at the same time compared with the competing disinfection of robots and the marketplace.
We also expect to begin shipments of our portfolio of UV C and disinfection product, including the Louisville tower.
And on travel.
And the of both trough on the customers, they're like the third quarter.
These U V C surface and air Disinfection products constitute a comprehensive solution for both consumer and corporate markets and well in April of homeowners and businesses and so in fact rooms and I'll come on areas effectively without chemicals on residuals.
Developed through the combination of our expertise and experience and lighting technology.
As well as additional new proprietary and patent pending technology and stuff and its focus and our supply partners.
This line of unique and powerful usually see part of the products are designed to inactivate 99, 9% of all more of various pathogens.
Including Colorado and virus and influenza.
And we expect the usually see part of it and to become a meaningful contributor to our results and the second half of the year.
With a gradually improving macroeconomic environment for the lighting retrofit industry.
From a growing and commercial sales pop out.
We are cautiously optimistic that first quarter of my have marked the bottom of our quarterly sales for 2000 and Taiwan.
At this point and we expect the second quarter to start improving incrementally over the first quarter with strengthening and growth momentum for the second half of the year.
We stopped the evening all of you at least.
The infection of products and all of a second generation and focused control systems.
With that I'll turn the call to the top of redo, our financial performance of the ear and the court.
Uh huh.
Thank you James net.
Net sales of $2 6 million for the first quarter of 2021 decreased 33% compared to sales of $3 8 million and the first quarter of 2020 driven by decreases in both commercial and military sales.
When compared to $3 7 million and the fourth quarter of 2020 net sales were down 29, 6% on a sequential basis due in large parts of the decreased sales and our military business due to fluctuations and the timing of military orders and funding.
Sales of our commercial products decreased mainly due to delays and the health care education, and commercial and industrial sectors because of the continuing macroeconomic slowdown.
And purchasing decisions being put on hold due to the COVID-19 pandemic.
In addition sales from our agency and that work were also lower again, reflecting the impact from the COVID-19 pandemic.
Sales of our military products decreased mainly due to availability of government funding for certain projects and the timing of orders.
Sales to our top 10 customers from the total company for the first quarter of 2021 decreased 25, 1% and sales toward the top 20 customers decreased 29, 3% compared to the first quarter of last year.
From a mix perspective military sales were $1 $7 million for the first quarter of 2021, representing 65 four percentage of total net sales compared to $2 million or 54, 1% of total net sales for the first quarter of 2020.
Sales to commercial customers were <unk> $9 million and the first quarter of 2020, one representing 34, 6% of total net sales for the quarter down from $1 7 million or 45, 9% of total sales and the first quarter of 2020.
The year over year decrease and commercial sales was mainly due to overall softness and the commercial market and the began at the onset of the COVID-19 pandemic.
Gross profit for the first quarter of 2020 one.
Was $600000 compared with $1 million and the first quarter of 2020, a decrease of 46, 4% year over year.
On a sequential basis gross profit declined compared to gross profit of $1 4 million and the fourth quarter of 2020.
As a percentage of revenue gross profit margin was 21% and the first quarter of 2021, reflecting lost leverage of our fixed cost due to the lower sales compared to total me seven 3% and the first quarter of 2020.
Adjusted gross profit profit margins for excess and obsolete and transit and not realizable value of inventory reserve reserves resulted and the non-GAAP adjusted gross margins of 24, 3% and the first quarter of 2021 compared to 25, 2% and the first quarter of 2020.
And 27, 7% and the fourth quarter of 2020.
We continue to expect our overall gross margins to be in the mid twenties and the near term and begin to approach the high twenties percentage range as we introduce new products and make further improvements to our supply chain and negotiate better pricing to accompany our increased volumes and depending upon the sales Nox and inventory evaluations nishu.
They see some fluctuations quarter to quarter.
Operating expenses and the first quarter of 'twenty, 'twenty, one or $2 $9 million or 108, 2% of sales compared to $2 $3 million or 67% of sales and the first quarter of 2020.
And increase of $557000 or 24, 3% year over year.
The increase is mainly related to payroll expenses and R&D product testing associated with the development and the launch of our <unk> products.
Loss from operations and the first quarter of 2020, one was $2 $3 million compared to a loss from operations of $1 $3 million and the first quarter of 2020.
The year over year increase of $1 million.
Sequentially. This compares to a loss from operations of zero point of $9 million and the fourth quarter of 'twenty, and 'twenty and increase of $1 $4 million.
Also below the operating line, we had and 801000 dollar game on and its thinking extinguishment of debt related to the forgiveness of our SBA PPP and loan.
The prior year quarter had and $873000 gain related to the valuation of once these warrants were reclassified the equity equity during the fourth quarter of 'twenty, and 'twenty and will not be subject to read measurement and subsequent periods.
Net loss for the first quarter of quantum and 21 was $1 $6 million of 45 cents per basic and diluted share based on a $3 6 million fully diluted shares compared with the loss of $541000 or <unk> 18 loss per basic and diluted share based on a $3 1 million and fully.
Diluted shares and the first quarter of 2020.
On a sequential basis, we reported net income of $65000 or one cent per basic and diluted share and the fourth quarter of 2020.
Adjusted EBITDA, a non-GAAP measure, which excludes depreciation and amortization interest expense stock based and other incentive comp was a loss of $2 million and the first quarter of 2021 compared with the loss of $1 1 million and the first quarter of 2020 and the loss of $800000 and the fourth.
Quarter of 2020.
Now I'd like to turn to the balance sheet.
As of March 31, 2021 we had cash of $548000 compared the one 8 million at the end of 2020.
Total debt as of March 31, 2021 was $3 $4 million and short term credit line borrowings.
As a reminder, total availability is the measurement of our access to cash at any given point in time and we believe this is the much more relevant metric and simply looking at cash balance or even net debt on the balance sheet.
While the excess borrowing availability on our credit facilities represents the difference between the maximum borrowing capacity of the credit facilities and our actual borrowings under the credit facilities.
As of March 31, 2020, one we had total availability of $1 $2 million, which was comprised of $548000 of cash and $700000 of excess borrowing availability under our credit facilities.
Subsequent to the end of the quarter, we increased our total borrowing availability on our inventory of line of credit by $500000. And addition at the end of the April we finalized a net $1 $5 million bridge loan on.
Favorable terms, increasing our liquidity as our core brought a core part of core markets continue to rebound.
Yeah.
During the first quarter of 2021 cash used in operations was $2 $8 million of which $700000 was working capital cash used in investing activities was $109000 and we generated $1 six smell and dollars and cash from financing activities.
Once again as we have mentioned previously during our earnings calls we would like to provide brief updates about the impact of the COVID-19 pandemic on our business.
The company continues to operate under our customized COVID-19 contingency plan with employees that can alternately our permanent of we work from and the plant or from their homes.
James and I have already discussed the ongoing impacts of the COVID-19 pandemic on our commercial business the.
Donna continues to impact our business, resulting in supply chain impacts such as first increased wait times for products to arrive.
Tremendously increased inbound and outbound freight and shipping costs, some of which can be passed along to customers and.
And now certain component shortages shelters microprocessors as well as other operators and operational hurdles to overcome.
Although we are launching our UV C D portfolio of products. During the current pandemic is a good countervailing and alternative to the pandemic impact on our commercial business, we very much see these products and fulfilling a permanent long term market need for air and surface disinfection and and the workplace consumer spaces and other social gathering locations.
As a reminder, U V C. D portfolio is the factor for the most pathogens, including both the Corona virus and influenza. Hence we are entering the segment strategically and with the very long term view.
We believe our products functionality of affordability and quality are all of the reflections of this long term commitment.
With that we would like to open up the call to questions operator.
Yeah.
Thank you and you'll now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is and the question queue.
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One moment, please while we poll for your questions.
Okay.
Our first questions come from the line of Amit Dayal with H C. Wainwright. Please proceed with your question.
Thank you good morning, James from willing John and.
Hey, good morning.
Thank you for taking the question.
Jim just to begin with you know with respect to the new partnerships.
Hum.
How long should we you know factor in terms of these relationships beginning to contribute.
The revenues the teacher.
Yeah, the all of it depends on what type of partnerships, but I think of.
It usually takes a couple of months for the partners to the familiar of their lives with our products.
And.
The other thing is that the.
Several of these partners.
Being Hum creep.
Created of these partnerships are being created for the new products coming so yeah, well the only.
It's hard to say exactly when they start contributing to our of everything but I think once the products are.
On meaning the and focus next generation of rest of your products, which we'll talk about more of.
And in the coming months and also the UV product Oh and the next few months I think on some of them will start contributing.
Different ways and.
And again it depends on the nature of the of the punish of some of them are retail and some of them are.
Very unconventional and different type of industries. The P. I Z one of the some of the energy service company. So those projects might take over the longer to be specifying our products into the projects. So Oh, you you sort of varies but I think are the keys that are new.
Lots of being around chicken and the next few months. These partnership that you're still working on generating.
No sales and sort of indifferent.
Pace.
Right understood and with respect to sort of your liquidity and working capital needs of different I know of dawn went through sort of the you know.
The real ability to commission.
The increased some of those.
But do you think this has been a little bit of of a gating factor.
Moving on.
Commercialization of the commercial products.
Efforts.
And the I'm not exactly sure of the question, you're asking can you rephrase that maybe and helped a little bit I'm on to make sure and address it directly.
I'm just trying to think whether you know the balance sheets has been preventing us from winning you know and larger contracts on the commercial side.
Oh.
No I don't believe that the bad issue is causes any concern and landing larger contracts and it's not any of the feedback. We've received I think it's consistent with what we've said which is just the general.
Ross the industry, you will see that there's been a general slowdown and all the.
And slowdown and the retrofits and that.
And that just has been the entire industry experience and so I don't think the liquidity or of the capital needs of the business are driving any of those decisions.
Okay.
And just one last one from me maybe on.
On the one handling of the product portfolio of has expanded the then on the macro level and the supply chain issues completing shortages of true.
Can you give us some sense of you know how you are managing and sort of these two of them.
Signs of the execution process.
Okay.
Hey, lots of good question and I mean, so the the lot of the uncertainties in terms of product.
On the availability and delivery times that we've been dealing with over the past probably six months or so I would say.
And it's it hasn't been improving so we are in some more parts of the product. We are planning to increase the inventory just to offset the potential risks.
We we are working with our suppliers and Oh the products that are forthcoming and make sure that we have the components and parts ready.
All of experiencing some delay.
The delivery delays for sure.
And the web trying to manage that the.
Some of the.
With the alternative suppliers and products yeah. It's it's the it's a it's a tough issue of even though across a lot of industries right now and there's no magic bullet per se.
Because of the component of it appears it could be a could be could change and the ability overnight from time to time.
And so the data of.
How are you how we address those the resource is to increase the inventory.
Of level four of.
Products that we know of sales well I can recap.
The example.
And also are playing well in the events.
For product launches, making sure that the component and stuff out there.
And the what I'll, just add I mean, as the saying we've done a really good job of managing working capital since we've arrived but what we're doing to compensate as James said and building some of these.
Safety stocks on the high turnover of the products because of this shortage so.
And now there is lot of the cash requirement to do that and we're aware of that because of the opportunity cost of lost sales and we don't want of experience and we're just doing it we think intelligently by selecting the high turnover of products.
Okay. Thank you for that and.
And this maybe I'll sneak one last from me.
And with restricted the disinfection robots are there any utilization metrics you can share of genes.
What metrics the utilization of BIOLASE and less yeah.
Yeah. We are we just started this whole service last week of of the pilot in May of.
Cleveland area, we have obviously got some interest and the west that we are doing a lot of the media campaigns and in this particular area of very local very sort of the hyper local marketing and and for the customers that has the experience our product.
You know they they the loved the product and we are focusing on particular verticals such as medical offices.
And nursing homes and childcare facilities first.
We have only a of couple of robots so.
And the in this type of services so are we.
And we'd like to see the the interest coming back and materialize in the next few weeks and we definitely will share with the other thing that there's about some potential.
Potential the customer says well.
The also of pretty good amount of interest and buying the robots as I mentioned and the script.
Debt that we're exploring as well so I think it's still on the early but.
Well that's.
And I'm excited about this whole whole profit line and James I'll, just add on about a little bit when we modeled the pro forma around the service I mean, we did take the do it in the manner that.
Does it based on drivers of metrics. So as we learn more about the service and that those are likely the metrics will bring forward. The U utilization you know the number of shifts those kind of things.
So we will be forthcoming with that as we learn more too, but we are definitely contemplating those kind of metrics.
And I appreciate that guys. Thank you so much that's all of that.
Think of it.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Robert Smith with center for performance and investing. Please proceed with your question.
And good morning, thanks to the Honeywell.
And do you ever and the access to the government financing programs.
And in terms of our.
Product.
And he was talking about the particularly.
Of particular products or because of all of the company. We have the PPP loan that we announced before right.
Yeah, there's nothing there.
Nothing further possibilities on.
And there are federal.
Federal and state or whatever.
Yeah.
Well, we could not not the company itself, but the products that we sell for example, the the the lagging products. They have rebates for the UV products that are coming are they have different waste the Gulf, especially the government and federal and state entities. They have.
Our ways to get funding for these equipment and so that's the one of the channel partners that were pursuing in the government space for the UV product.
And they definitely are getting a lot of funding and <unk>.
Brent weighted.
Yeah.
Do you feel that you would be a beneficiary of the infrastructure funding.
I, yes, we believe so because the big part of the the stimulus plan focuses on the climate change and building efficiencies one of the top priorities I think we should start seeing the.
The type of funding coming.
And in the second half of the year and.
That sounds like a pretty skinny or it can come in and from the government.
Hmm so at the same definitely look forward to that and actually and that is a one of our business bigger than the initiatives is to expanding the government.
Sector.
And engaging with the <unk> B and large energy service companies and they provide the use of lighting retrofit.
Services.
So we're actually pretty excited about that prospect.
And and James I'll, just add to that I think that the products. We're developing are.
They have a cost advantage versus the competition and provide.
The kind of products that the government will be funding through those initiatives. So that's the link for us as we have that competitive advantage of the.
Better or the equivalent quality and the product and then the other.
The more affordable and installation.
Okay. Thank you very much good luck.
Thanks.
And.
Thank you there are no further questions at this time I would like to turn the call back over to management for any closing comments.
Thanks, everyone for your participation and we look forward to talking to and the next earnings call have a great day.
Thank you for your participation. This does conclude today's teleconference. You may disconnect. Your lines at this time of of Gray.
Okay.
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