Energy Focus, Inc.

Second-quarter 2023 net sales were $1.1 million, down 29% from $1.5 million in Q2 2022. Military products sales were $613,000, up $107,000 year over year, while commercial product sales were approximately $442,000, down $533,000 year over year. Gross profit was $179,000 versus $109,000 a year ago, and gross margin was 17% versus 7% in Q2 2022. Operating expenses were $1.3 million versus $2.3 million last year, loss from operations was $1.1 million versus $2.2 million, net loss was $1.2 million, or $0.42 per share, versus $2.5 million, or $2.43 per share, and adjusted EBITDA loss was $1.0 million versus $2.1 million. Cash was $1.3 million at June 30, 2023, total availability was $1.5 million, and cash from financing activities was $1.2 million, driven mainly by a private placement that raised $1.3 million gross. Management did not provide formal forward guidance, but said it expects fresh supply of RedCap and new products to continue improving gross margin, with better demand and sales channels in the second half of the year.

CEO Lesley Matt framed the quarter as incremental progress in a longer turnaround, emphasizing that the company has been refocused on military maritime plus commercial and industrial lighting and controls, while cutting costs and fixing supply-chain issues. She said the second quarter showed the beginning signs of better revenues and margins, and repeatedly pointed to RedCap and EnFocus inventory availability as a key driver of future growth. Her tone was optimistic but cautious, stressing there is still “a long way to go” and that recovery will be slow and steady.

The CFO-style financial commentary focused on a cleaner cost structure, improved gross margin, and a stronger liquidity position. Gross profit rose to $179,000 and gross margin to 17% from 7% a year ago, helped by lower fixed costs, improved sales mix, and inventory reserve changes; operating expenses fell to $1.3 million from $2.3 million due mainly to lower payroll and payroll-related expense. Cash rose to $1.3 million from $52,000 at year-end 2022, total availability increased to $1.5 million, and financing cash flow of $1.2 million came primarily from a $1.3 million gross private placement. The company also noted it reduced maximum lending availability to $500,000 and terminated its accounts receivable lending facility in the first quarter.

Analyst Sameer Joshi focused on whether gross margin could improve further as RedCap inventory comes in, and management said it believes margins should continue to improve, though it would not give formal guidance. He also pressed on whether inventory is a bottleneck and how much visibility management has into the military pipeline; management said RedCap is the “lead horse” that helps pull through other inventory, and noted orders are booked through Q2 2024 with a healthier pipeline but still limited visibility beyond that. On commercial revenue, management said it expects continued growth as stocking levels improve, and on product development spending it said R&D could rise modestly as revenue grows but should stay in line with sales.