Energy Focus, Inc. Q3 FY2022 earnings call

• New CEO Lesley Matt joined in mid-September, emphasizing turnaround initiatives. - Initiatives include: - New product development: RedCap has strong demand but supply constraints being addressed; White Cap nearly available to simplify inventory and improve margins; in-focused control products gaining interest with work on go-to-market plans. - Aligning team and execution: Significant emphasis on sales and marketing accountability, changes in sales leadership, and adjusted staffing to eliminate silos. - Streamlining expenses: Reorganization to reduce operating expenses, inventory management review and reduction, and work on reducing cash burn.

Net sales for the third quarter of 2022 were $1.8 million, down 35.8% compared to the third quarter of 2021. Commercial sales were approximately $1.3 million, making up 73% of total net sales. The RedCap emergency lighting products saw strong demand but were constrained by supply limitations. The revamped White Cap traditional tubular LED products are set to simplify inventory and improve margins and will be available for sale shortly. In-focused control products are gaining interest as customers are educated on the power line control technology, with work ongoing to optimize go-to-market plans.

• Cautiously optimistic about progress in turnaround over the next six months. - Anticipate impact of cost-cutting measures and new products in the fourth quarter and 2023.

• Supply chain constraints impacting product availability and results. - Macro-economic and COVID-19 related supply chain impacts. - Dependence on military maritime project funding and vessel schedules affecting sales pipeline.

Q: Can you share your confidence in the existing product suite at Energy Focus and the need to reinvest in new offerings?

A: Some existing offerings like RedCap and in-focus modules have potential, but new aggressive products are needed, with product development team working on new offerings while navigating supply chain constraints. Energy Focus will need to move beyond lighting but stay in energy efficiency.

Q: Can you touch on efforts on new technologies not around legacy offerings?

A: There will be significant efforts in the future to develop new technologies to service the market, with more information to come in future quarters.

Q: How are you thinking about managing cash burn and financing needs?

A: There was a need to rightsize the business and reduce cash burn. Through Q4 and early 2023, with a right-sized team and new products, the impact of changes will be seen.