Energy Focus, Inc.

Greetings and welcome to Energy Focus fourth quarter and fiscal year end 2020 conference call. At this 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. Please note this conference is being recorded. I will now turn the conference over to your host, Brett Moss with Hayden IR. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Joining me on the call today is James Tu, Executive Chairman and Chief Executive Officer, and Todd Nestor, President and Chief Financial Officer. Before we begin today's call, I'd like to remind everyone that we'll make 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 these risks, they could affect our results. Please refer to the discussion under the headings Risk Factors as well as Forward-Looking Statements in our most recent 10-K. The 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 that during this call and in the accompanying press releases, any certain financial metrics are presented on both GAAP and non-GAAP adjusted basis. Reconciliation of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at energyfocus.com in the investor relations section of the site. I'll now turn the call to James. James, the floor is yours.

Thank you, Brett. Good morning, everyone, and thank you for joining our full year and fourth quarter 2020 earnings conference call. 2020 was a year filled with both extreme challenges and solid progress at Energy Focus. As the global pandemic swept across the country, and arguably still weigh heavily on daily economic activities today, more than a year after the initial breakout. Despite of the unprecedented softness of lighting retrofit activities that impacted our commercial lighting sales, our financial results for the whole year, which Thao will go into further details later, illustrate the considerable progress we have made in reigniting top-line growth, significantly improving our margins, and strengthening of our balance sheet. and prudently managing inventory and working capital to position our company for strong growth as economic life resumes towards normality and our new UVC disinfection products start to generate notable sales in the coming quarters. On the top line, the strength of our product innovation that resulted in Improved competitiveness in the military and maritime space was a significant driver of the more than 32% net sales growth we were able to achieve in 2020, which offset the weakness we experienced in our commercial business ever since March of last year. As we continue to strengthen our military engineering organization and expand our business development efforts, We are confident that we will continue to achieve high-level performance and further growth in this segment going forward. In addition, within the federal government, but outside of the Navy ecosystem, our military and commercial Buy American products were successfully added to the GSA schedule in December 2020. We have started to receive orders from the GSA channel over the past few months, and we are aggressively building out our sales and marketing infrastructure for this particular market that covers more than 361,000 buildings throughout federal government agencies. On the commercial side, as we mentioned over the past few earnings calls, we witnessed a dramatic slowdown of lighting retrofit activities in 2020. Many non-essential building improvement upgrades and retrofits were put on hold as the global pandemic forced most organizations to significantly limit building occupancy and building access and caused widespread suspension or postponements of capital improvement budgets. Although facility utilization and capital spending freezes continue to linger going into the first quarter of 2020, as vaccines become more widely available and return to shared spaces starting to pick up pace. We are cautiously optimistic that commercial sales pipeline activities will start to accelerate going into the second quarter more locally, so into the second half of the year. Meanwhile, we continue to make exciting progress in expanding our channel partnership network by adding more proven and committed lighting agents. to represent our products in various geographic territories, as well as by engaging with new national distribution partners that will take our products to new vertical markets. With our improved cost structure of our LED products on top of the in-focus, dimmable, and color-tunable control platform that has received strong industry-wide accolades, including initial orders from a state government that manages 17 million square feet of building space. We are looking forward to improving our commercial lighting sales quarter over quarter of the year 2021 progresses. As the COVID-19 pandemic brought unprecedented challenges to our commercial lighting business, it also brought potential new opportunities for energy focus by creating unprecedented needs for space disinfection. In 2020, we devoted significant amount of engineering resources and R&D dollars to develop a whole new portfolio of UVC air and service disinfection products. With the combination of our expertise and experience with lighting technology and additional new proprietary as well as patentable technologies we have developed, we have created a line of unique and powerful UVC products that can inactivate 99.9% or more of various pathogens, including coronavirus and influenza. The air disinfection product portfolio currently includes above spelled A-B-U-V, a modular troffer system that provides both flicker-free steamable and color-tunable light, as well as UVC air disinfection capability. Nuvo Tower Spill and UVO, an air disinfection device for large work and living spaces. And Nuvo Traveler, our portable and rechargeable UV disinfection device for in-car and travel applications. Over the past few months, we have incorporated into these products additional technologies and features that make them much more effective, powerful, and unique in the marketplace than when we first introduced them in the fourth quarter of 2020. And we are now scheduled to make the first deliveries for these products to customers later in the second quarter to early third quarter. Meanwhile, the feedback we received from our channel partners and potential customers over the past four to five months thinks the products were introduced has only gotten more positive and enthusiastic, and we have never been so excited about the prospects for these products. Given our belief that needs of disinfection are here to stay, regardless of how the impact from COVID-19 evolves in the coming months and years, and our innovation focus and quality positioning, we are aiming to build a leading UV disinfection brand portfolio in this new emerging market. And we expect to introduce additional products throughout 2021 and beyond to better serve the disinfection needs of various facility and consumer applications. To complement our air disinfection products, we've also developed an industry-leading autonomous UVC service disinfection robot called MOVE. While we will be selling the robot later this year to customers with larger facility footprints, such as hospitals, hotels, and retail chains, or universities and government agencies, our near-term focus is to develop our disinfection as a service, or DAAS, solution called MoveCrew. which provides robot disinfection services by the hour in the targeted territories. We're starting to pilot this service in the Cleveland area this month and are planning to officially launch our services in the second quarter. First in Cleveland, then other major metropolitan areas as we master our service operation for replication. Like our air disinfection product, The early indication of the interest is very encouraging for MOVE and MOVE Crew, even before we formally launch the product and service. Notably, we were selected by one of the top 10 universities in the country to be the service disinfection technology for NCAA National Fencing Championships, which are being held later this week, where 25 NCAA Division I colleges and their athletic directors are expected to be present. Although these products and solutions are in early stages and not expected to meaningfully contribute to our financial results until the second half of 2021, they create a potentially enormous long-term growth opportunity outside of the commercial and military lighting space. And our entrepreneurial culture and innovative DNA enable us to compete favorably in such a market where multiple technological domains of expertise have to intersect, converge, and synergize to provide the best disinfection results. Essentially, with bold positioning, organic organizational agility, and engineering ingenuity, we have taken the past 12 months to enter a whole new market that could further and completely transform the growth profile of energy focus in the coming quarters and years. Clearly, as mentioned before, challenges remain today in the broader macro environment, and in particular for the lighting retrofit industry, as remote working drastically reduces facility capital budget and project activities. With the opening of the economy in the coming months expected and our growing list of highly differentiated products, be it from military lighting, commercial lighting, in focus control platform or UV disinfection posed to penetrate their respective target markets. We believe that energy focus has never been as well positioned today to deliver long-term sustainable growth and profitability. With that, I will turn the call to Todd to review our financial performance for the year and the quarter.