Energy Focus, Inc.

Greetings and welcome to Energy Focus second quarter 2022 earnings 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 a conference, please put star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Warren, Senior Vice President and General Counsel for Energy Focus. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Joining me on the call today is Stephen Sokoloff, Chairman and Interim Chief Executive Officer, and Clifford Griffin, Senior Vice President, Corporate Controller, and Chief Accounting Officer. Before we begin today's call, I'd like to remind everyone that we will 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 a discussion of these risks that could affect our results, please refer to the section under the headings Risk Factors as well as forward-looking statements in our most recent 10Q filed with the Securities Exchange Commission. 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, certain financial metrics are presented on both GAAP and non-GAAP adjusted bases. Reconciliations 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 will now turn the call over to Steve.

Thank you, Jim. Good morning, everyone. To remind you what we have been communicating over the last few months We have been pursuing initiatives to improve the energy-focused business through, number one, bringing more value-added, differentiated products to the marketplace, number two, aligning our team around near-term opportunities with an emphasis on execution, and number three, streamlining our expenses to reduce our cash burn. Our goal was to position the company for improved financial results in the second half of this year. Now, let me review where we stand on each of these initiatives. First, we have made significant progress on new product development. Our REDCap emergency lighting products continue to be unique in the market and see strong demand. We were supply constrained by chip shortages, which you'll see had an impact on our results. Fortunately, we believe we've alleviated that problem with some great engineering work that expanded the available chips we could use and we have now secured additional supply. In a few months, we expect to have out our next generation version of this product. A revamped line of traditional tubular LED products, which we call our white caps, also are planned to be available for sale later this quarter. We anticipate these updated offerings will dramatically reduce inventory and logistics complexity and product costs. reducing risk of shortages, and improving margins. Finally, we are beginning to see a ramp up in sales of our InFocus control products. We have several versions of switches and lamps for both retrofit and new applications. We already have a dozen customer deployments and are building marketing case studies and go-to-market plans. We believe this innovative power line control product line that is simple to deploy even in retrofit applications, simple to manage, and reliable without the use of a radio will truly deliver on the innovation expected from energy focus in the lighting market. We also plan to expand the product line as we go forward with additional lamp and fixture styles. Second, in terms of aligning our team and emphasizing execution, I'm really pleased to report that our small but capable sales team has been one of the most stable parts of our organization over the last six months and remains highly focused on building our commercial sales pipeline. It's given us a chance to strengthen customer relationships, and they have added four new agencies to our distribution channels this quarter, in addition to expanding territory for an existing agent. Further, we just announced one week ago the addition of two new commercial leaders. Nick Paragin, who has 10 years of experience building and leading sales teams in the lighting industry, will join our sales team as a director of regional sales. Steve McGuire joined as director of business development to work with our head of product, Greg Galluccio, on OEM relationships that we are just beginning to develop with our power line control modules and lighting product integrations. Steve brings 25 years of experience from Philips Lighting and other companies in sales and operations, so we also expect him to help support our sales team through his industry relationships with their channel development efforts. I also want to commend Bob Smiles, who joined us in the middle of last quarter to lead our military business. Bob brings years of experience selling controls and energy management solutions to military and other government customers, following his service as a naval flight officer. It's great to have someone with his ability rebuilding our relationships in both ship applications as well as developing opportunities on military bases. We have already achieved more orders this quarter than we shipped in military last quarter. With this expanded commercial team, we are well poised to support the new product launches we expect in the second half of 22 that I mentioned. Finally, the third new hire we announced last week is Cliff Griffin, our new Senior Vice President, Corporate Controller, and Chief Accounting Officer. I'm so excited to have someone of his experience from Babcock and Wilcox as corporate controller. And prior to that, eight years at Advanced Lighting Technologies, a $200 million lighting products company. While he has only been with the company a week, I've asked him to cover our financial report today because I want our investors to get to know him. Third, as I mentioned in the last review, we have been rationalizing our team and expenses to reduce burns. We reduced our facility footprint in Solon, Ohio from 110,000 square feet to 62,000 square feet. Among other things, this required a large inventory management review, and we have been cleaning up inventory to consolidate space and prepare for the new products coming in. During Q2, we aggressively reassessed our cost drivers, and we reduced our headcount and payroll significantly. We have also aggressively attacked other administrative and IT expenses. In total, we believe we are entering Q3 with our operating expense run rate down by over 20% compared to the start of the year. Our new product lines are expected to help improve margins, and we anticipate increased margin leverage with increased sales. We have hard work to do to ramp the sales pipeline to support these levels and believe the upcoming products will refresh our offerings with meaningful revenue opportunities. Now, before I turn the call over to Cliff to review our quarterly financial results, I want to comment on them. I was hoping we could come here to tell you that we realized a sequential and year-over-year improvement on the top line. Unfortunately, we closed the quarter at $1.5 million of revenues. However, on the positive side, the sales team ended the second quarter with strong backlog of purchase commitments. including a meaningful amount where fulfillment slipped into third quarter due to the supply constraints mentioned earlier. I applaud the efforts of our engineering and operations team that did everything they could do to deliver, and they have worked diligently into the beginning of this quarter to fulfill those orders. We have already shipped over 70% of this backlog. As a result, we start Q3 on stronger footing and are working to build momentum. Also, after reporting negative gross margins in Q1, I hope we could report a complete rebound based on all of our improvements, but that's tough with only a million and a half of realized sales, given the impact of our fixed cost and product mix. We are reporting 7.4% margins, which is a significant improvement over prior quarter. I am really looking forward to presenting continued progress in our turnaround over the second half of the year. Thank you very much. And now let me turn it over to Cliff Griffin to review our Q2 financial results.