Energy Focus, Inc. announced financial results for its third quarter ended September 30, 2023.
Third Quarter 2023 Financial Highlights:
- Net sales of $1.3 million, decreased 24.1% compared to the third quarter of 2022, reflecting a decrease of $0.8 million, or 61.3%, in commercial sales, partially offset by a $0.4 million, or 76.7%, increase in military sales period-over-period. Sequentially, net sales increased by 26.9%, primarily reflecting a $0.1 million and $0.2 million increase in commercial and military sales, respectively, as compared to the second quarter of 2023.
- Gross loss margin of 3.6% decreased from a gross loss margin of 9.2% in the third quarter of 2022, and decreased from gross profit margin of 17.0% in the second quarter of 2023. The period-over-period changes, as compared to the third quarter of 2022, were driven mainly by a favorable impact from variable cost which included a one-time adjustment taken during the period of 2022 for a scrap write-off. Sequentially, the decrease quarter-over-quarter, as compared to the second quarter of 2023, primarily relates to unfavorable impacts from variable costs such as change in inventory reserves, as well as from increase of fixed cost and lower selling prices than the purchase prices as the Company tried to sell long outstanding items in the inventory.
- Loss from operations of $0.9 million improved as compared to loss from operations of $2.4 million in the third quarter of 2022, and loss from operations of $1.1 million in the second quarter of 2023.
- Net loss of $0.9 million, or $(0.27) per basic and diluted share of common stock, compared to a net loss of $2.7 million, or $(2.03) per basic and diluted share of common stock, in the third quarter of 2022. Sequentially, the net loss decreased by $0.3 million compared to a net loss of $1.2 million, or $(0.42) per basic and diluted share of common stock, in the second quarter of 2023.
- Cash of $1.7 million, included in total availability (as defined under “Non-GAAP Measures” below) of $1.7 million, each as of September 30, 2023, as compared to cash of $52 thousand and $41 thousand and total availability of $107 thousand and $210 thousand as of December 31, 2022 and September 30, 2022, respectively.
- Private placement of an additional $1.8 million of common stock was completed during the third quarter of 2023.
“We believe the third quarter has been the start of our reposition for Energy Focus,” said Chiao Chieh Jay Huang, Chief Executive Officer. “In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service. We believe that by increasing our interaction with the customers, we can better understand their needs, provide better services and products portfolios, and thereby enhance their loyalty to our brand. Additionally, we have made changes to our sales team structure to better align with growth and the future development. As we march towards increasing revenue by providing customers with innovative energy solution products, we continue to look at ways to improve our overall operation.”
Third Quarter 2023 Financial Results:
Net sales of $1.3 million for the third quarter of 2023 decreased $0.5 million, or 24.1%, compared to third quarter of 2022 net sales of $1.8 million, primarily driven by a decrease in commercial sales of $0.8 million, or 61.3%, that was partially offset by an increase in MMM product sales of $0.4 million, or 76.7%. MMM sales have increased due to improved sales pipeline as management replaced the head of MMM sales mid-year 2022. The MMM sales cycle is prolonged and starts to reverse its negative trend in the middle of the fourth quarter of 2022. Net commercial product sales decreased in the third quarter of 2023 compared to the same period in 2022, primarily due to the lack of availability in high-margin, high-demand commercial products as a result of supply chain interruptions. Sequentially, net sales were up 26.9% compared to $1.1 million in the second quarter of 2023, reflecting a slight increase in the sales in MMM orders with the commercial sales flat.
Gross loss was $48 thousand, or (3.6)% of net sales, for the third quarter of 2023. This compares with a gross loss of $0.2 million, or (9.2)% of net sales, in the third quarter of 2022. The period-over-period increase in gross profit was driven mainly by the $0.5 million favorable impact from fixed labor costs which was slightly offset by an unfavorable impact of $0.1 million from lower sales prices.
Sequentially, gross loss of $48 thousand for the third quarter of 2023 compares with gross profit of $179 thousand, or 17.0% of net sales, in the second quarter of 2023. The decrease quarter-over-quarter primarily relates to a favorable net impact of approximately $0.1 million related to the change in inventory reserves, which was exceeded unfavorable impacts of $0.4 million in sales and product mix and $0.1 million in fixed costs.
Adjusted gross margin, as defined under “Non-GAAP Measures” below, was 1.0% for the third quarter of 2023, compared to 3.2% in the third quarter of 2022, such decrease is primarily driven by lower sales prices during the third quarter of 2023 as compared to the third quarter of 2022. Sequentially, this compares to adjusted gross margin of 6.8% in the second quarter of 2023. The deterioration from the second quarter of 2023 was primarily driven by lower sales prices and lower variable margins in the third quarter of 2023.
Operating loss was $0.9 million for the third quarter of 2023, an improvement as compared to an operating loss of $2.4 million in the third quarter of 2022, and an operating loss of $1.1 million in the second quarter of 2023. Net loss was $0.9 million, or $(0.27) per basic and diluted share of common stock, for the third quarter of 2023, compared with a net loss of $2.7 million, or $(2.03) per basic and diluted share of common stock, in the third quarter of 2022. Sequentially, this compares with a net loss of $1.2 million, or $(0.42) per basic and diluted share of common stock, in the second quarter of 2023.
Adjusted EBITDA, as defined under “Non-GAAP Measures” below, was a loss of $0.9 million for the third quarter of 2023, compared with a loss of $2.3 million in the third quarter of 2022 and a loss of $1.1 million in the second quarter of 2023. The smaller adjusted EBITDA loss in the third quarter of 2023, as compared to the third quarter of 2022, was primarily due to improved margins and lower operating expenses.
Cash was $1.7 million as of September 30, 2023. This compares with cash of $52 thousand and $41 thousand as of December 31, 2022 and September 30, 2022, respectively. As of September 30, 2023, the Company had total availability, as defined under “Non-GAAP Measures” below, of $1.7 million, which consisted of $1.7 million of cash and $0.0 million of additional borrowing availability under its credit facilities. This compares to total availability of $107 thousand as of December 31, 2022 and $0.2 million as of September 30, 2022. Our net inventory balance of $4.9 million as of September 30, 2023 decreased $0.6 million and $1.3 million from our net inventory balance as of December 31, 2022 and September 30, 2022, respectively.