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| 8-K - 8-K - ENERGY FOCUS, INC/DE | a20172234q16er.htm |
Energy Focus, Inc. Reports Fourth Quarter and Full Year 2016
Results
SOLON, Ohio, Feb 23, 2017 -- Energy Focus, Inc. (NASDAQ:EFOI), a leader in LED lighting technologies,
today announced financial results for the fourth quarter and full year ended December 31, 2016.
Fourth Quarter and Full Year 2016 Financial Summary
• Net sales for the fourth quarter of 2016 were $7.2 million, consisting of $3.3 million in commercial and
$3.9 million in military maritime sales, compared to $17.2 million, consisting of $6.9 million in
commercial and $10.3 million in military maritime sales in fourth quarter of 2015.
• During the fourth quarter, incurred a $3.8 million inventory write-off and a $0.9 million charge for the
impairment of long-lived manufacturing assets, negatively impacting the quarter and full year gross profit
and net loss from continuing operations.
• Gross profit was negative for the quarter compared to $7.6 million, or 43.9% of net sales for the fourth
quarter of 2015.
• Fourth quarter net loss was $7.8 million, or $(0.67) per diluted share, compared to net income of $1.3
million, or $0.11 per diluted share in the prior year's quarter.
• Full year net sales of $31.0 million represented a decrease of 52% compared to 2015, primarily due to a
68% decrease in military maritime sales, partially offset by a 5% increase in commercial sales.
• Full year gross profit was 24.8%, compared to 45.5% for 2015.
• Full year net loss from continuing operations was $16.9 million, or $(1.45) per diluted share, compared to
net income of $8.8 million, or $0.82 per diluted share in the prior year’s same period.
• Exited the year with $16.6 million in cash and no debt on the balance sheet.
2016 Corporate Highlights
• Continued the delivery of TLEDs against initial contract with a large global healthcare system located in
Northeast Ohio, where we received additional TLED orders and expanded our sales to non-tube LED
lighting products.
• Received qualification, approval, and the first contract award for military LED lighting fixtures for new
U.S. Navy ship construction.
• Initial deliveries made to 91 new commercial customers in healthcare, education, government, industrial
and manufacturing, and retail sectors, increasing the total number of customers by 34% at the end of
2016.
• Announced key additions to the Executive Management Team, with Bradley White joining as CFO and
Ted Tewksbury as Executive Chairman of the Board.
• Announced its new 500D series tubular LED lighting products are the first in the U.S. verified by UL as
“Low Optical Flicker, Less Than 1%”.
• Expanded LED lighting retrofit product portfolio by introducing new products, including dimmable 500D
TLED products, T5 high-output TLEDs, LED-ready troffers, and industrial down lights; received
recognition for innovation by the Department of Energy’s Federal Energy Management Program (FEMP).
As previously announced, the Company is implementing a reorganization initiative during the first quarter of
2017 to achieve higher operating efficiencies and reduce its annual operating costs by approximately $10 million
from the level in 2016. The plan includes the expansion of Dr. Tewksbury’s role to also serve as CEO and
President, a workforce reduction of approximately 15%, consolidation of the company’s office facilities,
reorganization of the commercial sales force, integration of engineering and research and development teams,
reconfiguration of certain manufacturing lines, and reduction in administrative expenses and professional fees.
The Company expects to record a one-time restructuring charge of approximately $1.1 million in its first quarter
2017 associated with these actions.
Dr. Ted Tewksbury, Chairman, Chief Executive Officer and President, commented, “Our fourth quarter and full
year 2016 financial results were very disappointing, falling well short of expectations. Military maritime sales,
which represented 80% of revenue in 2015, dropped significantly in 2016 due to a slowdown in demand and
excess inventory at our distributor. Facing continuing demand uncertainty and a changing competitive landscape
for our military Intellitube®, we wrote down inventory and equipment values to reflect our expectation that these
sales will not be significant going forward.”
“Since joining Energy Focus as Executive Chairman in December, I have been working closely with our Board of
Directors and executive team to formulate a strategy to return the Company to profitable growth. First, we are
implementing an enterprise-wide restructuring plan that will reduce our annual operating costs by approximately
$10 million per year. Second, we will rejuvenate revenue growth through a five-point strategy consisting of 1)
focusing our commercial business on healthcare, education, and large commercial installations which value our
unique performance advantages, while exiting commodity markets, 2) diversifying our military maritime business
into other demanding segments such as the coast guard, commercial shipping, heavy industry, and hazardous
environments, that share the military’s requirement for the longest lifetime, highest quality, and durability, 3)
expanding our solutions portfolio with new product categories such as fixtures, troffers, and luminaires, 4) adding
electronic content such as controls, connectivity, and sensors to address the increasing convergence between
lighting and the Internet-of-Things, and 5) transforming our sales force into a highly effective, regionally-focused,
solutions-oriented team,” continued Dr. Tewksbury.
A further breakdown of net sales is shown below (in thousands):
Financial Results:
Net sales of $7.2 million for the fourth quarter of 2016 decreased 58% compared to the fourth quarter of 2015.
The decrease was due to a 52% reduction in commercial product sales, as well as a 62% reduction of sales from
our military maritime products for the U.S. Navy.
Gross profit for the fourth quarter of 2016 was negative $1.1 million, compared to $7.6 million, or 43.9 percent of
net sales for the fourth quarter of 2015. The decrease was due primarily to the write off of excess inventory of
$3.8 million as we evaluated stock levels needed to support 2017 operations and sales efforts.
Operating loss was $7.8 million for the quarter, including a $0.9 million charge for the impairment of long-lived
manufacturing assets, compared to operating income of $1.5 million in last year’s same period. Loss from
continuing operations was $7.8 million for the fourth quarter of 2016, or negative $0.67 per diluted share,
compared to income from continuing operations of $1.7 million, or $0.14 per diluted share, for the same period
last year. Net loss was $7.8 million, or negative $0.67 per diluted share, compared to net income of $1.3 million,
or $0.11 per diluted share.
Net sales for the full year 2016 were $31.0 million, a decrease of 52% compared to 2015. Commercial product
sales increased 5% as we continued to penetrate our targeted vertical markets of hospitals, higher education,
industrial manufacturers, and national retailers. Military maritime product sales decreased 68% as a result of
continued lower-volume sales to distributors for the U.S. Navy. Losses from continuing operations were $16.8
million in 2016, a decrease of $26.5 million compared to income from continuing operations of $9.7 million in
2015. Lower net sales and gross margins resulted in the diminished financial results. Additionally, the 2016 net
loss includes one-time charges of $4.0 million primarily related to the write off of excess inventory and
approximately $0.9 million related to the impairment of long-lived manufacturing assets intended for use in our
military maritime business.
At December 31, 2016, our cash and cash equivalents balance was $16.6 million, compared to $34.6 million at
December 31, 2015. Net cash used in operating activities of $16.6 million in 2016 resulted from net loss, adjusted
for non-cash items, including: depreciation and amortization, stock-based compensation, the impairment loss on
long-lived manufacturing assets, and the adjustment to the excess inventory reserve. Net cash used in investment
2016 2015 2016 2015
Commercial products 3,299$ 6,905$ 14,809$ 14,156$
Military maritime products 3,887 10,344 16,189 50,128
R&D services — — — 119
Total net sales $ 7,186 $ 17,249 $ 30,998 $ 64,403
Three months ended
December 31,
Year ended
December 31,
activities in 2016 was $1.6 million and consisted of the acquisition of property and equipment. Net cash provided
by financing activities for the year ended December 31, 2016 was $0.1 million.
Dr. Tewksbury concluded, “With a more streamlined, focused and agile operation we are confident that we will
be able to minimize our cash burn as we rebuild sales growth, and we are optimistic about our sales growth with
the vast number of opportunities we are seeing in our target markets.”
2017 Business Outlook:
Given the quarterly volatility in military maritime sales and the timing uncertainty in commercial sales growth, it
is challenging for us to provide quarterly revenue guidance at this time. Our focus is to control our operating
costs, so that we can reach profitability by the end of 2017. Once our revenue achieves a more predictable growth
rate, we will provide further guidance.
Earnings Conference Call:
Energy Focus, Inc. will host a conference call and webcast on February 23, 2017 at 11:00 a.m. ET to review the
fourth quarter and full year 2016 financial results, followed by a Q & A session. To participate in the call, please
dial 888-690-2876 if calling within the United States, or 913-312-0971 if calling internationally. A replay will be
available until March 2, 2017, which can be accessed by dialing 844-512-2921 if calling within the United States,
or 412-317-6671 if calling internationally. Please use passcode 5192928 to access the replay. The call will
additionally be broadcast live and archived for 90 days over the internet accessible in the Investors portion of the
Company’s corporate website, under “Events and Presentations” at http://investors.energyfocus.com/events.cfm.
Forward Looking Statements:
Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Generally, these statements can be identified by the use of words such
as “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,”
“should,” “could,” “would” and similar expressions intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. These forward-looking statements include all
matters that are not historical facts and include statements regarding our current expectations concerning, among
other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, capital
expenditures and the industry in which we operate. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made,
we caution you that forward-looking statements are not guarantees of future performance and that our actual
results of operations, financial condition and liquidity, and industry developments may differ materially from
statements made in or suggested by the forward-looking statements contained in this release. We believe that
important factors that could cause our actual results to differ materially from forward-looking statements include,
but are not limited to: (i) our history of operating losses and our ability to effectively implement cost-cutting
measures and generate sufficient cash from operations or receive sufficient financing, on acceptable terms, to
continue our operations; (ii) our reliance on a limited number of customers, in particular our sales of products for
the U.S. Navy, for a significant portion of our revenue, and our ability to maintain or grow such sales levels; (iii)
the entrance of competitors in the market for the U.S. Navy products; (iv) general economic conditions in the
United States and in other markets in which we sell our products; (v) our ability to implement and manage our
growth plans to diversify our customer base, increase sales, and control expenses; (vi) our ability to increase
demand in our targeted markets and to manage sales cycles that are difficult to predict and may span several
quarters; (vii) the timing of large customer orders and significant expenses, and fluctuations between demand and
capacity, as we invest in growth opportunities; (viii) our dependence on military maritime customers and on the
levels of government funding available to such customers, as well as funding resources of our other customers in
the public sector and commercial markets; (ix) market acceptance of LED lighting technology; (x) our ability to
respond to new lighting technologies and market trends, and fulfill our warranty obligations with safe and reliable
products; (xi) any delays we may encounter in making new products available or fulfilling customer
specifications; (xii) our ability to compete effectively against companies with greater resources, lower cost
structures, or more rapid development efforts; (xiii) our ability to protect our intellectual property rights and other
confidential information, manage infringement claims by others, and the impact of any type of legal claim or
dispute; (xiv) our reliance on a limited number of third-party suppliers, our ability to obtain critical components
and finished products from such suppliers on acceptable terms, and the impact of our fluctuating demand on the
stability of such suppliers; (xv) our ability to timely and efficiently transport products from our third-party
suppliers to our facility by ocean marine channels; (xvi) our dependence on distributors and sales representatives,
whose sales efforts may fluctuate and are not bound by long term commitments; (xvii) any flaws or defects in our
products or in the manner in which they are used or installed; (xviii) our compliance with government contracting
laws and regulations, through both direct and indirect sale channels, as well as other laws, such as those relating
to the environment and health and safety; (xix) risks inherent in international markets, such as economic and
political uncertainty, changing regulatory and tax requirements and currency fluctuations; (xx) our ability to
attract and retain qualified personnel, and to do so in a timely manner; and (xxi) our ability to maintain effective
internal controls and otherwise comply with our obligations as a public company.
About Energy Focus
Energy Focus is an industry-leading innovator of energy-efficient LED lighting technology. As the creator of the
first, and so far only, UL-verified low-flicker LED products on the U.S. market, Energy Focus products provide
extensive energy and maintenance savings, and aesthetics, safety, health and sustainability benefits over
conventional lighting. Our customers include U.S. and foreign navies, U.S. federal, state and local government,
healthcare and educational institutions, as well as Fortune 500 companies.
Energy Focus is headquartered in Solon, Ohio, with additional offices in New York, NY and Taipei, Taiwan. For
more information, visit our website at www.energyfocus.com.
###
Contact:
Energy Focus, Inc.
(440) 715-1300
ir@energyfocus.com
Darrow Associates, Inc.
Peter Seltzberg, Managing Director
(516) 419-9915
pseltzberg@darrowir.com
December December 31,
2016 2015
ASSETS
Current assets:
Cash and cash equivalents 16,629$ 34,640$
Trade accounts receivable less allowances of $236 and $155, respectively 5,640 10,110
Inventories, net 9,469 7,732
Prepaid and other current assets 882 740
Total current assets 32,620 53,222
Property and equipment, net 2,325 2,429
Other assets 33 51
Total assets 34,978$ 55,702$
LIABILITIES
Current liabilities:
Accounts payable 3,257$ 7,295$
Accrued liabilities 498 355
Accrued payroll and related benefits 522 1,243
Accrued sales commissions 325 1,005
Accrued warranty reserve 331 314
Deferred revenue — 93
Total current liabilities 4,933 10,305
Other liabilities 107 77
Total liabilities 5,040 10,382
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share:
Authorized: 2,000,000 shares in 2016 and 2015
Issued and outstanding: no shares in 2016 and 2015 — —
Common stock, par value $0.0001 per share:
Authorized: 30,000,000 shares in 2016 and 2015
Issued and outstanding: 11,710,549 at December 31, 2016
and 11,648,978 at December 31, 2015
1 1
Additional paid-in capital 126,875 125,369
Accumulated other comprehensive loss (1) —
Accumulated deficit (96,937) (80,050)
Total stockholders' equity 29,938 45,320
Total liabilities and stockholders' equity 34,978$ 55,702$
2016 2015 2016 2015
Net sales 7,186$ 17,249$ 30,998$ 64,403$
Cost of sales 8,258 9,678 23,321 35,111
Gross profit (1,072) 7,571 7,677 29,292
Operating expenses:
Product development 1,070 875 3,537 2,810
Selling, general, and administrative 4,790 5,210 20,113 16,830
Loss on impairment 857 — 857 —
Total operating expenses 6,717 6,085 24,507 19,640
(Loss) income from operations (7,789) 1,486 (16,830) 9,652
Other expenses (income):
Interest expense — 14 — 85
Other expenses (income) 11 (62) 18 (53)
(Loss) income from continuing operations before income taxes (7,800) 1,534 (16,848) 9,620
Provision for (benefit from) income taxes 5 (123) 27 149
(Loss) income from continuing operations (7,805) 1,657 (16,875) 9,471
Discontinued operations:
Loss from discontinued operations — — — (167)
Loss on disposal of discontinued operations — (373) (12) (534)
Loss from discontinued operations before income taxes — (373) (12) (701)
Benefit from income taxes — — — (10)
Loss from discontinued operations — (373) (12) (691)
Net (loss) income (7,805) 1,284 (16,887) 8,780
Net (loss) income per share - basic:
From continuing operations (0.67)$ 0.14$ (1.45)$ 0.91$
From discontinued operations — (0.03) — (0.07)
Net (loss) income per share - basic (0.67)$ 0.11$ (1.45)$ 0.84$
Net (loss) income per share - diluted:
From continuing operations (0.67)$ 0.14$ (1.45)$ 0.88$
From discontinued operations — (0.03) — (0.06)
Net (loss) income per share - diluted (0.67)$ 0.11$ (1.45)$ 0.82$
Weighted average shares used in computing net (loss) income per share:
Basic 11,696 11,630 11,673 10,413
Diluted 11,696 11,946 11,673 10,752
Three months ended
December 31,
Year ended
December 31,
2016 2015 2016 2015
Cash flows from operating activities:
Net (loss) income $ (7,805) $ 1,284 $ (16,887) $ 8,780
Less: Loss from discontinued operations - (373) (12) (691)
Net (loss) income from continuing operations (7,805) 1,657 (16,875) 9,471
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on impairment 857 - 857 -
Depreciation 250 85 805 266
Stock-based compensation 284 214 1,360 813
Provision for doubtful accounts receivable 147 22 156 39
Provision for slow-moving and obsolete inventory 3,831 11 3,990 1,464
Provision for warranties 60 (70) 170 255
Amortization of loan origination fees - (7) - 40
(Gain) loss on disposals of property and equipment 3 - 38 3
Changes in assets and liabilities:
Accounts receivable (714) (2,564) 4,313 (7,493)
Inventories 717 242 (5,727) (2,327)
Prepaid and other assets 185 (16) (123) 146
Accounts payable (90) 2,099 (4,035) 135
Accrued and other liabilities (628) 13 (1,389) 1,674
Deferred revenue - (11) (93) (40)
Total adjustments 4,902 18 322 (5,025)
Net cash (used in) provided by operating activities (2,903) 1,675 (16,553) 4,446
Cash flows from investing activities:
Acquisitions of property and equipment (149) (1,702) (1,624) (2,242)
Proceeds from the sale of property and equipment 25 - 27 -
Net cash (used in) provided by investing activities (124) (1,702) (1,597) (2,242)
Cash flows from financing activities:
Proceeds from warrants exercised - - - 2,503
Proceeds from issuances of common stock, net - (2) - 23,574
Proceeds from the exercise of stock options/ESPP 69 91 455 346
Repurchases of common shares - - (309) -
Payments on other borrowings - (13) - (13)
Net proceeds (repayments) on credit line borrowings - (2) - (453)
Net cash provided by (used in) financing activities 69 74 146 25,957
Effect of exchange rate changes on cash - - 5 -
Cash flows provided by (used for) cont ops (2,958) 47 (17,999) 28,161
Cash flows provided by (used for) disc ops - operating - (554) (12) (691)
Cash flows provided by (used for) disc ops - investing - 627 - 181
Cash flows provided by (used for) disc ops - financing - (446) - (446)
Net (decrease) increase in cash and cash equivalents (2,958) (326) (18,011) 27,205
Cash and cash equivalents at beginning of year 19,587 34,966 34,640 7,435
Cash and cash equivalents at end of year 16,629$ 34,640$ 16,629$ 34,640$
Classification of cash and cash equivalents:
Cash and cash equivalents 16,287 34,527 16,287 34,527
Restricted cash held 342 113 342 113
Cash and cash equivalents at end of period 16,629$ 34,640$ 16,629$ 34,640$
Three months ended
December 31,
Year ended
December 31,