Greetings welcome to the Energy Focus, Fourth Quarter and Fiscal Year End 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conferences being recorded. I'll now turn the conference over your host, Brett Maas with Hayden IR, you may begin.

Thank you operator and good morning everyone, joining me on the call today as Steven Socolof, Interim Chief Executive Officer and Lead Independent Director, Tod Nestor, Chief Operating Officer and Chief Financial Officer and Greg Galluccio, Senior Vice President of Product Engineering. 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 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 10-K filed with the SEC. 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 measures are presented on both GAAP and non-GAAP adjusted basis. 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 @energyfocus.com, in the Investor Relations section of the site. I'll now turn the call over to Steven. Steven, the floor is yours.

Thank you, Brett. Good morning, everyone. This is my first call as interim CEO of Energy Focus, but I have been involved with the Company for over two years first joining the Board of Directors in May of 2019 and then becoming Lead Independent Director in September, 2019. During that time, I have become quite familiar with the opportunities and challenges in front of Energy Focus and the talented team that remains in place. The management and engineer team at Energy Focus has historically been entrepreneurial driving innovation and using creativity to bring new, compelling, and proprietary solutions to market. As a result, the Company developed a strong portfolio of differentiated products, as well as bringing a broader product line to market that allowed the Company to offer more complete solution to customers in the retrofit lighting market. Unfortunately, the environment of the last couple of years challenged both our markets, as well as the pace of development of our new product portfolio, which you have seen in our results. Now with the near completion of several exciting new products, we believe represent clear, differentiated advantages. The Board determined that Energy Focused, needed leadership, more focused on execution in launching and bringing these new products to our core markets and capitalizing on these near-term opportunities. In short, we expect we have the products and the team to succeed, and we are aligning our resources on these opportunities to rebuild a durable, competitive advantage in our lighting business. My focus in the near-term will be number one, supporting the team, executing on these initiatives. Number two, ensuring the disciplines and business processes to make sure we hit our launch and go to market plans. And number three, focusing on cash management and putting the Company on a path to profitability. My…

Thanks, Steve. And I'm excited to join Energy Focus. Energy Focus has for years carved out a position as an innovator in the lighting industry, bringing exciting technologies to market and, and unique requirements of certain customer segments. The red cap emergency lighting system is a great example of this bringing important reliability and functionality to key commercial and military markets. My goal at Energy Focus is to expand on this legacy, driving further innovation and R&D processes to of the addressable market. I will also oversee product management, ensuring strong business discipline across the entire product life cycle. With respect to new products, first, we are developing the next generation of our red cap battery backup emergency lighting product with additional features that we expect will continue to diff in the marketplace. This has traditionally been one of our highest demand products supported by our broader lighting portfolio. And we expect this to enhance our position in the retrofit tube market. Next, our innovative and patented and focused power line control technology is the second pillar of the portfolio put simply we can add hardwired, digital diming and color tuning control to any lighting circuit without additional control wiring. We believe this is a disruptive solution for our market. We are now readying the launch of a broader portfolio of products built around this technology earned 2021. And for the second consecutive year, Energy Focus won the 2021 top product of the year award from environment and energy leader. For our end focus lighting control platform. This prestigious accomplishment is a strong validation of the innovation and potential impact of our focus solution from expert judges that consider the end focus platform. A top example of breakthrough work in energy and environmental management; with this portfolio, we believe we can bring reliable network lighting control into commercial applications where concerns about security, reliability, or car cost preclude the use of wireless solutions. And we can offer cost effective and user friendly human wellness, lighting to hospitality spaces and homes, especially new home construction. And with that, I'll turn the call back to Steve.

Thank you, Greg. We expect this strategic refocusing and the associated initiatives to take a few quarters to deliver results. Work is well underway and I am encouraged by the progress while we continue to work through some market and supply chain challenges. We believe we are well poised to grow revenue and see results over the next few quarters. We look forward to telling you more at the end of the second quarter and realize more meaningful contribution in the second half of this year in the form of increased sales. With that, I will turn the call to Tod to review our fitting natural performance for the quarter and the year. Tod?

Thank you, Steve net sales of $2.4 million for the fourth quarter of 2021, decreased 35.8% compared to sales of $3.7 million in the fourth quarter of 2020 driven mainly by a decrease in military sales. Okay. Compared to $2.7 million in the third quarter of 2021, sequential net sales were down slightly due to a decrease in commercial product sales. Sales of our commercial products were $1.2 million or 48.6% of total net sales for the fourth quarter of 2021 flat is compared to the fourth quarter of 2020, reflecting the impacts of the COVID-19 pandemic due to fluctuations in the timing, pace and size of commercial projects, Sales of our military products decrease mainly due to the continued delays of government funding availability for certain projects and the continued delayed timing of orders. The year-over-year decrease also reflects the impact of a large order that was shifted from third quarter of 2020 into the fourth quarter last year, providing a one-time boost for the quarter revenue gross profit for the fourth quarter of 2021 was $0.2 million compared with $1.4 million in the fourth quarter of 2020, a decrease of 86.8% year-over-year As a percentage of revenue gross profit margin was 7.9% in the fourth quarter of 2021 compared to 38.3% in the fourth quarter of 2020, the year-over-year decline in gross margin was primarily driven by less leverage of our fixed cost due to lower sales levels, sales product mix, primarily the margin impact from decreased military and maritime market product sales and unfavorable inventory reserve adjustment of $0.2 million or 9.5% of net sales. These negatives were offset slightly by favorable pricing and usage variances for material and labor of $0.2 million or 7.4% of net sales in 2021 adjusting gross profit margins for excess and…

Thank you. And at this time we will be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Amit Dayal with HC Wright. Please proceed with your question.

Thank you. Good morning, everyone. And I appreciate all the changes in developments taking place at the Company at this point, just a high level question for you guys, I guess, the product lineup has always been pretty strong, but we haven't had much take on the commercial side of these things. what are you thinking of doing different that maybe you have not done in the past to maybe accelerate those efforts, any color on that would be helpful. Thank you.

This is Steve Soloff speaking and nice to meet you, Amit. Thank you for your question. I'll give you a partial answer and I'll let Greg provide some additional color as well. I think this Company has traditionally been a very innovative and, and product oriented Company, and that's what built its strength over the last years. But over the last couple of years there were some great products that were in development that took longer than we'd hoped to bring to market and put a lot of effort at, in the last few quarters. And that's why we're happy to report today. The coming launch of both the new, our new red cap, emergency lighting product, as well as our in focus, power line control products. So we're really excited about these two new products lines that we're bringing to of the market. And we are, we've restructured the organization, realigned engineering and operations, and changed the way we work with our supply base. That all of which I think will facilitate the future development cycles and, and bringing new products to market.

Hi, this is Greg Galluccio. I'll just add a little bit of color to that. As we are launching these products a lot of the benefit that comes from the innovative products is additional pull through on the the standard lighting products that we also offer. We've stepped up our efforts in, in terms of product management and our talent in product management and as such, we're reducing our costs on those products that are supplied from outside and increasing our visibility across sales channels of the products that we'll pull, pull through along with the new products. So I think we have the opportunity to really expand all of our sales, not just the new product sales as well.

Understood, thank you for that. And, maybe for Steve, just trying to see how much time you maybe sort of, of, giving to accomplish, these, these goals and if not, I mean, is there any other strategic alternative on the table or consideration in terms of M&A, or, even a sale of the Company to a larger player?

Yeah, I was putting in significant time with the Company as lead independent director over the last year. And so obviously I'm increased my commitment taking on the interim CEO role as we separated our prior CEO. So I'm, I am putting in significant time working with the, the executive and leadership team which as I mentioned, we've reorganized the team and the way we operate to drive more accountability and responsibility into the organization. And I think it's really improving the discipline and the organization's ability to perform. We are big believers in the lighting business and very committed to the new products and the growth of, of that business, both in the commercial and military markets. And a, of course, we're excited to see the launch of the nUVo product line as well, and, and what we think that can bring to Company. So we are very committed to organic growth at this point. And certainly we've, we've got some great advisors around the table as well with our two new Board members and we will, be open to, considering strategic options as we go forward.

Understood. That's all I for now. Thank you so much.

[Operator Instructions] Our next question comes from Bill Hardy, private investor. Please proceed with your questions

Good morning and welcome from Dallas Texas. And to Mr. Soloff, I wish you the, the best and good future with your new temporary Z appointment. I have two questions. One is on the ABR UV, which is with a UV lamp and two energy of the focus or, and focus lamps. It was the last conference call on the, the third quarter of 21 mentioned that they would be a avail that would be available in the first quarter of the 2022. You give me a status on where we stand on that that product?

We haven't been happy with the progress and the development of that product. The first samples really didn't meet our expectations. And so we've shelved that product for now.

So that that product is, is, is not being for than sometime in 2022.

It's not ready for sale now. And we're prioritizing in our R&D and operations organization, the launch of the red, new red cap and the in focus products, as well as the nUVo products. So I would say may or may not be launched in '22, but it's not a priority of focus right now.

Okay. There was also a comment that the a home and focus type product would be available also in the first quarter is that still on track or is that also in?

Yeah, this is Greg Galluccio. Yes. That product is completed. It's launching now. It is we expect to achieve revenue results from that product in the second half of the year.

Okay. Since Greg runs our engineering and, and product organizations, I'll let Greg answer about the trougher as well.

Yes. With regard to the trougher the there's a lot of proliferation throughout the commercial sector for these troughs. We don't see a lot of movement and there's also some confusion in the, in the market as to what makes a good UV and what makes a less effect one. And we want to make sure we come out on the correct side of that equation. So we're working with the the standards authorities and things like that, to make sure that when we do launch, if we launch a product like that, that it's, it will be an industry leader out of the gate.

And I'll just add this is Tod, what Steve and Greg said, our, our current prioritization on the UVC side is the more consumer applications of the nUVo traveler. That's the portable device that you might have seen as, as well as our nUVo tower. So, as Steve said, we're prioritizing our efforts on products that are ready for sale and, and offer the market opportunities we believe are attractive.

Okay. Major question two in the third quarter conference call, it was also indicated that there were two military contracts, which were process, but couldn't be released cause the budget hadn't been approved. I see recently where the budget has been approved. Do we still expect to see those contracts being released?

This is Todd again, Bill. We have not, we have not seen them released yet. We're in, we're in continuous community with the military about those orders. But they are standard products that there will be future opportunities as well. Our, our military business is primarily a made to order business about 90 to 95% of the sales are that, and with the products that were on order, there will be other opportunities and ships for us to bid on and win. In that regard, we are a recognized leader in the product that we are providing and we continue to do expect to remain that.

Yeah. Well, do you expect that the, those orders will, will be released or is that?

We don't have any new information for a new update on that as far as any indications of the budget being released?

Well, my impression was that the budget was released

Budgets are released in general specific applications or on a purchase by purchase category by category and so there's prioritizations that have been different than in the past currently.

Okay. All right. Well, that's all I have. Thank you for your time and answering my questions. I appreciate it.

And we have reach ended the question and answer session, and then I'll turn the call back over to Steve for close remarks.

Thank you all for listening today and appreciate the opportunity to, to tell our story. And we look forward to visiting you again in a quarter and giving you the updates on Q1 and, and progress through the year. Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.