Greetings. Welcome to the Energy Focus, Inc. Second Quarter 2023 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Lesley Matt, Chief Executive Officer. Thank you. You may begin.

Thank you, operator, and good morning, everyone. 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 10-Q 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 release, certain financial metrics 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 at energyfocus.com in the Investor Relations section of the site. Now to the presentation of our Q2 results. I am turning the bends in the home stretch of my first full year as CEO of Energy Focus, and I have not lost sight on my main objectives since joining the organization. The company has been feverishly working towards getting back to its core markets of military maritime and commercial and industrial lighting and controls products, securing the necessary capital, working through significant supply chain constraints in the legacy inventory position and massive cost cutting and rightsizing that pushed the company forward. Although there is still a long way to go, I believe that the second quarter of 2023 results that I'm sharing today are showing progress towards an increase in sales, improving margins, all while controlling costs. I continue…

[Operator Instructions] Our first questions come from the line of Sameer Joshi with H.C. Wainwright.

Great. Congrats on the continued turnaround. Nice to see margins come through as well. So let me start with there. Do you expect, as more RedCap inventory comes in, that the gross margin will improve from what you saw in 2Q, 17% going up to, say, some of the historical levels seen in 2020?

Thank you, Sameer, for your question, and I hope you're doing well today. Although we do not provide guidance, I do believe that as we continue to get fresh supply of both RedCap and new products that we will continue to improve our gross margin percentages. I know that's one thing that I've been committed to do, is to improve our overall revenues and our gross margin. And I do foresee it going up. However, I can't provide great guidance on where it will end.

Understood. That's fair. Just digging a little bit in this -- on this inventory. Is that also a bottleneck for sales in terms of -- is -- are your orders mainly for the new RedCap and other products as against the inventory that you already have on the books? How should we look at the sales ramp and inventory going forward?

Sure. So as we look at sales and inventory going forward, RedCap is what I like to call our lead horse in the race, and it pulls along a lot of our other inventory on the commercial side of our business. So as we have healthy stock of RedCap and as we focus so much on our RedCap product, it allows us to pull through some of our other WhiteCap or other more generic product categories because it allows us to offer our customers a fuller basket of products. So as we look at our inventory and where we're at today, the ability to pull through some of the items that we still have on hand at a higher level is all dependent on ensuring that we have our RedCap in stock. Additionally, I also pointed out our EnFocus switches. Being able to have our EnFocus switches will allow us to sell a healthier level of our EnFocus tube products, which we also have a good inventory level in stock today. So as those products become available in future periods and we have healthier stocking positions and inventory levels, then we anticipate our sales channels to drive better demand and push that through.

Understood. Got it. On the -- specifically on the MMM pipeline, how much visibility do you have in terms of securing orders to, say, within the next 2 to 4 -- 2 to 6 quarters, getting at least to revenues seen in 2022 on an annual basis?

Great question. We do have inventory pipelines and have booked orders going through -- I think our -- yes, Q2 of 2024 today. As we continue to build back that channel and build the demand in that channel, we believe that we'll have better visibility out through future years and future periods. And that will -- and not only our demand in, let's say, Q3, Q4 but into future years. So as we can -- if you recall, about a year ago, the company hired a new military sales leader, and that person has essentially rebuilt that entire pipeline in channel in the past year. Those sales are longer lead, longer lagging, and we continue to see additional orders within those channels. So although we don't have clear visibility where it will go in the next 6 quarters per se, we're getting a better sight and a much, much healthier pipeline quarter-over-quarter.

Understood. And then just last one -- or actually just a couple more. Commercial revenues are making a comeback slowly. Should -- I mean is that a part of your revenue growth strategy going forward? Or how much part would that play? Because I know military seems to be in a good shape for now. But on the commercial front, should we expect to continue sequential increases in revenues?

Absolutely. As we look to bring in healthier stocking levels on our commercial side, we anticipate growing our revenues within that side of the business. I -- that's the side that I'm continually looking to tweak and ensure that we are driving the business forward in. And with new stock and new RedCap to go out, to go out to show customers, I believe that we'll be able to drive that business forward even more.

Understood. And now the last one. And this is not a significant item, but just was wondering product development costs, relatively flat or just is a bit lower. When should we expect these to turn back on? Like as sales increase, would you start investing more in R&D and product development?

Yes. As we continue to drive our top line revenue, that's where we hope to have a healthier balance in that area and be able to continue that tradition of having new products and innovation. So I do see a small increase in the future. However, we're looking to ensure that it doesn't get out of line with where our top line revenues are.

There are no further questions at this time. With that, I would like to thank you all for your participation. You may disconnect your lines at this time. I hope you all have a great day.