Energy Focus, Inc. (EFOI) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Energy Focus Third Quarter Fiscal Year 2020 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] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Maas, with Hayden IR. Thank you. Bret, you may begin.

Thank you, operator, and good morning, everyone. Joining me on the call today is James Tu, Executive Chairman and Chief Executive Officer; and Tod Nester, President and Chief Financial 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 discussion under the heading Risk Factors on our most recent 10-K, as well as forward-looking statements in our most recently filed 10-Q 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 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. I'll now turn the call over to James. James, the floor is yours.

Thank you, Brett. Good morning, everyone, and thank you for joining our third quarter 2020 earnings conference call. During the third quarter, we continued to execute our strategic growth and operational plans besides the business and economic challenges we are all facing as a result of the global pandemic. Aided by our strong military sales, our revenue came in within the forecasted range even as we continued to experience COVID-related challenges in the commercial lighting retrofit market, where most facility managers and building owners were withholding or postponing capital spending decisions and upgrading the lighting of existing buildings due to extreme uncertainty on occupancy and budget outlook. The pandemic also continued to cause disruption and delays on our supply chain logistics for select components and [cost on] revenues to be deferred. That said, despite of the unprecedented challenges in our commercial lighting business since March of this year, our sales for the first nine months of 2020, sales grew 42.6% from the same period a year ago before, while we reduced our operating loss from $5.8 million to $3.2 million. The significant financial performance improvement was primarily due to our strengthened positioning and increased contract wins in our Military and Maritime business as we develop more competitive products. And the financial progress was made despite the once in a century pandemic that emptied most buildings since March of this year, and on top of our strong R&D and engineering accomplishments by successfully developing and launching the groundbreaking award winning in-focus lighting control platform in the second quarter of this year. Furthermore, since the beginning of this year, we devoted significant amount of engineering and product management resources to develop a whole new portfolio of UV disinfection products, now we just announced in October. Clearly our restructuring and re-launch plans that were put in place in the second quarter of 2019 have transformed the company into a high performing entrepreneurial, innovative and fast-moving organization that can achieve exciting growth, despite of an extremely challenging external environment. Most specifically on the third quarter, our sales, which grew 104.6% from a year ago was driven by continuing growth of our military sales, including the military Intellitubes shipment from the $3.4 million contract award we received in the beginning of the year. Our positioning in the navy lighting market continues to strengthen and sales and [quoting] activities remained much stronger than a year ago with nine months year-to-date military sales up 165.5% over the prior period. While on a short-term basis, we expect normal seasonal pattern in the military sales to persist with our fourth quarter military sales declining sequentially after the high watermarked third quarter aligning with the end of the [indiscernible] fiscal year, we continue to make progress in growing our military sales and increasing our market share. During the quarter, as we announced in the press release dated September 15, we were awarded another exclusive U.S. Navy contract valued at up to $4.8 million over five years to supply their Navy, our large LED globe light, which use approximately 80% less energy than the legacy incandescent lights that the ships have been using. In addition, we received an initial contract to supply our lighting product to new [lending craft] for a new U.S. Army ship platform. And in October, we won the first award of a new IDIQ contract to supply our [indiscernible] product to the Navy valued at more than $800,000. These significant wins in the new ship construction market demonstrate that Energy Focus is becoming the go-to-LED lighting supply for the broader U.S. military eco-system. Notably, the DOD announced, in last September, its aggressive modernization plan to grow the naval fleet by more than 20% from [290] ships today to approximately 355 ships in the next 10 years to 15 years. And we look forward to being a key LED lighting partner for the Navy in these major military initiatives. Outside of the military market, we also made progress in the government state by moving forward with tapping into the government market with our GSA contracts that we received in September. We're expecting our products to be available online on the GSA website in December for federal agencies, which together occupy over 361,000 buildings to [view and purchase]. We believe that these incremental, yet, significant opportunities coupled with our growing line of [indiscernible] America products, will continue to expand our reach, contribute to our growth and establish our leadership in the lighting market in the broader government sector. It is also important to note that the size of the chosen headwind we encounter in our commercial business, the company continued to move forward in laying the foundation for long-term growth through our expanding R&D effort. During the quarter, we continued to expand our human-centric lighting product portfolio that we expect to be the core engine of our growth in the years to come. Our lighting technologies, many of which, Energy Focus is dedicated to developing are poised to make significant and growing impacts on human safety, health and productivity, in addition to environmental sustainability. In addition to continuing development efforts on extending our EnFocus platform capabilities and product offerings, subsequent to quarter-end, we launched our advanced ultraviolet or UVC disinfection portfolio of products, which are designed to destroy 99.9% or more of various pathogens, including influenza and coronavirus in the air or on services to improve indoor hygiene and sanitation. The initial product includes three complimentary products. First, abUV, an integrated circadian lighting and UV disinfection troffer. Second, nUVo, an air disinfection power. And third, mUVe, an autonomous disinfection robot. These products meet the various needs of air and surface disinfection for commercial industrial and residential indoor environment while working on other offerings in the portfolio as well. Now, we'll follow and further strengthen what we believe is one of the most compelling UVCD solution offerings on the market. This portfolio of products, which we believe are highly competitive and affordable with the potential to help facilities of all kinds, established disinfection routine in the post-COVID world, exemplifies our ability to innovate and move quickly to address the rapidly emerging need for impactful, reliable and affordable disinfection products for businesses and homes. Since the product launch, we have received enthusiastic feedback from both our existing and new channel partners. And we're working aggressively to build and expand our distribution network for the UVCD product, which are scheduled to start deliveries in the first quarter of 2021. Importantly, we believe that the UVCD product line opens up a whole new disinfection market for us, which Credit Suisse recently estimated as $35 billion in the U.S. alone, based on an average of $70,000 of addressable opportunities for commercial building. While it's still a little early to make predictions on the magnitude of potential revenues from the UVCD product line, we believe it could be a meaningful revenue booster in offsetting the temporary demand witness from the lighting retrofit market, and a key contributor to our growth and enhanced profitability in 2021. And strategically speaking, with these products, we have expanded from general lighting to address the broad healthy building market. Building additional needs for our customers, significantly increasing our total addressable market and positioning and is focused at the forefront of what is likely to be a second wave of demand, quality and affordable space, and surface disinfection. In the commercial lighting marketplace, as we mentioned in both our second and third quarter earnings releases, the main weakness persists, primarily due to unprecedentedly low occupancy in commercial buildings, schools, and universities, due to COVID-19 and the overall slowdown in what might be considered non-essential building improvement upgrades and retrofits during a global pandemic. However, we remain cautiously optimistic that once the return to commercial spaces accelerate and capital spending resumes, particularly when effective vaccine are widely available, we are well-positioned with a portfolio of innovative and compelling products that will enable us to capture a meaningful share of that pent-up demand led by our EnFocus platform. We continue to receive positive feedback, as well as early orders on our focus lighting control products. Though the immediate demand obviously isn't at the level we would like to see, due to the generally muted activities in lighting retrofits. And new lighting product adoption is particularly challenging with remote working. As economic activity resumed in the coming months, with the focus in UVCD products, we now can bring broader financial, environmental, and [Q1 impact] of the company and become a more substantial partner for our customers by providing both cutting edge LED lighting and UV lighting disinfection solution. Looking ahead, in the near term, there is a significant amount of uncertainty and volatility on older flows, as well as supply chain logistics. Therefore, as we lay out in the earnings release this morning, while we are still expecting to grow, continue to grow year-over-year for the fourth quarter of 2020, we are suspending our quarterly financial guidance for now and we will resume forecasting once these external factors are more stable and predictable. As the visibility improves, we will revisit and potentially resume specific financial guidance. We understand that not being able to provide short-term financial feasibility could be frustrating from investor's perspective. That said is simply will not be prudent for us to provide specific guidance on our top line sales when they are still subject to multiple significant and uncontrollable forces. I do hope that if you are like me, as a long-term investor in energy focus, you will be more optimistic and excited than ever about the company's prospects. Given the stabilization, transformation, and renewed growth the company has demonstrated so far over the past 12 months, as well as the exciting groundbreaking new products we launched this year alone. In other words, significantly expand our addressable U.S. and global market and elevate our growth momentum in the quarters and years to come. With that, I will turn the call to Tod Nestor to review our financial performance during the quarter. Todd?

Thank you, James. Net sales for the third quarter of 2020 were $6 million compared with 2019 third quarter net sales and $2.9 million, an increase the 104.6% year-over-year. The year-over-year increase in net sales was primarily driven by an increase in military sales, which included both higher volumes and a shift in the timing of a portion of a certain Military Order shipment from the second quarter to the third quarter of 2020, which we discussed during our second quarter earnings call. When compared to 3.3 million in the second quarter of 2020, net sales were up 78.8% on a sequential basis, due in large part to timing between the second and third quarters. To provide clear context on the timing impact, second and third 2020 aggregate military sales were $6.8 million, compared to $2.1 million for the combined second and third quarters of 2019, a 218.1% increase. So, you can see the third quarter increase is a military sales are not solely the result of timing. Sales to our Top 10 customers for the total company increased 128.6% and sales to our Top 20 customers increased 117.2% each, compared to the third quarter last year. From the mix perspective, in the third quarter, military sales were 4.5 million, representing 75.6% of total net sales, compared to 1.2 million, or 40.5% of total net sales for the third quarter of 2019. The year-over-year increase in military sales is primarily due to increased sales to four of our top 10 customers, compared to the third quarter of last year and with one particular customer and military supplier representing most of the increase. Sales to commercial customers were 1.5 million in the third quarter representing 24.4% of total net sales for the quarter, down from 1.7 million or 59% of total net sales during the third quarter of 2019. The year-over-year decrease in commercial sales was mainly due to overall softness in the commercial market that began at the onset of the COVID-19 crisis. And as James mentioned previously, we believe being deferred to a future date for an occupants returned to buildings. Sequentially net sales to commercial customers increased 37.6%, up from 1.1 million in the second quarter of 2020. This increase was primarily driven by sales from three of our Top 10 customers. Overall sales or Top 10 commercial customers increased 5% year-over-year, and sales to our Top 20 commercial customers increased 9.6%. Likewise, sales to our Top 10 military customers increased 276.2% and sales to our Top 20. Military customers increased 251.7% on a sequential basis for the second to third quarter of 2020. Gross profit for the third quarter of 2020 was $1.4 million, compared with $1 million in the year ago quarter, an increase of 33.9% year-over-year, that was driven by favorable pricing and usage variances from material and labor and changes in inventory reserves, which is more than offset by supply chain challenges that lead to unexpected additional manufacturing costs, related primarily to our military and maritime products and higher outbound freight costs. On a sequential basis, gross profit was up marginally by $33,000, compared to 1.3 million in the second quarter of 2020. As a percentage of revenue, gross profit margin was 23.1% in the third quarter of 2020, compared to 35.3% in the third quarter of 2019, and 40.3% in the second quarter of 2020. The declines were primarily due to the supply chain challenges I just mentioned, which degraded our gross margin by approximately 410 basis points in the quarter in the current quarter, as well as product sales next. Adjusting gross profit margins for excess and obsolete in transit and net realizable value inventory reserve resulted in non-GAAP adjusted gross margins of 24.6% for the third quarter of 2020, compared to 23.6% in the third quarter of 2019 and 33% in the second quarter of 2020. We continue to expect our gross margins to be in the mid-20s and the near term and begin to approach the high-20s percentage range as we introduce new products and make further improvements to our supply chain, and depending on our sales mix and inventory valuations, we may see some fluctuations quarter-to-quarter. Operating expenses in the aggregate in the third quarter of 2020 were $2.4 million or [30%] of sales compared to $1.9 million or 63.8% of sales in the year ago quarter, an increase $520,000 or 28.3% growth year-over-year, which was more than offset by higher net sales. The increase was primarily driven by increased payroll for headcount to support our growth initiatives in the sales and R&D functions. As we discussed last quarter, we have shifted to a targeted approach to reducing expenses within our SG&A line focused on various strategic sourcing initiatives. One of the first was our legal expense, and we have added a new in-house general counsel to our executive team, which we announced during the third quarter, and more recently completed a strategic sourcing project for legal services, which over the next year should help us reduce and better manage our legal expenses. Loss from operations during the third quarter of 2020 is $1 million, compared to a loss from operations of 833,000 in the third quarter of 2019, and then in a loss from operations of 929,000 in the second quarter of 2020. The increase in the operating loss in the third quarter of 2020 is primarily the result of supply chain challenges that James and I discussed earlier, as well as additional headcount. Aside from these temporary supply change challenges, our core operating business continues to improve, and we expect this improvement to be more apparent in our operating results moving forward. [While the operating] line, interest expense was 124,000, compared with $67,000 in the year ago quarter, and $80,000 in the second quarter of 2020. This increase was the result of an increase in borrowings under our new increased short-term credit facilities, which substantially increased the company's borrowing capacity and reduced its blended interest expense rate. Also, below the operating line, we have non-recurring expenses of $159,000 for the extinguishment of our formal revolving line of credit, which included $100,000 cash termination fee, and the write-offs of the remaining related non-cash acquisition cost of $59,000. These expenses were essentially offset by a positive non-cash adjustment to the fair value of outstanding warrants of $153,000 Net loss for the third quarter of 2020 was $1.2 million, or $0.35 per share loss per basic and diluted share, compared with a loss of $946,000 or $0.38 loss per basic and diluted share in the year ago quarter. Adjusted EBITDA, which excludes depreciation and amortization, interest expense, stock based and other incentive compensation, a loss of $150,000 related to extinguishment of debt and a gain of $150,000 related at fair value of warrants was a loss of $918,000 for the third quarter of 2020, compared with a loss of $780,000 in the third quarter of 2019, and a loss of $746,000 in the second quarter of 2020. Now, I'd like to turn to the balance sheet. As of September 30, 2020, we had cash of $2.6 million, compared to $350,000 at the end of 2019. The increase in cash was primarily due the issuance of new capital through the sale of equity in the first quarter, as well as increased borrowing. Total debt, excluding the warranty liability as of September 30, 2020 included short-term credit line borrowings of 2 million, outstanding notes payable of 192,000, and the PPP loan for 795,000 for total debt outstanding of $3 million. We had cash of 2.6 million as of September 30, 2020 resolving in net debt of approximately $400,000 at the end of the third quarter. This compares to 3.4 million in total debt as of December 30, 2019, which is comprised of short-term credit line borrowings of $715,000 convertible notes outstanding of $1.7 million, and notes payable of $1 million, netted against cash of $350,000, we had a net debt position of [$3.1 million] at the end of the year 2019. As a reminder, total availability is a measurement of our access to cash at any given point in time, and we believe is a much more relevant metric than simply looking at cash balance or even net debt on the balance sheet. While excess borrowing availability on our credit facility represents the difference between the maximum borrowing capacity of the credit facility and our actual borrowings under the credit facility. We increased our total availability from the third quarter of 2019 to the end of the third quarter of 2020 from $1.8 million to $4.9 million respectively, primarily as a result of additional capacity gained through our new credit facilities, the PPP loan we obtained and the equity offering. As of September 30, 2020, we had total availability of $4.9 million, which consisted of $2.6 million of cash and $2.3 million of excess borrowing availability under our credit facilities. Subsequent to the end of the third quarter, we submitted the required application documents to request loan forgiveness for the PPP loan of $795,000. On October 20, we submitted the loan forgiveness application to our corporate bank, which forwarded to the SBA, Small Business Administration for approval. The SBA has a 90-day review period and we are now waiting on the SBA’s decision. During the third quarter, we closed two new credit facilities with new lenders. The facilities consisted of two year inventory financing facility for up to $3 million and a two years receivable facility for up to $2.5 million. The net result was a significant increase in our current borrowing capacity with access to additional capital as we continue to grow our business. Importantly, we secured this added capacity while simultaneously improving our credit terms and lowering our all-in blended borrowing costs. In addition, one of the key benefits of refinancing our credit agreements is increasing the total availability under the new lines of credit. Total availability for Energy Focus as of September 30, 2020, was $4.9 million versus $3.9 million at Q2 fiscal 2020 and $1.9 million at the end of fiscal 2019. This increased borrowing capacity is critical to funding our future growth for our new as well as popular high turnover products and inventories such as EnFocus tubes and switches, our popular RedCap product and the UV disinfection products we will start selling in the first quarter of 2021. Accounts receivables were $3.4 million at the end of the third quarter of 2020 compared to $2.3 million at the end of 2019, an increase of more than $1 million on higher net sales, reflecting large shipments that occurred during September. Net inventories declined to $5.3 million as of September 30, 2020, compared to $6.2 million at the end of 2019. The decrease was due to our continued efforts to reducing slow-moving inventory, as well as prudence in ordering inventory needed for future sales and the conversion of components to finished and shipped goods for the military. Accounts payable increased to $3.1 million as of September 30, 2020, up from $1.3 million as of the end of 2019. This increase was driven in large part to buying inventory to support sales growth. Cash used in operations was $1.6 million for the first nine months of 2020. The net loss was $6 million inclusive of non-cash items such as depreciation, stock-based comp and $2.3 million charge change in fair value of the warrants. We generated cash from working capital of $4.5 million. $1.8 million was generated from accounts payable and $1.1 million from inventories, both driven by timing of inventory received. Cash used in investing was $171,000 as our capital spending requirements are not significant overall. Net cash provided by the financing activities was $4 million, driven by the – primarily driven by the equity raised in January. Our product warranty liability continues to remain manageable and not material. The combination and low failure rates of our tubes allowed us to continue to experience minimal costs for our warranties and still be able to afford to offer valuable 10-year and five-year warranties to our customers. As mentioned in previous quarters, Energy Focus’s hallmark quality remains a strong selling point for our products and is reflected in our ability to offer these warranties. In the current environment, I would like to provide updates of the impact on COVID-19 on our business. We continue to operate under our customized COVID-19 contingency plan at the company with employees that can alternatively work from plant or from their homes. James and I have already discussed the impact of COVID-19 on our commercial business, which we continue to experience. Importantly, we have developed solutions and workarounds for the challenges posed by the pandemic that impact our supply chain. However, as we outlined during the quarter, Energy Focus’ entrepreneurial spirit and ability to act quickly has allowed us to develop an offer compelling UVCD portfolio of products with more to come which will result in what we expect to be growth with new customers in new and emerging sector of the human-centric lighting market. The combination of our EnFocus platform and UVCD portfolio is a compelling value proposition for any commercial and industrial, healthcare and education provider in the United States, and frankly, for that matter the world. While there's no doubt that COVID-19 presents a lot of uncertainty for many businesses right now, Energy Focus’ DNA continues to be entrepreneurial, and we continue to innovate quickly and offer affordable, effective, and easy to install end-use products that customers’ demand. Human health and safety are two key objectives we are very focused on delivering our customers in the short, medium, and long-term, despite the challenges of COVID-19. With that, we would like to open the call to questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Amit Dayal with H.C. Wainwright. Please proceed with your question.

Thank you. Good morning, everyone. Appreciate you taking my question.

Hi, Amit. How are you?

Hey, good morning. Good. Thank you.

Good morning. Good morning. Just, you know, understandable that you are sort of removing guidance for now, but underneath that, James, you know, can you talk a little bit about how your commercial sales pipeline is shaping up? You know, the products and the technology behind it is very promising. I'm just trying to get a sense of, you know, what sort of catalysts are preventing larger order from materializing for some of these products?

Yes, I think, as we mentioned, the commercial lighting retrofit market is especially hard hit, because that's where, you know, a project could be called or delayed, as opposed to say new construction, where, you know, if you already have a very large project on going, you probably want to push to finish it anyway. But I think the new construction market will probably be hit the next, right. But most immediately, people can – you know, people don't have to upgrade their lighting right, not an emergency. It’s not an urgent item, especially when they are handling truly urgent matters, such as, you know, facility safety and also very unpredictable occupancy level. So, I think our overall commercial lighting business is just impacted by this very, very soft and unpredictable event right at this point. And it is true that EnFocus is very well received and we continue to be more and more optimistic that it will be the next generation lighting control platform for – you know, definitely for retrofit market, but potentially also for the new construction market because it's just so much simpler and environmental friendly. But remember, this is a new product. It needs to be introduced in the market. People are, you know, our agencies, distributors, they're excited about the product. They are specifying our product into new projects. The issue is new projects are not necessarily there, right, to be, you know, in terms of having a clear timeline. I think that's the challenge [indiscernible] being a new product and especially knowing that, you know, most people are working remotely now, it's very hard to actually introduce the product face-to-face. This is a very [indiscernible] product. You see how the product works by really looking and feeling it. And we've been trying to do that through, obviously, you know, Zoom calls and all that. But for people to make decisions moving forward, it’s particularly challenging for new products. But this is why we said that, you know, the UV product is important for us to fill the gap on a temporary basis when the lighting retrofit market is still pretty uncertain, pretty cloudy at the moment. So, we are definitely seeing the demand there. And as we said, you know, our first, you know, the orders of EnFocus have been shipped and we continue to receive really good feedback about the product and it all depends on when the commercial lighting retrofit market could really start coming back, we're hoping in the next, say, three months to six months when people are starting to return back to more normal activity. And this is part of the reason why we are suspending the [financial guidance] because all these pipelines we have seen today, there's just not enough certainty for us to say, yes, this is going to come this quarter. That's the kind of risk we're running, right. We – you know, going into the third quarter, we would expect that we definitely hit the range of $6 million to $7 million, even at the higher end. But in the end, we come in at the low-end of the guidance, right. And we don't want to repeat that. You know, and we say that pretty clearly, you know, with the combination of the order uncertainty in terms of timing and the supply chain logistics, those are the two factors that are still overhanging today.

Understood. And I know you started sort of sales with the UV products very recently. Any color [multiple speakers]?

We didn’t start selling. We just – we only introduced them. We haven't started selling. We’re starting delivery in the first quarter. Yes, and only in the first quarter. We obviously – I mean, we obviously started marketing it, right. We started talking to our customers; we're not taking orders yet.

Understood. Understood. Thank you for that. And then, you know, the military sales continues to be sort of a backbone of your revenues.

Yes.

Looking sort of a little further out into 2021, are you anticipating sort of year-over-year growth for the military sales in 2021, you know, with the visibility you have? I know, you're not providing guidance but just [indiscernible].

Sure, sure, sure. Yes, right. Obviously, still [the hard tail] is 2021. This is the first quarter of the, you know, [government's] fiscal year, right. But what we can say is that, given the order rate and the contract wins we have been experiencing, and, you know, throughout this year, we – you know there's no reason for us to expect the military sales not being strong next year. Now, if your question is going to be growing from this year, this year is poised to grow what 200% over last year. So, I want [indiscernible] but based on the overlays and consequences we’ve been experiencing, I will say that it will be a strong year next year. And as I mentioned in the – earlier in the earnings call, you know, the defense spending seems to be increasing and the huge modernization plan by the Navy is going to bring pretty large opportunities in the coming years. And so, from the market demand side and from our competitiveness side, I think both are on the positive side, so…

Right. Understood. Yeah James, that's all I have. Thank you so much.

Thank you, Amit.

Thank you. Our next question comes from Aaron Martin with AIGH Investment Partners. Please proceed with your question.

Hi. Good morning, James. Good morning, Tod.

Hey, good morning, Aaron. How are you?

Good morning, Aaron.

Doing well. Can you talk a little bit about, obviously, the UV launches and the strategies there? And I sort of want to differentiate between the commercial side of it and the consumer side of it because it's really two different products. And then, you know, what can you tell us about since the launch? And obviously, you do have a pre-order capability, which is nice on the working capital side. Like, what have you seen there from the pre-order side of things?

Yes, the – yes, we decided that the pre-order might not be, you know, the way to go because we are not delivering until January. And so, we actually are not focusing on the pre-ordering of the product. On the other hand, we have started selling to basically, you know, our customers – we’re introducing the products to our customers, channel partners and we are organizing – we've been organizing the – I would say, you know, for the company, major marketing campaign, starting in December for the consumer product. The consumer products so far has got pretty good responses based on our, you know, own surveys of, you know, context and all that. So – and we believe that, as we start launching in December, we'll get more concrete indication of the interest. This is why we have the soft launch in October just so that as a public traded company, we can start talking publicly about these products and we’ve got, so far, we’ve had pretty good feedback on the product. Obviously, people want to see the product and we're going to start shipping our samples in December, before the delivery in January. So, I would say in December, we'll get more concrete indication about the actual [indiscernible]. So far, based on our feedback we received, it’s shaping to be an exciting product. And the other thing to say is that you're talking about the difference between the commercial product and the residential product, so mUVe is the product – is the UV disinfection power. That product was designed for [homes and] commercial use for small offices, right, conference rooms, and all that and individual personal use at home, residential uses. The impact to our sales could be faster on the residential side, as you can imagine, right? You know we can reach out to the individual customers directly these days through social media and marketing campaigns, while the institutions will usually take a bit more time to make the decision. So, there's a chance that the product mUVe will have, you know, faster contributions to our sales than the other two products. And, obviously, we are so excited about the other two products and we will be [indiscernible] production samples in other two products in December. And our goal is to continue to expand our marketing efforts and expand our channel partnership networks. We realized that UV product while our existing lighting agencies and distributors and actual distributors are sure to sell that product, there are also specialty distributors that could carry the UV products that we’re expanding into.

Okay, thanks for that. I guess, when it comes to December, given number of like, you know, prototype units that you think you're going to be able to get on the hands of your customers in terms of number of distributors and stuff like that I can get [indiscernible] at least the commercial units to get their hands on?

Yes. Well, we’re going to have a couple hundred samples that we can send out. You know, so that's the plan. We're going to have a couple of robots that we're going to be, not necessarily sending out samples, but testing and piloting [indiscernible] in some facilities, that’ll be going to be happening in December.

No, I mean, in terms of the robots, is that a third kind of distribution channel just because it's a different kind of sales, the high ticket price item?

Yes.

[Indiscernible] facility?

Right, good question. So, the robot is a high priced item and we believe – we're actually very excited about that product. And for large facilities, they could definitely own the robot, but the robot [indiscernible] economist, obviously, if you want to have people, an operator that goes with it. If they're upset, the robot will be able to remember, you know, the last thing and do the cleaning disinfecting on its own, but [indiscernible] somebody to watch, right. So, we – for large facilities, we probably – it's probably worthwhile for you to buy the robot. For a lot of smaller facilities, we are claiming a robot disinfection services and that kind of being – that's being planned and they'll be piloted in the first quarter and we'll have more to share when – you know, once the piloting services.

And then, on the commercial UV, it's a replacement in the [indiscernible]. And question is, is it targeted at single small offices, you know 200 square foot offices based on the specs or does it additive? Where if you've got a large room with multiple, large number of light fixtures, you know, you're replacing 20 for the room. And that's how you secure the entire room, what’s the [indiscernible] there?

Yeah, with all the above, right. The lighting, the lighting, right? You are talking about both, or you talking about [mobile]?

I’m talking about – on the lightning of commercial with lightning?

Can I go [indiscernible]? Yeah, that will be relatively placed to replace all the other 2x2, 2x4, or written or [LED fixture].

That gives [indiscernible] square feet. My question is, is it additive? If you're in a larger room, it's larger than that? [Indiscernible]

Oh, yeah. So usually the 2x4 fixtures covers about 100 square feet. So – and that's how we got the – we expect that you change every one of your lighting fixture. That’s how you don't have to design how you would want the disinfection device to work. Because it's designed to have two air changes per hour per fixture for that hundred square foot.

Okay. Then moving on to [indiscernible] were there any warrant exercises in the quarter?

Yeah, they were around – the Omni-cash flow statement from financing for a portion of that, but there were exercises done in the third quarter.

Okay, and then any in the subsequent events? You know, since the end of the quarter, did you report any subsequent events on that?

Not on that. No.

Okay. Thanks a lot. Appreciate it.

Thank you.

Thank you. [Operator Instructions] Thank you. Our next question comes from [Charles Lee], Private Investor. Please proceed with your question.

Hi. I was wondering if you could give some color to the addition of sales and R&D staff in this last quarter.

Yeah. So, on the R&D side, we spend it [indiscernible] people we had to hire for additional engineers in the quarter. And we're pretty much we're good there for the time being. Salespeople we have actually been hiring people during the quarter. We still have two or three positions to fill, but we’re getting to where we need to be for the time being.

Okay, thank you.

Yep.

There are no further questions at this time. I would like to turn the call back over to management for any closing comments.

Okay, thank you very much. Thank you, everyone, again, for your time and interest in Energy Focus. We look forward to speaking with you in our next earnings call. Have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.