00:00 Greetings, and welcome to the Energy Focus Third Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. 0:28 It is now my pleasure to introduce your host Brett Maas, Investor -- Hayden IR. Thank you, Brett. You may begin.

00:36 Thank you, operator. And good morning, everyone. Joining me of the call today is James Tu, Executive Chairman and Chief Executive Officer; and Tod Nestor, Chief Operating Officer and Financial Officer. 00:44 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, in addition to the 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. 01:14 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 at energyfocus.com, in the Investor Relations section of the site. 01:31 I'll now turn the call over to James. James, the floor is yours.

01:35 Thank you, Brett. Good morning, everyone, and thank you for joining our third quarter twenty twenty one earnings conference call. I'm excited to discuss about the next phase of Energy Focus with view today. 01:49 While sales for the third quarter twenty twenty one shows some modest recovery from the previous quarter, our legacy LED lighting business continues to face ongoing challenges related to the pandemic. For our commercial business with offices facing new work conditions and a distributed workforce, retrofitting lighting systems continue to be lower priority for facility managers. We also continue to see some of our customers retrofit projects being delayed with our customers in the school and hospital sectors. And the LED tube market remain intensely competitive. 02:28 We continue to believe that our high quality filter-free and ten year warranty positioning after the best long term value proposition for large mission critical facilities that seek to provide quality and reliable lighting with minimum maintenance and product weight. As well as reduced labor due to our product reliability. 02:50 Looking forward, our upcoming Suncycle circadian lighting system which maries our superior lighting products with our patented EnFocus power line control technology. We'll be able to offer -- lighting experience with affordability and sustainability performances that we believe will further differentiate Energy Focus and bring our commercial lighting business to the next level. 03:17 For our military business, third quarter military sales continue to be impacted by better budget availability for military spending, several significant opportunities with the U.S. Navu and U.S. Army are still waiting for funding approval. Nonetheless, we expanded our product development efforts during the quarter for the Navy market, recently completing the development of the high-bay LED lighting product. And deliver our first unit to the Navy for their approval, a potential…

09:02 Thank you, James. Net sales of two point seven million dollars for the third quarter of twenty twenty one decreased fifty three point nine percent compared to sales of six million dollars in the third quarter of twenty twenty, driven exclusively by decrease in military sales. When compared to two point one million dollars in the second quarter of twenty twenty -- twenty twenty one, net sales were up thirty two point five percent on a sequential basis, reflecting the timing of orders that slipped from second to third quarter. 09:32 Sales of our commercial products for the nine months ended September thirty, twenty twenty one decreased seventeen point three percent compared to the same period in twenty twenty, reflecting a decrease in sales caused by delayed orders and project delays for our customers in the healthcare, education, commercial and industrial sectors because of the continuing microeconomic slowdown and our customers purchasing decisions delayed due to COVID-nineteen pandemic. 10:00 In addition, sales from our agency network were also lower, again, reflecting the impact from the COVID-nineteen pandemic on our customer base. Sales of our military products for the nine months ended September thirty twenty twenty one decreased fifty five point three percent mainly due to availability of government funding for certain projects and the continued delayed timing of orders. As well as our fulfillment of a significant contract in the third quarter of twenty twenty. 10:30 Sequentially, sales of our commercial products for the third quarter of twenty twenty one increased forty one point two percent compared to the second quarter of twenty twenty one. And net military product sales increased twenty point two percent from the second quarter of twenty twenty one. The increases primarily reflect the timing of delayed orders from the second quarter of twenty twenty…

18:24 Thank you. We’ll now be conduction a question-and-answer session. [Operator Instructions] Our first question is from Sameer Joshi with H.C Wainwright. Please proceed with your question.

19:02 Hi, James. Hi, Tod. Thanks for taking my questions.

19:04 Hi. Good morning, Sameer.

19:05 How are you?

19:06 Good. Thanks.

19:08 So the new offering, you mentioned it will be available on the website -- couple of websites. Did you say starting 4Q twenty one? So it should be active right now. Is that right?

19:25 Yes. As we mentioned, it's the products that being evaluated, the product samples. We are still waiting for the nUVo Tower certification, which we are expecting anytime now. And so I'll our goal is to launch as soon as we are ready. It will be in Q4 and as I said, will be as soon as we can.

19:52 And what is the addressable market or at least the targeted addressable market that you see for this product and say one or two years from now, how do you see grabbing some market share of that? What are you views on that?

20:15 Sure. This is a unique line of products. There is really nothing exactly as same in the market, there are new buyers that have used some UV, but this is I think one of the first, it is not the first product line that use very strong UV-C lamps and with our pattern pending blocking technology to be able to block the lights for safety, but also still enabled the airflow. 20:44 And so, we are pretty excited about this product, we have been testing the market in our own and responses has been pretty positive. I think our partner – our channel partners are very excited, First Energy Home, for example, they are getting ready as well. So, I think we are looking at not necessarily grabbing anybody market share, because there's really no such a thing, it’s a new category. It's a personal disinfector as you can probably have noticed that we are using disinfector instead of air purifier, because is not to air purifier this is to kill all the pathogens as much as possible which our independent study have shown, we can. 21:34 So this goes anywhere, there are people mingling with other people. So I would say that this is a new category we are creating, we are starting in the customer consumer side, but also selling through our existing channel partners. We will be creating new channel partners. I see this in the future, one year, two year down the road in retail outlets and all that. 22:01 I think it’s exciting phase in the company when we're ready to launch these products and we have to -- initially we are only operating on our website, in firstenergyhome com. We are expecting to expand into other third party channels like Amazon of the world. 22:22 So it's a little early to tell, but we're very excited about the initial responses we have got so far.

22:31 Yes. And so I had sort of a similar question for Suncycle, but there too you are sort of creating the market for that? Is that true?

Yes, the Suncycle product we are expecting first quarter twenty twenty two launch. That's also the first time we are taking our lighting products to the consumer sector. And it's going to be using very similar channels that we are creating now for nUVo. And so that's -- again, as we ------- consistent with what we have said in the past few quarters, we're also taking our technology into the customer sector and that's both expanding the impact of our technology, but also diversifying our customer base And Suncycle, as you have seen, it will be able to provide autonomous circadian lighting for homes and other commercial building, nursing home, hospitals and all that. So it's a pretty wide application because in the end of the day our technologies to reach out to people when they are indoor, right? People spend ninety percent of their time in indoor. So we are applying our technologies where they can be to make the environment safer and healthier.

24:04 Yes. And in terms of the gross margin outlook, that’s in the high twenty, it takes into account the pricing and margins for these products. Is that right?

24:20 This in Tod. So, yes, when I spoke to going into higher twenty, it does take into account the expectation of these new products. becoming a larger part of our mix. And we'll evolve as they become a heavier portion of our mix, but yes.

24:37 Understood. And Tod, you were speaking about inventory, is there any inventory associated with these -- at least the nUVo product that you reflected in that seven point eight million number.

24:55 So the new products have a much faster turnover that are targeted to consumer side. So we will -- we will be bringing those in and then they will turn the sales cycles much shorter. So our expectation is -- our hope, I should say, is that we can actually get a good source of cash based on the terms we have as we enter into this consumer part of the market more.

25:24 Understood. Just one last one for me. I think you mentioned Navy a bid of five million dollars and you mentioned the time period, I'm sorry I missed that. Can you say that again?

25:39 James, do you want to handle or you want me to give it?

25:43 Yes. So -- that's okay I can [Multiple Speakers] five years it's five million dollars -- up to five million in five years.

25:56 Okay okay. And are there other similar bids that you're are working that you see in your pipeline or visibility from military?

26:07 We continue to win the RFPs in a pretty healthy percentage. I think -- I don't think there is a significant change around the competitive landscape. As I mentioned in the script that we're excited to explore the -- applying the EnFocus control technologies to the Navy lighting as well. We are in the initial stage of doing that and are we are very excited about that prospects down the road. We don't have much update right now, but that's an exciting initiative that was started. 26:50 Just to mention, the Navy sellers being in indoor and we're able to provide the circadian lighting to them. I think that's a – and also the Navy shifts usually don't allow wireless communication for controls and EnFocus is a perfect fit for that?

Yes, That lead me to my last question actually that -- is Suncycle going to be given for some of the navy or military kind of application? Thanks for that info. That’s all from me.

27:22 Yes. Sure. Thank you. Thank you Sameer.

27:28 Thank you. Our next question comes from Amit Dayal with H.C. Wainwright. Please proceed with your question.

27:34 Hey, good morning, guys.

27:36 Good morning, Amit.

27:38 With respect to the disinfectant products or the product line, what's the strategy going forward? Are you going to continue investing in this product line developing some of new versions, etcetera or – sorry, is this the end of this effort. How should we think about the future of this strategy?

Sure. We believe so, obviously, it’s still too early to tell how big that market could be for us. We are excited about it. As i said with some internal market research and I think there's a good amount of demand there. But obviously nothing is for sure until you start selling it, which we obviously hope soon. 28:31 And the plan right now is obviously to expand that. If you look at the company right now, there are two major technological platforms that we are focusing on. We have been focusing on over the past year also, one is obviously, the EnFocus space control platform that we are expanding into the Suncycle platform as for residential and commercial location. 28:54 And many other location such as military. We believe that we have the patents there and we can -- there's a lot of capabilities and expection there that we will continue to invest and expand. The other platform is the UV-C disinfection platform and we have our patents pending technology, the brokers that can be enable us to bring very powerful disinfection capabilities to people in their personnel and public spaces. We definitely think that that's a pretty impactful technology that we can continue to expand. We are starting with nUVo traveler, which is the portable one for car and for personal use and also nUVo Tower which is for meeting rooms and living rooms and all that, office things like that. You can imagine a lot of location for these product. But again, it's being able to provide that powerful disinfection with very little maintenance required, because there's no filter in it. It’s chemical free. 30:05 So we are starting with these two product lines. We have mentioned about above, which is the lighting integrated Suncycle lighting control and UV-C disinfect chopper. That is still under development, and we are also very excited about that product. We are hopeful that it could be introduced in the first quarter as well. So, we are definitely expanding and as you heard about our move robust disinfection robot that's being developed as well. So we believe that's a new market that we could take advantage of our feed and our sort of entrepreneurial and in way they've culture to be a very impactful products and move fast to create the UV brand in this new market. So that's another area we are planning to continue to invest and expand. 31:13 You can look at nUVo product called Limbo, you can see additional variations from the nUVo family, right? So for now, we definitely want to continue to invest and expand that sector. If you bring these two major technology platforms that we're developing. They are all fitting into this lighting wellness concept where -- that's what we've have been talking about human centric lighting, which is bringing lighting technology to impact human biological performances. Right, safety, health, well-being. That's the direction that these company is going after and investing and innovating.

32:05 Yeah. Understood. Margins for this line of products, do you have any sort of visibility on what you might get in terms of margins for the products?

32:24 Hi, it’s Tod. Nice to talk to you again. Yes, we have some insights, that'll actually -- it differs by channel. And I'll say by mode of transportation, how we bring it in, but they are all the type of margins that help us get up into that high twenty range as they become a larger part of our mix. 32:46 Clearly there -- they're going to be favorable to help get us there. But there are nice margin products that would feel can help the gross margins quite a bit.

32:59 Okay. And sequentially, I mean, fourth quarter, we should anticipated it to be an improvement over the third quarter right?

33:10 Yes. That's the too early to tell. We definitely are hoping that we could do better and better from here. But as I said, the timing of these contracts we have mentioned a few times now, the military contract approvals. We have several pretty opportunities that we have already won, that haven't got the funding. And that's the timing we're looking at. 33:41 And obviously, depending on how much contribution we're going to see from the nUVo product line, we will launch-- most likely you'll be seeing impact in the last month of the year. And that will also obviously sway the quarterly results and as a reset, a few quarters ago, we are now in the quarterly projection, we are not giving up quality projection for now. But I think once we have a better visibility sometime in the next few quarters, we could start doing that, but we are not in that position now.

34:20 Okay. Understood James. Thank you so much.

34:24 Thank, Amit.

34:26 Thank you. Our next question is from [David Herdmen] (ph), Private Investor. Please proceed with your question. Q – Unidentified Analyst: 34:34 Hi. Good morning. A few questions actually if I can may. The first question is on the financing, we're running out of cash here and I was just wondering if you can give us some picture of how we're going to make it through the next quarters here? 34:58 And the other question is, as you mentioned something about an Army -- possible Army contract and I didn't -- that's the first I've ever heard of the Army. I know we've been dealing with the Navy. If you could give a little color on that, and that's basically my questions.

35:18 Sure. You have a question I guess based on [indiscernible] but your first question about capital. Yes, we have always been looking for capital to fund our operations in the past two years. And that's not going to change until we start getting to breakeven. Right? And the amount of the capital we need depends on how much -- how much-- for example, these renewable products contribution, because these products are customer oriented, the payment terms are lot better than the commercial market. But we currently evaluate different options of the pivotal buffer of the capital to grow. 36:03 The company’s focus has always been in the past year two years since the COVID start to create a stronger intrinsic value with the technologies and patterns and products. And I think these products that we have developed over the past two years that are being launched pretty soon. 36:27 We have created a lot of potential for the company and our goal is to make sure that when we have to raise capital, we are able to raise the capital as favorable valuation because of the intrinsic value we have created from these IT technology and product. 36:49 Your second question about the Army. These are -- we remain the opportunity per se, but these are Army basis, they are going be using our lens, our lens technologies for the basis. And that's obviously an area that we could also expand. 37:16 And again, we have got the opportunities, our comments have got the opportunity, but we are still waiting for funding. Q – Unidentified Analyst: 37:25 Okay. I appreciate that. And just still a little concerned about -- obviously, you're expecting a more inflow from the sale of the nUVo products to kind of take you over is what I'm hearing. Because I mean -- it just seems like you're extremely tight in this next quarter here. And that's what's got me concerned is, do you think you can make it next quarter.

37:53 Sure. And I think, again, I go back to what I just said, if we have created significant potential for the company which I think if you look at our product lines today, the technology we have developed, it's a pretty exciting phase of the company. Historically these are very unique IP with products that are going to be launched soon. So, we -- if we need capital, we have to raise the capital. But I think the key is being able to have the products that are ready to grow and realize the potential. So investors are willing to fund the operation. Q – Unidentified Analyst: 38:41 Thank you. Being patient, but it’s hard.

38:47 I’m like you.

38:54 Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

39:02 Thanks again for your participation for the conference call and we look forward to reporting our progress for the twenty twenty one earnings later in the first quarter. Thank you. Have a good day.

39:20 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. 39:27 I