Energy Focus Inc (EFOI) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Energy Focus fourth-quarter and full-year 2014 earnings conference call. Today's conference is being recorded and at this time, I would like to turn the conference over to Ms. Marcia Miller. Please go ahead.

Thank you, Greg. Good morning, everyone and thank you for joining us for Energy Focus's fourth-quarter and 2014 year earnings conference call. Today, James Tu, our Executive Chairman; Eric Hilliard, our President and Chief Operating Officer, and I will report on our results for the fourth quarter and 2014 year. The news release with our earnings results and our Annual Report filed on Form 10-K have been posted to our website under the Investor section.

As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. These forward-looking statements are subject to numerous risks and uncertainties. We encourage you to review our most recent filings with the Securities and Exchange Commission, including our 10-K and 10-Q for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. We are not obligating ourselves to publicly release any revisions to these forward-looking statements in light of new information or future events. Now I will turn the call over to James.

Thanks, Marcia. Good morning, everyone and thank you again for your participation in our earnings call. In this call, I will talk briefly about our progress during the fourth quarter and full year 2014. And Marcia Miller will discuss about our financials in more detail. We will then open it up for questions.

As you have read in our earnings press release, fourth quarter 2014 represented yet another exciting sequential quarterly growth over the third quarter of 2014. We attained the upper end of our estimated quarterly sales goal at $9.5 million. And [importantly], our product sales, which are all we focus on now, grew 252% over the same quarter in 2013, mainly due to strong Navy sales.

During the quarter, we further improved our gross margin from 32% last quarter and 23.2% in fourth quarter of 2013 to 34%. Excluding the one-time severance settlement and employment incentive charges, quarterly operating loss was reduced to $70,000. We also generated $1.3 million of operating cash flow during the quarter. In the meantime, we extended our R&D effort further and filed additional patents for our commercial IntelliTube products. And we are awaiting UL and DLC certification to launch the product formally within the next few weeks.

We believe that IntelliTube will represent a true groundbreaking and differentiated solution to replace fluorescent light with the lowest cost of ownership and leading quality and safety features not just in the US, but also worldwide. We also are in the process of developing products that are complementary to our core tube product portfolio for our commercial customers and we will announce them in the coming weeks and months when they are launched. These commercial product development efforts aim to position Energy Focus as an indisputable leader in the tubular LED market.

Also during the quarter, we strengthened our commercial market salesforce in our regional operations, which now include Cleveland, New York and Washington, DC and focus on selling to a number of targeted verticals, notably healthcare, schools and retail chains while starting to build out our own distributor network. We plan to continue to expand our geographic footprint by opening new regional offices as 2015 progresses.

Although the sales leadtimes are long as LED lighting adoption is still in its infancy stage and we have to spread our Company and product awareness while battling with the entrenched lighting incumbents. We believe that we have laid a solid strategic and salesforce foundation during 2014 for us to start generating significant and consistent wins in 2015. For the whole year 2014, our product sales grew 116% from 2013. Our total number of tubular LED shipments grew 360% from 72,544 in 2013 to 334,456. Based on the US custom data and our actual sales, we were the number one tubular LED brand in 2014 in the US.

Our gross margins during 2014 also increased markedly from 21.3% to 32.1% as we successfully scaled up our production with greater economy of scale through continuous process engineering and improvement in our supply chain operation. Meantime, we dramatically cut down our operating cash burn from $7.2 million in 2013 to $1.4 million in 2014. Again, as our sales and operating margin continue to grow, we expect to start generating cash from operations even assuming we need to invest for sustainable rapid growth.

Overall year 2014 shows a clear operational turnaround as we grew our Navy sales by 420% from the previous year, entered the commercial market to build up our sales pipeline and client testimonials aggressively in targeted verticals and significantly improved our gross margin towards our long-term target of 35%. We also dramatically strengthened our balance sheet ending the year with over $7 million in cash and close to $10 million as of today from the IPO raises, as well as additional warrant conversion.

Energy Focus now has the culture, the team, the product portfolio, the strategy, the balance sheet and an even opener and readier lighting retrofit market for us to achieve our annual sales growth target of 50% in 2015 over 2014. In spite of an extremely strong jump in our Navy business during 2014, we expect our Navy sales to continue to grow further from 2014, albeit at a slower rate. And as I mentioned earlier, we also expect our commercial sales effort to start yielding exciting results as 2015 progresses. And as we said in the press release, we expect that we will continue to extend our operating margins as our sales grow.

Energy Focus's long-term goal is to become a global LED lighting leader and in doing so expedite the world adoption of energy-efficient LED lighting products. We believe that our unique strategy and successful execution will make impactful and positive changes on the world environmental and health well-being and our turnaround in 2014 represented only the bare beginning of our aggressive and massive pursuit for sustainable growth and social good. Again, I would like to thank all of our employees and investors for their dedication and support to build an exciting, lasting and socially meaningful company.

Now I'd like to turn the call to our interim CFO, Marcia Miller, for more specifics on the financials after which we will be happy to answer any questions you might have. For those who have not met or talked to Marcia Miller, I would like to introduce her to all of you here. I'm sure you have had an opportunity to read about her biography from our previous press release, which says little about what a talented, capable and hard-working professional she is. We are all extremely fortunate to have Marcia in our team and she is doing a fantastic job overseeing and upgrading our financial operations. Marcia.

Thank you, James. As James indicated, we are pleased with our sales growth and gross margin improvements for both the fourth quarter and the year. I trust you have all had time to read our earnings release and I'd like to give you a quick rundown of our financial results. For the fourth quarter of 2014, Energy Focus had net sales of $9.5 million compared to $6.6 million in the prior year's fourth quarter representing an increase of 43% year-over-year and an increase of 34% from the third quarter.

To remind everyone, we report two segments of our business, the products segment and the solutions segment. The product segment includes our military and general and commercial and industrial LED lighting offering, as well as research and development service contract revenue. R&D remains a key focus for us and our engineering team is dedicated to developing leading edge LED lighting products. However, since the second half of 2013, we have curtailed our efforts on bidding on research contracts and grants that don't fit our strategy of focusing on the tubular LED lighting retrofit market and revenue from these contracts has declined significantly in 2014 to a negligible amount as these contracts near completion.

Revenue from the products segment totaled $9.3 million of the total $9.5 million for the quarter and grew 252% in the prior year's quarter. Excluding R&D service contract revenue I just spoke of, products segment revenue grew almost 300% from the prior year's quarter due to strong sales of our military IntelliTube products for the U.S. Navy.

In regard to our solutions segment, during the second half of 2014, we began shifting our focus away from providing turnkey solutions so we could focus our resources solely on our LED lighted retrofit product system. Our solutions segment sales decreased 96% from the prior year's fourth quarter to $144,000 for the quarter, but that was by design as we have now completed the remaining few open jobs.

Turning to gross margins, we saw further improvement in the fourth quarter with a gross profit margin of 34% of net sales compared to 27.1% last year, a 10.8 percentage point improvement. This was due to having a higher mix of product sales versus solution sales, which carry lower margin, as well as improvements on the products side. The gross margin for our products segment increased 6.4 percentage points to 34.6% of sales in the quarter. This improvement was driven by our continuous operational efficiency effort, as well as the growing economies of scale and sales volume increases.

Operating expenses were $3.8 million for the fourth quarter compared to $3.6 million in the same quarter of 2013. This increase is primarily the result of higher selling, general and administrative expenses for performance incentives, increased salaries and related benefits as we grew our direct salesforce by about (inaudible) from the prior year, higher severance and settlement charges, higher recruiting expenses and higher stock-based compensation.

The prior year's operating results included a $608,000 impairment loss to write down certain fixed assets relating to our pool operations located in California, which was sold in November of 2013. The loss from continuing operations before income taxes for the fourth quarter was $720,000 compared to a $2.5 million loss for the fourth quarter of 2013.

As we mentioned in our press release, the current period's fourth quarter included approximately $250,000 of severance and settlement charges, about half of which relating to our UK operation as they have restructured their business to concentrate on selling LED lighting in addition to the specialty fiber optic lighting they have traditionally [been selling]. The quarter also included about $300,000 in incentives due to the Company's improved financial performance.

For the full year, 2014 net sales were $29 million, an increase of 35% over 2013, with each quarter showing double-digit sequential growth. The product segment sales of $25.3 million were more than double those in 2013 driven by a 422% growth of our government products, primarily the military IntelliTube. Gross profit for the year also more than doubled that of 2013 and gross margins increased to 32.3% of net sales from 21.3% in 2013. Again, the increase was due to a shift in mix between our (inaudible) segments where products carry higher margin (inaudible) as well as operating efficiency gains and volume discounts in the products segment.

Our operating loss for the year was $3.6 million compared to $6.8 million in 2013 and the net loss from continuing operations for 2014 was $5.8 million compared to $6.9 million in 2013. 2014's net loss included $2.7 million of charges related to the conversion of subordinated convertible debt in the first quarter, $2.3 million of which was non-cash.

Moving to the balance sheet, we ended the year with $7.5 million in cash, the highest balance we have had in several years. In December, we received a refund of $1 million bonding collateral, which was related to our solutions segment and our accounts receivable balance stood at $3.1 million, which is actually $800,000 lower than receivables, including retained receivables, at December 31, 2013.

Days sales outstanding were 28 at year-end compared to 48 at December 31, 2013. Our inventory balance stood at $7.3 million at year-and, which is an increase of $4.8 million from December 31, 2013. However, the increase is due mainly to buying inventory to support first-half 2015 shipments. Accounts payable was up $3.9 million from December 31, 2013, again primarily to purchase product to support first-half sales. Shareholder's equity increased $6.8 million during the year due to the conversion of convertible debt last March, as well as the equity raise we completed last August. Cash used in operating activities for 2014 was $1.4 million, an improvement of almost $6 million from cash used in operating activities in 2013.

If we look at just the fourth quarter of 2014, we generated cash from operating activities of $1.3 million, $1 million of which was the refund of the bonding collateral I mentioned earlier. In February of 2015, we received $2.5 million in cash from the exercise of 580,000 outstanding warrants at $4.30 per share. So based on our expectations today, we believe we will be able to fund our 2015 growth plan with cash on hand and available borrowings on our asset-based line of credit, as well as cash we expect to generate from operations in 2015. And in that vein, we are very pleased to share with you that our auditors, Plante & Moran, have removed their going concern opinion from our 2014 audited financial statement.

2014 was a turning point for us as we grew our sales, increased our gross margins, strengthened our balance sheet and narrowed our focus on the tubular LED lighting retrofit market. We want to thank our shareholders for their continued support and confidence in Energy Focus and we look forward to continuing success in 2015. Greg, we would now like to open the call for questions please.

(Operator Instructions). Craig Irwin, ROTH.

Good morning and congratulations on the really strong results today. James, you were very clear about the growth in the Navy being a key part of your continued growth in 2015. Can you maybe discuss how things are tracking in your national accounts and commercial businesses, whether or not we're going to see those businesses start contributing a more material portion of the overall revenue of the Company or if the Navy is likely to lead the growth charge in 2015?

Yes, so, as I mentioned, we have been building up our infrastructure for the commercial sales and we do expect the commercial sales volumes to start picking up as we move throughout 2015 almost on a quarterly basis. So as you -- it is our expectation that we can start showing the numbers in a more meaningful way throughout the year.

Navy sales are still going to be a very important part of our 2015 results, but, as I said, the pipelines that we've been building in the commercial market, and I think what differentiated us from a year ago in our commercial market (technical difficulty) is that we have a very clear and more defined strategy that we believe is working and will be working. So I would just say that it takes a while to generate actual sales, so these are special accounts and we anticipate a concrete result in the coming months.

Thank you for that. So the next question I wanted to ask is about seasonality. Just so that everybody that follows your Company has the progression of revenue and margins calibrated correctly, can you discuss whether or not there is the typical seasonality that we can expect in the first-quarter results? If this is likely to have a similar impact on Energy Focus to others in the lighting market or do you see less of an impact given your significant weighting from your successful sales to the Navy?

Yes, aside from the Navy sales that might be stronger in the third quarter due to the budget year in the Defense Department, we don't anticipate very strong seasonality in any of our business. You can argue that in the retail business fourth quarter is probably the weakest just because nobody does much in that industry, but it is still a very small part of our sales at this point.

So all in all, we don't expect to have much seasonality. Now we focus very much on product sales and our sales will continue to diversify into different verticals as we progress through 2015. You can argue that in 2014 the Navy was the notable sales growth driving force. In 2015, you will see more verticals that are contributing to our sales and towards the end of the year, we believe that the Navy sales will start to become more muted, not 70%, 80% of our sales, but it will still be a very important part of our sales.

Thanks again for taking my questions and congratulations for that really nice result.

Allan Snider, Oppenheimer.

Good morning, James. Congratulations. I'm very excited to be able to talk to you guys and I've got some warm fuzzy feelings here. I had a question about the fact that you have turned this Company around and you never, in my opinion, have hyped anything. You don't put out frivolous press releases and I respect that very much. But I did want to ask you with relationship to Cushman & Wakefield. Now it is publicly known that you are considered a preferred provider for Cushman & Wakefield and they themselves are billed as the world's largest manager of commercial real estate. And in my opinion, that is a huge, huge plus for your organization. So I was wondering if there is anything you could care to elaborate on with relation to Cushman or any similar commercial opportunities that are now forming for you guys?

Well, Al, the Cushman & Wakefield deal was a significant win for us. What we have experienced, however, is that because Cushman & Wakefield does not own the buildings, they only manage (multiple speakers) their clients, so the decision-making is spread into the individual owners, which is very hard to penetrate when we did not have IntelliTube which is a plug-and-play product. So we do expect that -- so unfortunately in 2014 we did not make much progress when it comes to actual sales from that channel. We do expect in 2015 we will maximize our leverage in that particular relationship and penetrate some part of the building market.

I do want to emphasize that there are a lot of -- this is a vast market and the penetration rate for LED lighting is still minimal and there are a lot of what we call the low-hanging fruit, particularly in the industry that pays attention to not just the energy savings, but also the health impact and sustainability impact. So that's why we focus very much on the schools where the kids will benefit from better lighting. The fluorescent lighting impact in a very far more harmful way in LED lighting. Our product provides a dramatic health impact on the kids. And there are many studies that have shown that we can improve their academic performance as well. Everything for healthcare industry and the retail industry, those are the industries that we are more focused on right now.

We will continue expanding to other verticals, but again it is such a vast market. We're talking about 2 billion tubes out there to be replaced in the US alone. We have barely scratched the surface of this market, so we just have to be careful about where we focus our resources and we did a couple million dollars of sales last year in commercial [tubes].

I was just curious as to what had transpired. I was just curious as to what had transpired with Cushman and you've made it very clear and I do understand. And bottom line, I just want to congratulate you. I think you've done a wonderful job and the cliche is that the train is possibly leaving the station now and looking forward to further conference calls.

[Joseph Giamet], Private Investor.

Hi, James. Congratulations on a great performance of 2014 and I look forward to some further improvements here. I had one question on quarter four. On the September, you've announced that you received from the Navy a $7.7 million order and the order, most of which is expected to be delivered throughout the remaining of 2014, represents the largest order in the Company's history. And I was just wondering if indeed it was completed at that time and also what the percentage of the sales were accountable to that particular contract.

Okay, Joe, I'm going to have Eric answer this question and I'll add later.

I'll try to answer your question as transparent as I can. The order that we received in 2014, there were numerous orders, but the specific order that you are referring to has a delivery on it that does expand beyond 2014 and into 2015, so we did deliver partial of that order and then we're continuing to deliver that order. The mix of that I can't speak dynamically to on the call, obviously. And as a percentage of that particular order as it made up our sales volume, again that is hard to disseminate right now in the room. But as James had said to your question, Joe, military is, in 2014, a significant part of our revenues. Thanks.

Joe, if you look at press releases we have announced between September and December, accumulated orders from Navy was about $21 million, so (multiple speakers).

Yes, I can see there were additional orders.

Yes, so there will be more deliveries coming in the next few quarters (inaudible) based on those orders and potentially more orders.

Okay, great. One other question, as the 500D tubes and the IntelliTubes and whatever, are those manufactured in the United States or Mexico, are they done overseas, or is it a mixture of partials here and there?

So we do sell two versions of products. One version is just purely commercial product. Those were made mainly in Asia. And another class of the tubes are what we call Buy American tubes. They are assembled in the United States. There are some clients, let's say governments, military especially, that require Buy American products, so we do make those products in our production facility here in Cleveland as well.

Okay, great. All right. Thanks again and I'll defer to other callers. Thank you again. Congratulations.

[David Herdman], Private Investor.

I don't know if you can hear me, but congratulations. I do have a question. You indirectly answered my question already. You mentioned that the severance costs were based on the UK operations and we haven't heard about them for a while and I was wondering if you could elaborate on that a little bit and also your communal deal with Asian distribution. We haven't heard about that for a while and I realize that because of the IntelliTube launch weight and I just wanted to see if that was still on track. Thank you.

Sure. So the first part of the question about the UK operation, we did -- first of all, it's a very small part of our business at this point. It is less than 5% of our sales. And it was a legacy business that focused on specifier market, which is not a market that we focus on, but we did have a pretty extensive restructuring during the fourth quarter to make sure that that operation can be cash flow breakeven or more or better. And we did that; that's where the charges are from.

And we are also in the middle of setting that operation up to sell our IntelliTube product in the UK and part of Europe and Middle East. So that is being prepared at this point and we hope we have more exciting developments to report once we launch the IntelliTube product in the second quarter in the UK. Again, it is a very small operation at this point and we are treading very carefully how we expand that operation there. We do have a very capable leader there at this point, a new leader there, so we will report progress as we make some.

The second part of your question about communal, yes, once IntelliTube is launched, we do expect the communal to be helping us in some part of the Asian market and that is being worked on right now.

That's great news. That's what I've been waiting to hear, at least some movement. The other question is, obviously, I know this may not affect you at all, but the port strike, I didn't know if that was influencing -- do you have enough inventory to cover future orders here? Is that something that may hold us back?

I'll respond to your question. The port strike obviously affected everybody in the US and mostly retail as most of us probably all read. Fortunately our planning and logistics group has done a wonderful job. It has not affected us, hasn't affected our clients as well and we are fortunate about that and we're going to continue to be able to support our clients as we move forward. Thank you.

Thank you, guys. It was a great report.

(Operator Instructions). Robert Smith, Center For Performance Investing.

James, could you share with us what your two chief concerns are going forward? Thanks.

Two chief concerns? I have a lot of concerns. There are always challenges for us to expand this fast. There are just not many companies actual that sell actual products and deliver actual products and produce actual products and are growing at the rate we are growing. So we are very fortunate to have a very strong production and operational team here and with great leaders here that we've been building up over the past 12 months.

So I think the chief concern is always how do we expand the sales as fast as we would like to. As I have always said, this market is vast. It is waiting for us to untap. It is limited by our ability to grow and being able to execute that, being able to hire the right talent in time -- we have a lot of hires ongoing and to make sure that they are being absorb and being absorbed into our culture is very important. That is the most important thing as we grow the Company, to maintain the integrity of our culture, that focus on accountability and execution and having a very sound environment. So if you ask me, that is my chief concern, having a bigger and bigger team that still stay in one integrity.

The second concern I think is the ability to expand outside of the United States. That is something that we have not done much and we will be doing and we have been working on this for several months, how do we expand overseas, what is the strategy and all of that. And that will be also consuming a lot of our energy, especially towards the end of 2015. I do believe that our biggest challenge from I guess an investor's point of view in 2015 will be the delivery of our commercial sales and we do believe that we have a very solid team and strategy together and we will see a very exciting growth in 2015.

And again, it's in our tradition that we don't want to overpromise anything. We do expect strong growth in 2015 and I believe that that's what investors will be looking for, for us to continue to deliver profitability and growth in the commercial markets. And I think as quarters progress, we will see more clear signs of those execution results.

James, could you give us a little more color on the R&D effort? You are spending about 3% of revenue on R&D and the pace of technology is such that I am wondering about your position in LED lighting.

Sure. I would love to spend 6% of our sales on R&D and I think we will continue to invest more and more heavily into new product development. As you have seen from our history in the past 18 months as we instigated the restructuring and the Board transformation, we were in the survival mode and we needed to make sure that the operations can be sustained. And we have -- again, I will never say that we are past the crisis mode yet, but we are going to start investing more and more heavily into new product development as we launch IntelliTube. That's the first generation. IntelliTube 2.0 is already being worked on.

So we want to make sure whatever we do brings us closer to the leadership position we aspire in the business lighting market and we have a strong product portfolio right now. We will continue to strengthen the portfolio for our customers. And again, the customers are the businesses, the governments, the nonprofit and we think very focused on developing products that they will buy today and you will see that continue to happen. And the R&D effort will continue to expand.

Thank you. Good luck.

(Operator Instructions). [Alvin Burse], Private Investor.

Hello, James. A long-time investor. It's good to hear that you guys are expanding and doing well. My question is on the -- to meet this increasing demand, how about your production facilities. How are your shifts? Are you looking forward to having any extra shifts and/or do you foresee any need to expand your facilities to meet the demand?

Yes, we have expanded pretty rapidly our production capacity. As I mentioned, the total shipments of our tubes grew 360% in 2014. That's a lot of tubes to be shipped. So we will continue to expand. I think we have [demonstrated] the most steep curve in our own production facility and we have a very good team there and so I am very comfortable continuing to expand that capacity.

As for imported product, we have several Asian OEMs that we have been working with and they all have pretty substantial capacities. And if you look at the shipments in the market today, we are one of the top leaders, as I indicated. So we are able to secure production facilities and capacity because of our wallet, our share of wallet today and we will continue to drive the cost down and seek qualified OEMs. That's definitely on the top of our mind and we are very happy that we have very strong OEM partners at this point that scale up dramatically.

Okay, thank you so much. Also one last question was, on the construction, I know you added ESCOs, you are deemphasizing ESCO stuff. How about construction? What do you see about the construction in the US and abroad? Is it looking forward, looking up? That would be a place where your products would be going? Thanks.

Yes, we are still focused squarely today on the retrofit markets. Again, the retrofit market is more than 90% of the market there. And the penetration rate is still extremely low in the single digit, low single digit. So we want to be able to focus on that market and the new construction market is a very different market and the leadtime is even longer. We don't get into project sales at this point. We are focused on only product sales.

So we will not be in the new construction market anytime soon and that doesn't mean we will never get into that market. We just are not in that market right now. We have enough room to grow rapidly even for a few years, but we are looking at all the products that our customers want in the retrofit side. Does that answer your question, Alvin?

Yes, it did. Thanks a lot.

[Bill Hardy], Private Investor.

Hi, greetings from Dallas. You really had a tremendous quarter. The $9.5 million on rev was top of the line, as you said. One question, in January, you all announced a $25 million I guess what I would call a shelf registration in which you could access capital markets, I guess mainly through offering shares. And here this morning you said that you had enough capital with your $7.5 million to fund inventories and anything else that you foresaw in 2015. I guess the question is what were you thinking about when you went for the $25 million and is that just kind of something you want to keep in your back pocket?

Yes, that $25 million shelf registration lasts three years. So we put it out there because mainly for two reasons. So what I meant was that we are not in the urgent immediate need to raise capital, obviously.

But we did that for two reasons. One is that the companies that we are competing with are mostly very established companies. You are talking about Philips, OSRAM, GE. And our customers are business customers. They are concerned about our survivability and our sustainability. So we have to have a very strong balance sheet to compete with these big companies. We believe that we have a very strong portfolio and strategy and team to win against these incumbents, but we need a very strong balance sheet to make sure that there is no [foul-ups], that we can be a partner for these businesses.

The second reason is that, as you know, the LED market is a fast-changing industry and there might be opportunities for us to buy technology, or distribution that we can buy at a very good price. And it might come up any time. I am not seeing anything at this point that are exciting, but as we always say internally, we are living the dog years. One month here is equivalent to a year in other industry, so you never know what is coming on the horizon six months down the road. So we want to be ready to have that optionality to respond to these opportunities. So these are the two reasons why we filed the shelf.

Sure, okay. Next question is on guidance. Are you willing to give us any guidance for the first quarter of 2015 or is that something that is just going to be better than the fourth quarter?

Well, we certainly are still looking for continually strong growth, but because we are still a relatively small company, we are trying to give investors a full-year guidance and even that full-year guidance is a very risky one just because, as I said, one year is a long time for Energy Focus. So all we can say is that we expect continuing growth and to pin down a specific range is simply not practical given that we are dealing with a lot of opportunities that might come in the last minute, or it might split up into the next quarter in the next minute. There are contracts that could take a year to execute.

So I think investors should be looking at the Company executing quarter by quarter and looking at our progress quarter by quarter. Predicting a specific number for a particular quarter is probably not the best way to look at Energy Focus. We are here for the long haul.

And we did tell everyone that we are still comfortable with the 50% annual sales growth target. And if you look at our sales in the fourth quarter, as you exclude the one-time charges, we are pretty much -- we are very close to breakeven at that level of sales, the $9.5 million. So as you extrapolate that expenses line and grow at the lower rate than the top line, then it's not hard to imagine that we will be profitable once we surpass a certain amount of sales on a quarterly basis.

That's great.

Does that answer your question, Bill?

Oh, it does. I think we all look forward to a profitable quarter and a profitable 2015. Thank you for indulging me and good luck in the future.

With no further questions, that does conclude the question-and-answer session. I will turn things back to Mr. James Tu for any additional or closing remarks.

Thanks, everyone, again for your participation. We very much look forward to talking to you again in our first-quarter 2015 earnings call. Thank you and have a great day.

Once again, ladies and gentlemen, that does conclude today's conference. Thank you for your participation.