Orion Energy Systems Announces Fiscal 2015 Second Quarter Results

Orion Energy Systems, a leading designer and manufacturer of high-performance, energy-efficient lighting platforms, today announced financial results for its fiscal 2015 second quarter and first half ended September 30, 2014.

Operating and Financial Highlights

·         Total revenue for the fiscal 2015 second quarter was US $13.4 million, compared to $27.5 million in the prior-year period, largely due to the expected significant decrease in non-core solar sales compared to the prior year and lower sales of high-intensity fluorescent (HIF) lighting products as Orion transitions its emphasis to its light emitting diode (LED) products.

·         As of September 30, 2014, the Company had the largest lighting backlog in the Company’s history, with $11.8 million in LED and HIF lighting orders, compared to a lighting backlog of $7.0 million as of June 30, 2014.

·         LED lighting product sales increased to $5.2 million in the fiscal 2015 second quarter, accounting for 39.2% of total lighting product revenues, an increase from $1.0 million, or 5.4% of total lighting product revenues, in the prior-year period. The growth was largely driven by enterprise account wins and sales growth from the Company’s expanded reseller network.

·         The Company increased its network of key regional resellers to 70 at September 30, 2014, up from 30 at March 31, 2014. Although there is a necessary lead time associated with signing new resellers and when they begin to produce a consistent order flow, Orion believes it’s significantly larger reseller base will lead to future potential sales expansion.

·         In October 2014, the Company announced the launch of several new LED products at its Annual Sales Summit, including a new line of high bay and exterior lighting solutions.

·         As a result of the Company’s increased emphasis on its LED products, the Company recognized a non-cash impairment charge to its long-term wireless controls inventory of approximately $12.1 million during the fiscal quarter.

·         As of September 30, 2014, the Company’s working capital was $25.2 million compared to $33.1 million at March 31, 2014. In addition, for the six months ended September 30, 2014, the Company reduced total debt by approximately $1.6 million.

·         The Company narrowed its fiscal 2015 revenue guidance range to between $80 million and $88 million from its previous range of between $80 million and $105 million. Management has a high level of confidence in achieving this guidance range based on its existing backlog and expected LED order flow in the second half of fiscal 2015.

Management Comments

John Scribante, Chief Executive Officer of Orion, stated, “Over the past 12 months, we have successfully transitioned the Company to take advantage of the large market opportunity in LED lighting. We closed the quarter with the largest lighting backlog in our history, largely driven by our escalating LED product adoption rates and continued efforts in expanding our sales infrastructure. In the second quarter, our top line and gross margins were impacted by a number of large account wins that were delayed into the second half of fiscal 2015. However, we are now beginning to see our pipeline of LED product sales build, and we have the capacity and personnel to handle it. Sales are being generated through a number of channels. We secured LED lighting solutions orders from several large enterprise accounts and also have seen our reseller sales increase dramatically from January 2014. We believe this is largely due to the success of our LED Troffer Door Retrofit product. We will continue to expand our LED product suites to address increasing customer demand for our LED lighting solutions.”

Financial Review

Fiscal 2015 Second Quarter

·         Revenue: Total revenue was $13.4 million for the fiscal 2015 second quarter, compared to $27.5 million in the prior-year period. Orion reported an $8.9 million decrease in revenues year over year as a result of the expected lower revenues from the Company's phased out non-core solar energy business and a $5.2 million decrease in lighting revenues from the Company’s ongoing transition to an LED-driven sales platform.

·         LED Lighting Revenue: Product revenue from Orion’s LED products increased to $5.2 million during the fiscal 2015 second quarter, compared to $1.0 million in the prior-year period. Due to recent new LED product releases and an increased reseller network, Orion believes its LED product sales will continue to grow during the second half of fiscal year 2015.

·         Gross Margin: The Company’s gross margin was impacted by a non-cash impairment charge to its long-term wireless controls inventory of approximately $12.1 million, which was included in Orion’s cost of product revenue.
Total gross margin excluding this charge was 11.8% for the fiscal 2015 second quarter, compared to 28.5% for the prior-year period, largely as a result of the decline in the Company's HIF lighting product revenue and the related impact of the Company's fixed expenses associated with its manufacturing facility on the Company's reduced sales volume.

·         Net Income / Loss: The Company reported a net loss for the fiscal 2015 second quarter of $18.3 million, or $0.84 per share, which includes the $12.1 million, or $0.56 per share, non-cash impairment charge relating to the write-down of its long-term wireless controls inventory. In the prior year period, Orion reported net income of $2.4 million, or $0.11 per diluted share, which included a $2.2 million tax benefit related to deferred tax liabilities related to the acquisition of Harris Lighting.

Fiscal 2015 First Half

·         Revenue: Total revenue was $26.7 million for the fiscal 2015 first half, compared to $48.3 million in the prior-year period. Orion reported a $12.7 million decrease in revenues year over year as a result of the expected lower revenues from the Company's phased out non-core solar energy business and an $8.9 million decrease in lighting revenues from the Company’s ongoing transition to an LED-driven sales platform.

·         Gross Margin: The Company’s gross margin was impacted by a non-cash impairment charge to its long-term wireless controls inventory of approximately $12.1 million, which was included in Orion’s cost of product revenue.
Total gross margin excluding this charge was 15.7% for the fiscal 2015 first half, compared to 28.0% for the prior-year period, largely as a result of the decline in the Company's HIF lighting product revenue and the related impact of the Company's fixed expenses associated with its manufacturing facility on the Company's reduced sales volume.

·         Net Income / Loss: The Company reported a net loss for the fiscal 2015 first half of $22.7 million, or $1.04 per share, which includes the $12.1 million, or $0.56 per share, non-cash impairment charge relating to the write-down of its long-term wireless controls inventory. In the prior year period, Orion reported net income of $1.6 million, or $0.08 per diluted share, which included a $2.2 million tax benefit related to deferred tax liabilities related to the acquisition of Harris Lighting.

Balance Sheet Review

·         Cash and Investments: Orion had approximately $11.1 million in cash and cash equivalents and $0.5 million in short-term investments as of September 30, 2014, compared to $17.6 million and $0.5 million, respectively, at March 31, 2014.

·         Working Capital: The Company’s working capital as of September 30, 2014 was $25.2 million, consisting of $41.3 million in current assets and $16.1 million in current liabilities, compared to $33.1 million, consisting of $50.3 million in current assets and $17.2 million in current liabilities, at March 31, 2014.

·         Net Cash from Operations: The Company reported a $3.8 million decrease of net cash from operations during second quarter of fiscal 2015, compared to a $7.5 million increase of net cash from operations in the prior-year period.

·         Total Debt: Orion’s total debt decreased $1.6 million to $5.0 million at September 30, 2014, compared to $6.6 million at March 31, 2014.

Outlook

·         Revenue Guidance: The Company narrowed its expectations of its total revenues for fiscal 2015 to between $80.0 million and $88.0 million, compared to the Company's prior expected range between $80 million and $105 million. The Company has a high level of confidence that it will achieve this range largely based on its existing backlog, customer acceptance of new LED products and pipeline conversion from its growing reseller network and enterprise accounts. The Company revised the upper end of its previous revenue guidance range based upon achieved bookings through the first six months. The Company intends to further tighten this range after the Company's fiscal 2015 third quarter.

·         LED Sales Outlook: The Company anticipates an increase in sales revenue for the second half of fiscal 2015 due to its recent release of innovative new LED products for industrial, commercial and exterior applications. Orion released its new product offerings at its October Annual Sales Summit. Orion began taking orders for its new products immediately after the introduction and will begin shipments during the third quarter of fiscal 2015. Thirty companies represented at the Annual Sales Summit were new partners with Orion, and the Company plans to continue to increase its reseller network throughout the remainder of fiscal 2015.

·         Margin Outlook: The Company expects its gross margins to improve during the second half of fiscal 2015 as revenue volume increases, the Company realizes improved leverage within its manufacturing operations, and as it realizes the benefits from expected improved component costs. Orion is aggressively working on cost improvement initiatives with component suppliers for its LED product lines and anticipates greater purchasing leverage as its LED volumes increase. The Company believes its recent investments in new product development and branding will deliver incremental gross profits from customer and product sales expansion. The Company is targeting gross margins for fiscal 2015 to range between 18-20%, before the inventory impairment charge, based upon current costs and execution of its margin enhancement initiatives. As the Company begins to realize economies of scale in its lighting product categories, it expects to achieve gross margins of approximately 30% in fiscal 2016. Management will provide additional detail about its margin improvement plans during Orion’s quarterly conference call.

·         Acquisitions: The Company continues to evaluate potential acquisition opportunities that could expand its supply chain capabilities, product lines, and be complementary to its existing operations.

Mr. Scribante continued, “We have made considerable strides to take advantage of the market opportunity for LED products. We are capitalizing on this transition from traditional lighting products, as evidenced by recent enterprise account wins from both the private and public sectors, favorable response from our reseller network, and increasing efficiency throughout our manufacturing facilities. We are confident that we can achieve our fiscal 2015 revenue guidance range based on our current backlog and sales pipeline, and we believe that the infrastructure is in place to take advantage of a sizable market in LED.”

Mr. Scribante concluded, “We believe that the momentum built in fiscal 2015 will continue to position Orion for growth in the coming years. Historically, we have relied on strong relationships in commercial industries and leveraging strong manufacturing capabilities to drive sales. While we continue to maintain a first-rate manufacturing process, we have expanded our product offerings to meet changing customer requirements while also entering new markets. Our investments in product development and re-branding culminated in a successful new product sales launch in October, which expanded our product offerings to take advantage of the potential of LED retrofit in the office, retail, and commercial markets. The LED adoption in these markets is still incredibly low, and our new suite of interior, high bay, and exterior products provide customizable solutions for our customers and allows us to target multiple price points.”

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