Orion Energy Systems Anticipates LED Lighting to Drive Fiscal 2015 Sales

Orion Energy Systems, Inc. announced financial results for its fiscal 2014 fourth quarter and year ended March 31, 2014.

Operating Highlights

Total revenue for fiscal 2014 was US $88.6 million, compared to US $86.1 million in fiscal 2013.

Total revenue for the fiscal 2014 fourth quarter declined to US $12.6 million, from US $22.3 million in the prior-year period, largely as a result of delayed lighting sales coupled with a decline in the number of solar projects under construction as Orion deemphasizes its non-core solar business.

The Company continued to expand its penetration into the LED market, as product revenue from LED lighting systems increased 156.9% year over year to US $4.8 million in fiscal 2014 and 117.6% year over year to US $1.3 million in the fiscal 2014 fourth quarter. The Company believes that its LED lighting systems will be a primary driver of its sales during fiscal 2015.

Orion generated US $9.9 million in net cash from operations during fiscal 2014 compared to $2.3 million during fiscal 2013. The Company’s working capital at March 31, 2014, was US $33.1 million compared to US $34.8 million at March 31, 2013.

Management Comments

John Scribante, Chief Executive Officer of Orion, stated, “We continued to make progress during fiscal 2014 through improved operating efficiencies and better positioning our Company to take advantage of a lighting retrofit marketplace with ample opportunity for growth. We have successfully undergone a transformation of Orion’s operations with the implementation of LEAN manufacturing processes, reorganization of the Company’s salesforce while increasing the number of salespeople to better serve Orion’s customers, and completion of the acquisition and integration of Harris Manufacturing and Harris LED to expand our product offering of LED and expand our customer base, all while generating US $9.9 million in cash from operations during fiscal 2014. In the fourth quarter, we experienced a slower-than-expected adoption by potential customers of our newer LED product offerings and retrofit solutions that affected our sales in the short term. We believe this is due to larger national companies delaying the decision to integrate newer technologies as the LED advantages start to overtake existing infrastructure. Our pipeline of opportunities has been growing at unprecedented levels. We remain focused on expanding the value proposition of our core lighting solutions and are not dissuaded from our long-term objectives, nor do we feel that a longer timeline diminishes the progress our team has made since my appointment 18 months ago.”

Mr. Scribante continued, “We successfully integrated Harris into our operations and in January 2014 launched the industry’s first complete suite of LED Troffer Door Retrofit (LDR) products that are completely assembled within the door frame for ease of installation. Our LDR product provides potential customers in office, retail and industrial markets with quality lighting, immediate reduction of energy costs and non-invasive quick installation. We are beginning to gain traction as our team introduces these new LED solutions to the market and are singularly focused on driving sales.”

Financial Review

Fiscal 2014 Fourth Quarter

Total revenue was US $12.6 million for the fiscal 2014 fourth quarter, compared to US $22.3 million in the prior-year quarter. The decrease in revenue was a result of delayed customer purchase decisions and lower revenues from the Company’s non-core solar operations. Product revenue from Orion’s LED products increased to US $1.3 million, or 12.4% of total lighting product revenues, during fiscal 2014 fourth quarter, compared to US $0.6 million, or 3.4% of total lighting product revenues, in the prior-year period.

Total gross margin was 10.2% for the fiscal 2014 fourth quarter, compared to 35.8% for the prior-year period, largely as a result of reduced sales volumes of manufactured lighting products and the related impact of fixed expenses within its manufacturing facility and US $1.4 million of increased inventory reserves being recorded due to lower fluorescent product sales. In addition, the Company reported lower margins on its non-core solar projects, which compared to an unusually high-margin solar project in the fourth quarter of the prior year.

The Company reported a number of non-recurring expenses during its fiscal 2014 fourth quarter that partially contributed to a net loss for the period of US $(8.8) million, or US $(0.41) per diluted share, compared to net income of US $0.5 million, or US $0.03 per diluted share, in the prior-year period. These expenses included the previously noted US $1.4 million in inventory reserves, a loss of US $1.5 million from the sale of a leased corporate jet, and US $0.3 million in acquisition-related expenses.

Fiscal 2014 Year-end Financial Highlights

Total revenue for the fiscal 2014 year was US $88.6 million, compared to US $86.1 million in fiscal 2013. For fiscal 2014, Orion’s gross margin declined due to reduced sales volumes of manufactured lighting products and the related impact of fixed manufacturing facility expenses, as well as the increased relative impact in total gross margin of its low-margin solar projects. The Company’s gross margin from its integrated lighting systems revenue for fiscal 2013 was 31.2% compared to 26.0% during fiscal 2014. For fiscal 2014, the Company reported a net loss of US $(6.2) million, or US $(0.30) per diluted share, compared to a net loss of US $(10.4) million, or US $(0.50) per diluted share, in the prior year.

Outlook for Fiscal 2015

As Orion increases its focus on the lighting retrofit market, which has inherently limited visibility and unpredictability between quarters, and moves away from its non-core solar construction projects, the Company is formally adjusting its previous policy of providing quarterly revenue and earnings guidance ranges to providing annual revenue projections. Orion will also begin providing updated operating metrics and financial goals each quarter to assist shareholders and potential investors in evaluating the Company. Orion currently has the following expectations for the fiscal 2015 year ending March 31, 2015:

The Company expects its total revenues for fiscal 2015 to range from US $80.0 million to US $105.0 million, based on its projected sales growth of LED lighting solutions. Orion intends to update this range quarterly or as necessary.

The Company expects its sales of LED products will continue to grow as a percentage of total revenue in fiscal 2015. Orion has seen its pipeline of potential sales orders expand as its product offering has increased, with many of its potential orders exceeding US $1 million.

Revenue from the non-core solar business is expected to be less than $1.0 million during fiscal 2015 and will not continue into future years.

The Company intends to expand its growth of key regional resellers, with 30 at March 31, 2014. Orion believes that expansion in this metric will serve as a leading indicator as there is a certain ramp-up time from signing to when resellers begin to produce a decent order flow.

The Company expects gross margins to be approximately 30% across all lighting product categories.

Orion has ample capacity at its manufacturing facility (currently operating at approximately 15% to 25% of its capacity) and does not foresee any significant capital expenditures within its existing Manitowoc location.

The Company continues to explore strategic acquisitions that can broaden its product lines and create synergies through better asset utilization and economies of scale.

Mr. Scribante concluded, “Within our industrial, office, and retail customer base, LED product costs have been declining while performance, and the related energy reduction, is improving. In line with our strategy to emphasize our LED products, we intend to redeploy a portion of the savings resulting from the eliminated aviation operating expenses and make investments this year into a corporate rebranding and a meaningful R&D initiative to highlight our LED capabilities. We expect to utilize our operating leverage, intellectual property, and talented staff to drive sales and build on the solid foundation we have created over the past year. With the majority of the Company’s cost-cutting initiatives completed, Orion has transitioned its focus to driving top-line growth and profits through new orders in fiscal 2015.”

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