Orion Energy Systems, a leading designer and manufacturer of high-performance, energy-efficient lighting platforms, today announced financial results for its fiscal 2015 third quarter and nine months ended December 31, 2014.

Operating and Financial Highlights

• Total revenue for the fiscal 2015 third quarter was $26.1 million, a decrease of 5.6% compared to $27.7 million in the prior year period. Quarterly revenues reflect a decrease in revenue from the Company’s discontinued solar business and an increase in total lighting revenue.
• As of December 31, 2014, the Company had a lighting backlog of $7.1 million in LED and high-intensity fluorescent (HIF) lighting orders, compared to a lighting backlog of $11.8 million as of September 30, 2014.
• LED lighting product sales increased to $12.7 million in the fiscal 2015 third quarter, accounting for 54.1% of total lighting product revenues, an increase from $1.4 million, or 6.9% of total lighting product revenues in the prior year period. Third quarter LED lighting product sales increased 807% over the prior year third quarter.
• The Company increased its network of key regional resellers to 101 at December 31, 2014, up from 70 at September 30, 2014, and 30 at March 31, 2014.
• As of December 31, 2014, the Company’s working capital was $21.5 million compared to $33.1 million at March 31, 2014.

Management Comments

John Scribante, Chief Executive Officer of Orion, stated, “Orion continues to see sales acceleration as our LED products penetrate into our target markets. During fiscal 2015, we worked to successfully position the Company to capitalize on our customers’ transition from traditional lighting products to LED lighting products. This has been proven by our recent enterprise account wins from both the private and public sectors, favorable responses from our reseller network, and increased efficiency throughout our manufacturing facilities. While sales progression has been difficult to predict in the short-term, we believe that we now have the breadth of quality products and sales infrastructure to drive volume at an increasing rate during this accelerating LED adoption cycle. We have dedicated resources to establish our brand as the premier provider of retrofit lighting solutions, which is benefiting us through new sales opportunities. This is evidenced by the increasing number of large wins over the past six months in each of our industrial, commercial and exterior applications, higher quarter over quarter sales in LED products throughout the fiscal year, and a vastly improved pipeline of new business opportunities.”

Scribante continued, “We also are improving our cost dynamics in order to ultimately achieve margin expansion, with a goal towards profitable operations for the next fiscal year. We strengthened our financial flexibility through the signing of a new revolving line of credit with Wells Fargo. We believe that we are better positioned than many of our competitors to achieve sales growth in excess of a growing market.”

Company Signs New $15.0 Million Revolving Line of Credit

Orion executed a 3-year loan and security agreement with Wells Fargo N.A. The Company executed a $15.0 million line of credit, with borrowings under the credit facility expandable to $20.0 million, subject to a borrowing base requirement based on eligible receivables and inventory. The new line of credit will bear interest at three month LIBOR plus 3%, which presently equals 3.26% per annum. Orion signed the line of credit to provide financial flexibility as it continues to expand its LED sales.

Financial Review

Fiscal 2015 Third Quarter

·         Revenue: Total revenue was $26.1 million for the fiscal 2015 third quarter, compared to $27.7 million in the prior year period. Orion reported a $5.0 million increase in total lighting revenues year over year as a result of higher LED lighting sales during the period. Total lighting sales for the fiscal 2015 third quarter were $25.9 million, compared to $20.9 million in the prior year period. Revenue from Orion’s now discontinued solar business for the 2015 fiscal third quarter was $0.3 million, compared to $6.8 million in the prior year period.

·         LED Lighting Revenue: Product revenue from Orion’s LED products increased to $12.7 million during the fiscal 2015 third quarter, compared to $1.4 million in the prior year period. LED sales have grown to 54.1% of total lighting product revenue.

·         Gross Margin: Total gross margin was 14.6% during the fiscal 2015 third quarter, compared to 29.4% for the prior year period. Gross margin for the third quarter was significantly impacted by a $0.6 million warranty reserve charge to account for identified deficiencies in the Company's initial shipments of its Apollo High Bay product. Certain shipments of this product had higher than anticipated heat signatures for customers, and Orion replaced such products with another series of lighting systems to its customers, which have operated without fail. The Company has successfully corrected these initial problems and shipped units of the updated product with favorable reviews from its customer base, and does not foresee any further warranty charges or other long-term customer detriment as a result of these initial product deficiencies.

The Company’s gross margin excluding this warranty charge was 17.0% for the third quarter of fiscal 2015, which is an improvement over the 11.5% reported in the second quarter of fiscal 2015.

·         Net Income / Loss: The Company reported a net loss for the fiscal 2015 third quarter of $(4.7) million, or $(0.21) per share, compared to net income of $1.0 million, or $0.05 per diluted share, in the prior year period.

Fiscal 2015 First Nine Months

·         Revenue: Total revenue was $52.8 million for the first nine months of fiscal 2015, compared to $76.0 million in the prior year period. Orion reported a $23.2 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 $3.9 million decrease in lighting revenues from the Company’s ongoing transition to an LED-driven sales platform.

·         Gross Margin: The Company’s gross margin for the nine months ended December 31, 2015 of (7.8)% was impacted by a non-cash impairment charge to its long-term wireless controls inventory of approximately $12.1 million and the earlier mentioned charge on the Company’s warranty, which was included in Orion’s cost of product revenue.

Total gross margin excluding these charges was 15.1% for the first nine months of fiscal 2015, 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 nine months of $(27.4) million, or $(1.26) per share, which included 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 $2.6 million, or $0.12 per diluted share, which included a $2.2 million tax benefit related to deferred tax liabilities related to the acquisition of Harris.

Balance Sheet Review

·         Cash and Investments: Orion had approximately $4.8 million in cash and cash equivalents and $0.5 million in short-term investments as of December 31, 2014, compared to $17.6 million and $0.5 million, respectively, at March 31, 2014.

·         Working Capital: The Company’s working capital as of December 31, 2014 was $21.6 million, consisting of $46.3 million in current assets and $24.7 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 $5.1 million decrease of net cash from operations during third quarter of fiscal 2015, compared to a $1.3 million increase of net cash from operations in the prior year period.

·         Total Debt: Orion’s total debt decreased $2.2 million to $4.4 million at December 31, 2014, compared to $6.6 million at March 31, 2014.

Management Outlook

Mr. Scribante continued, “We believe that the momentum built in the first nine months of fiscal 2015 will continue to position Orion for growth in the coming years. Our new LED product lines are receiving favorable reviews from customers, and sales are accelerating. While it has been difficult to predict the timing of sales, our continuous LED sales growth quarter over quarter is an indication that the investments made to date are generating a return. The target markets that our products serve are extensive and are still in the early stages of transitioning to LED. Industry LED adoption is growing at a consistent rate, as customers are beginning to see that cost savings from upgraded lighting solutions provide a return that continues to become increasingly compelling. Given the product cycle that exists in our industry, we expect to capitalize on this opportunity particularly because of our competitive advantages in ease of installation, product performance, and ultimately, providing a superior total cost of ownership. We believe that we are currently better positioned for future sales growth than we have been at any point in our previous history.”

·         Revenue Guidance: The Company revised its expectations of its total revenues for fiscal 2015 to between $72.0 million and $74.0 million, compared to the Company's prior expected range of between $80.0 million and $88.0 million. The Company’s rate of customer acceptance on its LED lighting solutions has continued to accelerate, and Orion believes that growth in its pipeline will drive sales well into fiscal 2016, with the main variable being short-term commitments and bookings. The Company anticipates providing an annual sales target for fiscal 2016 when it reports fiscal 2015 fourth quarter financial results.

·         LED Sales Outlook: Orion has continued to see accelerating sales in its core target markets for LED products, including industrial, commercial and exterior applications. Orion is continuing to receive favorable reviews on its new LED products launched at its October 2014 sales summit and its re-selling network has continued to grow.

·         Margin Outlook: Orion has worked diligently on improving its cost of sales as its unit shipments have increased. The Company is seeing improving cost dynamics from component suppliers for its LED product lines and expects greater purchasing leverage as volumes continue to increase, which resulted in product margin improvement monthly throughout the fiscal 2015 third quarter. The Company is now targeting gross margins for fiscal 2015 of between 16.3-16.6% before the inventory impairment charge and warranty reserve, and achieved 16.3% for the nine months ended December 31, 2014 excluding these events. Management will provide additional detail about its margin improvement plans during Orion’s quarterly conference call.