Orion Energy Systems, Inc. (Orion Lighting), a designer and manufacturer of high-performance, energy-efficient LED lighting products, announced preliminary, unaudited financial results for its fourth quarter (Q4 ’17) and fiscal year ended March 31, 2017.

(Image: Orion Energy Systems)

Orion CEO, John Scribante, commented, "Despite overall revenue growth of 12% and a 27% increase in LED product sales in the first nine months of fiscal 2017, both Orion and the lighting industry hit an ‘air pocket’ of lower than anticipated order activity in Orion’s fourth quarter ended March 31st. This slowdown limited our FY 2017 revenue growth to 3.5%-4%, or approximately $70.0-$70.4 million, compared to revenue of $67.6 million in fiscal 2016, and our previously communicated guidance of 10-15% growth.”

Orion’s Q4’17 preliminary, unaudited revenue declined 17-19% to approximately $15.1-$15.5 million, compared to $18.6 million in Q4 ’16. The Q4 ‘17 revenue shortfall was principally the result of the far slower pace of lighting sales early during the period. Orion’s FY 2017 performance reflected approximately 17% growth in energy-saving LED lighting product sales. LED sales rose to approximately 81% of total lighting product sales in FY 2017, up from 71% in FY 2016 and increased to approximately 89% of total lighting product sales in Q4’17, up from 76% in Q4’16.

Orion is not seeing any structural alterations or changes in the competitive landscape within the industrial LED lighting retrofit market. In fact, during fiscal 2017, Orion grew its new order bookings by approximately 15% year over year. Orion’s fiscal 2017 revenue grew despite the expected ongoing decline in its legacy fluorescent business, which contracted by approximately $6 million; as well as a year-over-year decline in LED component pricing, which negatively impacted average selling prices and Orion’s FY 2017 revenue. Looking past these factors, the solid underlying growth in LED product sales underscores strong confidence in Orion’s market position and growth prospects.

As others in the LED retrofit industry also experienced, new order activity decelerated early in Orion’s fourth quarter, as many customers reevaluated capital spending plans while they assessed the economic, business, and market sentiment impact of the new U.S. Government administration and its policies. Orion started to see budgets begin to be released later in its fourth quarter, but the pace of rebound proved more measured than expected, leading to the Q4 ‘17 revenue shortfall. Fortunately, the market is moving towards a more normal pace of business, and Orion continues to see its energy-efficiency value proposition resonating with customers, as confirmed by last week’s announcement of $1.9M in new orders with the U.S. Navy.

Preliminary Addition to Inventory Reserves

Given the heightened deceleration in fluorescent lighting and prior generation LED product sales as a result of more energy efficient and price-competitive LED alternatives, Orion plans to record a reserve against its slower moving inventory of $1.5 – $2.0 million in Q4 ‘17. This additional reserve will be reflected as a charge within cost of sales, reducing gross margin. In the future, Orion will follow a “build-to-order” model for its fluorescent products business, helping to insulate the Company from future fluorescent inventory issues.

As a result of the addition to inventory reserves and lower than anticipated production activity during the quarter, the gross margin estimate for FY 2017 is expected to be approximately 25% versus previous guidance of at or near 30%.

Preliminary Balance Sheet

On a preliminary, unaudited basis, Orion ended FY 2017 with approximately $17.3 million in cash and cash equivalents, compared to $15.5 million at March 31, 2016. Long-term obligations under Orion’s revolving credit facility were approximately $6.6 million at March 31, 2017 as compared to $3.7 million at March 31, 2016.

Concluding Remarks

Mr. Scribante added, “Our LED product revenue has grown at a 130% compound annual growth rate to $53.3 million over four years. That speaks to the strength of our product mix and the clear ROI benefits of retrofitting to high quality, energy efficient, and flexible Orion LED solutions. Further, this growth was achieved amidst a restructuring of our agent network over the past year. We believe the outlook for the LED lighting retrofit industry and Orion remains strong, and we are committed to delivering results.”