Orion Energy Systems, Inc.: Energy efficient LED lighting designer Orion reports Q1’18 revenue of $12.6M and reviews cost reduction progress

MANITOWOC, Wis., Aug. 04, 2017 (GLOBE NEWSWIRE) — Orion Energy Systems, Inc. (NASDAQ:OESX) (Orion), a leading designer and U.S. manufacturer of high-performance, energy-efficient LED lighting products, today reported results for its fiscal 2018 first quarter (Q1’18) ended June 30, 2017. Orion will hold an investor call today at 10:00 a.m. ET (9:00 a.m. CT) to review its results and plans to drive growth and accelerate its path to profitability. Call details below.

Highlights

-Orion’s agent driven distribution channel delivered on-plan revenue performance in Q1’18, however total revenue in the period was lower than expected due to delays in closing a few larger national account orders, which we still expect to close in fiscal 2018. Q1’18 performance also reflected a $2.3 million decrease in Fluorescent lighting product sales versus Q1’17.

-LED lighting product revenue continued to grow as a percentage of total lighting product revenue, rising 1,283 basis points to 89.7% in Q1’18 from 76.9% in Q1’17.

-Orion implemented the majority of its identified cost reduction initiatives during Q1’18 and remains on track to reduce overall operating expenses by $3.5-$4.0 million on an annualized basis.

-Including one-time employee separation costs of $1.8 million related to the cost reduction initiatives, general and administrative expenses increased to $5.3 million in Q1’18 from $3.9 million in Q1’17. Excluding these costs, general and administrative expenses would have decreased by 9% over Q1’17.

CEO Commentary
Orion CEO Mike Altschaefl, commented, “While Q1 was challenging from a revenue standpoint, we believe our performance was principally a reflection of the normal variability of our business on a quarterly basis driven by the timing and size of larger orders. We expect to see the positive side of this variability in the future, and are also very pleased with the solid execution in our expanding agent driven distribution channel. Given its far broader and deeper reach, this channel offers Orion strong mid and long-term growth potential.

“In support of that effort, we recently appointed Kevin Grayson as Senior Vice President for Channel Sales. Kevin brings to Orion over 20 years of lighting industry sales management experience with several industry-leading manufacturers and manufacturer’s rep agencies. He has particular expertise managing an agent driven distribution model and will be responsible for overseeing this channel for Orion.

“We are optimistic about our opportunity to generate significant revenue performance from our national accounts over the full fiscal year.

“We are also focusing on our bottom-line, making solid progress in our efforts to trim $3.5 to $4.0 million in costs from our annual operating expenses. These cuts reach across the entire organization, including management and board compensation, and will be substantially implemented by the end of Q2’18. Thereafter, we expect that the full benefit of these actions combined with expected progress in our expanded sales efforts to enable Orion to reach our goal of achieving break-even EBITDA, before non-recurring items, by Q4’18.

“We are seeing many potential customers reengage in their review of LED lighting opportunities. The performance and value proposition of our product lines are being very well received by both our agent driven distribution channel and our national accounts. Together, these dynamics support our confidence in our competitive position in this very large and evolving industry, and we remain excited and optimistic regarding Orion’s business performance in fiscal 2018.

“We also have some new and exciting products that we are launching this month, focusing on three main objectives:

-Increasing our competitive product footprint with the agent driven distribution channel and entry-level focused buyers

-Leveraging existing platforms and expanding options to increase our market opportunity

-Leveraging our experience in control and IoT solution adaptability through new modular plug and play solutions

“Part of our new product launch includes a new modular sensor platform that expands our ability to adapt to a wide range of available control options, from basic controls to advanced IoT solutions, all in a modular plug and play fashion. This technology and approach allows the customer to deploy sensor technology exactly where and when they want in their facility.”

Mr. Altschaefl added, “Our core value proposition remains unchanged and is centered around four pillars of commitment that differentiate Orion from the competition:

-Industry leading product performance, energy efficiency, and thought leadership – delivering more rapid ROI and future proof lighting options

-Genuine, high-quality, high-touch customer service

-Flexibility and nimbleness in responding to customer needs, including specialty design, development, prototyping, and production – which larger competitors cannot match

-Rapid response local-to-local production operations delivering the quality and reliability our customers expect – typically in 10 days or less

“Our entire organization is dedicated to achieving these standards each and every day, and we have a strong track record of achievement that we proudly post on our website in real time (www.orionlighting.com/quality-and-reliability). While price always plays a role, knowing that you can rely on Orion to be there with solid solutions, service and high touch interaction and support will always be a major competitive advantage and one that we believe will lead to success.”

Q1 2018 Overview

Orion initiated a companywide realignment during Q1’18 which included the appointment of Mike Altschaefl as CEO and an initiative to cut $3.5 – $4.0 million in annualized operating expenses versus fiscal 2017. Orion continued to build out its agent driven distribution channel which delivered on-plan revenue performance in Q1’18, with revenue of $5.5 million or 47% of total product revenue. However, due to delays in the closing of a few larger contracts that are still anticipated for later this year, combined with one-time expenses related to the cost and management realignment, Orion’s Q1’18 financial performance did not meet the Company’s growth or profitability expectations.

Revenue: Orion’s Q1’18 revenue declined 19.7% to $12.6 million, principally reflecting lower national account activity, particularly due to the timing of a few large customer opportunities that offset the as expected performance in the Company’s agent driven distribution channel. Revenue from fluorescent lighting products decreased $2.3 million year-over-year, representing 75% of the $3.1 million revenue decline.

LED Revenue: LED lighting product revenue was $10.4 million in Q1’18 or 90% of total lighting product revenue versus $11.6 million or 77% of total lighting product revenue in Q1’17.

Gross Margin: Despite a solid improvement in raw lighting product gross margin, total gross margin declined to 21.6% in Q1’18, driven by lower volume and the inability to leverage our overhead costs.

Net loss: Orion’s Q1’18 net loss increased to $6.6 million, from $2.9 million in Q1’17, principally due to the impact of reduced revenue on Orion’s fixed cost structure, along with one-time severance and other costs totaling $1.9 million in Q1’18, as well as approximately $0.4 million in additional sales and marketing expenses to support Orion’s revenue growth goals for fiscal 2018.

EBITDA: Orion’s EBITDA loss was $6.0 million in Q1’18 reflecting the above factors, compared to its Q1’17 EBITDA loss of $2.5 million.

Cash Flow: Orion used $5.8 million in cash from operating activities in Q1’18, principally reflecting its net loss, including $1.3 million of cash payments for employee separations related to the reorganization and cost savings initiatives. In addition, Orion paid down approximately $2.8 million of its revolving credit facility during the quarter.

Balance Sheet: At the close of Q1’18 Orion had $8.5 million in cash and cash equivalents and $3.9 million in borrowings under its revolving credit facility. Net working capital was $16.9 million, and Orion’s shareholder equity was $29.2 million or $1.02 per outstanding share (calculated by dividing shareholder’s equity by common shares outstanding at the end of the quarter.)

Fiscal 2018 Outlook

Because Orion management does not believe there is sufficient visibility into the timing of future industry demand trends, the Company is not providing specific financial guidance for fiscal 2018. However, management does remain optimistic about the Company’s business prospects and is reaffirming its earlier directional outlook and goals for fiscal 2018 as follows:

Orion continues to believe that its agent driven distribution model, combined with improved performance in its national account sales activities, should enable the Company to achieve its revenue growth goal of 10-15% for full year fiscal 2018.

Based on this revenue growth range, combined with the cost reduction initiatives, Orion continues to target goals of achieving a 30% gross profit margin and breakeven earnings before interest, taxes, depreciation and amortization (EBITDA), before non-recurring items, by its fiscal 2018 fourth quarter.

Because the Company’s quarterly performance can and likely will vary materially from period to period, Orion reminds investors that its full-year financial goals are targets – not implied guidance. Orion will revisit its fiscal 2018 directional outlook and financial goals each quarter and update them as appropriate.

Conference Call Details:

Date/time: Today, August 4, 2017 at 10 a.m. ET (9 a.m. CT)

Call Dial-in: (877) 754-5294 or (678) 894-3013 for international

Live Webcast/Replay: http://investor.oriones.com/events.cfm

Audio Replay: (855) 859-2056, conference ID: 53589551 (available shortly after the call through 08/11/2017)