Orion Energy Systems: Q3 2016 Results
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MANITOWOC, Wisconsin - Orion Energy Systems, Inc. (OESX), a leading designer and manufacturer of high-performance, energy-efficient retrofit lighting platforms, announced financial results for its fiscal 2016 third quarter ended December 31, 2015.
Operating and Financial Highlights
Total revenue for the fiscal 2016 third quarter was $16.8 million, a decrease of $9.3 million from $26.1 million in the prior-year period, while LED lighting product sales reached 75% of total lighting product revenue, which compared to 55% in the fiscal 2015 third quarter.
Gross profit for the fiscal 2016 third quarter increased 23.1% to $4.7 million from $3.8 million in the year ago period, and the fiscal 2016 third quarter gross margin increased to 28.1% compared to 14.6% in the prior-year period, and 18.5% in the fiscal 2016 second quarter.
As of December 31, 2015, Orion had a lighting backlog of $7.5 million in lighting orders, compared to a lighting backlog of $5.6 million as of September 30, 2015.
“Innovation continues to be a cornerstone of our ongoing success. During the quarter, LED sales as a percent of total lighting product revenue continued to increase. Our new LED high bay product offering gained significant traction during the quarter, and our forthcoming higher-margin LDR platform will further validate our innovation strategy. Furthermore, our margin expansion efforts continue to bear fruit as we achieved an aggregate gross margin of 28%, our highest in eight quarters,” said John Scribante, Chief Executive Officer.
“As we move towards the final months of our fiscal year, we believe the opportunity ahead of Orion is great and we remain laser focused on executing our strategy to build our pipeline and drive efficiencies throughout the organization to deliver top- and bottom-line growth,” Scribante said.
Financial Results Review
Fiscal 2016 Third Quarter
Revenue: Total revenue for the fiscal 2016 third quarter was $16.8 million, a decrease of $9.3 million from $26.1 million in the prior-year period. Total product sales for the fiscal 2016 third quarter were $16.1 million, a 31.9% decrease compared to $23.6 million in the prior-year period. Traction with Orion’s new LED high bay product offering was offset during the quarter by reduced customer spending activity in the industrial sector as a result of macro-economic uncertainty related to commodity prices and foreign exchange rates, as well as capital expenditure push outs of large national account projects.
LED Lighting Revenue: LED lighting product sales were $12.0 million in the fiscal 2016 third quarter compared to $12.7 million in the prior-year period, reflecting 75% of total lighting product revenue compared to 55% in the fiscal 2015 third quarter.
Gross Margin: The fiscal 2016 third quarter gross margin was 28.1% compared to 14.6% in the prior-year period and 18.5% in the fiscal 2016 second quarter, reflecting a 1,350 basis point and 960 basis point improvement, respectively. Gross margins were positively impacted by a mix shift to higher margin products, a reduction in LED component costs, and an improvement in manufacturing expenses.
Net Loss: The Company reported a net loss for the fiscal 2016 third quarter of $2.0 million, or $0.07 per share, compared to net loss of $4.7 million, or $0.21 per share, in the prior-year period.
Fiscal 2016 First Nine Months
Revenue: Total revenue was $49.1 million for the first nine months of fiscal 2016, a decrease of $3.8 million from $52.8 million in the prior-year period. Total product sales for the first nine months of fiscal 2016 was $46.9 million, a 3.4% decrease compared to $48.5 million in the prior-year period.
Gross Margin: Gross margin was 23.2% for the first nine months of fiscal 2016 compared to (7.8)% in the prior-year period, which included the impact of a non-cash impairment charge of approximately $12.1 million. Total gross margin excluding these charges was 15.2% for the first nine months of fiscal 2015.
Net Loss: The Company reported a net loss for the fiscal 2016 nine months of $9.3 million, or $0.34 per share, compared to net loss of $27.4 million, or $1.26 per share, in the prior-year period.
Balance Sheet Review
Cash and Borrowings: Orion had $17.5 million in cash and cash equivalents as of December 31, 2015, compared to $4.8 million at December 31, 2014. As of December 31, 2015, the Company had $5.0 million in borrowings outstanding on its line of credit.
Working Capital: The Company’s working capital as of December 31, 2015 was $34.1 million, consisting of $51.1 million in current assets and $17.0 million in current liabilities, compared to $21.6 million, consisting of $46.3 million in current assets and $24.7 million in current liabilities, at December 31, 2014.
Net Cash from Operations: The Company reported cash flow generated from operating activities of $2.0 million during the fiscal 2016 third quarter, compared to a $5.1 million use of cash from operations during the prior-year period.
Total Debt: Orion’s total debt was $6.5 million at December 31, 2015, compared to $4.4 million at December 31, 2014.
Management Outlook for Remainder of Fiscal Year 2016
Scribante commented, “We are making progress with our strategic initiatives to build pipeline, enhance our product portfolio, enter new markets, and drive significant growth and margin expansion. However, we have seen some weakening in demand given the uncertainty in the economy and are tempering our expectations.”
“As a result, we now expect revenue to be relatively flat year-over-year largely due to the slowdown in the industrial manufacturing sector, which may negatively impact our results further in the fiscal fourth quarter. Furthermore, while we expect trailing-twelve-month EBITDA profitability to trend positively and continued improvement in EPS, the timeline to achieve our initial targets will be dependent on the strength of the industrial markets. We are, however, maintaining our view that we will deliver significant year-over-year improvement in gross margins, achieving gross margins in the low-twenties for the full fiscal year. And lastly, we have achieved our target of positive cash flow from operations in our fiscal third quarter as a result of our margin improvement and enhanced working capital management,” concluded Scribante.
Explanation of Non-GAAP Financial Measures
The company reports financial results in accordance with generally accepted accounting principles, or GAAP. This press release includes certain non-GAAP financial measures to supplement this GAAP information. Orion uses certain non-GAAP financial measures to enable it to analyze its performance and financial condition. Orion believes EBITDA and adjusted gross margin can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of its financial performance and prospects for the future. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Additional information regarding the non-GAAP financial measures presented herein is as follows:
* Adjusted gross profit consists of GAAP gross profit adjusted to exclude the impact of non-cash impairment charges.
* Adjusted operating loss consists of GAAP operating loss adjusted to exclude the impact of non-cash impairment charges.
* Adjusted net income consists of GAAP net income adjusted to exclude the impact of non-cash impairment charges.
* Adjusted EBITDA adjusts GAAP net income available to common stockholders for the items considered in adjusted net income as well as (a) depreciation and amortization, (b) net interest expense and (c) income tax expense.
About Orion Energy Systems
Orion is leading the transformation of commercial and industrial buildings with state-of-the-art energy efficient lighting systems and retrofit lighting solutions. Orion manufactures and markets a cutting edge portfolio of products encompassing LED Solid-State Lighting and high intensity fluorescent lighting. Many of Orion's 100+ granted patents and pending patent applications relate to lighting systems that provide exceptional optical and thermal performance, which drive financial, environmental, and work-space benefits for a wide variety of customers in the retrofit markets.
Orion Energy Systems, Inc.
Bill Hull, (312) 660-3575
Chief Financial Officer