Orion Energy Systems Inc (OESX) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Orion Energy Systems fourth quarter fiscal 2010 financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions). As a reminder, this conference is being recorded.

Now your host for today's conference, Victoria Sivrais.

Thank you, Tyrone, and thank you for joining us for Orion Energy Systems fiscal 2010 fourth quarter and year-end conference call. With me today on the call are Neal Verfuerth, Chairman and CEO; Jim Kackley, President and COO; and Scott Jensen, CFO.

Before we begin I will read the Safe Harbor statement. Our remarks that follow including answers to your questions include statements that we believe to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified as such because the context of such statements will include words such as believe, anticipate, expect, or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to materially be different. Those risks include, among others, matters that we have described in our press release issues this afternoon and in our filings with the Securities and Exchange Commission. Except as described in these filings we will disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly conference call, if at all.

Now I would like to turn the call over to Neal.

Thanks, Victoria. Welcome, everyone, to our fiscal 2010 year-end conference call. As you saw in the press release we issued this afternoon, fourth quarter revenues were $18.9 million, and were up 23% from the fourth quarter of 2009, and were in line with our expectations. For the full year fiscal 2010, we reported revenues $65.4 million compared to $72.6 million in the prior year. For the fourth quarter total bookings were $16.4 million. For our fiscal 2010 bookings were $73.9 million, up 3% from the $71.7 million last year. We're pleased to see the year-over-year increase in bookings during fiscal 2010. Bookings for fiscal 2010 included $62.2 million in cash deals, $11.7 million in finance deals from the OVPP and PPA technology contracts. For the fourth quarter, we reported a loss per share of $0.04 compared with a loss per share of $0.05 in the prior year quarter. For fiscal year 2010 we reported a loss per share of $0.19 versus earnings per diluted share of $0.02 in fiscal 2009. As we mentioned in our release, we recorded unusual one-time charges totaling $0.03 related to severance and legal expenses. Excluding these charges we recorded a loss per share of $0.01 for the quarter which is in line with our guidance for the fourth quarter and a loss per share for fiscal 2010 of $0.16.

Let me switch gears now and highlight some of our accomplishments for the year as well as the key drivers of this quarter's performance. During fiscal 2010, we made great strides in enhancing our operational structure to support our long-term vision for growth which included new hires in human resources, sales and engineering. In addition, we implemented our CRM tool that will be used both internally and now by our partners in the field enabling us to increase visibility and efficiency in helping drive the sales process. Finally, through our expanded product offering, including the outdoor lighting, our photovoltaic solutions, our message of providing energy solutions instead of just light is resonating with our customers. Our conversations continue to focus on leading them down the path of energy efficiency ultimately taking them off the grid if they choose to do so, significantly reducing their energy spend.

In the fourth quarter we retrofitted an additional 36 million square feet, 238 facilities, bringing our total coverage area to 886 million square feet retrofitted across 5, 612 facilities. Since December 2001 we have delivered on our promise, saving our customers a total of $857 million in energy costs, reducing energy consumption by 11.1 billion kilowatt hours while reducing the carbon dioxide emissions by 7.4 million tons. On average, we saved customers about $0.38 per square foot annually. We continue to see increasing contribution from our wholesale business year over year as fiscal 2010 revenues from our partners made up 42% of the sales compared to 39% in the previous year.

Contributing to our solid results from our partner network was the addition of four elite partners during the quarter. In addition, as our partners begin to add to their staff, we're increasing our overall feet on the street throughout North America. Our partner network has also yielded some large deals in the fourth quarter, specifically for a large truck manufacturer, a food products group, and a leading manufacturer of farm and forestry equipment, amongst others. We continue to devote resources to building out this channel and these wins are strong evidence that our partner recruitment and training programs are working. On the national account side of our business, we also secured some sizable deals in the fourth quarter, most notably a multi million dollar deal with one of the nation's largest close-out retailers. The wins from both our partner network and the retail side of our business demonstrate that our compelling value proposition continues to resonate with customers that are looking to meet sustainability goals and reduce their energy costs.

In addition to our interior technology, our exterior technology sales continue to ramp. In the fourth quarter Plant Engineering Magazine awarded our exterior fixture technology the gold award in new product awards competition. What's even more encouraging is in the fourth quarter we secured a deal with a large Las Vegas hotel and casino looking for a parking garage solution taking advantage of the opportunity to expand our market into businesses like hotels, restaurants and office complexes that traditionally wouldn't deploy our high-bay technology but have substantial savings opportunities in their parking ramp areas. This product offering, while still a small part of our overall revenues, represents an immense opportunity for Orion with an estimated 20 million outdated HID parking lot lights in North America. We're confident that when electricity loads shift to off-peak hours as the electric car and other battery charged products evolve, this exterior technology will play an important role in freeing up capacity for the utilities and the transmission and distribution infrastructure.

Our photovoltaic technology continues to be well-received by customers as the next step towards achieving energy independence. During this quarter, Coca-Cola Enterprises unveiled the new technology as part of the ribbon cutting ceremony for its first LEED certified facility in Coachella, California. This technology, the photovoltaic, in conjunction with the Orion solar light pipe, our control system and our electric lights, are providing energy back to the grid while allowing Coke to run their distribution and sales center at full capacity. So they're actually selling power back to the grid to help relieve the pressure on California's stretched electric grid. They're totally off the grid. The early acceptance of the PV technology in our existing customer base during the last several quarters is a testament to the technology's superior performance, and the strong relationships we have with our customers.

The momentum that began to build in the second half of our fiscal 2010 has continued thus far in 2011 as our technology continues to excel in the marketplace outperforming competitors time and time again. We continue to see signs that the economy is improving and remain cautiously optimistic. The next 12 months will be focused on leveraging our strong foundation by executing on our strategy to drive the top line sales and improving profitability. We will continue to build out our partner network. We clearly gained momentum on this initiative towards the end of fiscal 2010 as evidenced by one of our newest partners who generated north of $2 million in his first seven months of business. We're also leveraging the significant opportunity for our integrated lighting solution by identifying deals that include all three elements of our current lighting system, while also going back to our large install base and facilitating their path to becoming more energy efficient with our wireless control system and the renewable technologies, such as the Apollo light pipe and the photovoltaic solution. We will continue to capitalize on the enormous opportunity for our outdoor lighting. We've seen increasing customer demand for new ways to manage energy consumption and reduce operating costs. Around finally we'll look to gain further traction with our innovative financing solution.

Before I turn the call over to Scott, let me touch briefly on our recent decision to transfer our listing to the New York Stock Exchange Amex exchange. We made this decision after thoroughly researching our options and discussing the move at length with key constituents. It is this research and understanding that led to our decision to switch the exchanges. We believe the move will further support the market for our stock and we are particularly impressed by the New York Stock Exchange Amex personalized specialist style designated market maker system.

With that, I'm going to turn the call over to Jim.

Thanks, Neal. Ten months ago the board and Neal asked me to step in becoming Orion's President and Chief Operating Officer. My assignment, work with the Neal and the Orion management team to build a platform for growth to a much larger company. As Neal has outlined, today we have five market-ready and accepted product lines, a greatly expanded sales network, a manufacturing plant ready to take on a significant increase in orders, a sound organization structure, a strong management team, enhanced IT systems, and many strengthened internal processes. All of these, together with an improved capital goods market has led to significant growth in orders forecast for 2011 that you saw in our press release. So in short, we've largely completed the assignment. Neal and I have decided, therefore, it's time for me to leave management and move back to the board of directors, which I will do effective May 15th. As part of this initiative over the last year, I've relied heavily on the support of Mike Potts, Executive Vice President and a Director on Orion's board. Going forward Mike will continue to play a key role in the execution of the day-to-day operations to enable Neal to maintain his focus on working with large customers, partners, shareholders, utilities, government agencies, and in developing new products.

With that I'll turn the call over to Scott for review of our financials.

Thank you, Jim. Our reported revenues for the fourth quarter of fiscal 2010 were $18.9 million compared to $15.4 million for the fourth quarter of fiscal 2009, which represents an increase of 23%. This increase was driven by increased order volume in our partner and retail channels as well as the sale of a portion of the OVPP finance contracts which were held on our books. These contracts were sold for approximately $2.7 million and recorded at a discounted net present value of $2.5 million.

For the full year fiscal 20 10, we reported revenues of $65.4 million compared to $72.6 million during fiscal 2009. Partner revenues for the fourth quarter were 27% of our total revenues, down from 50% of total revenues in our most recent third quarter. The decline in the contribution from our partner channel was driven in large part by the seasonality we've discussed in previous quarters in which our partners and resellers look to complete projects that were closed in the previous quarter. For fiscal 2010 our partner revenues contributed 42% of our overall revenue. For fiscal 2011, we expect the contribution from our partner network to continue to expand and become an increasingly larger portion of our overall revenue mix.

During the fourth quarter of fiscal 2010 we secured 35 new Orion virtual power plant megawatt supply contracts representing gross income stream of $3.3 million. Revenue for these customer projects will be recognized across the 24- to 60-month terms of the agreements. If these project had been structured as cash transactions Orion would have recognized $1.3 million of incremental revenue within the quarter and increased income per share of approximately $0.02 in the quarter. For the full year of fiscal 2010, converting our OVPP contracts to a cash basis, OVPP transactions would have provided an additional $4.5 million of incremental revenue and increased income per share by approximately $0.08. Bookings for the quarter were $16.4 million including $3.3 million for OVPP supply agreements versus $14.5 million in the same period last year, including $700,000 of OVPP supply agreements. For the fiscal year ended March 31st, 2010, bookings were $73.9 million including $11.7 million of OVPP and PPA supply agreements. Compared to $71.7 million including $1.5 million of OVPP supply agreements during the year ended fiscal 2009.

As a brief reminder on how we define bookings let me review. Our reported bookings have three components. First, our cash bookings are based upon customer purchase orders received in hand. Secondly, our OVPP bookings are based upon the gross future revenue streams over the expected life of the agreement. We consider an OVPP booked business upon the customer's execution of the contract. With regards to our solar PPA deals which are generally in excess of ten years, we've defined PPA bookings as the discounted value of revenues from energy generation over the life of the agreement, along with the discounted value of revenues anticipated for renewable energy credits for as long as the programs are currently defined to be in existence with the governing body.

For the fourth quarter fiscal 2010, service revenues accounted for 12.2% at our total revenues. Our blended gross margin in the fourth quarter was 32.7%, up from 30.2% in the comparable prior year period. Our gross profit dollars increased to $6.2 million for the fourth quarter of fiscal 2010 compared to $4.6 million in the fourth quarter of fiscal 2009. Our G&A expenses for the fourth quarter were $3.5 million, or 18.4% of revenue, versus $2.5 million in the fourth quarter of fiscal 2009, or 16.3% of revenues. Year-over-year increases in G&A costs included $480,000 related to settlement costs for the class action litigation, charges for severance costs and additional building occupancy costs related to the new technology center. Sales and marketing expenses for the fourth quarter of fiscal 2010 were $3.4 million or 18.1% of revenues compared to $3.1 million or 20.1% of revenues in the prior year period. As we have discussed on prior calls, we have continued to invest in revenue-generating opportunities. The increases in expense from the prior year were due to compensation costs resulting from head count additions focused on opportunities in the utility, governmental, outdoor lighting markets, and the technical resources to support our controls and solar product offerings.

R&D expenses for the fourth quarter were $576,000, or 3.1% of revenues, down from $804,000 or 5.2% of revenues in the fourth quarter fiscal 2009. As a reminder, in the fourth quarter of fiscal 2009, we redeployed internal resources to focus more on new product development and that was demonstrated by our roll out of new products during fiscal 2010. Our loss from operations for the fourth quarter of fiscal 2010 was $1.3 million, decreasing from a loss of operations of $1.8 million in the prior year period. Net other income for the fourth quarter was $208,000 versus net interest income of $143,000 for the fourth quarter of fiscal 2009. This increase in other income was due to a $250,000 benefit resulting from the forgiveness of debt resulting from job creations achieved over the preceding five years.

Our income tax benefit for the fourth quarter of fiscal 2010 was $278,000 versus an income tax benefit of $487,000 in the prior year fourth quarter. Our annualized effective tax benefit rate at quarter end increased slightly to 24.4% from our prior quarter rate of 24.2%. Our loss per share for the fourth quarter of fiscal 2010 was $0.04 on weighted average shares outstanding of 22.3 million shares. That compares to a loss per share for the fourth quarter of fiscal 2009 of $0.05 on weighted average shares outstanding of 22.2 million shares. As Neal mentioned, the loss per share for the fourth quarter of fiscal 2010 included charges of $0.03 from the settlement of the class action law suit and additional severance charges recording during the quarter. Our loss per share for fiscal 2010 was $0.19 on a weight average shares outstanding of 21.8 million shares. That compares to fully diluted income per share of $0.02 for the prior year based on weighted average fully diluted shares outstanding of 27.4 million.

As of March 31st, we had 22.4 million common shares outstanding. In addition, we have warrants and options totaling 3.6 million shares outstanding.

Turning to the balance sheet we finished the quarter with $24.4 million in cash and equivalents and short term investments on hand compared to $32.9 million at December 31st, 2009. We continue to maintain our investments in short-term highly liquid vehicles to provide for maximal liquidity. The change in cash was primarily due to vendor payments for inventory purchases of wireless components related to our new product rollouts and ballast inventories, along with our continued investment in the growth of our OVPP and solar equipment finance program.

Turning to our outlook for the fiscal year 2011, as Neal mentioned briefly, we will be returning to providing annual guidance versus the quarterly guidance we had provided during fiscal year 2010. This change was driven by two primary factors. First, as we have always noted, we view our business from a long-term perspective and annual guidance is more reflective of that perspective. Second with the improving economic environment we believe that visibility has improved somewhat, giving us more confidence to provide an annual outlook. Additionally, given the increase in contribution that we have witnessed from our OVPP and PPA supply agreements, we believe that bookings are more reflective of how we view our performance. To that end, we are shifting our top line guidance metric to total bookings versus revenue. For fiscal year 2011, we anticipate total bookings to be between $100 million and $110 million. For the year we anticipate the allocation of bookings applicable to our finance deals to be in the range of 20% to 25%.

As we have stated in the past, given our customer base has historically been focused on commercial and industrial sectors, our results tend to mimic capex budgeting which leads to an increase in committed projects toward the end of the calendar year. As a result, as we move through our fiscal year 2011, we expect to see the greatest contribution to bookings coming in our fiscal second and third quarters. Our earnings per share for fiscal 2011 are estimated to be between $0.02 and $0.10 per diluted share. With the achievability of this range being highly dependent upon the percentage of revenue realized from our OVPP and PPA supply agreements.

With that, I would like to turn the call over to the Operator for questions.

Thank you. (Operator Instructions). Our first question is from Glenn Wortman. Your line is open.

Good evening. Can you just help us better understand the sequential decline in revenue and the sequential decline in bookings?

Sure, Glenn. From a bookings standpoint, when we went out with our guidance, the market was a little slower to respond in our expectation for orders coming earlier and faster didn't play out. What we have been encouraged by is that as we have entered fiscal 2011, those orders did materialize toward the end of the year and have continued steady, and that's in line with our guidance for fiscal 2011.

So for the first quarter, do you expect sequential increase on the top line and in bookings?

We're going to give numbers now on an annual basis, Glenn, and stay away from a little bit of the quarter over quarter commentary. We believe that we've given a number that provides good transparency with a longer term component to it.

Okay. And just looking at the gross margin, the revenue was a little lower, but it looks like your costs were higher, just looking at things sequentially. Was there anything unusual going on there?

We've talked about that in the past in terms of quarter over quarter. The prior two quarters were pretty even in terms of distribution of revenue flow and order flow. This was a little lumpier, and that does translate into some inefficiencies in terms of expediting costs to make sure we honor the customer service commitments we have with our customers.

Finally, looking at the OVPP agreements you sold $2.5 million of the contracts in the fourth quarter. Did you guys have a target for what percentage of these bookings you want to sell each year, or is it it just depends order to order?

We're still evaluating that, Glenn. That's a good question. And I think not only in terms of selling contracts, but we're evaluating other options, too, as well as opportunities to provide or infuse capital to continue to grow that business. We believe that that's a great opportunity for customers to take advantage of energy savings without technology risk and without upfront capital deployment, and that we can continue to scale that business and do it in a way that provides profitability to the bottom line.

Thank you very much.

Thank you. Our next question or comment is from Brian Kremer. Your line is open.

Hi guys. Back to the OVPP and PPA guidance for this coming year, Scott, could you walk us through again, 20% to 25% so we're looking at $20 million to $25 million. So that revenue, if you keep it as a PPA agreement, or OVPP, you are going recognize that revenue over a couple of years. What I'm getting at, if we try to convert to revenue from that bookings, which you obviously didn't provide, because you probably don't know, if some of that could be converted to revenue directly through sales, what's the best you can do in terms of providing some insight there in how you look at that next year, or how we should be looking it?

That's certainly a very fair question, Brian. And, again, just to reiterate, when we evaluate our performance and our success, it's really tied to bookings, because we don't look at a sale as a bad sale, whether we get cash or the opportunity to finance a project. That's certainly a reflection of the success of our product, our technologies, our sales processes. And so what we've tried to do is at least provide a trail of bread crumbs, so to speak to try to give you as much information and look at it, because I certainly appreciate the GAAP component and the revenue to the top line from a financial statement. But you can simply work that math backwards and take 20% to 25% of the bookings out and treat the rest as cash and recognize that you can use somewhere of a three-year average term to account for those future revenues, and certainly some of that will occur in fiscal 2011, and a larger percentage of it will be deferred into future periods.

Okay, thanks. I don't know if I missed it, but it looks like you guys didn't do any solar sales -- sale of any solar in the quarter, right?

This is Neal. Cash sales, there were none this quarter, previous quarter, and then more in the queue with some of our big customers. And again, a lot of them, it's interesting with the financing, many customers will say they don't have the money in the budget, then we put together all the financing and do all of the vetting and everything, then they end up paying cash at the end of the day. As Scott alluded to there really is no bad sale. I just look at the financing as a way to get the customer to pull the trigger, first and foremost, rather than just sitting on it. We've had many customers that will actually take our financing and pay it out after they start the new budget cycle. So we're just trying to take away every objection the customer might have to pulling the trigger and starting to save money with us.

Then G&A and sales and marketing, it looks like sales and marketing was up in the quarter, but that looks like something that's going to continue to, I would assume, stay at these levels. You've made that investment. G&A, on the other hand, there's one-time items, so it looks like it goes back more to the Q3 with maybe some growth there versus Q4.

Those are very accurate statements. Our G&A was impacted within the quarter as we outlined, and we have been investing in sales and marketing. Our salespeople are getting back out into the markets again, and aggressively, and we're providing them the right tools from a materials cost standpoint and the ability to get out and close deals.

Okay. That's it. Thanks.

Thank you. And I show no further questions or comments at this time. I would like to turn the call over to your host for any closing remarks.

Just like to thank everybody for participating, and that's all we have for today. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect, and have a wonderful day.