Orion Energy Systems Inc (OESX) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Orion Energy second quarter FY15 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions)

As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Adam Prior of The Equity Group. Sir, you may begin.

Thank you. The Company issued the announcement of Orion's FY15 second-quarter and first-half results this afternoon. The Company has made available a supplemental information document and accompanying slide presentation on its website at www.oesx.com in the investor relations section.

I will now read the Safe Harbor statement. Remarks that follow, including answers to questions, include statements that we believe to be forward-looking statements 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, expects, 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 be materially different. Those risks include, among others, matters that we have discussed in our press release issued this afternoon and in our filings with the Securities and Exchange Commission.

Except as described in these filings, we disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all.

With us from Orion is John Scribante, Orion's Chief Executive Officer, and Scott Jensen, Chief Financial Officer.

With that, I'll turn the call over to John. Please go ahead, John.

Thank you, and good afternoon, everybody. Let me first start by saying that we had a strong order bookings quarter and we are well positioned to achieve our yearend revenue inline with our guidance. While our bookings are strong and now ahead of the first half of our prior year's bookings pace, much of the revenue will land in our third quarter due to our customers' construction schedules. So we are confident that we will achieve our plan for the next year -- I'm sorry -- for this year.

During last quarter, we increased our reseller network to cover more territory than ever, reaching over 70 ESCO resellers. And given only a few months left in the year for capital budgets, order velocity is increasing. While some are still debating their technology choices, the LED debate is mostly resolved and component costs are beginning to level off. All of this lends itself to a brighter future for Orion.

Next, let me provide an explanation of the long-term inventory impairment charge that we reported during the quarter, and also provide some clarity around our gross margins and the initiatives under way to improve our LED product margins.

For the quarter, we reported a non-cash impairment charge of $12.1 million related to our long-term inventory, capitalized development costs and patent investment into our wireless controls product offering. This inventory was purchased over seven years ago and was initially developed for use with high bay fluorescent fixtures.

While we had some success during our FY14 year in increasing our control sales, unit volumes declined significantly during the quarter. Coupled with continuing acceleration of LED market adoption, the improved performance of LED lighting products, and greater energy savings resulting from these retrofits, we believe that this leaves complex industrial controls as a difficult incremental sale.

We will continue to support our customers who have purchased this product with warranty and technical support services.

And in terms of our product margins, the accelerated shift to LED, which reached 50% of our product sales in September, well ahead of expectation, added a strain on our supply chain. Simply stated, material availability at the cost we had planned was outpaced by sales orders.

In the past several weeks, we accelerated our supply chain initiatives to bring in material at lower costs, as well as reduced expenses through improved labor efficiencies, and we expect increasing unit volumes to provide Orion with greater LED component purchasing power.

These initiatives have led to improvements in LED margins in this current third quarter, and we expect this trend to continue.

As these costs have begun to rationalize, sales momentum has improved in each of our target markets. The return on investment and energy efficiency gains in LED projects are beginning to break through the noise in the marketplace. We're beginning to see it firsthand. LED sales made up 39% of our lighting revenue in the quarter, the highest ever, and up from 5% this time last year.

We expect that growth in our LED sales will eclipse the decline in HIF lighting during the third quarter, and plan to realize lighting growth on a year-over-year basis. And as stated earlier, our supply chain is catching up, and we expect to return to normal margins very soon.

We also ended the quarter with the largest lighting backlog in the Company's history, predominantly LED. This is a result of our expanded sales organization and customers gaining comfort with LED over HIF and Orion's value proposition.

Some of our wins in the second quarter include two separate orders from large national retail chains for LED fixtures sold through one of our resellers. Retail chains are an ideal customer for us, as their lighting needs are typically 24/7, and can achieve a faster return on investment. We feel these customers are strong candidates to expand their order flow, after they have had an opportunity to first test the products.

Second, a contract with a new global industrial customer for 1,373 fixtures to be installed in their facilities in Michigan. We won this contract because we could ship within five days. Their original vendor could not do the same, and we are now positioned to win future business with this customer based on our ability to deliver on our promise.

Third, we recently started working with a project with a global manufacturing facility -- I'm sorry -- for a manufacturing facility with a global company. We had shipped over 100-piece order last month, and they will continue to take delivery monthly until they've replaced all of the fixtures in their facility, over 800.

This is very significant to us, because this notable company also offers it's own LED troffer product for sale at a lower cost in the market, and, yet, they still chose Orion over their own product because of the product benefits that the LDR offers.

And we won a $2.1 million contract for five different facilities from a large federal agency, which we will continue to pursue for future business. While our federal business strategy is a patient one, we're seeing the results starting to develop.

What's driving these sales are our unique relationships with our customers and easing capital spending environment for energy efficiency projects, more clarity about the benefits and the new technology platforms, and, finally, a growing and increasingly engaged Orion sales network across the country.

Previously, we discussed how the hesitancy in the retrofit market of whether to choose LED products over fluorescence, has presented a large pause in sales. This air pocket, in addition to our exit of the legacy non-core solar energy business, explains our decrease in revenues year-over-year. The air pocket is a direct consequence of delayed customer decision making in a retrofit sale.

These customers were educating themselves on the benefits of LED during this period, and, as the amount of information and noise in the market stalled their decisions, because in a retrofit project, they have time to make these decisions compared to a new construction sale where other factors drive the decision.

And as previously stated, our bookings rate has increased recently and is making up for the first half stall and is now ahead of last year, to date.

The economic and performance benefits are there. There are numerous reports that LED light penetration across the entire lighting market will approach 70% by 2020, and we feel that this may even be a conservative estimate for the retrofit space.

The technology will continue to improve as component manufacturers compete, and this will lead to greater energy performance in LED. And since Orion excels at converting these electronic components into thermal and optical benefits that deliver the lowest total cost of ownership, the growing efficiencies and improved payback time is helping to accelerate these decision processes.

Our customers value the energy [gains, like] performance, innovation, and ease of installation that Orion offers. The three markets that Orion targets are sizable and, though accelerating rapidly, are still largely untapped in terms of LED conversion.

And Orion's recent expansion of products containing our ISON technology has provided us with an unmistakable competitive advantage in the marketplace.

For office and interior spaces, which our LED Troffer Door Retrofit product addresses, we estimate the market size to be between 900 million and 1 billion fixtures in the U.S. alone. So far, we believe the LED adaption in this space as a percent has been miniscule. And with over 20,000 project installations with our legacy products, we expect the LDR to continue to be a major driver of sales to both new customers, as well as our massive install base.

For industrial locations, which is addressed by Orion's high bay products has historically been our sweet spot. We believe the market size here is between 60 million and 70 million fixtures in the U.S.

Our Apollo-branded products provide great price point solution while our ISON class Orion-branded products provide the best value for the total cost of ownership buyer. As you may know, ISON is our proprietary thermal and optical technology protected by dozens of patents and allows buyers to choose lower wattage Orion fixtures that deliver the same light compared to our competitors.

For exterior application, which covers parking areas, auto dealerships, and the like, we estimate that market to be just under 55 million fixtures in the U.S. Our recent release of the industry's first user configurable modular fixture is allowing the customer to uniquely design its own look and light output, fully equipped with our unique auxiliary direct feature, which can enable other devices such as video cameras, sound, and other network components, providing a customer experience unmatched in the industry.

Today we are in full-scale development of a significant and regular release of new products to take advantage of these massive markets. We recently began to leverage the strong sales from our LDR by introducing new suites of LED high bay, exterior, and office fixtures for our customers.

These products built off the history of quality and performance of previous Orion offerings. We have had a very strong response from our resellers who attended our annual sales summit in October where products were first introduced. We started taking orders for these new products that day.

We're staying in front of the market through investments in research and development and energy efficient products with functionality that is superior to our competitors. We will compete effectively by delivering more value than that of our competitors.

We expect to accelerate our product development cycle as we move forward, and plan on adding new products to our existing portfolio in the coming quarters.

Our second-quarter results reflected much of these expenses and margin alignment with these changes. This has been a balancing act to date, and we recognize that. However, we have the utmost confidence that the Company has made the necessary investments to grow well into the future. After two years of turning this Company around, we are heading in the right direction and positioned, well positioned to accelerate our performance.

With that, let me turn the call over to Scott for the review of our financials, and I'll return with some closing remarks.

Thank you, John. I'll briefly discuss financials, but I encourage everyone to review our supplemental package and press release. Orion's total revenue was 13.4 million for the fiscal 2015 second quarter, compared to $27.5 million in the prior year period.

The predominant reason for lower revenues was the result of the expected decline in our non-core solar business of $8.9 million. As noted in the past, we are no longer focused on the solar business and we expect to generate approximately $1.5 million of solar revenue in FY15.

The remainder of the decline was due to construction-related delays in the lighting business that John alluded to earlier.

However, we have been encouraged by a growing backlog and a growing pipeline of new product orders. As of September 30th, the Company had the largest lighting backlog in the Company's history, with $11.8 million in LED and HIF lighting orders.

Product revenue from Orion's LED products increased to $5.2 million, or 39.2% of total lighting product revenues during the FY15 second quarter, compared to $1 million, or 5.4% of total lighting product revenues in the prior year period.

Due to recent product releases and reseller interest, we believe LED product sales will continue to grow and reach between 50% to 70% of our total product revenues during the second half of our FY15.

Company narrowed its expectations of total revenues for FY15 to range between $80 million and $88 million, adjusted from an initial range of $80 million to $105 million. At the beginning of the year, we provided a wide range and now have greater visibility as our sales ramp and, thus, are tightening the range.

And we are confident that our current backlog, reseller growth, and sales pipeline supports our current guidance.

As John noted earlier, our gross profit and margin was impacted by the non-cash impairment charge for our long-term wireless controls inventory of approximately $12.1 million, which was included in our cost of product revenue.

This legacy inventory was developed and purchase commitments made over seven years ago, and we've worked diligently to try and salvage this inventory investment. We undertook numerous channel checks in terms of the value of the inventory and determined that the high bay industrial transition to more energy-efficient LED products has diminished the value of our existing industrial controls.

We felt it was appropriate to take a charge at this time and did not expect this to affect future quarters.

Two years ago, we adopted a nimble strategy on inventory management, and our resulting core product inventory turns have been strong. Additionally, we continue to scrutinize and measure the market transition to LED products to protect us against inventory valuation and obsolescence risk.

Total gross margin, excluding this impairment charge, was 11.8% for the FY15 second quarter, compared to 28.5% for the prior-year period, largely as a result in the decline in fluorescent lighting product revenue and the related impact of fixed expenses within our manufacturing facility, and also impacted by our increasing LED product mix and component costs.

We're targeting gross margins for FY15 full year to range between 18% to 20%, and before the impact of the impairment charge. Our estimate is based upon the current cost and production improvements and initiatives that John previously discussed.

We do expect gross margins to widen as revenue volume escalates and economies of scale begin to improve. If our facilities were operating at $250 million in revenue capacity, we believe gross margins would return to our original expectations in the 40% range.

We reported a net loss for the FY15 second quarter of $18.3 million, or $0.84 per share, which includes a $12.1 million, or $0.56 per share non-cash impairment charge, related to the long-term wireless controls inventory and investments.

In the prior-year period, we reported net income of $2.4 million, or $0.11 per diluted share, which included a $2.2 million tax benefit related to deferred tax liabilities resulting from the acquisition of Harris Lighting.

Quickly moving through the balance sheet, Orion remains in a solid financial position to carry out all of its initiatives. As of September 30th, the Company has working capital of $24.3 million, compared to $33.1 million at March 31st, 2014.

We continued to pay down total debt during the FY15 first half, decreasing total debt by $1.6 million, to $5 million as of September 30th, compared to $6.6 million as of March 31st.

With that, let me turn the call back over to John. John.

Thank you. Let me conclude by reviewing the strategies we are executing in order to take full advantage of this market potential. First, our products. Orion has and will continue to set the standards for the leading products in the market. In the past, it was fluorescent, now it is LED.

We offer and develop top-of-the-line products in terms of efficiency, performance, modularity, and fixture life, and will continue to do so. We know that the bar is constantly raised by competitors, and the best way to compete is to raise the bar ourselves.

Our new ISON LED exterior area light is a perfect example. The design and modularity of this product is groundbreaking to the market and, at the same time, it delivers the lowest total cost of ownership. And having both of our competitively priced Apollo product line as well as our ISON class high-performance products, it provides a solution for both ends of the market.

Next, we will further expand our reseller network until we have captured all of the opportunity, while still providing our resellers with ample room to grow. During the first half of this fiscal year, we had 40 new resellers to our network, and they are building a pipeline of sales opportunities. We understand these companies. We understand how they operate, how they sell, how they install, and, most importantly, how they need to be treated.

Our commitment to deliver the best customer experience in the industry is paramount and that is why we offer products with the fastest install times, the fastest shipping in the industry. That is why we package our products in easy-to-handle and on-the-jobsite packaging. We offer design, engineering, and customer support that best suits these companies and helps them to become more profitable.

We no longer operate like the previous Orion. So a new vision deserved a new brand. We want our customers and resellers to know we are a different organization, a better organization with a demonstrable focus on delivering the best LED solutions to the retrofit market, and our new brand message reflects that vision and culture.

In a relatively short amount of time, we rebranded the Company, developed an optimal sales structure, expanded and repositioned our product line with the right products targeting the right markets, and have aggressively engaged a growing network of well-established resale partners.

We accomplished all of this in advance of our customers' yearend budget decisions, and now have the products in place that provides our customers with the modularity and cost savings to make their decisions easier.

We did not take the least path of resistance to get to there, but we feel that these initiatives and the investments that we have made position Orion to deliver tangible increases in shareholder value in the coming quarters and into FY16. Our strategies are working and we are very confident about our near-term and long-term performance.

With that, Scott and I would be happy to take your questions.

(Operator Instructions) Steve Dyer from Craig-Hallum.

If you look at revenue, kind of the cadence of the last two quarters of the fiscal year, obviously, it sounds like Q3 will be larger than Q4. Do you think Q3, would you expect that's going to be up year over year? I know you had some solar last year as well. But just trying to kind of think about modeling the last two quarters appropriately.

Yes, we do expect our lighting revenue now to increase on the lightning side year over year. And you'll start to see Q3, the solar revenue is going to taper off and start to decline as well, [in] the prior year.

Okay. And as I look at your gross margin guidance for the year, it implies, even kind of in the back half of the year here, low 20s. Why wouldn't that be a little bit higher than that if you're kind of picking up a lot of the overhead absorption and so forth? Is it component cost still? Or why wouldn't that be a bit better, particularly in Q3?

It is component costs, Steve, as we work through some of the inventory that we already have. It is specific to a product line on the LED side. We also are evaluating the new products that were just launched in early October. We know that those have higher-than-normal company margins. And so we're evaluating the order flow and trying to be conservative around that in terms of contribution from new products.

And then the 30% next year, next fiscal year, what is that based on? Is that based on assuming a nicely higher revenue from lighting or lower component costs or both?

It's both. It's a function of increasing revenue as our pipeline grows, as we add resellers, as our new products gain traction in the marketplace. And then it's focused on cost containment initiatives, efficiencies, as we have really converted the plant over from a fluorescent production facility to an LED production facility, and we get better and we get longer runs around product orders. And just leveraging that price power, too, on the LED component side.

Okay. As you take a step back, it seems certainly that the industry is very much in its infancy, at least at this point, and a lot of the retrofit guys have the luxury of kind of waiting and seeing.

When do you sort of think this -- when do you think it kind of hits its inflection point? Obviously, big penetration is expected by 2020. But is 2016 the real breakout year? Or how do you think about that?

Steve, I would agree with that. And I think it's even sooner than that. We're seeing the tides turn right now in our bookings pace, the order flow. Unfortunately, some of the revenue got shoved into backlog from last quarter just due to construction schedules. Those revenues could have showed up, if it wasn't for just some issues at the job site with getting access and being available. So that gives us a lot of confidence.

Our forecasts for the quarters are very strong. We see orders where people were sitting on their hands and making evaluations now start to release those orders.

So we feel very confident about the back half of our year and going into next year. As I had indicated, our month of September, we had 50% of our revenues were LED. That was well ahead of our expectation.

You may recall, I've said in the past that I thought by the end of our fiscal year, we'd be at 50%. And as a result, it really outpaced our supply chain. And while we were working towards certain component availability at the costs that we needed, just the orders, we had an onslaught of orders in one product line that really put the squeeze on us. And that will fix itself. That's a very correctable issue that, matter of fact, we're ahead of right now. And as I had alluded to, you'll start to see that margin improvement on that product line occur.

And to Scott's point, we have launched a new product set, which we expect to really return margins to where they belong in this Company.

So the inflection point, I wish I could predict everything, but my sense is that it is upon us and we'll be ready for it here in the next several months, next couple of months.

Okay. And then last question for me, and I'll help back in the queue. Operating expenses jumped a bit in the quarter. Is this a run rate? Or was there anything sort of one-time in nature that would suggest those will fall back?

Yes. So we had a fair number of costs related to the product launches, research, development, certification testing costs. We've had the rebranding initiative as well. And we're continuing to expand the reseller and territory manager base within U.S. markets.

So it sounds like some of those will come out but --

Some of those will not recur, right. You should --

Okay. Thank you.

Thank you. George [Jasper], private investor.

Could you relate on this impairment charge that you talk, how usable is that inventory at this point going forward? Is it a total write-off or is that still usable that can be utilized in, let's say the next six months to a year?

Yes. So we impaired a significant portion of that inventory and really took it down to a marketable value. The challenge that we've had, George, is with LED component costs coming down. With the efficiencies improving, the energy savings is so significant that the incremental investment for a customer, based around our cost structure of the development of those controls, we couldn't sell them.

So it's a viable technology in the marketplace. It's unique to the industrial space right now, and that's been a lagging market, when you think about LED adoption. We've seen faster adoption in the commercial office and retail space.

And so we can take it to market, but it was inappropriately valued, and it needed to be adjusted.

Can you relate what you still have as far as inventory in that particular line that has been charged off?

Sure. Yes. We kept, of the original 12.1 impairment, we left $0.5 million of value. We believe that we can move through that in the next 12 months --

I see.

-- with it appropriately priced.

Okay. All right. And then, a question on the new exterior product line applications. Can you highlight the most promising near-term, where the reaction is coming on the positive side for you, looking out, what those specific applications are?

Sure. So we launched two products lines. We launched what I'll call a moderately priced or a broad-based-priced product, meaning that it can be priced to be very, very competitive. And it's really designed for the industrial park, the water treatment plant, the industrial facilities where the elegance of the fixture is not necessary and it's more about performance and price.

So that, as I alluded to in my comments, the Apollo line is designed for that buyer, who's looking for the low-end cost to get a project done with still the warranties and the performance that Orion has stood for in the past.

The ISON product, which is utilizing proprietary optics and our thermal management, as well as that modular, if you saw our slide deck that we posted today and also the products that we launched on our web, the modular capability of that, this is really designed for your auto dealership, the customer parking lot at the business park, all the area parking. And that's a product line that we intend to further expand into more applications as well, more outside area parking applications.

But that's a very high-efficient product. It's a little more price, got a little more premium on the price. But for the total cost of ownership buyer who's looking for the best value and having the greatest performance over time and is going to live with this product, this is one that we offer extended warranties up to 10 years on, and it's because of our confidence in the thermal technology, so.

That's an exciting product for us. It was a whole (technical difficulty) avenue because not having that product line. And so we expect that to be an incremental contributor to our business going forward.

Okay. All right. And then a question on the revenue forecast that you have now, the $80 million to $88 million. If I just take the $80 million range number and subtract out the revenue stream from the first half, this suggests that effectively second-half revenue would be in the $53-plus million range, or basically 100% increase over the first half.

Right.

And that's basically the way you're looking at it then?

Well, historically, if you looked at the trends, the seasonal trends in our business, that lines up pretty close to what we've done over the last several years.

Okay.

In addition, you got to factor in that $12 million backlog --

Right.

-- that we have contributing to the quarters going forward. We're still very confident of being able to achieve that target range that we gave.

Okay. And then one question here on stock-based compensation. There's a slight increase in the six months versus the previous year, $785,000 versus $676,000. Where's that increased compensation on stock based going within your organization?

George, is the question trend or the question the increase year over year?

I'm looking at the year-over-year increase.

Yes. Okay. So the increase is really driven around, as we look at long-term incentive and properly valuing those awards at the date they're granted. We've had a significant increase in the stock price year over year. And so that gets valued at current market. So any award that was granted earlier this year is going to carry a higher stock compensation expense versus the prior year,

I see. I see. Okay. All right. Thank you.

Thank you. Craig Irwin of Roth Capital Partners.

So, John, when I look at the success in the LED lighting market, the fact that you've been able to double revenue sequentially, increase it fivefold year over year, obviously, there's no issue with stickiness on the customer side there. You look at the conventional lighting guys, many of them report challenges, pushing this business anything close to the growth rate you've been achieving.

Can you maybe talk about whether or not this is a product that's driving this more than anything? Or [if this is their] channel, the way that you approach the channel differently than these competitors?

And as another question in there, if there's an opportunity to add additional products in there or if potential acquisition might benefit from this really high rate of growth?

Sure. And if I don't answer your question, keep poking at me, because there's a lot going into this. I think historically, we've been such a sales-driven company, and a company that when we see this opportunity, while it's still a transition and there's no doubt we had a rough quarter in just getting through the quarter, getting through all the changes, having an onslaught of LED orders with a product that is just it's a showstopper in the marketplace with the LDR, all of these things, they're great problems to have, but they do create some backend waves in the organization when you're moving a lot of product through a manufacturing facility, was tooled up for fluorescent and now you're rapidly changing them. So we had a lot of struggles going through.

But the ability to bring new product to market and to drop that product into a sales channel that is expanding, is growing, and our strategy is very, very different than many of our competitors, it's a strategy that does not rely on traditional methods of go to market, it's a strategy that is very forward and aggressive and disruptive, and we believe it's the right strategy.

And having a product development focus today, we spent the last year and a half really turning the organization around, and now we're a very sales-driven, very product-driven, people-driven company, that it just became very natural for us. And it really took us back into the days where we had our rapid growth in the HIF business, where we approach the channel very differently than all the traditional lighting companies and we took a product to market that was very unique. And all of those same tendencies and same strategies worked very, very well for us in LED.

Our complicating issue today is we're really managing two very different businesses. The decline of an HIF fully tooled, fully developed business to a rapidly evolving highly transitioning LED business. And keeping both of those trains on the track and moving them forward is very difficult.

Now, the good news is, is that we see the LED train moving much faster and pulling the business through, whereas, the HIF, while we'll continue to support that, there's still a market there and there are still opportunities in that market, for instance, a company who may have 12 months left on their lease and doesn't want to invest a lot of money, they may opt for some energy efficiency and a lower cost, quicker payback.

But LED is getting there and it's getting there quick. So I think it's really the different approach that we have always taken to the market and the success in our sales organization on top of some pretty innovative products is what's leading to our success.

Thank you. And I guess as a second part to this, one of the things that I always saw is the brilliance of the way that Neal set up the Company originally, the fact that you completely avoid the middle men, maybe one guy touches a fixture before it actually gets installed at a customer, versus some of the very large incumbents out there, four or five guys --

Yes.

-- touch a fixture, 25, 30 points on margin there, really allows you, historically allowed Orion an opportunity to sell strong product at a more profitable margin and a better price than competitors.

Is this something that structurally is still available for you in the LED market? Is this something that really plugs into that channel that was built over the last couple years and benefits from that same structure in the market?

Well, yes, I'll give Neal credit for that. The legacy of this business going direct is it was very disruptive. And it clearly gave us the scar tissue and gave us the ability and the seasonality of our salespeople to go after an LED market, which is very, very disruptive. And what I mean by that is, you have entrants into the marketplace today that can't get access to the existing channels because they're new players. They struggle with that. Our market strategy is tried and true, and the good news is, is there's a lot of people in this company that truly know how to go after that business in the same fashion, which is well established in our business, to go win that business. So we continue to support that.

We're not entirely opposed to these other things, but we're not reliant on them. So you may see some of our product moving through those channels, but they become more opportunistic or driven specifically by a customer need.

Great. And then last question, if I may. So I don't subscribe to the service, but I know there's a company based in Princeton that offers a very thorough analysis of all the budgets for lighting subsidies across the North American market. And I understand they were reporting that a high percentage of those subsidy programs were depleted starting this fall, something north of 50% were starting to see limited funds or no funds available.

Did that impact your quarter in any way? Is this something that you monitor closely? And is this something that contributes to the bit of the hockey stick that we're seeing in your revenue forecast this year?

Yes, I'm -- well, a couple comments. One is, that isn't anything new. I mean, year over year, they're always running out of money and they're always reloading and it's just it's very, some more established incentive programs, they've got it budgeted and figured out, and some of the newer markets, markets that have newer incentives, they'll burn through them, and they don't manage them to the extent that they can stay up with the demand. So they'll come and go throughout.

And one of the advantages of our reseller network is where one incentive drops off, another one pops up somewhere else. So it's real easy to remobilize and redeploy sales into other markets.

In terms of did it impact our business, I'm not aware of any material impact that a lack of an incentive played in our quarter.

Great. Thanks again for taking my questions.

Thank you. We have a follow-up question from the line of George Jasper, private investor.

I'd like to ask you for some additional on the mix of your competitors, moving from the fluorescent, the efficiency fluorescent area. How did that competition look? And as you [transitionalize] now over into this LED area, what changes are you experiencing in terms of the competitive atmosphere and the number of companies that are in the various fields?

And then also, could you highlight on this exterior lighting fixture, if that's -- is the resellers are a key on that side of the market, as opposed to, let's say the straight LED side of the market you've been on?

I think what the competitors are doing in the marketplace right now is, to some degree to the prior question, there's a lot of people out there struggling, and so you're navigating around people that are moving product on price basis.

Yes.

You take the strength that Orion has traditionally brought and continues to bring even currently, and will always bring, and that is a value proposition, a story to be told.

So while price, market price will always have a drag on the market, highly trained salespeople and highly trained resellers and people with relationships and the ability to serve their customers, have the opportunity to win a majority share of that business.

So there's always going to be a price drag. But we believe that by providing both ends of the market with a solution, those that are looking for a total cost of ownership solution, we will always outpace the competitors. And those that are competing on cost, we have some products that can do that as well. So really depends on what you value as a customer.

In terms of our resellers, the mix, we are experiencing some of our more, I guess our longer-term resellers, making the transition from an industrial sale to a commercial sale. There are some struggles there. And if you're not used to calling on the property management and the asset managers of a real estate trust or privately owned real estate company, it's different than calling on facility managers of the industrial park.

So it's just training and education. And we continue to have our regular training sessions and outreach. And the more territory managers that we put out in the field to work with our resell customers, that is showing progress. So again, we believe that end market sales strategy to support our resellers is the right strategy.

Okay. And just one follow on, John, on this. This reseller market with the significant number of additions, of resellers that you added here that you described in your release, basically, these resellers are concentrating on the LED side of the market?

I would say as a general statement, yes. There's, I think almost all of our resellers, quite frankly, are focusing on the LED business and will pick up a fluorescent if it's the right move. But if you're not representing LED as your primary solution in today's market, certainly giving customers options and doing the right evaluation, financial evaluation to serve their particular objectives, is certainly important.

But that's the game today. That, I think in large regard, has been resolved. LED is the future, and we'll continue to support that.

Okay. Thank you. And good luck going forward here in the next couple quarters. If you make your targets, it'll be an impressive turnaround, to say the least.

I appreciate your confidence, George.

Thank you, George.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to John Scribante for closing remarks.

All right. Well, thank you. It's been, as I had indicated, it was a tough quarter to get through. But the good news is we're through it and we've got great opportunity ahead of us. Our next couple of quarters are going to be very, very busy for us.

We appreciate your support and we look forward to talking to you soon. Thank you. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.