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Orion Energy Systems, Inc. (NYSEMKT:OESX)

F3Q14 Earnings Call

February 5, 2014 5:00 PM ET

Executives

Chris Witty – IR

John Scribante – CEO

Scott Jensen – CFO

Analysts

Steve Shaw – Sidoti & Company

Carter Driscoll – Ascendiant Capital

Tom Kerr – Singular Research

George Gasper – Private Investor

Operator

Good day, ladies and gentlemen, and welcome to the Orion Energy’s Third Quarter Fiscal 2014 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 be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Chris Witty. Mr. Witty, you may proceed.

Chris Witty

Thank you and welcome to Orion Energy’s fiscal third quarter conference call. With me today is John Scribante, Chief Executive Office and Scott Jensen, Chief Financial Officer.

As a reminder, the earnings Press Release issued today once again includes a section that briefly describes the supplemental information document that was posted to the company’s website. This supplemental information provides further details and analyses on Orion’s financial performance for the fiscal third quarter ended December 31, 2013.

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, 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 be materially different. Those risks include among others matters that we have described 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.

I’d now like to turn the call over to John Scribante, Chief Executive Officer of Orion Energy. Please go ahead, John.

John Scribante

Great. Thanks, Chris, and good afternoon, everybody and thank you for joining our call today. Let us start by going over our results for the quarter beginning with the revenue. Sales were down slightly year-over-year at $27.7 million reflecting a number of factors.

First as we stated in the past, we’re not investing time or money into growing our solar business. And consequently as progress continued with our Brick Township project, revenue fell both sequentially and in comparison to the 2013 third quarter.

Total solar revenue was $6.8 million for this year’s fiscal third quarter versus $9.1 million in the second quarter and $9.6 million in the third quarter last year. This trend will continue sequentially given that the project is scheduled to be completed during the first half of fiscal ‘15 or in the middle of this calendar year and will not be replaced with additional solar work.

I won’t believe at this point, but I just wanted to mention again that we don’t believe that the solar market is one in which we should be investing or participating. It hinders our dedicated focus towards growing our LED business which is where we see the greatest opportunity for Orion.

So either while solar margins were actually up this quarter due to some higher service revenue components, as Scott will review in a moment, this nevertheless is not an attractive growth area for the company and we’re not seeking new business here.

Beyond the impact of declining solar revenue on the quarter, we also reported about $2 million less in sales than anticipated due to the government shutdown and some mere end-order delays. For the most part, these shipments have been pushed into future periods.

As is our continued strategy, we maintain our focus on bottom line operating performance resulting in an overall gross margin of 29.4%. That’s roughly flat with the prior year even after one time severance expenses as we transition Harris production to our manufacturing facility in Manitowoc.

Orion’s operating income was $0.9 million for the third quarter, up from $0.6 million in the prior year and we reported net earnings of $0.5 per share. Excluding any expenses related to the Harris acquisition and severance cost I just mentioned, the adjusted earnings were $0.7 per share right in line with our guidance.

With regard to Harris as we announced in our last earnings call, we seized manufacturing in Florida during the quarter and reduced headcount accordingly and subsequently have transferred the equipment to our plant in Manitowoc. We therefore completed virtually all the integration activities and are extremely satisfied with the new combined manufacturing facility as well as the stronger sales force now in place at Orion. We will continue to look for additional synergies and expect further savings later this calendar year once our lease in Florida expires

As we’ve said before we anticipate total cost synergies of $1 million on an annualized basis by the end of calendar ‘14.

So we continue our focus on cash flow this quarter generating just north of $1 million due to the fact that while reducing inventory by another $2 million, we saw an uptick in accounts receivable tied to timing of our December shipments and an increase in prepaid expenses due to our solar projects. That said, we’ve generated $10.8 million in cash from operations during the first nine months of fiscal ‘14 versus a slight usage of cash during the same period in ‘13. We ended the quarter with $19.3 million in cash, cash equivalence and short-term investments leaving our balance sheets strong as it’s been in years.

Now, before I move into our review of our markets and outlook, let me just touch on something that has generated questions from a few of our investors. We filed a universal shelf filing on Friday, January 17 through the issuance of up to $75 million in debt and equity. Given the significance of this filing, I want to clearly state for the record what this means and what it doesn’t mean.

It does not mean that Orion management or our Board has taken its eye off the ball in terms of being almost singularly focused on improving shareholder returns. When I became CEO, we made it our business to cut cost, focus on our core markets, improve cash flow, drive growth and achieve higher returns for our investors. That focus has clearly not changed.

What the shelf filing allows for, as we’ve said in the past, is the potential to look at other possible game-changing acquisitions that can bolster our technology and provide size and scale to our lighting operations. For Orion to stay a leader in this space, we not only need to constantly focus on R&D and customer service, but also build scale and expand our offerings as the marketplace comes to recognize the benefits of solid state LED lighting.

The acquisition of Harris has proven that we know how to find good underutilized assets and leverage them for the growth of this company. So that is why we file the shelf to be ready in case we find another attractive, accretive and market-building transaction than can bolster our position in the industry and provide access to new products and new channels.

But we have not forgotten our shareholders nor will we ever as long as I am the CEO.

So now, let’s go and review our lighting operations and some of the recent customer wins. As our industrial customers are presented with the choice of investing in either linear fluorescent versus LED technology, we are experiencing some longer sales cycles as they work through those decisions. Nevertheless, we expect to see demand for our LDR products within the commercial space will overtime increase even with such noise albeit the timing of this transaction is not perfectly clear.

As our sales people adjust through these market dynamics, the next several quarters may experience some sales volatility. However, we are seeing great deal of traction with a number of new national accounts that will possibly impact growth later this year, this calendar this.

We also announced an expansion of our LDR product line in January building on our success in offering LED solutions that can be installed quickly in existing troffers with no tools required. And since almost a billion troffers are currently installed in the U.S. market alone, the outlook for energy saving using our LDR product is enormous.

Our applications can reduce the company’s energy consumption by up to 70% and we’re proud of this technology and the leadership position that we have in the industry.

Remember, unlike large lighting companies, which sell products through retail stores or traditional distribution channels, our lighting solutions are sold on a retrofit project basis to corporations often across multiple locations in various types of fixtures and installation challenges making sales lead-time longer and the customer investment higher. But the reward in terms of margin and the potential for recurring revenue and multi-year contracts is obviously very attractive to us.

Let me give you a few examples at some of the projects that we’ve been awarded in just the past months. First as I mentioned last quarter, we recently won a three-year retrofit agreement with a large multi-national food conglomerate and the North American rollout is going very well.

We’re working on several new facilities at the present time providing both LED and fluorescent solutions and anticipate that this will be one of our top accounts heading into fiscal ‘15. This customer was already one of our largest accounts in the quarter we’ve just ended.

We also completed an LDR pilot program last month with a major North American financial institution which I mentioned on last quarter’s call. The customer is very pleased with the pilot and we expect to order shortly that could eventually encompass hundreds of locations across the U.S. The initial release will be approximately 7,000 LDR fixtures, meaning that this is another customer expected to drive significant growth in our fiscal ‘15 and beyond.

In addition, we recently won an LDR order from a leading retail fast-food chain which should result after the pilot store is complete and over 400 locations being retrofitted this coming year. The opportunity could be even larger as the concept rolls out to thousands of their franchise operators after the company-own stores are complete.

This multi-year project is an exciting development that also is not reflected in the current quarter’s numbers.

And lastly, I wanted to mention that a large automotive OEM has just selected Orion for a broad array of lighting products to be installed in factories and other locations across North America. The size of this order is still being determined, but will likely include several facilities representing over 4.5 million square feet of industrial and office space and be completed during this coming fiscal 2015.

So overall the lighting retrofit market continues to show strengthening demand and attractive industry growth trends which we expect to accelerate going forward. LDR unit shipments are increasing sequentially every month and our expanding national account business and indirect channels will support top-line growth for both this year and next.

At the same time we continue to believe that as our company grows this will translate into margin enhancement opportunities driven by greater volumes in our high capacity plants in Manitowoc, Wisconsin.

We clearly have room to grow without any significant capital expenditures so things are looking pretty good for us heading into 2015. We’ll continue to work on margin growth and cash generation while supporting our sales channels and expanding with new customers and new markets.

We’re excited by the recent wins with several national accounts and we’ll invest further in business development while keeping our own class [ph], inventory and supply chain management.

Before turning the call over to Scott, let me just touch on a couple of other housekeeping items that took place after the end of the third quarter. First, we not only completed our transfer of production from Harris’s Florida facility to Manitowoc but also closed our warehouse and operation center located in Plymouth, Wisconsin during January and moved that staff and equipment to Manitowoc as well.

The Plymouth site is now for sale and given the synergies from bringing these two locations together, we expect annualized cost savings in the neighborhood of $100,000 going forward, worth about half a cent per share pretax.

And in addition, I am pleased to announce that we recently entered into an agreement subject to inspections to sell our corporate jet. In doing so, we can pay up our lease and save approximately $1.5 million of expenses on an annualized bases going forward or about $0.7 per share pretax.

While the sale and lease payback will result in book expense and $1.8 million for the quarter including a potential cash impact of $600,000, we believe this is an important strategic move to once again show our focus on the fundamentals of business and reduce unnecessary expense wherever they lie.

Orion remains committed to improving long-term shareholder value while maintaining our position as a leader as a leading providing of energy efficient lighting solutions. The trends are moving in our favor and we view the coming quarters very positively due to our order pipeline and ongoing business development initiatives.

We’ve achieved the bottom line results that we said that we would and intend to continue delivering solid performance by focusing on margins, manufacturing executions, top-line growth.

Scott will now review the quarter’s results in detail. Scott?

Scott Jensen

Thank you, John, and good day everyone. After the market closed today, we reported results for the third quarter of fiscal 2014. Consistent with prior earnings announcements, we’ve provided additional content within a supplemental information document which was posted to our website earlier this afternoon covering our fiscal third quarter and year-to-date performance.

Accordingly, I will not walk down the P&L on a line by line basis, but I will address some of the key areas. While we continue to grow profits and generated cash during the fiscal 2014 third quarter, a revenue of $27.7 million was down 4.8% versus our fiscal 2013 third quarter. Revenue from solar projects was $6.8 million in the quarter or approximately 24.5% of total revenue and Harris contributed $2.7 million of revenue during the period. John has already discussed the factors that impacted our national account sales and the Harris government projects.

Wholesale revenue was 62% of total third quarter efficiency revenue and 64% of our fiscal 2014 year-to-date efficiency revenue. For the fiscal 2014 year-to-date period, revenue of $76 million was 19% ahead of the same period last year.

Revenue from our solar projects of $20.8 million for the first nine months of fiscal 2014 was predominantly due to the Brick Township landfill project and accounted for 27% of total revenue.

Year-to-date revenues for lighting projects amounted to $55.2 million, 13% ahead of last year’s lighting revenue, driven by the acquisition of Harris and growth within our wholesale channel.

Our backlog at the end of December was $4.1 million which included $2.2 million of solar projects. The decline in backlog was due to continuing construction on our solar landfill project.

Turning to growth margins, during the third quarter, we saw lower expenses on our solar landfill project and the completion of some higher margin services tied to this program, which resulted in solar growth margins of 34.6% for the quarter bringing our year-to-date solar growth margins to 25.8%.

Our lighting efficiency gross margins for the quarter was 27.8% compared to the prior year’s comparable margin of 32.3%. Margins during the quarter were negatively impacted by severance expenses related to the reduction of Harris’s manufacturing workforce as we transition production to our Manitowoc facility.

Additionally, the reduction in product volumes created by our customers’ purchasing delays had a negative impact on the company’s growth margin performance. At a year-to-date basis, our growth margins from our lighting efficiency projects was 29.6%.

Operating expenses were $7.2 million for the fiscal third quarter compared to $8 million in the prior year period, a reduction of 10%. We achieved this reduction in spending despite the additional expenses resulting from the acquisition of Harris, which included amortization of acquired intangibles and the incremental expenses from Harris for SG&A, R&D and integration.

For the fiscal year-to-date period, operating expenses were $21.4 million compared to $25.9 million in the prior year period, a reduction of 17%. This decrease in total operating expense was a result of our cost containment initiatives including headcount reductions and discretionary spending costs across all areas of our business. As a reminder, during fiscal 2013, we recorded approximately $2.1 million in reorganization expenses related to the management change that occurred that year.

We reported income from operations of $900,000 for the third quarter of fiscal 2014 compared to $600,000 for the third quarter of fiscal 2013. And for the third quarter of fiscal 2014, we reported net income of $1 million or $0.05 per diluted share versus net income of $700,000 or $0.03 per diluted share in the prior year period.

For the first nine months of fiscal 2014, we reported income from operations of $300,000 compared to a loss from operations of $7.1 million during the first nine months of fiscal 2013.

For the fiscal 2014 year-to-date period, we reported net income of $2.6 million or $0.12 per diluted share compared to a net loss of $10.9 million or a loss of $0.51 per share in the comparable period of fiscal 2013.

As a result of the acquired assets of Harris and related tax liabilities, our year-to-date net income includes a benefit of approximately $2.3 million or $0.11 per share against income taxes which has been previously reserved for.

Eliminating this $0.11 per share benefit and the $0.05 of acquisition and integration related expenses, our adjusted EPS for fiscal 2014 year-to-date was $0.07. Our prior year net income was impacted by a $4.1 million income tax expense or approximately $0.19 earnings per share charge related to the valuation allowances established against our deferred tax assets.

During our second quarter earnings call I discussed at length an amendment to the Harris purchase agreement and the impact of purchase accounting expenses that we recorded during that quarter as well.

The amendment fixed the value of future shares issued at $3.80 per share, and I’m pleased to report that this amendment has helped to reduce dilution based upon the December 31st closing share price of $6.80 per share.

Turning to the balance sheet, we ended the fiscal 2014 third quarter with $18.3 million in cash and cash equivalents. This equates to a 28% increase from our March 31, 2013 fiscal year-end cash balance despite the $5 million cash purchase price paid to acquire Harris early in our fiscal 2014 second quarter.

We generated $1.2 million of cash from operations during the third quarter bringing our fiscal 2014 year-to-date cash flow provided by operations to $10.8 million. We ended the quarter with $23 million in combined currents and long-term inventory.

And excluding the impact of acquired Harris inventory levels, our core Manitowoc inventories have declined by $4.7 million or approximately 18% since the beginning of fiscal 2014.

Our minimal capital expenditures during fiscal 2014 have been related to IT initiatives and investments in new product development and related tooling.

Debt service for the quarter was approximately $900,000 reflecting the quarterly debt service payments due and the seller provider debt from the Harris acquisition.

There were no borrowings outstanding under our revolving credit facility as of December 31, 2013, which has availability of $13.3 million.

With a strong balance sheet and a continuing focus on cash from operations, we have no liquidity concerns related to managing our business.

Let me now turn to our guidance for the fourth quarter. For the fourth quarter of fiscal 2014, the three months ending March 31, 2014, the company anticipates revenue in the range of $21 million to $24 million and earnings per share in the range between a loss of $0.02 and earnings of $0.01 per diluted share. Our earnings guidance incorporates the impacts of government push outs, the foreseeable decline in solar revenue and our expectations with our existing LED pipeline will begin to convert to purchase orders during the back half of calendar 2014, but excludes the impacts of the aviation lease and facility exits.

I’ll now turn the call back over to John for some closing remarks. John?

John Scribante

Thanks, Scott. Before opening the call for questions, let me reiterate that while Orion has made great strides over the past year, growing revenue 19% year-to-date and growing earnings 124% year-to-date, our sales efforts are just beginning to scratch the surface of what remains to be a huge market for the LED retrofit sales both here and abroad.

We’re winning new national accounts every quarter. And our brand is clearly known as a leader in the space. At the same time, we had further momentum going forward and demand and order trends accelerating on a sequential basis. And we’re responding to this need as a cohesive organization with a great sales staff and highly trained people.

We need to continue investing in our people and our products to bring the best unique offerings to the market and stay ahead of the competition while delivering the most value to our customers. We will also continue looking for strategic acquisitions that can broaden our product line, bringing us new customers and provide superior shareholder returns to better asset utilization and economies of scale.

I’m personally excited about the future of Orion as we have great deal of potential due to our technology, our position in the market, and most of all, our people. We remain well-positioned and we’ll continue to evolve in a way that best serves our customers and our shareholders.

With that operator, we will now open the call up for questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question will come from the line of Steve Shaw from Sidoti. Your line is open, and you may proceed.

Steve Shaw – Sidoti & Company

Hi guys, how are you doing?

Chris Witty

Hi, Steve.

John Scribante

Hi, Steve.

Steve Shaw – Sidoti & Company

Can you guys just provide some color on stepping away from the solar business? I know you guys are working on the big project in Brick. Is it a process that happens rather quickly over a quarter or two or is it going to be a slow phase out?

John Scribante

Sure. In terms of the infrastructure and the back office part of that business, it’s very scalable. The resources we have deployed for solar for the most part came out of our lighting business, and so redeploying them is pretty seamless activity for us.

In terms of burning to [ph] pipeline, we do have – do a couple of open projects that we’re winding down. And that might take the next three quarters or so, but revenue becomes significantly lower. So it is not a difficult process for us to do that.

Steve Shaw – Sidoti & Company

Okay. Thank you.

John Scribante

I don’t know. Did that answer your question?

Steve Shaw – Sidoti & Company

Yes.

John Scribante

Okay.

Operator

Thank you. And our next question comes from the line of Carter Driscoll from Ascendiant Capital. Your line is open, and you may proceed.

Carter Driscoll – Ascendiant Capital

Ascendiant. Thanks. Hi there, guys. I want to talk about some of the order push outs, maybe to characterize, I’m sure you want to identify the need of the customers. But maybe some of the end markets and whether this is kind of interpretation on global growth and people may be pushing out some of the cap expectations or whether it was a specific end market or specific customer that you could – any characterization I think would be helpful, and then a couple of follow ups.

John Scribante

Sure. So what we’ve been experiencing is our customers, our industrial customers, so that’s our more legacy factory and warehouse facilities that today they’re looking at LED as an option versus linear fluorescence. And the linear fluorescence is still very economical. LED is getting to the point where we’re making sales into that space, but we’re experiencing some longer lead times just due to the vacillating back and forth as to do I wait a little while and get a better pricing after the New Year or a few months on the LED versus on fluorescence? Am I investing in a technology that I may need to replace in a few years down the road? So it just is adding more layers of questions into the sales process. That’s on the industrial side.

On the commercial side on really the front office in retail, which is really a newer market segment for us that came with our LED fixture, that actually is we’re seeing the opposite and that’s a much faster option, much faster growth in that segment. But because it’s a smaller portion of our total sales, it’s having less of an impact. So I’m seeing the LDR segment, the commercial office, the retail store, retail restaurant, retail banking, drugstore, all of the commercial space that the LDR is very well-positioned for is a very fast-acting space right now. So industrial on the inside, in the factory and warehouse, just a little longer lead times.

And then some of the specific pushbacks – one was government shutdown which impacted a fair amount of business and even though the shutdown was only for whatever that was, four or five weeks, the impact was that we are just now getting back on to those job sites. You can’t just walk back in through the gates after a shutdown. There’s a lot of other impacts. So there’s that.

And then we also experienced some large customers that went through acquisitions, just getting through – some late end – some December acquisitions that put a hold on a whole lot of business for us to do this.

Carter Driscoll – Ascendiant Capital

Okay. What we’re trying to characterize is that on the commercial side because typically the opportunity or the size of the facility is smaller relative to the industrial customer that it’s quicker and therefore it might be midyear capital decision, it might be a smaller total dollar layout versus the industrial customer and therefore smaller sales cycle versus the industrial customer.

John Scribante

I think there’s two – you can split the commercial really into two segments. One is that small local buyer that’s picking up smaller orders. But more significantly, the large high rise office buildings that are controlled by property managers and so you really got both ends of that spectrum to where you put the big finances [ph] that those guys are very open to discussing this topic, the property managers are – we had a lot of discussions around that. There’s some adoption rate, we’re seeing orders that are coming in on that, mostly pilot orders right now, but with tremendous amount of upside.

So I think you can really split commercial into two and the small Laundromat grocery store type business, all the way up to the serious hour [ph].

Carter Driscoll – Ascendiant Capital

And can you remind us again the kind of the rest split between industrial and commercial and then maybe how you expect that to evolve say over the next several quarters in terms of contribution to sales?

Scott Jensen

Carter, you’re asking industrial versus commercial?

Carter Driscoll – Ascendiant Capital

Correct. Correct. Correct. And then how you expect potentially to change [indiscernible]?

Scott Jensen

Got it. Got it. Yes. So a small portion of our revenue right now is on the commercial side. John talked about pilot orders. So predominantly, our revenue on the lighting side has been either in exterior, parking garages, automotive dealerships or in a commercial industrial application.

Carter Driscoll – Ascendiant Capital

But it does have the greatest potential to grow on the upside.

Scott Jensen

The commercial side.

Carter Driscoll – Ascendiant Capital

The commercial.

Scott Jensen

Yes, so moving forward, we could easily see that split moving more towards a balanced 50-50 ratio in commercial even outgrowing our existing commercial industrial business.

Carter Driscoll – Ascendiant Capital

You’re again – that payback could potentially happen over the next several quarters or do you that will take a multiple year process?

Scott Jensen

I think it’s longer into the calendar 2014. A lot of this is seeding the clouds, getting pilots out there, the owners being able to evaluate the performance and the energy savings of the fixture and then deploying capital again to John’s comments, at a smaller level, that decision is quicker. At a corporate level, that may take a little longer time for them to deploy the capital.

I will tell you, two to three quarters out is our expectation before it’s meaningful.

Carter Driscoll – Ascendiant Capital

Okay. Thank you. That’s helpful. Shifting gears a little bit. The Harris contribution is down, well, at least on a percentage basis fairly substantially. Q2 obviously largely impacted by the government side. Is that your typical type of government impact looking from what they did last quarter, this quarter and – or was there any other weakness in Harris business outside of the government side?

Scott Jensen

No, the government business has been roughly a third historically and that’s been pretty consistent to their run rate. And that’s about what it was impacted in the quarter.

Carter Driscoll – Ascendiant Capital

But essentially, you just want to weigh in the quarter. Is that fair?

Scott Jensen

Yes, just the deferrals.

Carter Driscoll – Ascendiant Capital

Yes, okay, okay. Of the push outs you characterized, winning – I’m assuming a significant majority of this back in later quarters, would you care to put a rough percentage around what was pushed out and what you think you have a good chance of recovering say over the next several quarters?

Scott Jensen

I think we have a great chance of recovering all of the business. I can’t tell you specifically on the timing. The most difficult one is obviously the customer of ours who was acquired. Actually both the acquirer and the acquired business have been customers of Orion. So they know us. But they have to work through their own evaluation of facilities and allocating capital.

The other push outs really were timing issues around deciding to defer allocated budget dollars into calendar ‘14. So those are still on the table and we would expect to be able to win that business hopefully in the first half, but again customer decision.

Carter Driscoll – Ascendiant Capital

Okay, all right. I’ll step back in the queue. Thanks, gentlemen.

Scott Jensen

Thanks, Carter.

Operator

Thank you. Our next question comes from the line of Tom Kerr from Singular Research. Your line is open and you may proceed.

Tom Kerr – Singular Research

Hi, guys.

John Scribante

Hi, Tom.

Scott Jensen

Hi, Tom.

Tom Kerr – Singular Research

Hi. Going back to the de-infrastructure with solar projects, just to clarify, is that pretty much everything that’s in engineered system segment or are there other material things in there? Or is that pretty much the whole segment that’s going to be in like a run-off mode?

Scott Jensen

Yes. That’s been – the engineered systems segment has been predominantly solar. We are looking at moving that into complex projects, so incorporating any complex lighting system, third-party technology. So that will evolve going forward. But from a historical standpoint, that has been solar.

John Scribante

We’ll sustain itself, it’s just – [indiscernible] thing are not the national account complex lighting projects. And so our traditional business is more of the wholesale and end market and engineering systems. We’ll pick up the national accounts in a more complex stuff. So it’s changing its character a little bit going forward. So you’re still seeing numbers flow through there, but it will be more lighting than solar.

Tom Kerr – Singular Research

Has that come out of the energy management segment that requires a restatement or will it be a new type of business?

Scott Jensen

No, going forward.

Tom Kerr – Singular Research

Okay, so those segments will remain the same just not of any [ph] solar and the engineered system’s part.

Scott Jensen

Correct.

Tom Kerr – Singular Research

Right, that’s all I have. All the questions have been answered. Thanks.

John Scribante

Good.

Scott Jensen

Thank you.

Operator

(Operator Instructions). Our next question will come from the line of George Gasper with the Private Investor.

George Gasper – Private Investor

Yes, thank you. Good afternoon, there. A couple of questions, first John, could you make some comments on your recent announcements on staff additions or your management additions, changes, how do you see this all coming together now? And what do you anticipate from these changes as far as what your objectives are near and longer term.

John Scribante

Sure. Nice to talk to you, George. We’ve been, over the last year, a year and a half, constantly been seeking out and looking for and identifying talented individuals and people that can help us build and grow the business. We’ve made a lot of internal advancements and positioning as staff within the company to better serve our customer.

We’ve identified a lot of talent within the organization that has moved into roles that they may have been overlooked in the past. So we’re on a tremendous amount of success in just identifying internal opportunities to better the business, stay lean, stay focus on customers and building out a better business.

In terms of the recent announcements one was Mark Meade who we had elevated to Executive Vice President. Mark and I have worked hand in hand building out our solar division. He was very instrumental in a lot of the project finance structures and the operations of the business, a very talented individual, has a tremendous amount of insight and ability to look forward into the business and help prepare us. So he’s very strategic.

And then Omar Rivera who we recently announced last week joined us from General Electric, GE. He was a product manager for their LED lighting business. Been with the company for six years or so and had some prior businesses before that, in lighting distribution, in lighting.

So he comes with us with a tremendous amount of experience. He’s helping us build out our channel and make sure that we’re structuring as we’re expanding and bringing on more retail business and more distribution business. He’s really guiding through that and bringing vast amount of knowledge to the table.

So those are the two more recent announcements that internally we’re positioning people to better serve the customer. And we focus all of our efforts around the customer value streams.

George Gasper – Private Investor

Okay, thank you. And now I got a question on power class shift that could really be very dimensional in the United States coming forward here within six months. I’ve spent a lot of time analyzing energy cost structures. And this natural gas price shift that has been experienced recently obviously is due to cold weather in many parts of the United States.

And historically I’d measure that there is a league of about six months and power generators are getting to the customer. And as they purchase their forward advancements of natural gas for example for power generation, are you sensing anything or maybe it’s early, but I think United States is in for a reassessment that’s of companies, of manufacturers, users of electricity are going to be shocked at what they could possibly see as natural gas shifts upward in such a demonstrative number to energy power markets. Do you – what do you think about that?

John Scribante

Well it kills me, but if electricity prices go up, that benefits Orion. It provides more reason for our customers to take action, take measures to reduce cost. And I think the infrastructure that we have in this country and what the constraints and the inherent aids to the systems is all putting pressure on electricity cost. And I think we will benefit.

I think the bigger driver for us though is the solid state lighting. And even though electricity cost will have its ups and downs, the massive market, regardless of electricity cost, the massive solid state lighting market is probably more significant to us.

George Gasper – Private Investor

Okay, thank you.

John Scribante

Thanks, George.

Scott Jensen

Thanks, George.

Operator

Thank you. And I’m not showing any further questions at this time. I would like to turn the call back over to John Scribante for any closing remarks.

John Scribante

Well great. We look forward to spending some time once again next quarter and updating you on our progress. So I appreciate you taking the time today. And we look forward to another great quarter. Thanks.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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