Orion Energy Systems' (OESX) CEO John Scribante on Q1 2015 Results - Earnings Call Transcript

Aug. 4.14 | About: Orion Energy (OESX)

Orion Energy Systems, Inc. (NASDAQ:OESX)

Q1 2015 Results Earnings Conference Call

August 05, 2014 04:30 PM ET

Executives

Forrest Hunt - The Equity Group

John Scribante - Chief Executive Officer

Scott Jensen - Chief Financial Officer

Analysts

Philip Shen - ROTH Capital Partners

Steve Dyer - Craig-Hallum Capital

Jeremy Hellman - Singular Research

Operator

Good day, ladies and gentlemen and welcome to Orion Energy's First Quarter Fiscal 2015 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions following at that time. (Operator Instructions). And as a reminder, this conference call is being recorded.

Now, I'll turn the conference over to your host Forrest Hunt of The Equity Group. Please begin.

Forrest Hunt

Thank you. The company issued the announcement of Orion's fiscal 2015 first quarter results this afternoon. The release includes a section that briefly describes the supplemental information document that was posted to the company's website. This supplemental information provides further additional details and analysis on Orion's financial performance for the fiscal first quarter ended June 30, 2014.

We will also be utilizing a slide show presentation in conjunction with this call. This presentation is available on Orion’s website in the Investor Relations section. We welcome each of you to review this presentation and follow along.

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 of the context of such statements will include the 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 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 the forward-looking statements, which may not be updated until our next quarterly conference call, if at all.

With us from the company today is John Scribante, Orion’s Chief Executive Officer and Scott Jensen, Chief Financial Officer. John will provide a brief update on business operations and opportunities in the market, Scott will then review the first quarter financial results and lastly John will return for a few closing comments. And with I would like to turn the call over John. Please go ahead, John.

John Scribante

Yes. Thank you all and good afternoon everybody. Our results for the quarter demonstrated progress in our strategy as we delivered solid growth in bookings which led to the largest lighting backlog in two years. And while our total revenues grew slightly quarter-over-quarter and margins dropped due to low plant absorption and some changes in product mix, we remain very optimistic about the remainder of the fiscal year. One very significant development in the quarter was that our LED sales as a percent of revenue grew to nearly 30% in June and finished to 21% for the quarter. In fact our LED sales have doubled each quarter in the last five quarters. This is a solid progress in LED sales for Orion and an indicator that our strategy is on track.

There is further evidence that our strategy is working, first our January entrance into the commercial office space significantly increased our addressable market and has resulted in a large build up of booking and backlog driving our LED sales faster than expected. To put this into perspective Orion traditionally served the highway retrofit market which has an estimated 67 million installed light fixtures. Yet the commercial office space has nearly 1 billion installed light fixtures that’s a market 15 times larger than what we had to work with last calendar year. And with our patent pending LDR retrofit product and close to the customer sales channel we can command a significant portion of this installed base.

Second our strategy to add more key energy service companies or ESCO resellers has resulted in new revenue that will drive a large portion of our growth in this fiscal year utilizing the LDR line as a lead into new customers. Adding to this, we expect to expand our product [Technical Difficulty] later this year which will fuel more and more opportunities to support these channels.

And just to note on our ESCO relationships, our success in growing this channel 77% in the last quarter had more to do with our exceptional customer experience and talented people serving these customers banded our products. Our key strategy in winning new business is in the way we engage service and support these customers. And while there are some ramp up time before these ESCOs deliver their full potential with us, this is a winning strategy that will result in growing our revenues and margins.

We secured a number of large wins that due to timing will largely be reported as revenue in the next two quarters. While this affected short-term sales in Q1, it has created a healthy backlog of lighting orders that is the largest since this management team took over in 2012. These orders include a whole new set of customers that Orion had not pursued before.

Let me highlight a few of these wins, starting with the new order from our engineered systems channel that we’re excited about. We executed a contract with a large national retailer to supply retrofit solutions to approximately 27 of its locations, the delivery and installation of approximately 31,000 LDR fixtures is scheduled to begin in the company's current second quarter with a potential for several 100,000 additional fixtures to come. This agreement represents the company's largest sale of our LDR product, since its introduction in January and the largest LED order in the history of Orion.

Second, we signed an extension with one of the United States largest small box retailers to remain their supplier of lighting solutions for their new stores. We issued a press release on this a few weeks back and the customers asked us not to disclose its name. But between Orion and Harris lighting, we have supplied these customers over $20.5 million in lighting sales since 2008. It’s been an incredibly successful partnership for us as reflected in the contract expansion. We also announced the company has signed an exclusive agreement to retrofit a major auto manufacturer’s plant in Canada with the LED high bay fixture for $2.4 million. The company expects to complete delivery within the next 60 days and installation in the next 180 days with the majority of revenue to be reported in the company’s current second quarter.

Those are just a few examples of our lighting solutions for customers in both retail and industrial sectors and include our new LED product offerings. The LDR product which we only introduced in January is our single largest selling product. The ramp up in customer interest is largely due to its quality, energy efficiency and ease of installation. When we get this product in front of potential customers, we have a significant advantage that leads to winning.

So, let me highlight how we’re enhancing some of our sales efforts in a cost effective manner under a defined strategy. Within our engineered systems division, we have aligned its focus around large multinational multi-site roll out opportunities. We target national accounts for an entry point to potentially lead the large orders in a short period of time and then a contractual agreement for large portfolios. In addition, our national account installed-base provides candidates for upgrades to our newer LED products under new contracts.

We remain very positive of the growth trends emerging in this channel and we have a number of talented individuals within our engineered systems division who’ve demonstrated their ability to deliver growth in national accounts. Our U.S. markets division continues to multiply its field fore with the addition of several new sales people since May. And while several hundreds of contractors and resellers buy Orion product, U.S. markets division concentrates on ESCOs or energy service companies. This division increased the number of key ESCO resellers from 30 to 53 in just the past three months, while important the number isn't the only key element, it's keeping these companies engaged, equipped and driving sales.

We can provide the best quality products, better service, short installation and lead times and more profit for these people to grow their businesses. These key ESCO resellers currently comprise of approximately 63% of our existing indirect channel revenue in quarter one and we see this channel as a significant path to growth and profits.

Our distribution services division, which markets products under the Harris brand is building off the original Harris product line while adding more and more products each day and selling this lines for traditional electrical distributors. While small today we see this division as one that can grow fastest and contribute handsomely to our earnings in the future. In fact one of our distributors in this channel has landed a contract with Sam's Club for the LDR product line. And as we speak that product is being sold online at samsclub.com and we certainly like the potential for online sales of this product given its delivered as a complete solution.

To sum up our sales efforts, there are number of different avenues in which to grow. We have the industry's best people, great products manufacturing capacity, growing channel and a massive market that is opening up directly ahead of us. We see many favorable trends that we are uniquely positioned to dominate. When this management team took over 2012, our challenge was achieving operational efficiencies and turning around the company that had seen better days.

This included a restructuring of our company in advance of inevitable industry shift to the more demanded LED products. Throughout the past two years, we work diligently to ensure that our organization was properly structured to keep expenses down were preparing ourselves for this paradigm shift. We are largely through the OpEx side of Orion's transformation and our heavily focused on generating revenue and improving gross margins.

Regarding our cost of goods since our LED volume to increasing, we expect to see our gross profit steadily increasing in future quarters in these lines due to manufacturing efficiencies and sourcing leverage. We all recognized that there was going to be challenging transition into a customer driven company with a decidedly new brand image. This transition along with the much discussed slowness of adoption by commercial and industrial retrofit customers has led to delayed sales in short term. However, we've been adamant about these financial results do not reflect the long-term potential for Orion.

We essentially reshaped the company selling $70 million of legacy products into newly refocused company with industry shaping products positioned to capture massive new markets. While not an easy task in the first quarter we started to see the beginning of a long awaited turn, and while still a bit volatile, our outlook is growing more favorable each day.

With that, let me turn it over to Scott to review the financials and then I'll comeback with some closing comments.

Scott Jensen

Thanks John. I'll briefly go through the quarterly highlights but first I welcome each of you to review our press release and the supplemental information for additional detail on our financial performance.

We recorded total revenue of $13.3 million for the fiscal 2015 first quarter compared to $20.9 million in the prior year quarter. The decrease in revenue was a result of the continuing delay of customer purchase decisions have pushed a number of orders into our backlog. In addition, we reported a decline of $3.9 million in solar revenue year-over-year.

Our quarterly LED revenue shows that we are on track to exceed last year’s growth of 157% year-over-year. We’re very pleased to see revenue from Orion’s LED products increased to 2.55 million during the quarter or 20.9% of total lighting product revenue this compares to 1.1 million or 7% of total lighting product revenues in the prior year period.

While it’s growing but still smaller piece of our sales at this point we believe LED products will be the new driver of our company’s sales in the coming years. Total gross margin was 19.6% for the fiscal 2015 first quarter compared to 27.4% for the prior year period, largely as a result of the decline in revenue and the impact of our fixed manufacturing costs.

As we have noted in the past call our goal is to continue to ramp to a more efficient scale in the short term which would typically lead margins into the 30% range. This contributed to the company reporting a net loss for the period of $4.4 million or $0.20 per diluted share compared to a net loss of $800,000 or $0.04 per diluted share in the prior year period.

Finally on the balance sheet we maintained a strong capital position throughout the fiscal 2015 first quarter. At June 30, 2014 we had $16.3 million in cash with working capital of $29.7 million and total debt of $5.8 million. During the quarter we continued to divest our business of non-core assets selling our facility in Plymouth, Wisconsin and generating $1 million of cash from the sale. We remained comfortable with our current liquidity and our capital position.

Before I turn it over to John for a few closing remarks let me discuss our outlook for the remainder of fiscal 2015. Largely the follow-up on John’s comment about our strong backlog we continued to anticipate total revenues for fiscal 2015 will range between $80 million and $105 million. This is based solely on our organic projected sales growth of LED lighting solutions through both our U.S. Markets and Engineered Systems business units. We intend to provide an update on this every quarter and also may revise as necessary upon a given event such as an acquisition.

With that, let me turn it back to John for discussion of our growth strategy for fiscal 2015 and closing remarks. John?

John Scribante

Great. Thanks, Scott. We continue to see Orion’s strength matching a number of larger trends in the U.S. retrofit market. While industry wide sources are varied in our estimation of growth in the lighting sector, two consistent messages are clear. There is accelerating growth and LED is driving it. And we feel that Orion is in the right spot focusing on retrofit solutions for our sellers and reselling partners can easily upgrade older lighting systems with new solid state LED solutions. During June, the last month of the quarter LED sales were nearly 30% of total revenue. And for the quarter sales of our LDR product was over 78% in our commercial office sector.

For the remaining of Orion's fiscal 15, we are focused on expanding our product offering with a significant product launch later this fall, consistent with the Orion heritage, this product launch will include flexibility and technology that our customers cannot get in the current marketplace. The adoption rate from our customers of our LDR product is very encouraging, but also has served as a precursor to what our customers want and what Orion intends to provide them.

We have exceptional people, the channel’s in place, the market is massive and we have the advantage over our competitors and that we have a unique customer experience, factory capacity, higher quality and unique product, shortest lead times, full service offerings and a better total solution. By providing the most robust customer experience in the industry, Orion will continue to run the business with the world’s finest customers.

While we started to see pipeline and bookings growth in the latter half of the fiscal first quarter and into the second there is still so much more to grow. We’re investing proactively incorporate rebranding initiative that highlights Orion’s position as the leader and retrofit Solid-State LED solutions and we’ll run concurrently with our fall product launch. One substantial piece of this rebranding is emphasizing our new direction towards LED products. We will also continue to expand to our sales force and support this initiative to add new management talent to drive more sales and cultivate relationships with our ESCO partners.

And to that end one final post script I am pleased to announce that after a short leave of absence Mike Potts our Chief Operating Officer has returned to work and he’s a 100% ready to propel this company forward. Mike has a deep level of experience in the industry and will be a great contributor to our success going forward.

Operator, let’s take some questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). First question is from Philip Shen of ROTH Capital Partners. Your line is open.

Philip Shen - ROTH Capital Partners

Hey guys, thanks for taking my questions.

John Scribante

Good afternoon.

Scott Jensen

Hey Phil.

Philip Shen - ROTH Capital Partners

Hey so let’s start by talking about your sales cycle. Can you give us some visibility into the customer purchasing and behavior. What can you guys do to accelerate the sales cycle overall and I mean you guys talked about the lays and purchasing behavior, what are you guys doing to accelerate that and how do we improve things?

John Scribante

Great. Well, I will say that the sales cycle in our LDR product line appears to be shorter than what we experienced in the industrial side of the business. The industrial side tended to be much more driven around capital expenditures and capital expenditure cycles.

What we’re finding on LDR is that it’s become much more of a focus around just energy savings and a lot of retail business right now is driving a lot of that. Most of those sales are in a retail environment with some commercial office. But it seems to be much more of an energy savings driven around current needs as opposed to more of a capital expenditure cycle.

So we're seeing a faster growth in the pipeline and quicker sales cycle in the commercial office sector. The other thing is I am not going to get into a lot of the specific strategies on how we are working towards shortening the sales cycles. We are taking a different approach around the people that we hire, the experience that they have and the structure around how they are approaching each individual market that they serve.

So there is some specific initiatives there that we are taking underway to do that as well.

Philip Shen - ROTH Capital Partners

Great, are you guys playing with the idea of using financing to accelerate your sales at all, you guys have the OTA, orders, is that being discussed or used that as an opportunity to again push sales through?

John Scribante

Yes, it is certainly one of the actions that are presented as part of our selling process. And while it has some attraction in some markets, there are some limitations that people consider when levering their own business.

And so, it's clearly part of the strategy; it can't accelerate sales in some cases but its’ still a market right now, particularly on the industrial side that levering off and adding the long-term commitments is just generally not what our best customers are looking to do. Not to say that it's a not a solution in many cases. I think about 15% of our sales or so is transacted through a financing mechanism. So, it’s still there, it just -- I think it’s the nature of a lot of our customers, it’s their a large Fortune 500, they tend to be very fiscally conservative and going out more than a couple of months on any sort of a commitment so.

Philip Shen - ROTH Capital Partners

Okay, great. One more and I’ll jump back in queue. Historically, you guys have talked about sales cycle, speaking anywhere between seven and nine months, you said earlier that the -- LED LDR sales cycle is shorter than the industrial side. Can you quantify where each one or each segment or product line is in terms of what the gas gestation period might be?

John Scribante

Yes. I can't give real specific, I just don't have those figures is available to model it. But intuitively, we see LDR fixture sales in a one sales call close, not to stay they’re all that way, but it’s rare to find a high bay where an industrial sale takes place in the lobby. So what we're generally seeing is that the intuitive nature of the product is generating the interest in moving quicker; it’s just a very easy to understand product with a very straight forward proposition in a space that traditionally didn’t have a lot of options. So you compare that to the industrial which every facility can be incredibly compliance and specific; there is a lot of things to consider beyond just light or beyond just energy. There a lot more complexities in the industrial environment whether it’s ceiling heights or whether it’s contaminants in the air due to processes or heat or temperature issues, you just don’t have in the front offices. So that LDR product space is one that we see, as I’ve mentioned in my comments, a fast growing and a fast build on the pipeline and having a sales force that’s equipped with some unique selling tools, gives us an advantage in the marketplace. And it certainly shortens the sales cycle.

I don’t think the industrial sale has changed a whole lot other than a complexity and a delay in buying decision just due to the new factor of do I have to consider LED in addition to linear fluorescent and what is that going to do. And if that adds another three to seven months to the decision, as we commented in some prior calls, we are expected that these sales are still going to happen, they are just going to happen later in the budget cycle of our customers which is really in our third quarter, the latter half of the second quarter and going into the third quarter.

Philip Shen - ROTH Capital Partners

Great. Thanks for the color, John. I will jump back in queue.

John Scribante

Thanks Phil.

Operator

Thanks. The next question is from Steve Dyer of Craig-Hallum Capital. Your line is open.

Steve Dyer - Craig-Hallum Capital

Thanks. Hey John, hey Scott.

John Scribante

Hi Steve.

Steve Dyer - Craig-Hallum Capital

Question on the backlog, I was wondering, if you can give a little bit more color. The wins that you detailed on page five of your slide presentation, small and large retailer Ford and then the large national retailer, are those all in the $7.4 million backlog or were some of those after the beginning of this quarter?

John Scribante

The small box retailer will be run rate business that we'll continue to bring purchase orders in around new store openings. The manufacturing best-in-house as is the retailer and we'll expect to record the majority of the product revenue in our second and third quarter as product ships and then the installation revenue will follow in the third and fourth quarters, just a timing of installing a major project within one location.

Steve Dyer - Craig-Hallum Capital

Okay. And so, and this will probably a little bit difficult to project but when you net everything out, would you expect your backlog at the end of second quarter to be above or below or kind of in line with what you saw at the end of the first?

Scott Jensen

It will certainly be dependent upon the rate of new orders coming in. I expect that we'll work through a portion of the larger customer opportunities in the backlog. And then as John talked about the LDR, with new orders coming in and a lot of field demos that we are doing right now. And just a reminder too that product just hit the marketplace in January.

So, as we're developing sales experience and closing rates in just station, we're still working through a lot of new data. So I can't specifically tell you, Steve what we're seeing is accelerated adoption, we are encouraged by the interest, by the orders that we are receiving. But I can't tell you specifically if it’ll be higher or lower than the current quarter.

Steve Dyer - Craig-Hallum Capital

Okay. And I don’t mean to parse the guidance too much, but any sense as to what kind of an acceleration we’re looking at in the second quarter in other words maybe how much revenue in the first half of the year versus the second just for modeling purposes?

Scott Jensen

Yes. We’re still -- our historical trend rate where do we see 30% to 40% of the revenue in the first half of the fiscal year that still is what we’re tracking towards right now and what our expectations are. John’s comments about really seeing the December quarter start to increase around capital budget allocations, but we’re not seeing anything that would lead us to believe that those same splits aren’t appropriate for our current fiscal year.

Steve Dyer - Craig-Hallum Capital

Okay. Then with respect to gross margins, do you have kind of a quarterly run rate that you need to hit to kind of get the 30% bogie that you’ve talked about or how do we think about that progression throughout the year?

Scott Jensen

Yes. That’s a great question. So, we continue to work on some sourcing initiatives to drive component costs down certainly volumes will help. If you look at our first quarter results in the midpoint of our guidance range that would suggest we need gross margins just under 32% and those are gross margins on the lighting side that we have certainly hit in the past and with the revenue improvements coming in the back half as we expect the lean initiatives that we’ve been working on in the facility.

We really haven’t had the benefit of volume driving those efficiencies yet. I think that, that 31% to 32% gross margin range to just hit the midpoint as a reference Steve, very obtainable for us.

Steve Dyer - Craig-Hallum Capital

Okay. Given -- even including kind of the revenue numbers you’re talking about this year?

Scott Jensen

Yes.

Steve Dyer - Craig-Hallum Capital

Okay. And I am sorry, I missed your commentary I thought I heard you say something about Sam's Club and I missed what that was about, could you repeat that?

Scott Jensen

Yes, we have a reseller one of our out of our U.S. markets division a reseller who had landed a contract with Samsclub.com, the Samsclub, and they have a placed a product out on the website. Really it positions more for the small office, home owner and maybe a market that isn't necessarily doing a large instop.

But it's another avenue for that product to get out on a worldwide basis into the space and we attribute that to one of our resellers who brought that to the table and we anticipate it could have nice impact to add volume, to help improve the margins as we go forward.

Steve Dyer - Craig-Hallum Capital

Okay. And then lastly and I will hop back in the queue how should we think about the progression of operating expenses throughout the year. I mean I know it's going to increase but any sense of magnitude?

Scott Jensen

Yes, John touched a little bit that we're bringing on additional field sales, we continue to recruit for talent and to help support above the U.S. markets and the ESCO partners out in the channel. Our national accounts team has had some refinance as well.

And so I would expect that certainly on the volume side, sales and marketing will trend up and follow revenue in the back half of the year Steve. Our G&A expense tends to be heavier in our first quarter simply as a function of some of our year-end audit and legal, some of the compliance cost.

So that should be relatively stable and should taper down a little bit to follow historical G&A run rates.

Steve Dyer - Craig-Hallum Capital

But sales and marketing will be where you see the growth?

John Scribante

Sales and marketing and then product development, the R&D side. We've got a fair number of products right now in the queue that we're getting to the finish line with the launch later this year. So we'll start to see that trend up over the next two quarters as well.

Steve Dyer - Craig-Hallum Capital

Okay. Thanks guys.

John Scribante

Thanks Steve.

Operator

Thank you. Our next question is from the Jeremy Hellman of Singular Research. Your line is open

Jeremy Hellman - Singular Research

Hi guys Jeremy and [Pathan] here. Just had a question about the competitive landscape in the LED market, are you seeing more competition from mom-and-pop type office or the larger companies?

John Scribante

That’s the segments, the different sectors. I think in the exterior line it's more the larger players that are really making some moves. I don't see a lot of mom-and-pops in the commercial office space but the highway market has always been build with. I think what -- I guess what I'm trying to say is that there is a shift it's moving and you seeing more consolidation mostly on the exterior seeing a lot less of the smaller players out there. But the office has been always really the big players.

Jeremy Hellman - Singular Research

Okay. I appreciate it.

Operator

Our next question is from [Tyler Page of Baker Avenue Asset]. Your line is open.

Unidentified Analyst

Hi guys. Just want to go back to the gross margins. I'm curious about the difference between the national resale, the national accounts and the resellers and if you speak towards what the shift to a larger portion of revenue from the resellers due to the margin?

John Scribante

Yes, good question Tyler. We experience a few basis point difference, 200 to 300 basis points difference between the national account and the U.S. market channels with the U.S. market channel being a little higher on the contribution side. So Tyler, as we expand that channel, should have a favorable impact to us. The gross margins are fairly similar though, if you think about national account pricing and then resellers who have to take the product to market. There is not a really sizeable or significant difference between the two channels.

Unidentified Analyst

Great, thank you.

Operator

Thank you. Our next question is from [George Gasper]. Your line is open.

Unidentified Analyst

Thank you. I’d like to dwell a little bit more on the inside when you look at the LED sales number for the quarter being 2.6 million and your total sales being 13.3 million. Can you explain the differential in there with specifically that encounter, was that HIF or can you explain that? And then could you also elaborate on your forecast which I believe maybe, correct me if I am wrong, was 80 million to 105 million or something like that now you are saying 80 million to 105 million or whatever. But even if you did 80 million, that means that you have to average 22 million per quarter in the last three quarters on top of what you recorded in the first quarter. Is that really a doable situation, I mean that’s pretty aggressive upside from first quarter situation and can that be already accomplished in the second quarter?

Scott Jensen

Sure, thanks George. Those -- a number of questions there, so I will try to touch on as many as I can and then if I missed anything, certainly let's circle back. You touched on the revenue break out for the first quarter at $13.3 million. A $1.1 million was solar projects continuing to work through the pipeline of PPA and we have in place with long standing national account customers, renewable energy credits that we sold and then another half a $0.5 million or almost $600,000 related to service revenue on our lighting project. So, if you eliminate the two of those line items, you get down to the $11.6 million of lighting product revenue, $2.6 million in LED and the balance is really a combination of legacy, high intensity fluorescent, some products that Harris takes to market, exterior products and then just other accessories, controls, day lighting products.

Your question, then two on the guidance, the guidance range was unchanged for this quarter for the fiscal year, $80 million to a $105 million. We've always had our low water mark in terms of quarterly revenue in our first quarter and we are actually very encouraged by the amount of bookings in the quarter compared to historical years, bookings have been up, and they have been tracking very nicely, certainly driven by new products.

But at this point, carrying the backlog that we are and our expectations for pipeline conversion and just what we are seeing in both of our business units, the national account side, engineered systems, the U.S. markets with bringing on new ESCOs and then the success, the early success of the distribution side and the placement of at [Sam’s] that John talked about, there is no reason from our standpoint that we don't believe we can hit an average run rate of $22 million over the back three quarters of the year.

Unidentified Analyst

Okay. And right now and then as you look at your LED portion of this going forward, you would have to have a tremendous uptake in starting even in second quarter when you look at the average rate being in the 20 million, 22 million range per quarter. I would assume that you’re talking the most significant lift off to get that revenue stream up from the 13.3 million of the first quarter, it will have to come from the LED. So you’re suggesting, there is going to be a very huge leap from this $2.6 million in LED sales in the first quarter, am I correct about that or is my assumption wrong?

John Scribante

You are George. A fair amount of our backlog the $7.1 million of lighting is heavy on the LED side right now. Orders that have come in that will be shipping in the second and third quarter and completing. So that’s consistent with our expectations that LED is just going to continue to become more and more of our revenue mix in total and really going to drive our growth in the future.

Unidentified Analyst

Okay. And as you’re looking now at your ability or your projections getting up to where are you still talking low side million for the year, how do you view your operating structure in Manitowoc, in your plant as far as current employment and how you see being able to handle this uptake from where you were in the first quarter in personal lighting?

Scott Jensen

We’ve been working very diligently within our operations in plant group and engineering all the way down to the workers on the plant lines, the assembly lines so proactively embrace lean manufacturing initiatives. We've been improved efficiencies, we have compressed the space to eliminate redundant cost, traditional handling cost we're very well positioned right now to be able to bring additional volume into the facility without having to add headcount.

We have effectively absorbed the old Harris Manufacturing production activity into Manitowoc without any of the people being added. So we've got a lot of leverage available to us. We've again worked diligently to be able to hold the line as best we can and certainly there will be a function of the acceleration and the momentum of products coming in and how we might need to scale up production if it calls for.

But right now we feel highly confident that we'll be able to meet our targets for the year around gross margins based upon manufacturing costs and our ability to leverage some value. LED is still given that 20% smaller mix than what our florescent run rate has been and so we'll get some purchasing power as we continue to see volumes increased.

John Scribante

And we also, in the manufacturing facility we have rebuilt the plant in such a way and reorganized the plant in such a way that we can absorb the spikes that historically we hadn’t been able to do without adding people into the mix, whereas today we can have a significant fluctuation in the order run rate without affecting the ability of the plant as it currently sits to absorb those spikes.

Unidentified Analyst

Okay. All right got back in the queue. Thank you.

John Scribante

Thank you George.

Scott Jensen

Thanks.

Operator

Thank you. There are no further questions at this time. I would like to turn the call over to management for any closing remarks.

John Scribante

Well, great. Well, thank you everybody for joining us on this call. And we appreciate your support and look forward to great things coming ahead of us. Have a good day.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Orion Energy Systems (NYSEMKT:OESX): FQ1 EPS of -$0.20 misses by $0.08. Revenue of $13.3M (-36.4% Y/Y) misses by $3.15M. Shares -8.3%.