Orion Energy Systems, Inc. (OESX) Q4 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to Orion Energy’s fourth quarter and year-end fiscal 2012 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. I would now like to introduce your host for today's conference, Mr. Scott Jensen, Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon everyone and thank you for joining us for the Orion Energy Systems’ fourth quarter and fiscal year-end 2012 conference call. Once again, my name is Scott Jensen, Chief Financial Officer of Orion. With me on the call today is Neal Verfuerth, Chief Executive Officer. As a reminder, the earnings press release issued today once again includes a section that briefly discusses the supplemental information document that was posted to the company’s website. This supplemental information document provides additional details and analysis of Orion’s financial performance for the fourth quarter and fiscal year 2012. I will now read the safe harbor statement. Our remarks that follow including answers to your 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. And now, I would like to turn the call over to Neal Verfuerth, Chief Executive Officer of Orion Energy Systems. Neal?

Good afternoon, everybody. Thanks for taking the time to listen on the call today. We are going to change the format off a bit on this call today to be more consistent with the way we look at the company and as we see the future and the opportunities and the growth, both revenue and profits on a go forward basis. So I think you are going to appreciate this new format. I think it’s always important when you are looking forward to get an idea of where you’ve come from, so this first slide shows our cumulative revenue since we started the company back in 1996 on a 5 year basis, so cumulatively 5 years. You can see the first 5 years $12.3 million, the next 5 $80.9 million and then of course the last 5 $35.1 million, so you can see we’re tracking quite nicely here over the last 15 years and I think you’ll see our vision for the next 5 years to be similar as it relates to the growth and the opportunities that lay ahead. An overview of the company in the way the company is structured, we’ve always referred to ourselves as a power technology enterprise and the company really consists of 3 primary elements. We’ve got Great Lakes Technology here at Manitowoc, Wisconsin, which is our vertically integrated manufacturing operation and our research and development; Orion Asset Management which are project finance, the Rex and the Emissions; and Orion Engineered Systems, which is based just South of Plymouth, Wisconsin, which is our captive turnkey integrator. They do all of the renewable technologies for us and they’re now starting to incorporate in our complete product offering bond with that with the renewables and looking at national account rollouts for other technologies. Back in fiscal year 2008, we set out on a 5-year plan, about the same time that we went public in the public market and of course the overall plan was to greatly accelerate the growth of the company. So there are some real fundamental building blocks that we thought had to be in place to make sure that these plans were to come to realization, quite frankly, my concern has never been that the company would reach the sales objectives as well as been about having the right pieces in place to make sure that we didn’t implode ourselves by growing too quickly. Of course, I didn’t plan in the last 5 years, the Great Recession as it has been referred to. So that kind of set us back a bit, but we’re tracking quite nicely as you’ll see for the next 5 years and beyond. First and foremost, we thought we had a great capital structure, which we accomplished with the public offering, bank lines of credit, et cetera. The technology centers, would it been manufacturing the products, human capital, our finance offerings, harder network, sales operations and in-built our installed base. This next slide is an overview of our technology center and manufacturing operations. Here in Manitowoc, it’s 30 acres. We have not only the technology that we produce on display here, but we also have a fair amount of renewable technology you can see 2 wind turbines on the roof of the manufacturing plant, you can see photovoltaic solar, you can’t see it in the back here, we’ve got some solar hot water heating. This technology center is the place that we have the host customers from all around the country, almost daily, to come and see firsthand what we are doing and what are possible in the facilities and many customers are taking advantage of all of our product offerings, the things that we manufacture here as well as what we distribute to the point that we can actually take them off the electric grid for several hours a day to get to actual energy independence. Our vertically integrated manufacturing operation is highly automated. We have the state-of-the-art in equipment, and it’s again very well positioned for the future. Bear in mind, many of the pieces of equipment that you see in these photographs, there is as much as 3 year lead time, so we thought it prudent to get out in front of what the anticipated volumes were going to be. And at the present time the utilization of the plant is something less than 20%. So as our sales ramp up, we certainly will have a lot of running room to fill the orders as they come in. Over the last several years, we’ve developed a very comprehensive product portfolio. We have more than 30 patents issued we have about 20 or so in the hopper right now going through various stages of the approval process and we have developed several brands that we own. The Compact Modular, the BarnLiter, the FAST-LITE, ARMORLITE, InteLite and the Apollo Light Pipe. We manufacture high performance lighting for both interior and exterior, high intensity fluorescent LED induction or actually agnostic as it relates to the light source, our technology really revolves around managing thermal and optical performance. We have an energy management solution that is based on the InteLite control system. We have our Solar Day Lighting and our portable solar offerings which are products that we just buy from other manufacturers and integrate them into our customers’ facilities. We've made a substantial investment in human capital in the last several years. We've developed Orion University, recently have opened up our own onsite UL witness testing, so we can now more readily get products from beta testing and through UL and out into the marketplace. We've got our customer demonstration centers all hands on, our InteLite training lab again hands on and we've got an entity that is a captive sale recruiting testing and screening that we offer for our own inside sales force expansion as well as through our partners. We've made a significant investment in expanding our project finance offerings. As you can see here there are over 400 customers nationwide, the accumulative energy savings looking on a lifecycle basis over a $152 million and if you take a look at the names on here, it’s clear that these companies have the ability to pay cash, but we've seen it for some time that it’s really important to take that last obstacle out of the equation as it relates to acquiring our technology and that is CapEx. So we have a variety of financing offerings that allow customers, you've heard us talk about the OTA in the past. We've got various lease packages and programs et cetera that we offer and we've got a pretty good stable financial partners that help us bring this to the market as well. We've expanded and continue to expand our partner network. Scott will give a little more detail later on and talk about some of the mix but we continue to get more feet on the street, as we've been referring to it, to get out there and carry our flag and help us sell through deals not only on our local end market basis but even as it relates to rolling out our national contract obligations. In the last year, we've opened the sales operation center primarily it revolves around use of our call center. We've got a bank of operators up there that are scheduling appointments again for our own retail sales force as well as our partners, and I am pleased to say that the operation has been up online for just a little over a year now. We've actually scheduled just under 2,300 appointments as of May. Average facility is 164,000 square feet. You can see the total square footage and a $158 million in pipeline have been developed. When you look at the total potential for all of our products the holistic system which will be the light seed [ph], InteLite controls, the Apollo Light Pipe and even some solar based on looking back on some existing metrics, looking at the potential of $850 million of pipeline based on building out that online sales pipeline. And we continue to add operators and build that out to offer our partners more appointments for their salespeople to make sure that their salespeople are very productive. We are taking the approach to building out our sales channel much like during the manufacturing, try to eliminate the waste and all the non value added service that makes sure that our sales resources are sitting in front of customers every hour and every day. Over the last several years we've built out quite a diverse installed base. We've saved our customers just under $1.6 billion in energy in aggregate, retrofitted over 1.2 billion square feet just under 8,000 facilities and we’ve sold just over 3 million high intensity fluorescents. So this is not only a validation of our model but more importantly it’s setting the stage for follow on sales opportunities. We’ve had a lot of investment to acquire a lot of these customers so we can now take advantage and get leverage out of these sales efforts and go back to these customers with the next technology the next of the next. As we have done with many of our national accounts taking not only adding controls and light pipes and even photovoltaic solar but we are actually starting to do more and more replacing existing Orion fluorescent fixtures with either the next generation Orion fluorescent or even LED. Orion has been pretty much taken a very cautious approach to LED because there has been a lot of change it has been very dynamic marketplace not only with all the different equipment and component suppliers but just a lot of the principles of applying this technology relates to total management etcetera. So we have been very systematic however counter to what many people think we’ve been actually working with LED for over 4 years and our first on trade of the LED space was in the freezer market and to-date we have approximately 3 million square feet retrofitted with the LED platform that we developed here at Orion and several of those are actually replacing high intensity fluorescents that we put in is it was 2 years ago. So as I mentioned on that previous slide 3.1 million HIF sold was a good likelihood that many of these will resell again with the latest platform from Orion based on the core being the LED technology. Having said that going forward, we’re introducing a product called InteLite the integrated system 5.0. It's a cloud based building automation. It’s a cloud based building automation platform that integrates solid state lighting, LED, with activity based for range dimming offered in both fluorescent, Vernier fluorescent and in the LED. And we have beta tests in and have several installations now on a small scale to document the energy savings and we're seeing dramatic energy savings as much as if you look at from an HID standpoint being the base line down to this latest InteLite pipeline or platform, we’ve seen the savings as high as 90% reduction from where they were before with the HID and even going from fluorescent, an Orion or even a competitive fluorescent, we’re still seeing paybacks less than 3 years and utilities offering pretty substantial rebates to encourage customers to go over these new platforms. So we see not only the obvious which is to retrofit existing HID facilities but also to go back to our existing installed base as well as other competitors installations and convert them into InteLite solid state platform. Part of the InteLite 5.0 platform is a new graphical user interface, the GUI, and this is something that everything we’ve done so in InteLite is always been within keeping in mind everyone and we want to make sure everything is always forward compatible from a technology standpoint so we don’t leave any customers out there stranded. The significant change here is using the cloud. So our ability to update the system, we only have to go to one place to update it. We can have essentially infinitive amount of data processing power and unlimited archiving capabilities using the cloud and allows us to put our resources into creating a very simple easy to use graphical user interfaces. So will be the primary screen that you go into. Most importantly when you putting these systems in based on our experience is giving the customer a very simple interface to tweak the system if you will after we completed our integration and start up. So the way this was designed, a customer essentially has a touch screen that they can go and make adjustments, that is again very intuitive you want more light or more savings and you just adjust the slide accordingly and there is actually a printout underneath the slide that tells you exactly what change you’re affecting and what to expect. So customers are happy they can tweak the system, they don’t have to call us and it makes our system a lot more user friendly and easier to use. The Orion Engineered Systems group led by John Scribante based on Plymouth, Wisconsin continues to establish itself as a leading player in the photovoltaic solar integration. To-date we have got 24 MW contracted just under 10 MW already installed. You can see some of aerial photographs of some of the projects that we've done. We've done them throughout North America as far away as Hawaii and as you can see integrating Apollo Solar Light Pipe into the project as well, and our vision is to start integrating the entire systems, a holistic approach if you will, that would include the high performance lighting, fluorescent LED, the InteLite control system, the Apollo Solar Light Pipe, photovoltaic solar. When you look at all these systems combined again holistically with the right financing in place you are looking at system that you can deliver to a customer before $0.06 a kWh. So we’re actually at grid parity with this holistic approach and this combined technology and a lot of our customers are really appreciating the fact that when they are making their representations to their stakeholders about the environmental and carbon footprints etcetera that they can actually go off the electric grid a couple of hours a day when they are in production. So we continue to get good traction there. We see a big part of our revenue coming from that on a go forward basis. The Apollo Solar Light Pipe has been on the market for several years getting a really good traction here in the US. In the last several months, we are starting to see really good activity and some really nice traction with our private label program. We've made the new tooling for the Apollo Solar Light Pipe very flexible as it relates to private labeling it right in the tool itself and we are starting to export this product into Europe or we are getting increase from all around the country actually, got them going into Mexico, lot of inquiries in South America. We've installed them in China so we are starting to expand our footprint and we can see a lot of opportunities going forward with this private label program for the Apollo Solar Light Pipe. So with that I am going to turn it over to Scott to cover some of the financial highlights.

Thank you, Neal. This afternoon I will briefly recap some of the impacts of the reaudit of our fiscal 2011 year. Next I will comment on the highlights of fiscal 2012 and finally I will comment on our long-term guidance. Over the past several months we've been working diligently to work through the accounting changes related to revenue recognition, the transition to our new external audit firm, the reaudit of our fiscal year 2011 and the update of our current year financial statements. It's been a distraction to our management team and has increased legal and accounting costs. I can affirmatively state that we are near the finish line related to our financial reporting processes and are on track to have all of our financial filings completed and brought current by the end of next week. To quickly summarize fiscal 2011 results, as highlighted in our earnings release this afternoon, the change in revenue recognition related to our solar contracts, coupled with the reaudit of fiscal 2011 resulted in a decrease in our revenue of $10.4 million, a decrease in our net income and a decrease in our fully diluted earnings per share of $0.06. $0.04 of the $0.06 was related to the solar revenue accounting shift from fiscal 2011 into fiscal 2012. $0.02 of the reduction was due to the benefit of hindsight related to reserves for inventory, bad debt and insurance. As we’ve stated on previous calls, we've provided a fair amount of content within the supplemental information document, which was posted to our website earlier this afternoon, covering our fourth quarter and our fiscal 2012 performance. Accordingly, I will not be walking you down the P&L on a line by line basis, but I do want to address some of the key areas. As Neil mentioned, fiscal 2012 was a strong year for us. We recorded record levels of contracted revenue at $122.6 million, record revenue of $100.6 million, and record levels of backlog throughout the year, finishing fiscal 2012 with a backlog of $41.4 million. We expect $22.4 million of our backlog to be converted to revenue during fiscal 2013. Additionally, we saw strong growth from our Orion Engineered Systems division as they executed 21 new contracts and we recorded $28.5 million of revenue in fiscal 2012. The 24 megawatts of contracts that Neil mentioned earlier that we've executed since the creation of Engineered Systems has resulted in $33.1 million in revenue over the last 3 years, and an additional $36.1 million expected to be recognized within the next few years. Our gross margin in fiscal 2012 was impacted by our mix of business between solar and energy efficiency. Most significantly though, we're pleased with the margin growth that we delivered in the fourth quarter across both business segments. On our third quarter call, I discussed the reengineering of our assembly process that occurred near the end of calendar 2011. These production process improvements across our manufacturing facility resulted in improved efficiencies and reduced costs during the fourth quarter. On the solar side, our margins improved steadily during the fourth quarter. We continue to focus on driving higher margins through the service side of our solar business. The success in our fiscal '12 revenue growth and our anticipated future growth continues to be driven by our investments into sales and marketing. As you can see on our OpEx slide for sales and marketing, during fiscal '12, we increased expenses by $1.9 million, all related to new growth initiatives or to support our increasing solar business. Specifically, we executed the start-up and staffing of a retail sales location in Houston, Texas. We added additional headcount in our retail lighting sales group and our marketing staff. We created the Telemarketing/Call Center that Neil mentioned earlier and walked you through, for the purpose of lead generation and appointment scheduling. And we're very pleased with the impact that this group has delivered to our business in a relatively short period of time. And finally, we added additional staffing to support the solar side of our business, both in the sales areas and in operational support areas like project and construction management. Year-over-year, our sales and marketing headcount increased by 17.6%. All of these investments will continue to help us to achieve our growth objectives. We ended fiscal 2012 in a strong liquidity position, having $24 million in cash and cash equivalents, nearly double from our cash balances at the end of our fiscal 2011 year. We've got no borrowings outstanding under our revolving credit facility, which has availability of $13.3 million. In the fiscal fourth quarter of 2012, we increased cash by $4.8 million from the end of our fiscal 2012 third quarter. $3.8 million of this improvement came through working capital management across accounts receivable, inventory, and deferred project costs and deferred revenues. During the fourth quarter, we did borrow $1.4 million against our OTA credit facility, which was completed with JPMorgan Chase Bank in September of 2011. Under this OTA facility, we still have access to $1.8 million in capital for funding internally held OTA projects. Additionally, during the fourth quarter we repurchased $461,000 of common shares, bringing our fiscal 2012 repurchases to $740,000. We remain committed to executing on our share repurchase program, which still had $6.7 million remaining of availability at the end of fiscal 2012. Let me now shift gears to guidance. Everything that we've presented and discussed with you today has some focused on accelerating our future growth. If you've visited our Manitowoc facility recently, you would have experienced first-hand and heard Neal speak directly to many of these initiatives. We've always managed and operated our business with a perspective on the longer-term. When you visit us, we don't about our business in the context of the next 90 days, 180 days or 360 days. For example in 2009, when the economy changed dramatically, we continued to focus on new product development for our wireless controls, exterior fixtures, our early LED products, the development of our market opportunities in solar, and expanding our sales channels. These were all initiatives that we knew might reduce our short-term results, but that were the right strategic decisions for our longer-term success. We executed on those strategies and the result is a record level of revenue for fiscal 2012. I could speak to you today about the current challenges of the economic environment, capital budget constraints, the lack of visibility into our customers' purchasing decisions and elongated sales cycles. And I don't need to remind you of our history with providing short-term guidance. All of those things are true but the point we really wanted to impress upon you today is that we are simply choosing to align our strategic plan and our view of the business with the forward-looking information that we provide. Accordingly, we will now be providing long-term guidance on our future expected financial results. And we expect to achieve annual revenue of $250 million by 2017. On the slide before you, you can see some of the key assumptions that have been built into our model. They include our assumptions around revenue mix between solar and efficiency, blended gross margins in the 34% to 34.7% range, with efficiency margins in the low 40% range and solar gross margins at a conservative 20%. EBITDA margins are expected to be between 17.3% and 18.1% and operating margins between 15.6% and 16.5%. Our effective tax rate has stabilized significantly from 2 years ago, and we believe that the resulting net margins will be in the 9.5% to 10% range for our business. We're pleased with what we have accomplished over the last 5 years. Our investments in product development, manufacturing processes, human capital, facility and systems infrastructure, the expansion of our finance products, the building out of our sales channel, and our efforts in developing sales pipeline have produced results. And our continuing investments will position us to accelerate growth and deliver on our long-term targets. This concludes our prepared remarks. I would now like to turn the call over to the operator for the question-and-answer portion of the call. Operator?

[Operator Instructions] Our first question comes from Colin Rusch from ThinkEquity.

It's Noah in for Colin. Just to start off with a question about your solar demand geographic split, what are you seeing and what are you expecting for the year?

It's a good question, Noah. Historically, most of our activity has come in the New Jersey market. That's really a function of some pretty good historical credits available. But having said that, we've also done business with our national accounts throughout North America. We have been expanding our sales efforts into states outside of just the New Jersey market. We see pretty good opportunities in the other eastern areas, Maryland, Massachusetts. We're also seeing opportunities in the west. And that's kind of what our focus is right now.

So in terms of how you're thinking about a split for the coming fiscal year, is there some sort of target that we should be keeping in mind?

We're still thinking in terms of our long-term guidance somewhere in that 40% contribution of revenue.

And Noah, we see as I mentioned on the call more bundling of our other technologies into the overall product offering it substantially enhances the overall ROI and we see a direction in solar, a lot of companies are still looking to put solar on as just part of overall strategy not necessarily tie to where the Rex are hot or whatever. I think we are going to see a lot more companies do 50 to 100 AW systems across the entire national footprint as part of an overall strategy, not necessarily tie directly to what the local direct market maybe.

Sure. Can you touch a little bit on the availability of phosphorus?

We are told that the supply is better than what it was. We can only go by what we are told, but that’s one of the things of course amongst many other things that is appealing as it relates to the LED, we don’t have the same kind of dependency for the same quantities of the rare earth phosphorus that really set us back some over this last fiscal year.

Sure. I think last question, thanks for the taking the questions. You alluded before this investment and ramping up new sales force. Can you talk a little bit about their productivity, what you are seeing so far and how you expect it to track?

Typically, a new salesperson, we are looking at 6 to 9 months of building up pipeline and a lot of that of course depends on what time of the year they start, when it falls into the budgeting cycle. But I would say on the best case it’s 6months, but it’s probably more likely 9 months to 15 months before you start seeing the pipeline being built up and the order starting to drop off the other end.

Our next question comes from Shawn Severson from JMP Securities. Your line is open.

Neal, I was wondering if you could give a little more color on the environment. I know you talked about kind of projects being slowed down or pushed out. I am just trying to figure out, if you look at the retrofit market out there, if you are finding that the customers are very receptive to talking to you and putting projects or starting to plan projects, but they are just kind of deferring the timing on them or are you finding them, at this point resistant to even exploring these things and they’re just pushing it off in entirety?

No, they’re definitely interested. I think it comes down to a lot of businesses that we’re talking with. They’ve had a pretty drastic change in fortunes to the positive. So a lot of companies, that’s kind of an all hands on deck column just to keep up with the core business, get their plants up and running, you know, tooling in place, looking for talent. Shawn, there is just a lot of things right now that a lot of moving parts that as you might expect these customers have to be first concerned with their core business and getting their product out of the door and then these are more one-off projects. And the other thing is a lot of the downsizing that we saw over the last couple of years, you start to see that coming into play here because you just don’t have the headcount that these companies did before. But the good news there is once we get involved with a company, we become kind of a go-to energy resource. So we’re seeing a lot of big projects, repeat projects et cetera. But I think really the limiting factor is the lot of business are just going crazy right now with their own internal orders.

And then on the financing side have you found other partners or talked to other banks or kind of independent financing opportunities out there for companies pursuing retrofit projects or working with you or you know other companies I guess as well just in terms of really looking at this as a sector that’s kind of become the specialty sector I guess if you want to call that on the financing side?

Yes, there is a lot of appetite out there and I think what we are most pleased with is we are finally seeing patient and reasonably priced capital which makes all the difference in the world and especially on the solar job 5% capital fixed for 15 years versus you know in the mid-teens or high teens even fully loaded with fees et cetera, we are talking several million dollars can make or break a deal. And there is a lot of appetite out there, there is a lot of cash on the sidelines like people looking for good deals and companies like Orion with good track records and stellar track records of delivering good projects that save and have demonstrated over the test of time that we deliver the goods, so they become good credit risk for these entities. So we are seeing the big banks, the Tier I banks, DLL and some others that are saying bring us deals, we’re looking for deals.

Our next question comes from Steve Shaw from Sidoti & Company.

Regarding the solar work, I know you guys touched on the geography a little bit, but just in general, is that a third quarter spike and have an effect on the next half or so regarding is it going to be a little softer as in the fourth quarter?

So the March quarter certainly was slower in terms of contract and revenue activity. There was a rush to take advantage of the cash grants that were available from a tax incentive standpoint, but we are very encouraged by what we are seeing in the marketplace right now and interest and ability to fund a project. And if you think about what we've talked to early in our backlog those are projects now that as we move into the summer time of the year are really going to kind of heat up from an install standpoint. I think that's one thing maybe that's valuable to clarify for everyone is if you would have looked at the company historically, the third and fourth quarters typically drove a heavier percentage of our business. As our solar activity has increased that shifted some of that back end loading into the front of our year and that September quarter and December quarter has really been at least in the most recent fiscal year, drove about 60% of our revenue. So we are seeing things that are encouraging, that are helping to kind of level out some of the lumpiness that we've had historically in moving some revenues into the front half of our year which on the efficiency side has been a little softer than the back half.

Again, and we said this in the last couple of calls Steve, what I was thinking about in terms of revenue but I just want to remind you that as we make the transition in doing more and more wholesale business you know just a few years ago, 95% of our revenue we were selling retail to the end user direct. So a $100,000 project was a $100,000 dollars in top line to us. Now that same $100,000 project is on a wholesale basis is you know a third of that because we are not doing the integration et cetera. Our overall model is to continue to develop but we are just making the transition to more wholesale than retail. The other thing I want to mention as it relates to solar, there has been a consolidation not only at the manufacturing levels but also at the installation level. A lot of guys that were a couple of guys in a pickup truck that we’re taking advantage of the racks and the tax credits and cash payments etcetera have moved on to other things, so there is still lot of deals out there and a lot of interest from customers and we’re looking at lot of deals and we see a lot of opportunities out there that weren’t there before because it was getting a pretty crowded space.

And then lastly do I get this right you guys are doing right away with short-term guidance?

Correct.

I was curious the thought process behind that because I thought that business might get a little more transparent with the new revenue recognition?

The revenue recognition certainly does help Steve, but again that’s been a smaller percentage of the business, last year it was less than 30% and more importantly when we are executing on our strategic plan, we’re investing in initiatives that it’s hard to measure exactly the results in a 90 day or sometimes even a 360 day time horizon. Some of the areas where as Neal covered the InteLite and the development of that started many years ago and we are really excited about the opportunity to penetrate the market and go back to existing customers who have trusted us and rely on us for our energy management expertise and that drives additional revenues through additional product offerings. We just feel that it’s challenging for us, I talked about, you know, we had some struggles with short-term guidance and we don’t talk about our business that way internally.

We’re trying to match up how we think of the business, how we execute upon the business with how we communicate to the street and as Scott said very kindly providing quarterly guidance is certainly not one of our core competencies as has been demonstrated over the last several quarters. And it actually disconnects us from what we’re doing already to execute upon the plans. So, we’re going to, the purpose of my earlier slide was to show you what we’ve done in the past. You know, starting at day one and our mindset was always to think of things on yearly and multi-year basis, and we’re always very successful and because we know what we’re doing that’s -- we’re good at it and we can put the numbers on the board and we need to do that and a lot of our time and effort, and quite frankly just a lot of resources for us. We’re still a small company, where a lot of distractions we are trying to manage the quarterly number and losing sight of what is in the best interest of the shareholders over the longer term.

Our next question comes from Philip Shen from Roth Capital.

I want to explore the health of the business a bit more. I think on the last call, you talked about how the gestation period of your sales cycle kind of crept up from 7 to 8 months and it was closer to 9 months. Where do things stand today?

I don’t think much has changed in the sale cycle or the gestation period. As I said earlier, I think with many customers and I am getting out on the road quite a bit these days. I was just visiting one of our automakers and they are telling me that the plant -- I was there less than 2 years ago and the parking lot was empty and there was grass growing in the cracks and now the place is running 24/7 and they are just scrambling around to get tooling and get toolmakers to me because it was a total as I said a total of the proverbial hockey stick in their business and they are scrambling right now to get the orders out. So we are trying to feather our projects into their limited bandwidth to look at projects and of course there is competition for CapEx still. If you are one of our customers invest in tooling that I need to make money, make more product or something that will save the money. So business is good and strong and we are going to continue to develop our financial services so we can take that CapEx objection off the table and demonstrate to customers what I have been referring through as frictionless integration. We can get in and out of your facilities without any disruption in your operations as we can do that and take that CapEx objection off the table, this company is going to continue to grow. And again we've made a real commitment now to put with our resources into the reseller channels and we have a little less control than we did before but over the long haul the sheer numbers it's going to allow us to leverage and one of our biggest assets to leverage that is our manufacturing plant that is greatly underutilized because the market out there is so vast and as we get more and more people out there and we are creating a sales model that we can take, we don't have to have the superstar out there. We can take people out there and start to make them successful and now it’s a matter of just putting more people on the street.

As a quick follow-up to that topic can you help us understand what the difference is in the sales cycle timeframe might be for say your wholesalers, value added resellers versus the guys you train in-house, are you starting to see, let's say the average period for the company might be 9 months to kind of close the deal, are you seeing a longer timeframe for some of your third party resellers?

No, actually it has more to do with the mix they are pursuing. If they are involved and they are chasing some of the bigger, more traditional national accounts, you are going to have a longer sales cycle. If they do what we advise them to do, that is to have a mix in their pipeline, dealing with the local businessmen in their market where if somebody brings a good value prop to them they could pull the trigger, almost immediately. Then we are starting to see kind of a nice mix and the guys that are making a nice focus locally, we've seen 90 day turnaround. So we are always constantly working on that. One of the curses of this business is quite frankly and all the years I have been at it somebody wants to chase the big box of a million square foot on the outside of town as opposed to realizing you are better off and be much faster and better margins to line up $50,000 deals over the year, you know what I mean.

That's helpful. Let's transition to solar quickly here. I didn't see that you released what your revenues were for solar in Q4. I think you released them for the year, the implied sales were about $4.3 million, does that sound right?

That sounds right, Phil, $4.4 million.

Okay. So given that, when I kind of back into what the non-solar bookings were for the fourth quarter, it seems like they were around $16 million, so there's been a bit of a slowdown at least in the first calendar quarter of this year. Do you expect bookings to accelerate as we go through the year, especially as we kind of hit -- well, as we get into the end of the year, things ought to look better given the typical capital spending cycle. But having said that, I want to get your perspective.

Yes, right now we're in this delicate balancing act over kind of feathering the throttle as we transition into the new technology, being linear for us and dimming and very aggressively because of several things that are making us comfortable are lining up accordingly into the LED space. And we're ramping up very quickly here in our plants and with our purchasing and all of our partners and all the bits and pieces you need to make a serious initiative in transition into the LED space.

Our next question comes from George Gasper, private investor.

On the commentary that you released regarding this 2017 target of $250 million, it looks like a 5-year target from where we are currently. If I'm focusing right on that, that would suggest going from the $100 million range to $250 million, which would equate to about 30 million a year. Is that doable on a near-term this year, next year basis or what's your thought on really starting the cycle up here, or is it going to take more new product development beyond where you are to get this momentum going to reach those targets on an annual basis?

George, your question is kind of precisely why we wanted to stay from the near-term. Yes, we're still doing the right thing with the long-term focus. And we can't tell you if the average annual compounded growth rate of 20% is going to be linear. We don't have the visibility. We're managing customer behaviors and cycling through some product development cycles in terms of everything that Neil just talked about, with controls and full range dimming on fluorescent. So we really -- we're not going to answer that question because we don't want to get back into the annual expectations.

But George, let me tell you this. The market is larger than ever, if you think about it. You can even argue it's gotten bigger than it was a few years ago because now we have a platform that we can go back and resell. The 3 million that we've already sold one time and demonstrated a good value proposition. The other thing is if you think about the average selling price of the LED versus the fluorescent, it's easily 2 to 3 times more the ASP per unit one versus the other. So given the fact that the utilities are throwing substantial dollars in rebates et cetera, customers are looking for additional ways to save money. We've already demonstrated to them once by saving them an aggregate of well over $1 billion. It's a lot easier to go back now with the next thing as we've demonstrated, and for a lot less sales cost. Everything we've done here to-date has been to get to this inflection point where we are here today, that $100 million point. So now to add on the next sales, you may not want to have -- you've got these fixed costs covered. You've got incremental costs as opposed to these fixed that are already covered in the operation. So it's not hard to just contemplate what the art of the possible is. The challenge has been, George, for me to say, I'll tell you what, George, it's going to happen in 89 days and 20 hours from now. That's where challenge has been, if we're asked to do that. If you look back historically, we've been -- if you normalize for the recession, we've been pretty spot on with what our 5-year plan was quite frankly. It's just a matter of predicting it on a 90-days cycle when things would exactly fall in the place where the challenge has been. So that's why I just don't want to put myself in that position anymore. And we're going to deliver for our shareholders like we've done in the early -- first 15 years of the company, the ones that our shareholders that are in this with us for longer haul.

Follow-on question on the Inter, I don't know if I'm pronouncing that correctly, the light product that you referred to on development. Is this a different market than what you've been serving or is this carving into an existing market? And what kind of market opportunity is there for that, and when do you see actual sales beginning on that?

We're already selling them. We've got several million square feet installed. And we're just making that transition right now. This represents not just for Orion, George. This represents the biggest transition in technology that the lighting industry has ever seen. Keep in mind, we're talking about an industry that's still using a technology Thomas Edison himself invented, the incandescent light bulb. So this is a major transition for the industry. We're doing it in a systematic way, we believe, from the technology development all the way through selling it through. We see the market actually being coming a lot larger than what we were used to, including hospitality, office buildings, any place there's a light. Not just large commercial warehouses and factories. So we see our opportunities considerably larger than what they were before.

Okay. And if I could ask one question on your stock buyback, it looks like you've got plenty of room to buy back. And based on the current price, relative to your book value, which I have been looking at your financials, it looks to me like it's about $4.19 or so. Correct me if I'm wrong on that. It looks pretty attractive for you to be in the market at this point on a more aggressive basis. What's your thought on that?

George, we couldn't agree more. Your book price is fairly -- it's in that $4 range. And as a management team, we look at the share price and the value proposition, and we believe that we're a pretty good value right now and accretive to our existing shareholder base. So we do intend, now that we've got our earnings released, to be more aggressive in the market.

And so, I guess what -- you've been out in the market then for a while waiting on your release. How long have you been out of the market?

We have been in the market on a nominal basis.

Oh, I got you, okay.

We had put in place back in the early part of the year.

This ends our Q&A session. I will turn it back to Scott Jensen.

Thank you everyone for joining us today. We look forward to speaking with you again in August to discuss our fiscal 2013 first quarter results. Goodbye.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.