Orion Energy Systems Announces Fiscal 2016 Third Quarter Results

Orion
Energy Systems, Inc. (NASDAQ: OESX), a leading designer
and manufacturer of high-performance, energy-efficient lighting
platforms, today announced financial results for its fiscal 2016 third
quarter ended December 31, 2015.

Operating and Financial Highlights

• Total revenue for the fiscal 2016 third quarter was $16.8 million, a
  decrease of $9.3 million from $26.1 million in the prior-year period,
  while LED lighting product sales reached 75% of total lighting product
  revenue, which compared to 55% in the fiscal 2015 third quarter.
• Gross profit for the fiscal 2016 third quarter increased 23.1% to $4.7
  million from $3.8 million in the year ago period, and the fiscal 2016
  third quarter gross margin increased to 28.1% compared to 14.6% in the
  prior-year period, and 18.5% in the fiscal 2016 second quarter.
• As of December 31, 2015, Orion had a lighting backlog of $7.5 million
  in lighting orders, compared to a lighting backlog of $5.6 million as
  of September 30, 2015.

“Innovation continues to be a cornerstone of our ongoing success. During
the quarter, LED sales as a percent of total lighting product revenue
continued to increase. Our new LED high bay product offering gained
significant traction during the quarter, and our forthcoming
higher-margin LDR platform will further validate our innovation
strategy. Furthermore, our margin expansion efforts continue to bear
fruit as we achieved an aggregate gross margin of 28%, our highest in
eight quarters,” said John Scribante, Chief Executive Officer.

“As we move towards the final months of our fiscal year, we believe the
opportunity ahead of Orion is great and we remain laser focused on
executing our strategy to build our pipeline and drive efficiencies
throughout the organization to deliver top- and bottom-line growth,”
Scribante said.

Financial Results Review

Fiscal 2016 Third Quarter

Revenue: Total revenue for the fiscal 2016
third quarter was $16.8 million, a decrease of $9.3 million from $26.1
million in the prior-year period. Total product sales for the fiscal
2016 third quarter were $16.1 million, a 31.9% decrease compared to
$23.6 million in the prior-year period. Traction with Orion’s new LED
high bay product offering was offset during the quarter by reduced
customer spending activity in the industrial sector as a result of
macro-economic uncertainty related to commodity prices and foreign
exchange rates, as well as capital expenditure push outs of large
national account projects.

LED Lighting Revenue: LED lighting product
sales were $12.0 million in the fiscal 2016 third quarter compared to
$12.7 million in the prior-year period, reflecting 75% of total lighting
product revenue compared to 55% in the fiscal 2015 third quarter.

Gross Margin: The fiscal 2016 third quarter
gross margin was 28.1% compared to 14.6% in the prior-year period and
18.5% in the fiscal 2016 second quarter, reflecting a 1,350 basis point
and 960 basis point improvement, respectively. Gross margins were
positively impacted by a mix shift to higher margin products, a
reduction in LED component costs, and an improvement in manufacturing
expenses.

Net Loss: The Company reported a net loss
for the fiscal 2016 third quarter of $2.0 million, or $0.07 per share,
compared to net loss of $4.7 million, or $0.21 per share, in the
prior-year period.

Fiscal 2016 First Nine Months

Revenue: Total revenue was $49.1 million
for the first nine months of fiscal 2016, a decrease of $3.8 million
from $52.8 million in the prior-year period. Total product sales for the
first nine months of fiscal 2016 was $46.9 million, a 3.4% decrease
compared to $48.5 million in the prior-year period.

Gross Margin: Gross margin was 23.2% for
the first nine months of fiscal 2016 compared to (7.8)% in the
prior-year period, which included the impact of a non-cash impairment
charge of approximately $12.1 million. Total gross margin excluding
these charges was 15.2% for the first nine months of fiscal 2015.

Net Loss: The Company reported a net loss
for the fiscal 2016 nine months of $9.3 million, or $0.34 per share,
compared to net loss of $27.4 million, or $1.26 per share, in the
prior-year period.

Balance Sheet Review

Cash and Borrowings: Orion had $17.5
million in cash and cash equivalents as of December 31, 2015, compared
to $4.8 million at December 31, 2014. As of December 31, 2015, the
Company had $5.0 million in borrowings outstanding on its line of credit.

Working Capital: The Company’s working
capital as of December 31, 2015 was $34.1 million, consisting of $51.1
million in current assets and $17.0 million in current liabilities,
compared to $21.6 million, consisting of $46.3 million in current assets
and $24.7 million in current liabilities, at December 31, 2014.

Net Cash from Operations: The Company
reported cash flow generated from operating activities of $2.0 million
during the fiscal 2016 third quarter, compared to a $5.1 million use of
cash from operations during the prior-year period.

Total Debt: Orion’s total debt was $6.5
million at December 31, 2015, compared to $4.4 million at December 31,
2014.

Management Outlook for Remainder of Fiscal Year 2016

Scribante commented, “We are making progress with our strategic
initiatives to build pipeline, enhance our product portfolio, enter new
markets, and drive significant growth and margin expansion. However, we
have seen some weakening in demand given the uncertainty in the economy
and are tempering our expectations.”

“As a result, we now expect revenue to be relatively flat year-over-year
largely due to the slowdown in the industrial manufacturing sector,
which may negatively impact our results further in the fiscal fourth
quarter. Furthermore, while we expect trailing-twelve-month EBITDA
profitability to trend positively and continued improvement in EPS, the
timeline to achieve our initial targets will be dependent on the
strength of the industrial markets. We are, however, maintaining our
view that we will deliver significant year-over-year improvement in
gross margins, achieving gross margins in the low-twenties for the full
fiscal year. And lastly, we have achieved our target of positive cash
flow from operations in our fiscal third quarter as a result of our
margin improvement and enhanced working capital management,” concluded
Scribante.

Explanation of Non-GAAP Financial Measures

The company reports financial results in accordance with generally
accepted accounting principles, or GAAP. This press release includes
certain non-GAAP financial measures to supplement this GAAP information.
Orion uses certain non-GAAP financial measures to enable it to analyze
its performance and financial condition. Orion believes EBITDA and
adjusted gross margin can provide a more complete understanding of the
underlying operating results and trends and an enhanced overall
understanding of its financial performance and prospects for the future.
The presentation of non-GAAP financial information should not be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with GAAP.

Additional information regarding the non-GAAP financial measures
presented herein is as follows:

* Adjusted gross profit consists of GAAP gross profit adjusted to
exclude the impact of non-cash impairment charges.

* Adjusted operating loss consists of GAAP operating loss adjusted to
exclude the impact of non-cash impairment charges.

* Adjusted net income consists of GAAP net income adjusted to exclude
the impact of non-cash impairment charges.

* Adjusted EBITDA adjusts GAAP net income available to common
stockholders for the items considered in adjusted net income as well as
(a) depreciation and amortization, (b) net interest expense and (c)
income tax expense.

Conference Call

Orion will discuss these results in a conference call on February 9,
2016, at 4:30 p.m. ET.

The dial-in numbers are:

The Company will be utilizing an accompanying slideshow presentation in
conjunction with this call, which will be available on the Investor
Relations section of Orion’s website at www.orionlighting.com.

To listen to the live webcast, go to the Investor Relations section
of Orion Energy Systems’ website at http://investor.oriones.com/events.cfm
for a live webcast link. To ensure a timely connection, it is
recommended that users register at least 15 minutes prior to the
scheduled webcast.

An audio replay of the earnings conference call will be available
shortly after the call and will remain available through February 16,
2016. The replay can be accessed by dialing (855) 859-2056. The replay
pass code for callers is 36853864.

About Orion Energy Systems

Orion is leading the transformation of commercial and industrial
buildings with state-of-the-art energy efficient lighting systems and
retrofit lighting solutions. Orion manufactures and markets a cutting
edge portfolio of products encompassing LED Solid-State Lighting and
high intensity fluorescent lighting. Many of Orion's 100+ granted
patents and pending patent applications relate to lighting systems that
provide exceptional optical and thermal performance, which drive
financial, environmental, and work-space benefits for a wide variety of
customers in the retrofit markets.

Safe Harbor Statement

Certain matters discussed in this press release, including under our
"Outlook" section are "forward-looking statements" intended to qualify
for the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may
generally be identified as such because the context of such statements
will include words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "plan," "potential," "predict," "project,"
"should," "will," "would" or words of similar import. Similarly,
statements that describe the Company's financial guidance or future
plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and
uncertainties that could cause results to differ materially from those
expected, including, but not limited to, the following: (i) our
continued expected negative cash flows from operations during the
remainder of fiscal 2016 and the resulting impact on the level of our
available cash, coupled with our limited borrowing capacity under our
bank line of credit; (ii) our development of, and participation in, new
product and technology offerings or applications, including customer
acceptance of our new light emitting diode product lines; (iii)
deterioration of market conditions, including our dependence on
customers' capital budgets for sales of products and services; (iv) our
ability to compete and execute our strategy in a highly competitive
market and our ability to respond successfully to market competition;
(v) our ability to successfully implement our strategy of focusing on
lighting solutions using new LED technologies in lieu of traditional HIF
lighting upon which our business has historically relied; (vi) our
ability to realize expected cost savings from our transition to focusing
on new LED technologies; (vii) our ability to successfully complete and
fund potential future acquisitions; (viii) our ability to effectively
manage the growth of our business, including expansion of our business
internationally through our Orion distribution services division; (ix)
adverse developments with respect to litigation and other legal matters
that we are subject to; (x) our failure to comply with the covenants in
our revolving credit agreement; (xi) increasing duration of customer
sales cycles; (xii) fluctuating quarterly results of operations as we
focus on new LED technologies; (xiii) the market acceptance of our
products and services; (xiv) our ability to recruit and hire sales
talent to increase our in-market sales; (xv) price fluctuations,
shortages or interruptions of component supplies and raw materials used
to manufacture our products; (xvi) loss of one or more key customers or
suppliers, including key contacts at such customers; (xvii) our ability
to effectively manage our product inventory to provide our products to
customers on a timely basis; (xviii) our ability to effectively manage
the credit risk associated with our debt funded Orion Throughput
Agreement contracts; (xix) a reduction in the price of electricity; (xx)
the cost to comply with, and the effects of, any current and future
government regulations, laws and policies; (xxi) increased competition
from government subsidies and utility incentive programs; (xxii) the
availability of additional debt financing and/or equity capital; (xxiii)
potential warranty claims; and (xxiv) the other risks described in our
filings with the SEC. Shareholders, potential investors and other
readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance
on such forward-looking statements. The forward-looking statements made
herein are made only as of the date of this press release and the
Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or
otherwise. More detailed information about factors that may affect our
performance may be found in our filings with the Securities and Exchange
Commission, which are available at http://www.sec.gov
or at http://www.oesx.com
in the Investor Relations section of the Company's Web site.

The following amounts of stock-based compensation were recorded (in
thousands):

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