Adam Prior – IR, The Equity Group Inc. John Scribante - CEO Scott Jensen - CFO.

Steve Dyer - Craig-Hallum Capital Craig Irwin - ROTH Capital Partners Carter Driscoll - H.C. Wainwright.

Good day, ladies and gentlemen and welcome to Orion Energy’s Fourth Quarter Fiscal 2015 and Year End Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded.

I would now like to introduce your host for today’s program, Adam Prior of The Equity Group. Please go ahead..

Thank you. The Company issued the announcement of Orion’s fiscal 2015 fourth quarter and year-end results this afternoon. The Company has made available on accompanying slide presentation on its Web site at www.oesx.com in the Investor Relations section.

While the format of today’s call will not refer to any slides in particularly, we encourage investors to use the document during today’s presentation as an accompaniment. I will now read the Safe Harbor statement.

Remarks that follow, including answers to questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are generally identified as such because the context of such statements will include words, such as believe, anticipate, expect, or words of similar import. Similarly, statements that describe future plans, objectives, or goals are also forward-looking statements.

These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include among others matters that we’ve 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 the Company’s next quarterly conference call, if at all. With us from Orion is John Scribante, Orion’s Chief Executive Officer; and Scott Jensen, Chief Financial Officer.

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

Good afternoon and thank you for joining us today. We reported our fourth quarter and year-end financial results this afternoon, highlighted with total revenue inside the range of our guidance at $19.4 million along with continued improvement in our gross margins and a strengthened balance sheet.

In fact, we achieved a year-over-year increase of over 50% in every measure of the Company’s financial performance related to margin and revenue. And with the momentum we have in our pipeline and new products, there is a strong platform to deliver on expectations going forward into fiscal ’16.

As most of you know, Orion, its competitors, and others in our industries, have discussed in detail the massive transformation to the next-generation of lighting, driven by solid-state LED technology and the LED lighting adoption growth.

In our fourth quarter, LED product sales grew to a record level of over 60% of our total product revenue, peaking at 66% in March. To put that into perspective, Q4 last year was less than 13%. We estimate that LED product revenue will continue to grow in the coming quarters, reaching 80% of total product in fiscal 2016 fourth quarter.

So while the first half of the year started off very sluggish, as customers evaluated technology choices, we made up for that shortfall in the back half and actually grew lighting sales 40% year-over-year after being down 26% in the first half ending up at 6% for the year.

I’d like to recognize our sales teams, resellers, product development, and production people for making this achievement a reality.

If you think about it, Orion had to have on standby two very distinctly different business models, one for fluorescent and one for LED running simultaneously just to be prepared for the ultimate customer decision that could go either way.

While our financial performance last year was not one that we were proud of, strategic initiatives taken were necessary to position us for a strong fiscal 2016.

In the words of the notable economist Joseph Schumpeter, incessantly destroying the old and incessantly creating the new, we successfully launched a brand new business out of the remains of the old, a feat that many others in our industry have failed to achieve. Orion currently has a broad line of LED products available for sale.

Our designed modularity to these products creates vast combinations for commercial, industrial and retail applications, as well as future proofing.

We introduced several new products last fall and intend to bring new LED products to the market that are superior to other retrofit solutions available in terms of low cost installation or superior performance leading to a lower total cost of ownership.

Over the past few months and in our offering road show many investors enquired as to the reason a customer chooses Orion over our competitors. And to that end, our markets are predominantly building retrofit installations. Our business isn’t predicated on the new construction market.

The transition to LED is very much a land grab and we have tailored our sales process over the years to meet this retrofit market head-on when others see the market as a one size fits all model. This is not new to Orion.

We were a pioneer in the first wave of industrial energy efficient retrofits over the last two decades so our deep experience in this area will provide an additional edge over those lighting companies that are new to the space, regardless of their products.

The installed base of opportunity is massive for our products somewhere around $200 billion in the U.S. alone. Virtually any building that has existing lighting fixtures is a potential customer; any car dealership, any school, any hospital, any factory, any warehouse.

Another trend that exhibits our competitive advantage is demonstrated in the increased orders of LED upgrades from previous Orion customers.

Virtually all of Orion’s 4 million fluorescent fixtures installed in over 11,000 facilities could be upgraded to LED with less labor and less material cost compared to removing the entire fixture and replacing it with competitors.

This value proposition is refreshing to our customers as Orion’s modular platforms provide a built-in LED upgrade path from our prior florescent installs. Our pipeline has increased throughout the past six months and now we are seeing larger size deals through our distributors, ESCOs and enterprise accounts.

We are seeing more federal business in the pipeline with VA hospitals and post offices and others. And some recent notable wins in the private sector was a contract for 47 locations of an international chain of big box discount stores that will ship this quarter.

And the award of another school district in the Midwest for over 3,000 of our flagship LDR fixtures at over 20% gross margins. Our average project size is growing in the double-digits, our margins are improving and our LED sales are better aligned with our production strategy and renewed financial position.

We are increasing gross margins as we had promised. In the slide deck that accompanies our discussion we have included our margins on top of our LED sales trends.

This shows that there has been a steady improvement with our material cost stabilizing and achieving a scale in LED that is allowing us to better achieve leverage in managing our costs and yet there remains considerable margin improvement ahead of us.

In our last call, we noted that there was one product line which margins were dragging, our LED Door Retrofit or LDR. As we have progressed with the design and supply chain improvements for this line, higher gross margins are readily achievable.

And with increased volumes, we will further increase gross margins by leveraging our fixed overhead across all our products. We believe that this is a positive trend and we are prepared to begin delivering the increased margins that our shareholders are expecting. So with that I’ll leave it to Scott for a few minutes and then I’ll come back..

Thank you, John. I’ll briefly discuss financials but I encourage each listener to review our press release issued this afternoon. Orion’s total revenue was 19.4 million for the fiscal 2015 fourth quarter compared to 12.6 million in the prior year period. During the quarter, lighting revenues increased 58.7% year-over-year.

Additionally, we closed out the year achieving our goal of exceeding 100 actively engaged key resellers. We’ve been encouraged by a solid backlog and pipeline of new product orders specifically growth in our LED product sales.

Our order backlog as of March 31, 2015 was $7.1 million consisting of 6.9 million of lighting orders and $200,000 of solar orders. This compared to our December 31, 2014 backlog of $7.4 million, which consisted of $7.1 million of lighting orders and $300,000 of solar orders.

The lighting backlog was bolstered by a $3.2 million single order received during the fiscal fourth quarter and by increasing LED orders for LDR and LED High Bay products. We expect that $3.2 million of our backlog will be converted into revenue during the first quarter of fiscal 2016.

The remaining portion of our backlog is expected to convert to revenue by the end of the calendar 2015 year. Product revenue from Orion’s LED products increased to $10.4 million or 60.1% of total lighting products during our fiscal 2015 fourth quarter compared to 1.3 million in the prior year period.

Total gross margin was 15.4% for the fiscal 2015 fourth quarter compared to 10.2% for the prior year period, largely as a result of the accelerated pace of LED lighting product revenue, related impact of fixed expenses within our manufacturing facility and recent initiatives to reduce material input costs with our supply chain.

During the back half of fiscal 2015, we reduced certain costs across our top volume LED components by approximately 20% on a historical spend of approximately $10 million. Many of these reductions occurred during the fourth quarter and we will begin to benefit from these reduced costs during fiscal 2016.

We reported net loss for the fiscal 2015 fourth quarter of $4.7 million or $0.19 per share. In the prior year period, we reported a net loss of $8.8 million or $0.41 per share.

Now I would like to spend a few seconds on the financial highlights for fiscal 2015, Orion's total revenue was 72.2 million for the fiscal 2015, compared to 88.6 million in the prior year. Lighting revenue increased $3.8 million from our prior year due to our ongoing transition to an LED-driven sales platform. Our initiatives to expand our U.S.

market’s resellers, launch new LED products and sell into new markets delivering improved lighting sales results. As a reminder, Company did experience an expected decline in revenue of $20.2 million for the year due to the previously mentioned exit of our non-core solar business again this is a sector that Orion no longer pursues.

Product revenue from Orion's LED products increased to $30.8 million during fiscal 2015 compared to $4.8 million in the prior year period. Fiscal 2015 LED lighting product sales increased 542% over the prior year.

Our total adjusted gross margin excluding the impact of wireless controls impairment costs and our third quarter warrantee charge was 16.1% for the fiscal 2015 year compared to 25.9% in fiscal 2014.

We continue to aggressively focus on cost containment initiatives related to material product costs and the implementation of lean manufacturing methodologies to reduce production costs in our manufacturing facility.

We are now targeting gross margins for fiscal '16 to be greater than 20% with expectations that we can achieve much higher, the variance being dependent on the LDR mix and margin improvements within that line.

Our margin challenges have now been contained to one product line and selective sourced items and upon correction of our LDR input cost and increasing production volumes we have a plan to be operating at levels consistent with our historical gross margin ranges.

Our fiscal ’15 operating margins were impacted by increasing research and development expenses related to our launch of new LED products and ongoing initiatives related to further new product development testing and certification. We expect this trend in our R&D expenses to continue during fiscal 2016.

As a reminder February, we took initiatives to reduce annual operating expenses by over $4 million, strengthening our position to return to profitability in the future. As we continue to pursue potential accretive acquisitions, there will likely be some diligence expenses incurred this year as potential opportunities present themselves.

We reported a net loss for the fiscal 2015 year of $32.1 million or $1.43 per share. In the prior year, we reported a net loss of $6.2 million or $0.30 per share. The impact of our wireless controls impairment charge during our second quarter contributed a loss of $0.55 per share to our fiscal 2015 results.

Quickly moving through the balance sheet, Orion remains in a solid financial position to carry out all of our initiatives. At March 31, 2015, Company has working capital of $36.7 million compared to $33.1 million at March 31, 2014. We finished the year with $20 million in cash.

Receivables growth on our increasing lighting revenues and improving inventory turns in spite of the transition to new LED products and our supply chain challenges. Our balance sheet is strong.

We continue to pay down total debt over the course of fiscal 2015 with total debt decreasing $1.5 million to $5.1 million as of March 31, 2015, compared to $6.6 million as of March 31, 2014. With that, let me turn the call back to John.

John?.

All right. Thank you, Scott. To wrap-up, let's just discuss our strategy for the coming months in terms of sales, margins, and guidance.

We have elected to not provide annual sales figure for guidance in fiscal '16 instead focusing on a bottom-up approach of our business and providing some specific details to our investors to enable them to model our financials.

In previous years we have provided a quarterly number, this was practical at times when we were developing large multiyear solar projects which allowed greater visibility throughout the year.

However, as the lighting retrofit market transitioned into a disruptive and fluid environment, it is difficult to accurately depict the interim timing of when projects would be initiated and completed from our customers. And last year, we provided an annual guidance number which we revised throughout the year.

This too became problematic as the market dynamics shifted rapidly. We considered doing this again this year we're providing a minimum sales number. Each has its benefits and detractions, namely setting a precedent where investors would concentrate on a sales figure that may in long run not be in line with growing a consistently profitable enterprise.

Orion's stated goal is to achieve profitability later this fiscal year. This is dependent on sales continuing to accelerate but also execution on margin expansion and the operating initiatives that we implemented in our fourth quarter of last year.

We expect that the operating and input cost initiatives we made will yield an annual reduction of approximately $10 million beginning in fiscal '16. And our current expense structure provides a breakeven point at $95 million in sales with a gross margin of 26% and operating margin of breakeven.

This serves as our starting point and understands that our expense structure is improving. We anticipate capital expenditures in the coming year to be moderate and every opportunity Orion pursues would be a driver towards accelerating our return to profitable operations.

We're very confident that we'll achieve a strong year-over-year sales growth from the $72.2 million we achieved in 2015, fiscal '15. We have a robust pipeline and orders in the pipeline are getting much larger.

I discussed last quarter the creation of our innovation hub located in Chicago, Illinois where we will develop each coming generation of our technology. This is a long-term endeavor aimed at building one of our industry's best development centers at the forefront of design and efficiency.

While I will not discuss the specific make up we have formed our innovation team and we'll be in full operation early this summer. We have an aggressive sales and marketing campaign designed to drive sales from new customers, new markets and new verticals.

We are achieving all of this while still budgeting lower SG&A cost as a percent of total revenue for the year. To our customers we always aim to keep our customer promise that goes for our investor community as well.

We are focused as a management team on delivering quantifiable results that you can measure and evaluate as we improve your value as shareholders. Thank you for your support and patience during our transition, our best years are right ahead of us. So with that I will take your questions..

[Operator Instructions] Our first question comes from the line of Steve Dyer from Craig Hallum, your question please..

A couple of quick ones from me. What are you seeing if anything that has changed on the competitive front and sort of how does that play in, I think you guys alluded to kicking the tires perhaps on some M&A this year.

How do we think about you know kind of what's going on in the industry?.

Yes, well, I think, well, it’s good to talk to you Steve, thanks for calling, you know from a competitive point of view it appears that there are, there's still a lot of change and navigation going on with some of our larger competitors.

The small competitors, we saw right after the turn of the calendar year, a lot of M&A activity in terms of deals that were available and we also saw a lot of companies at that time that were either failing to make a transition to LED or had serious financial problems that they were trying to exit or find a new home for.

So on the M&A side you know it's still a struggle to find profitable accretive companies that meet our criteria of having not only the financial EBITDA contributions to the business but also a strong sales or channel presence as well as some level of intellectual property.

That was the trifecta with our Harris acquisition and while there're some companies out there that meet that criteria you're fighting the valuation that you see. So we're active, we're constantly looking, we're constantly entertaining opportunities but it's difficult for us to find that.

But I also think just from a pure competitive perspective that it's settling down a bit in terms of some of I guess the craziness, the noise, the disinformation that's being presented to customers and I attribute that in some regards to the small companies just not being able to make it and getting out of the business and also a more educated customer and their ability to sort through what's real and what isn’t.

And so companies like Orion who have the established presence in the marketplace that have the credibility in working inside of a lot of buildings, complex buildings, retrofit is you're inside the existing conditions, you're inside operating businesses, the fork trucks are still moving through the building and the operations will have to continue and the credibility and the reputation that Orion has an ability to deploy projects across North America in a way that they can trust gives us competitive advantage so.

It's still hard to find people that are pure retrofit competitors, a lot of people may say they are but they just really don't have the experience to pull it off.

A product is a product in a large regard but it's the way you ship it, the way you transport it, the way you package it, the way you hang it, install it, all of those things are advantages that Orion has it that others don’t focus on so..

In terms of the resellers that you have, I know the last year, year and a half has been sort of spent, finding new ones, getting additional geographic coverage, getting them up to speed and productive, where would you say you are in that process, in other words are you everywhere where you want to be geographically, do you feel like you’re kind of hitting closer to peak productivity with most of them at this point?.

To the latter question, no, to the former question, yes. We’re in pretty good shape on the geographic coverage. Our strategy if you recall on our last calls, we ramped up our reseller count pretty heavy and ended at 101.

This quarter we ended at 102 that fall within our strict criteria of being active not just all of our resellers with the ones that are active that meet the certain thresholds.

So we really only added one in a quarter, but last quarter you may recall on our call I stated that our strategy is not to add anymore, but to penetrate more deeply within those partners that have chosen to do business with Orion in a heavy way to help them build their business, help them extract more out of their pipeline, win more business within -- more share within their business and really broaden that relationship in a way that is beneficial for both parties.

And we are gaining on that front, there is more to go. We think that some of those active resellers will still turn a little bit, will still have a little turnover in there as we are adding some more sophisticated resell partners some that are doing 50 million, 100 million, $150 million in lighting.

So it really now becomes a strategic endeavor around how to create more value and more profits for those resellers so that they continue to chose to do business with Orion..

And then just I guess more general question, the overall transition to LED, I mean is it -- are we at the inflection point yet, it still seems like it’s a little bit fits and starts depending on the customer and those types of things, I mean does it feel like that or do we feel like we kind of have a buy in and the prices is now right for the payback and we’re off to the races in the next 12 to 18 months?.

Well, I think the answer is, so in general yes, we as a company and peaking at 66% LED coming off the 13 last year - this quarter, clearly if you walk through our manufacturing facility today it’s hard to find a fluorescent product coming off the line anymore.

They do run a line or two, but the vast majority of everything we are doing, what the customer wants to hear is still LED. However, you also have to look at our business, we really have three markets, we have our commercial and retail markets, we have our parking or exterior and then our High Bay.

And while the High Bay is a heavier concentration of fluorescents the path is predominantly LED. So they are moving in different ways and different sequences.

The parking area, the fluorescent sales has dropped dramatically and LED has entirely taken over while we are still a little bit of fluorescents they are still going out in the office retail it is all LED and in the High Bay it’s still a bit of a mix.

And it is a little bit of a mix just because there are customers out there that might be in the warehouse area, might be trapped in a two or three year lease, and really don’t want to invest anything more than they are willing to abandon and with the predominant of the buildings not being owner occupied there it’s just a little bit of a lag.

But that will catch-up here shortly, our Apollo High Bay LED sales have eclipsed our LDR sales in the last quarter or two. And so we’re seeing a much faster growth in our High Bay LED, but it is coming off a little bit lower base line. So that, that’s going - this fiscal year we expect the High Bay space to really catch up.

So inflection point, yes, some products lead, some product lag, but we’re clearly -- I think I said in my comments that by this time next year, in excess of 80% of our sales and that might be conservative..

Thank you. [Operator Instructions] Our next question comes from the line of George Gaspar, Private Investor, your question please..

First off you’re getting close to two months into your first quarter, can you give us any color on how the backlog is looking relative to the end of the quarter and how it might look at the end of the quarter can you give us the expectation on that?.

Yes, so to just reaffirm that we’re not providing guidance and so I am not going to talk in specific, I’ll talk directionally George. But we're encouraged by what we've seen in terms of the bookings pace year-over-year right now that's encouraging.

We did have a strong backlog over 300% higher on the lighting side versus our last year backlog as we entered fiscal '15, so that's encouraging as well.

We did see a push out on one larger order that will end up being converted later in the year and that's half done and that is one of the challenges in terms of John mentioning earlier is the dynamics of customer decisions and installations starts and completions, but we're encouraged and we continue to see that the steps we've taken over the last year are strategically with our resellers and our new products are reaping rewards..

And I know you've talked briefly about moving ahead in Chicago on your innovation center, R&D center, is this -- in the area of product development is there -- are you going to try to concentrate on the area that you're in or there're area out there that bring to mind an opportunity that you haven't been in up to now on the LED side that is of course?.

Sure, so the three spaces that I have previously mentioned, the parking area, the High Bay and the commercial suspended ceiling space of the office retail side that's 52% of the installed base that's currently out there and it's strategically we've decided to stay in those spaces.

So as we enter, as we spend money on research and development and invest on that front, it's going to be in those spaces. Now with that in mind, you may wind up with an acquisition that has a strong presence in a marketplace that we may evaluate and then ultimately build research and development around that. But right now we don't anticipate that.

Once you get out of those three spaces, there is not a lot of high volume product.

You get into things like either replacement lamps and replacement bulbs which is just very commoditized at the moment or you get into things like architectural lighting which you might sell two or three a one-time and then it's just you can't build a high volume efficient product line off of that.

Others can but it is just not set up for align and then finally I think the sales channel becomes problematic too because it would depart away from our retrofit space and loop more into a new construction specification type market. So I think we're very comfortable where we're.

There are a few ancillary markets that I've got my eye on and some of our acquisition targets have some presence there that seem kind of interesting, but for the most part I think right now we're sticking with what's we've got..

And in terms of your acquisition strategy, do you need to own a -- when you go out looking for something if it's really intriguing do you have to own 50% or 100% at the beginning or would you do some incubator kind of investment and to with the goal of reaching 100% along the way?.

Yes, it is a hard question, somewhat hypothetical it would -- I think my preference is still on 100%. I really think that is the right strategy, not to say that you might take a position to investigate but that's really not our strategy. Our strategy would be down outright..

And then lastly, the number of personnel that you have in Manitowoc at this point in time relatively to the start of your backing off in the fourth quarter in terms of this reduction in cost structure?.

Our headcount in Manitowoc is in the 160 range, we've got employees down in our Jacksonville office that's focused on our enterprise accounts, and that's maybe about maybe down from 200 George..

Thank you. Our next question comes from the line of Craig Irwin from ROTH Capital Partners, your question please..

So I want to ask a little bit about the revenue progression for the first quarter, when we look at your book-to-bill fourth quarter you came in at 1 versus 0.8x, in the third quarter so a descent sequential trend there, is this something we can read as supportive of on trend or maybe above trend growth into the first quarter and by trends I mean historically on average since your IPO has been a 10% sequential dip in the first quarter given the seasonality in the markets that you serve?.

Yes, I think, if you look at the historical seasonality Craig in Q1 and we're ahead of last year but that trend is consistent, we're encouraged John mentioned the recent school district order that we got that's new business for us that the summer months.

You will more activity just due to installation cycles and shutdowns within school buildings but it’s fairly consistent..

Then I wanted to ask about your gross margin improvement, we saw some very significant improvements in the service side of your business. But the products side seemed to maybe not be reflecting the potential improvements that you’ve really been focused on.

You have been very specific about taking one important product line from negative 8% margins to positive 13% margins.

Can you update us on the specific miracle progress in that product line and how far along you are in achieving the near-term goal of 13% gross margins and whether or not you see the 20% gross margin goal as achievable for that specific product line?.

We certainly have spent a lot of time talking about the LDR and our challenges in the back half of the year. We mentioned going into Q4 that we had inventory that we were still working through, we were seeing components costs coming down. And so for the Q4, we were pleased with the progression that we made given the existing inventory.

We ended within the quarter the LDR gross margins were in the mid single-digits, so progressing. We’re expecting that as we get into our first quarter and we’ve churned through almost all of the inventory, we had one specific design style that we’re selling through this quarter. We’re expecting low single-digits in terms of gross margins.

And then John mentioned again that school district order that we received that we’ll deliver on in this quarter, that’s north of 20% gross margins. So, we’re progressing and our expectations are that the LDR is going to be lower margin in terms of mix compared to some of the other product categories, the High Bay and Exterior.

But we are definitely have made the progress to improve there..

And the next question I wanted to ask was some times in the past, you have shared with us the percentage of revenue generated through resellers in the quarter. You’ve done a lot of work to grow your reseller network, 102 this quarter up from 30 last year.

Can you maybe share with us more precise metrics on what this has done for revenue?.

Sure. The resellers, actually for both the fourth quarter and the fiscal year, it was 55% of our revenue through the channel. And I think to John’s earlier comment about where we are in terms of I think maturity of those reseller adds, there are still a wide breadth of, as well as the size and maturity of some of those businesses.

So, we’re encouraged by the pipeline that they’re building. Additionally, we’ve had some very sizeable projects with our enterprise accounts, in the automotive, in the retail. And so the success that we’ve had that we’ve issued press releases is on a quarter-by-quarter basis, can really impact the mix between the channels..

And then just, given that you have kind of the traction there and miracally we’re up to 102 from 30. I guess your 1Q15 number was 53. I am going to assume we will continue to grow on top of the 102.

Is it fair to say that you probably do have growth off the 9.5 million from resellers in the first quarter ’15 that you shared with us back then?.

Yes, we’re seeing that within specific resellers. And again, it’s a little bit dependent upon the maturity and the size of some of the resellers that we’re bringing in with more established and experienced salesforce versus somebody who may be quite doesn’t have the cross-state lines and the presence.

They tend to be more market specific within a narrower geography. Those take a little more time. But we’re encouraged.

We looked and qualified, I think in the quarter, we actually had nine new resellers but we also looked at the activity over the course of fiscal ’15 and disqualified some if there had not been an active purchase order placed within the last two quarters. So on a net basis, it was a net change. And that’s going to happen.

We’re going to see some stick and some won’t be as successful. But as long as it is continuing to increase, we’re pleased..

And then last question, if I may. And maybe you could just clarify this. So, I noticed in your last 10-Q that you pushed out the final $800,000 payment on the earn-out for Harris Lighting, and I didn’t see that reflected in this quarter.

Is that something that we will repay during your second quarter? Or is that something that will now no longer be paid?.

It actually was paid in February. It will show up as a change in our accrued expenses. But we did satisfy that final payment in February..

Thank you. Our next question comes from the line of Carter Driscoll from H.C. Wainwright, your question please..

A couple of questions, maybe to start with one maybe to tell you a little bit of doubles advocate.

But given what you talked about in terms of the trajectory of the transition, commercial and retail, obviously it is pretty much all LED you know the parking studio, going that direction highway then one kind of hold out, is there any thought to kind of continuing this trend, as we are accelerating it by thinking of getting out of the florescent business and just going all LED maybe resetting the whole revenue profile but maybe higher margin profile maybe just talk high level what the pros and cons are from just looking at that type of strategy and I have a couple of follow ups?.

Sure, and I'll have Scott perhaps comment on some of the impact financially but the -- it still provides a run rate of whatever it is 35% of our sales and that's a good margin, all the tooling is paid for, it's an easy line for us to run, the products don't change, I think the product we're running today was developed eight or 10 years ago so there's just not a lot of thought that needs to be put behind the ability to move that out and generate gross margin.

I think also not every customer is a LED customer, some, whether it's the economics, maybe it's the term, maybe it's just a philosophical issue around they're going to wait it out until the chips become a little more efficient and to not have that opportunity to not only make the sale but secure a relationship that would then flip to LED down the road, so to some extent it's a double sale, and every time we sell a fluorescent because at some point that's going to get changed out to LED again.

So we're creating our market by continuing to sell fluorescent, however we are not actively selling fluorescent, at this point that's a product that's being bought if that makes sense.

So there's not a lot of effort in the end, quite frankly some customers when they see you with a fluorescent brochure they just send you to the door, they just don't want to hear about it anymore. So it’s strategic for us in a short period of time, it covers some overhead expense right now and at some point we will flip that switch.

Maybe by I mentioned towards the end of this year it's going to get to a point of no return that we may just flip it at that time but we'll make that decision with the facts that are at hand at that point, financially their contribution Scott?.

So, you know our overhead around the fluorescent line is mature, there's not a lot of maintenance required to support that line, and John's absolutely right, I spoke with one of our resellers this morning in the Northeast and his customer base were predominantly tenants in short-term leases who really aren't interested in the longevity of LED and the maintenance benefits and they're looking at first class and his order flow is predominantly fluorescent.

So there's still you know a marketplace for the product and we'll continue to support it as long as it does, as it economically viable and we can manage good margins on it..

May just elaborating on that, in terms of the, and I know it's been asked several times, but in terms of your M&A strategy, can you remind us again what is your kind of priorities are, is it getting another vertical or is it penetrating deeper in the verticals you have now, is it bolstering the LED product portfolio and then any type of financial parameters I'm sure, accretion is an important one but anything you can add to that would be helpful..

Our strategy has been consistent over the last two years and that is we really are looking at three things.

One is the accretive EBITDA, the ability to contribute to the business immediately without having to dig out of somebody else's problem and normally when you start with that the second two tend to follow and that is that they have a strong channel or sales team you know to bring on a product and not have more people on the street or a channel that's drawing that demand, is tough to sustain, so if you have got the strong EBITDA contribution, you generally are going to have a strong channel and salesforce.

And then the third is some level of intellectual property not to say it has to be patents, not to say it has, but some unique product that can bolster the existing verticals that we have but again it's like with our Harris acquisition we picked up a very strong Federal vertical that we didn't have and that was a great addition, it had a little bit of intellectual property in this LDR product which then we were able to commercialize which hadn't been done, or they hadn't commercialized it prior to our acquisition and then they certainly had a very strong salesforce and strong earnings.

So that's really the model, if anything else we would see as being destructive to the business and we won't do it..

And then just the last question for Scott, over the cost cutting initiatives you're talking about, is there a portion of that that is kind of material, I mean a material portion that is geared towards savings on the material side as you transition from fluorescent to LED and obviously scale is a big portion of that but anything material within that savings you have quoted earlier?.

There is and I think your question is on material costs..

Correct..

Yes we of the 10 million about 4 million of that was either negotiated pricing or on LED components that we could see either and really driven by our increasing volumes and the increased leverage that we now have with the supply base..

And is that 400 tied to achieving that percent of sales you’re hoping to do so over the next fiscal four quarters?.

It’s based upon our historical run rates, so as we grow that will help deliver greater savings..

Thank you. This does conclude the question-and-answer session of today’s program. I would like to hand the program back to management for any further remarks..

All right, well thank you very much. Thank you for joining us. We appreciate all of your support and look forward to reporting in a few months. So enjoy your holiday weekend and we’ll talk to you soon. Thank you..

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. Good day..