Q2 2023 Orion Energy Systems Inc Earnings Call

November 8, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

Okay.

Good morning, and welcome to the Orion Energy systems fiscal 'twenty 'twenty Threes second quarter conference call. At this time all participants are in a listen only mode. After some prepared remarks, we will conduct a question and answer session. Today's conference is being recorded I would now like to turn the call over to.

Phil Joseph Investor Relations.

Thank you and good morning.

Mike I'll Chappell Orion's CEO will open today's call followed.

Okay great.

Okay.

Well.

Okay great.

Thank you.

Sure.

<unk> will then review the company's Q2 and year to date results financial position and financial outlook and then we will open the call to investor questions and archive archive.

This call will be posted to the Investor Relations section of Orion's web site at Www.

Ww Orion lighting dot com <unk>.

Remarks, with Allo and answers to questions May include statements that may be forward looking within the meaning of the private Securities Litigation Reform Act of 90090.

These forward looking statements generally include words, such as anticipate believes expects or similar words. Additionally, any statements that describe future plans objectives goals and business outlook are also forward looking.

These forward looking statements are subject to various risks that could cause actual results to be materially different than expected.

Such risks include among others matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission.

As described bear in the company disclaims.

Any obligation to update forward looking statements that are made as of today's date.

Reconciliations of certain non-GAAP financial metrics to their corresponding GAAP measures are also provided in today's press release available in the Investor Relations section of Ryan's website, now I will turn the call over to Mike All cheerful.

Thanks, Bill good morning, and thank you for joining today's call. This morning, we reported our second quarter results and reiterated our full year revenue outlook.

Almost all of our larger project opportunities remain in place we did see one customer halt their new projects in response to changes in their near term facility needs.

The good news is that we expect most of these projects we have been talking about for a few quarters to commence in our third or fourth fiscal quarters, providing momentum as we head into our next fiscal year.

Among these opportunities are significant projects with logistics industrial automotive and public sector customers.

Additionally, our pipeline of project opportunities is expanding driven by a steady increase in new project quoting activity with existing customers and some significant new prospects.

While the timing and pace of business activity remains hard to predict stepping back we do see strengthening interest Orion mission of delivering high quality innovative industry, leading products and our growing range of services to meet customer goals for energy efficiency workplace safety cost reductions environmental.

In other business goals.

Further our unique and proven ability to provide turnkey solutions to design produce install and maintain increasingly complex led lighting and controls systems and now EV charging solutions addresses a growing need for organizations with large national or regional footprints with hundreds and sometimes.

Of locations.

Last month, we entered the electric vehicle charging market through the acquisition of bold Trek, a top tier commercial EV charging solutions provider. We are very excited about this expansion of our portfolio of solutions for our existing and future customers and believe this business has the potential to become a significant revenue.

<unk> for us over the next three to five years.

Let me now turn the call over to Mike Jenkins for some additional commentary and insights on our business Mike. Thank you Mike.

To start off like a lot of people right now I am fighting a cold. So please forgive any coughing or five pod to take a drink.

Fundamentally our Orion is built around a core focus on high quality products and industry, leading customer service for all of the markets. We serve along with proven capability of turnkey solutions for large national accounts with multiple locations.

We believe our model manufacturing turnkey capabilities and strong ESCO distribution partners are unique in the industry and gives us access to an increasing amount of the market.

While our history has been in lighting, we have been expanding our reach and capabilities and the complementary complementary areas, including lighting and electrical maintenance services and recently in the commercial electric vehicle charging solutions.

Recognizing the opportunity to broaden our product and service offering to our current and future customer base, we have centered our selves on a customer for life philosophy.

Which we focus on providing technical solutions delivered through several models that help customers achieve their goals.

Orion has three primary go to market models, ESCO partners distribution partners and our own turnkey model, our turnkey services leverage our ability to help large national customers assess their site requirements and then design solutions produce custom products integrate controls and <unk>.

Vantage the installation and commissioning of these systems to meet each customer's specific requirements are.

<unk> business is built with a strong network of partners, who are typically providing turnkey solutions, where Orion provides product and potentially other services.

<unk> support.

Orion's distribution business is primarily focused on newbuild and agricultural markets and local geographic areas.

Finally, we are building the capability to provide ongoing maintenance services not just for lighting, but also for our new EV charging business.

We are also working to educate customers on the total cost of ownership of lighting and other systems. So they can see the long term advantage of using highly energy efficient products that are built to last under demanding applications. What is clear is that investing a bit more on the front end and the higher quality energy efficient solutions.

<unk> and Orion provides will deliver a substantially higher long term return on investment while other while also providing substantial reductions in <unk>.

Our model is resonating with a growing customer base.

We are working to build on our success to both expand our customer base of customers as well as our breadth of products and services.

Ongoing customer dialogues demonstrated that there is a growing appreciation of the value Orion can provide directly or through partners and that the value only increases in proportion with the size of the customer the number of locations and the complexity of their needs.

Unfortunately, these larger engagements take longer to develop and as we have seen their project timing can be impacted by factors outside our control.

But as we build the business, we expect the impact of such factors will diminish by our growing scale.

Recapping, what I said on our last call working from our core focus on energy efficient led lighting solutions with turnkey capabilities. We have also been building our sales into the energy service company or ESCO market and through our electrical contractor relationships. The ESCO market in particular is a perfect match.

For our focus on high quality and entered energy efficiency as the ESCO model is built around delivering energy savings to their customers.

This market experienced a negative comparable to prior year in Q2, we expect year end growth to be positive by adding to the number of partners. We work with and several major end customer projects delivered through our ESCO partners starting in Q4.

From our success, serving large national accounts, we saw the opportunity to expand our value into the lighting in light electrical maintenance areas. We formed the Orion maintenance services division to provide lighting and electrical maintenance services to meet the needs of customers electrical maintenance services are a perfect complement to our lighting solutions and <unk>.

And our ability to deliver on our customer for life mission.

The acquisition of daylight in January January greatly accelerated our capabilities to support customer and partner needs. We plan to leverage this platform to support our direct lighting and customers to support our ESCO partners and our recently acquired EV charging business full track.

So speaking of satellite integration continues and we are investing in the areas of systems and training processes as well as adding additional personnel and other resources required to scale. This business, while maintaining the service quality and reliability that is essential to our success.

We have purposely kept our focus on serving our existing maintenance customers to ensure a solid transition to Orion. We are focused on growing this business by expanding current maintenance relationships and through cross selling with current and customers in ESCO partners.

We believe that there are substantial long term growth potential for this business, which is an ideal complement to other businesses. Both because it provides a growing base of recurring revenue for Orion and because of the cross selling synergies. It provides between our led lighting and controls and our new EV charging solutions.

We recently established a dialogue with a major new customer prospects for their maintenance service business.

This is one of several opportunities, which we're working on today the opportunity which was sourced through our ESCO partner is with a retail organization of approximately 4500 locations primarily in the west and southeast and we expect progress on this opportunity to be announced in Q4.

Continuing to build out our customers for life strategy, we recently expanded our business into the commercial electric vehicle charging station markets through the acquisition of Ultra. This strategic acquisition was a result of several quarters of research and due diligence on the EV charging market and potential partners.

Importantly, this move was in response to growing customer requests for assistance with their EV charging needs across our retail industrial commercial and public sector clients.

After a comprehensive process, we were fortunate to find bolt track and its prior owner Kathleen cutters, who shares very similar cultures business strategy and ethics is strong long term customer commitment that we both seek to differentiate ourselves through comprehensive solutions Kathleen is an EV industry.

Pioneer with over 13 years experience in installing.

Charging systems with a vast and diversified portfolio of commercial industrial and municipal municipal customers.

Kathleen will continue with Orion is ahead of our EV charging slash mold tech business.

<unk> said EV sales are expected to triple from 2021 through 2025, becoming nearly a quarter of new vehicle sales and the market is expected to continue to expand at a similar rate through this decade to address this growing base of vehicles stores businesses schools offices housing complex tourists.

And entertainment destinations manufacturing facilities hospitals healthcare et cetera.

Charging infrastructure will need to be put in place to sufficiently support this dramatic shift towards evs EV charging will be an increasingly important component of our high quality customer experience as well as an important amenity to attract and retain employees and visitors at various facilities.

California is already mandating the inclusion of charging stations for new construction projects and $5 billion in federal and state funding has been authorized to support EV adoption in the building of charging infrastructure over the next five years nationwide.

<unk> team is well versed in advising customers on how to qualify for and utilize these incentives.

<unk> focus has been primarily in new England, and we see the opportunity to significantly expand their footprint and growth potential through our national customer base and electrical maintenance services network as well as through our ESCO and distribution partners.

We have already begun a range of efforts to introduce both <unk> solutions and capabilities to the Orion sales and service team. It will take time to get everyone up to speed, but the Orion and <unk> teams are excited by the new opportunities expanded value proposition and extended customer reach.

Turning to sales and marketing briefly we have been ramping up our outreach efforts via industry conferences participating in two major events during the second quarter, both events generated meaningful new conversations with customers and channel partners, which we will work to convert into future business.

We're also far along in the website overhaul project to enhance the value and ease of use for customers and partners. We believe the updated site is on the cutting edge of what is being done in our industry and we're targeting its launch by the end of calendar 2022.

As far as the overall industry environment as Mike mentioned, we are seeing positive signs of customers refocusing on led lighting projects that had been delayed several re engaged us in the past several weeks.

<unk> discussed moving forward.

Similarly, some of the supply chain and other challenges that have been slowing customer decision, making are gradually receding, which we also view as a positive sign as for our own supply chain position the environment themes on a gradual trend of improvement and we remain in strong position proactive management is <unk>.

<unk> us to meet almost all of our demands within our normal delivery timeline of approximately two weeks or less.

Our U S based led lighting manufacturing capabilities continue to support our industry leading delivery timelines.

As for inflation, we have worked hard to offset these impacts through proactive sourcing efforts and offsetting price adjustments efforts that helped benefit our Q2 gross profit percentage performance.

A few callouts on our Q2 performance before I turn it over to per.

As we've discussed before the major retrofit project at our number one account has largely been completed and we see the impact in our revenue decline in Q2 year over year. The decline of this customer in Q2 was $18 7 million out of our total decline of $18 nine.

The global online retailer that we also discussed in prior calls declined 900000 compared to the same period prior year as they abruptly stopped new warehouse construction in Q1 of this year.

Without the impact from these two accounts the business grew approximately 5%.

In Q2, we saw positive growth in our government sector, where we have a very significant pipeline of projects. We expect to begin in Q1 of fiscal year 'twenty four.

Our new distribution business.

Our distribution business also increased as our strategy of expanding geographic coverage and improving the strength of partnerships is paying off.

The <unk> business as mentioned earlier it took a step back in Q2 as a result of some large projects taking longer than anticipated. All of these projects are still moving along and we look forward to announcing some exciting news in this area in Q4 and Q1.

Our turnkey business was primarily impacted by the decline of our number one customer we likewise have a significant pipeline of opportunities that will begin in Q4 and Q1.

Lastly, we are making great strides in our maintenance business and I'm excited about the cross selling to come in both lighting and our new EV business platform.

Finally, <unk> and I look forward to meeting with some of you in person at the Craig Hallum Alpha Select investment conference in New York on November 17th or at Investor events next year in the interim if you have questions or would like to schedule a call with management. Please contact our IR team who is <unk>.

Information is included in today's press release, otherwise I look forward to speaking with investors on our next quarterly call in February .

Now I will pass the call to <unk> to discuss our financial results balance sheet and our outlook for the balance of fiscal 2023.

Thank you Mike.

Fiscal 'twenty three second quarter revenue was $17 6 million versus $36 5 million in Q2 'twenty two in fiscal 'twenty three 'twenty three first half revenue was $35 $5 million versus $71 6 million last year.

Current year periods were impacted by project delays as we have outlined earlier on the call.

Revenue for both the second quarter and year to date periods increased when revenue from our largest customer and the large global online retailer are excluded reflecting.

Reflecting the strength of our core business.

Our gross profit percentage improved sequentially to 25, 3% in Q2 2003 as compared to 19, 8% in fiscal Q1, 'twenty three but declined versus our 29, 5% performance in Q2 'twenty two.

Year over year decrease was principally due to lower fixed cost absorption due to lower revenues Conversely, our expectations for higher revenues in the second half of this fiscal year should have a positive impact on our realized gross profit percentage.

The sequential improvement in gross profit in Q2, 'twenty three versus Q1, 'twenty three reflected our higher margin revenue mix of projects ongoing supply chain and cost management efforts and the benefit of prior price increases offsetting higher input costs.

Fiscal Q2, 'twenty three product gross margin would have increased compared to 2022 were it not for the Unabsorbed plant costs.

Second quarter fiscal 'twenty, three operating expenses were $7 4 million versus $5 8 million a year ago, principally due to higher general and administrative expenses related to the January 2022 acquisitions daylight.

The year ago benefit from an employee retention payroll tax credit, which reduced operating expenses by $2.

$8 million and a noncash equity based compensation charge.

Operating expenses increased 200 sequentially from Q1, 'twenty three primarily due to integration initiatives in our maintenance services business, plus noncash equity based compensation costs related to our Ceo's retirement.

Orion reported a net loss of $2 3 million or <unk> <unk> per share in Q2, 'twenty three as compared to net income of $3 7 million or <unk> 12 per share in Q Q2, 'twenty, two and a slight improvement over our Q1 'twenty three net loss of $2 9 million.

Or <unk> <unk> per share.

As of quarter end net working capital improved to $32 5 million from $29 $5 million at the close of Q1, 'twenty, three and compared to $32 9 million at the close of Q4 'twenty two.

Our working capital includes $16 $8 million of inventory investments intended to position Orion to execute on our expected increases in volume.

Orion remains in a strong financial position with approximately $23 7 million of liquidity that includes cash and cash equivalents of $12 5 million and over $11 million of availability on our credit facility in.

In addition last week, we amended our credit facility to include the assets of our two recent acquisitions, which increased our asset borrowing base and credit availability.

In September we drew $5 million on our revolving debt facility to strengthen our working capital position and in anticipation of the <unk> acquisition.

In today's press release, we reiterated our fiscal 2023 revenue outlook of between $90 million and $110 million.

This range reflects potential variability in the timing of several large customer projects and other factors outlined in today's release.

The midpoint of this range would represent a strong double digit revenue growth, excluding our expectations for our larger customer and the large online retailer, reflecting continued progress in diversifying our revenue sources.

Based on our revenue outlook, we expect to be cash flow positive in the second half of this fiscal year.

Accordingly, we expect our cash and liquidity position to improve through the balance of the fiscal year.

This should keep us in a strong position to support our growth initiatives across the business.

For M&A.

While we continue to develop our pipeline of future opportunities. Our near term focus is on integrating our recent acquisitions to ensure their success as well as investing in organic growth opportunities initiatives.

And with that let's turn the call back over to the operator for Q&A.

Thank you, ladies and gentlemen to ask a question you will need to press star one on your Touchtone telephone.

Minor please limit yourself to one question and one follow up if you have.

Any additional questions you may reenter the queue. Please standby will be compile the Q&A roster.

Okay.

And our first question coming from the line of Sameer Joshi with H C. Wainwright. Your line is open.

Thanks, Good morning.

Good morning America.

Thank you I'm also quite liquid.

Sorry.

On the on the Wuxi plant.

You mentioned then.

It is well known that this 5 billion.

Distributed through this key.

We're quite.

Focused primarily in the northeast.

There are plans to expand that team.

We can.

Position themselves to.

To capitalize them most.

Uh huh.

Our plans that will come to in the first quarter of next year.

Sure Hi, Sameer its Mike Jenkins.

To answer your question, Yes, we are expanding the team, we're adding resources to it right now we see a lot of growth opportunity with the current.

Under the current platform and the current location. So we want to continue to drive very strong growth that Kathleen is experienced in the northeast. In addition to that we want to leverage the rest of our turnkey resources to help expand this platform on a national basis.

There are discussions underway right now about exactly how to do that as I mentioned under my remarks, there is.

Very strong interest from existing customers about how <unk> could help in this space moving forward.

Okay.

Then just a follow up on that.

I think.

Definitely we are announcing the transaction.

There was a $4 8 million number during 2021 at the top line number for trich.

Is it tracking similarly for this year.

Given that.

Notes.

<unk>.

Like significant in the one to $2 million to $3 million ranges over the next two three years.

What level of.

The revenues are you expecting.

From this.

You can see in fiscal 'twenty four 'twenty five.

Sameer, It's fair we did disclose.

Initial call announcing the <unk> transaction that their revenues were $4 8 million in 2021 and that we expect between three and $5 million of revenue associated with that business in the second half year of fiscal 'twenty three.

But I think as we iterate, our as we mentioned on the <unk>.

And just one last one from me gross margins have improved significantly.

Hum.

Okay.

Thank you our next question.

Several customers re engaging and confidence in starting projects in the second half and into next fiscal year can you just kind of elaborate a little bit more on the confidence there any gating items.

Sure.

Great questions, there and thank you I'm going to go in reverse order first on our comments about our global online retailer who pulled back in their project business.

We first started talking about that back I think in January or February where initially they pulled back because they were at these were new construction sites and they were having issues on their supply chain of getting equipment and other.

Ahead lighting in the Pic modules. So it was something frankly out of our hands, we had expected a fair amount of that business for us.

It was $5 million to $7 million of business last year and it kind of stopped very quickly. So that's the one project. We are mentioning in our comments. This morning about a project that is not going forward.

Company with many facilities across the United States and we've been doing some modest amount of business with that customer for the last couple of years as they've gone through planning for a much larger project and we now have a material supply agreement in place with that customer and we expect to play a very.

Significant role as they go forward with their retrofitting of led lighting in their facilities across the United States and we expect that business to kick off for us during our fourth quarter.

The contract in place, which spells out the specific pricing and now it's all about them getting sites ready getting those states audited and kicking them off and then having us provide.

Product for those locations that were very excited about that one the second one I would mention.

Is that we've talked about are really nice large public sector.

Project, where we are going to be.

The tier two contracted to the prime contractor with the federal government and the contractual relationship between that prime contractor and the government took much longer than expected. We are now in the very final stages of getting that all ironed out and we expect to be able to talk about that in the near future in that project.

The works for a number of quarters that we also see kicking off during the third and fourth quarter of our fiscal year. So those.

Big handful of large opportunities is what really gives us optimism as we enter into the second half and momentum going into fiscal 'twenty four and then I would just add on top of that our other business. Both in distribution and <unk> had some very nice activity that is giving us a positive feeling going into the second half of the year.

Yes.

<unk> kind of at a global online retailer so thanks for filling that in.

Prior calls, we see a lot of growth opportunity through our ESCO channel and partners, we put a fair amount of resources and work into building those partnerships and really exploring growth opportunities. We've got some excellent partners, who are bringing for some very significant.

A number of these really are we're looking at our strategic partners that they can then help us get into.

In the new verticals that quite frankly, we haven't been in before so I think it's a real win win kind of partnership.

Okay.

And our next question coming from the line of Alex Rygiel with B Riley. Your line is now open.

Alright sure.

We continue to work diligently on that product through the Pir motion in particular, the Pir motion product that.

Has the UBC.

Application in it which can deactivate kill viruses.

Alex it's been a slower.

And those have continued we've talked about those in the past and they are continuing and we also see potential for the let's call. It the base product, which is the air movement product, which is.

Put into a ceiling troffer type product that helps move air and circulate error within a particular room, which can have some very significant energy savings with respect to the HVAC systems. So we continue to believe we have very strong product. We have had a significant investment in marketing activities during the year.

And we're still optimistic that we're going to land a couple of nice sized projects in the future on that product, but it has gone a little slower than expected.

I think I would start.

And then.

As we acquired the business and very nice activity and.

And so we are able to hit the ground running and why we feel that it will be nice significant revenues during the second half of the fiscal year. There is a lot of planning that goes into place for EV charging solution projects and so it's similar to our other business, where there are site visits and engineering work that is done.

And approval processes and then the supply chain for EV also has some.

Some challenges to it so things do kind of buildup from a backlog standpoint, so we feel good about the backlog they have and as Mike mentioned earlier, we're making significant investments to expand that business across the United States.

Thank you very much.

Question.

Thank you.

I'm, having customers re engaging.

Wow.

Lower volume so if you could please ask the question one more time, yes.

Yeah, no problem that can you hear me better now.

Very much. Thank you so much.

Yes.

The decision, making process for larger projects move a little bit more slowly than in the past and we've commented on this previously so part of the reason why we think we.

We're seeing the and speaking positively about the second half of the year and going into next year is that these projects that are moving slowly through the customer approval process. We can see are getting very close to the yen and the reason we think theyre going to continue is that most of them have very significant it savings related.

To them from an energy standpoint, we often comment that most projects have 50% or greater energy cost reductions and so we have seen in the past that even if the economy might slowdown it provides an opportunity for companies to reduce expenses going forward. So certainly we will remain.

Cautious about the economy as everybody is looking at.

The process with our larger customers.

That's helpful. Thank you and then relative to.

Two pricing.

Or tolerance by your customers for you to raise prices.

Yes.

So this is Mike Jacobs.

In terms of the cost transport costs are starting to decline from Ocean freight lead times. We're also getting better at those types of things. So the inflation kind of curve that we saw before is definitely flattened and were obviously very vigilant on looking at it and making any price adjustments that we need but it.

Is moderating to a large degree and we feel like we've kept up with it thus far.

Okay that is helpful and then finally.

And your service margin gross margin increased something in the neighborhood of 800.

50 basis points.

Versus the first quarter is that increased service gross margin.

Of having stay light in the next and some of their expertise or something else going on so maybe a bit of fly by such success with gross.

Gross my service gross margin increasing sequentially.

Hey, Bill, it's fair I guess I'd say that.

The margin within service can fluctuate a fair amount I would say, it's not I wouldn't attribute it to the expertise that <unk>.

Daylight brought to the table with.

Our base business that service margin just as a reminder to everyone includes.

Installation services. So it is not just maintenance services, and Thats, where mix I would say it could be one of the bigger impacts on that rate from quarter to quarter basis.

Thanks, Thanks Bill.

Thank you one moment please for our.

Jeffrey Campbell with Alliance Global your line is open.

Just wanted to ask a question with regard to.

The structure of the <unk> business.

Primarily in EPC business.

Are you actually going out and procuring real estate.

<unk> real estate too.

Develop these facilities.

Is there do you envision any change in the way the business works now versus what you see for it.

As you expand into different parts of the country.

Okay.

Sure. This is Mike Jacobs the business itself is a design and installation business. We go out and guide our customers through the process and then manage turnkey fashion. The installation. We also do sell some of the products to other channels.

<unk> to other partners.

As well, but we do not enter into the management of the real estate or leasing products or any of those kind of structures, which are available today as far as the future. Those things are really not in our current thinking but always.

Looking at how the industry evolves over time.

I also would add highlight what we've talked about in the past.

That.

We are we have the ability with bold track to use multiple suppliers for hardware. So we want to be in the business of providing the product for.

These EV charging solution projects.

And we already have access to both charge point and ABB from a supply very strong supplier relationship, but we also have others that can supply product. So our goal is to have the ability to bring various products solutions to the customers.

This model that we see currently as Mike said don't see ourselves being in EPC of owning the actual stations.

Thank you.

Our next question coming from the line of Andrew Shapiro with Lawndale capital. Your line is open.

On your acquisition of the service business I guess it was three maybe three quarters, maybe a year ago now.

On a prior call I had asked about your thoughts on <unk>.

The expansion to different geographies and you thought that that might be.

Via acquisitions, maybe more than inorganic.

Gross.

The bold check acquisition occurred and I didn't know if.

The types of business that bold trek is in the service business and service and maintenance business that you've kind of.

Acquired to expand.

Existing if they are achieving some of that geographic expansion since sculptrix so strong in the northeast.

Sure.

High level, yes, we see synergies between both of these acquisitions, both with each of those companies as well as with our existing Orion business. So to kind of go back and talk through a little bit we felt the strawn.

<unk> to enter the maintenance business and right.

At the beginning of this calendar year is when we closed the acquisition of some daylight and steel it has a nationwide footprint of being able to deliver maintenance services for lighting and miscellaneous electrical services.

As well as having 15 states, where they can actually self perform those services generally in the upper Midwest out to the East coast.

And in the southeast a little bit.

We plan to expand our ability to provide those maintenance services through additional self performing but also great partnerships with other service providers and continue to have that nationwide network. Mike mentioned earlier today, we have our first larger new opportunity for that maintenance business with.

Entity that has a number of locations.

In the South West primarily in the west so.

Currently as opposed to look at multiple acquisitions at this point in time.

We think the <unk> acquisition was the right move and the synergies between them is that the maintenance services that are needed for lighting maintenance. We think are synergistic with the maintenance services needed for the EV charging solution projects. So over time, we could see having our our technicians who are.

Providing these services in the field service, both the lighting customers.

As well as the EV charging stations and as you build additional density in different areas of the country. It becomes very positive business model have our own people doing that work.

And then finally I would simply say.

I'm sorry go ahead.

No no go ahead I have a follow up anyway.

Yes, So I think now we have made these two acquisitions during the calendar year, it's time for us to make sure we integrate those very confidently and smartly and then will continue to sit back and say how do we move forward to grow those both businesses both organically.

Through additional acquisitions.

Okay. That's good because I was a little concerned about.

Getting another service maintenance acquisition.

Trying to integrate so many things when you guys are trying to and need to.

Execute.

The business at hand, now with respect to volt track, which is primarily in the northeast.

What is the I guess, the timing and plans for rolling out.

Its business model in this business services beyond geographic strength is that going to be organic how does that how do you envision that occurring and or is that going to be something after that we'll wait until after the integration and then they'll need to be an acquisition.

Yes. This is Mike Jacobs I think.

We've already started with some customer engagements outside of that core area. We feel like we can leverage some of the resources and partnerships that we already have today on the turnkey side of our business to do some of the execution for that model outside of its core area, but it is going to be largely in <unk>.

Organic.

Build for us.

Okay, and then last but not least.

Can you can you quantify and describe the timing.

For which you will or have already recognized the acquisition costs.

I would assume either in the SG&A or potentially broken out as a separate line item for the recent volt truck acquisition, which doesn't start generating I guess revenues.

And.

Cash flow generation for the company until this current quarter ended I guess December .

Sure I'll take that.

<unk>.

Did see in the P&L in today's press release, some acquisition related costs that were recognized in.

The most recent quarter in the second quarter.

That was the tune of about $300000.

There was some.

Acquisition related costs associated with that.

Both will trek and still a little bit for stabilized.

There will be.

And then there will be some integration related costs that will come through.

The more significant component that I want to make sure everyone understands.

<unk> mentioned on the call announcing the bold track.

The transaction is that the.

The earn out payments that are associated with that.

Transaction for bold track will be recognized through the P&L. So theres.

Not opportunity for.

Fiscal year 'twenty three.

Fiscal 'twenty four in fiscal 'twenty five those costs from.

GAAP standpoint will come through the P&L as we.

Assess that Theyre being earned and then they would be paid in the.

Subsequent period after we finalize the measurement of the progress against those earn outs.

And so youre not manufacturing.

Yeah.

Yes.

Eric then revenue based or will it be.

Hopefully more cash flow emphasized.

It's EBITDA based.

Okay.

Excellent.

Thank you.

And thank you for your questions.

Okay.

Thank you and that concludes our Q&A session I will now turn the call back over to Mr. Michael CFO for any closing remarks.

Thank you operator.

Some of you May know this is my final earnings call as Mike Jenkins will become our next CEO . After our quarterly board meeting on Thursday, I will continue to serve Orion as a director I am confident that Mike has an excellent combination of experienced leadership capabilities and proven business success to lead Orion to a bright future.

<unk>.

I would also like to thank the entire Orion team for the privilege of working with you all of you as CEO over the past five and a half years I'm very proud of the talent and commitment of the team that has allowed us to put the business on an exciting path for the future I'm truly grateful to have had the opportunity to lead Orion I would also like to thank.

Our investors and other stakeholders, including our customers partners and suppliers, who have believed in and supported Orion over the years. So thanks, everybody for joining today's call and the team looks forward to talking with you. After our next quarter. Thanks a lot.

Okay.

Today's conference call is now concluded.

Thank you for your participation you may now disconnect.

[music].

Good morning, and welcome to the Orion Energy systems fiscal 2022nd quarter Conference call. At this time all participants are in a listen only mode. At the remarks, we will conduct a question and answer session. Today's conference is being recorded I would now like to turn the call over to Bill Giles.

Of Investor Relations.

Thank you and good morning.

Like all Shafer Orion C E O will open today's call followed.

Okay.

Oh.

Well.

Great. Thank you appreciate it.

Yeah.

F. L will then review the company's Q2 and year to date results financial position and financial outlook and then we will open the call to investor questions and archive archive.

This call will be posted to the Investor Relations section of <unk>.

<unk> web site at.

At Www Orion lighting dot com <unk>.

Our remarks and answers to questions May include statements that may be forward looking within the meaning of the private Securities Litigation Reform Act of 9090.

These forward looking statements generally include words, such as anticipate believe expect or similar words. Additionally, any statements that describe future plans objectives goals and business outlook are also forward looking.

These forward looking statements are subject to various risks that could cause actual results to be materially different than expected.

Such risks include among others matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission.

Except as described bear in the company disclaims.

Any obligation to update forward looking statements that are made as of today's date.

Reconciliations of certain non-GAAP financial metrics to the corresponding GAAP measures are also provided in today's press release available in the Investor Relations section of Ryan's website, now I will turn the call over to Mike All cheerful.

Thanks, Bill good morning, and thank you for joining today's call.

This morning, we reported our second quarter results and reiterated our full year revenue outlook.

Our second quarter results reflect the impact of some continued customer delays in the initiation of several large led lighting projects, which has pushed these opportunities into future periods.

Almost all of our larger project opportunities remain in place we did see one customer halt their new projects in response to changes in their near term facility needs. The.

Among these opportunities are significant projects with logistics industrial automotive and public sector customers.

Additionally, our pipeline of project opportunities is expanding driven by a steady increase in new project quoting activity with existing customers and some significant new prospects.

In other business goals.

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<unk> for us over the next three to five years.

Let me now turn the call over to Mike Jenkins for some additional commentary and insights on our business Mike. Thank you Mike.

To start off like a lot of people right now I am fighting a cold. So please forgive any coughing or five pause to take a drink.

Fundamentally Orion is built around a core focus on high quality products and industry, leading customer service for all of the markets. We serve along with proven capability of turnkey solutions for large national accounts with multiple locations. We believe our model manufacturing turnkey capabilities and strong ESCO distribute.

<unk> partners are unique in the industry and gives us access to an increasing amount of the market.

Recognizing the opportunity to broaden our product and service offering to our current and future customer base, we have centered our sales on a customer for life philosophy.

We focus on providing technical solutions delivered through several models that help customers achieve their goals.

Orion has three primary go to market models, ESCO partners distribution partners and our own turnkey model.

Our turnkey services leverage our ability to help large national customers assess their site requirements and then design solutions produce custom products integrate controls and manage the installation and commissioning of these systems to meet each customer's specific requirements are.

<unk> business is built with a strong network of partners, who are typically providing turnkey solutions, where Orion provides product.

So the other services that support <unk>.

<unk> distribution business is primarily focused on newbuild and agricultural markets and local geographic areas.

Finally, we are building the capability to provide ongoing maintenance services not just for lighting, but also for our new EV charging business.

<unk> at Orion provides will deliver a substantially higher long term return on investment while other while also providing substantial reductions in C O two of issues.

Our model is resonating with a growing customer base.

We are working to build on our success to both expand our customer base of customers as well as our breadth of products and services.

Ongoing customer dialogues demonstrated that there is a growing appreciation of the value of Orion can provide directly or through partners and that the value only increases in proportion with the size of the customer the number of locations and the complexity of their needs.

Unfortunately, these larger engagements take longer to develop and as we have seen their project timing can be impacted by factors outside our control.

But as we build the business, we expect the impact of such factors will diminish by our growing scale.

For our focus on high quality and entered energy efficiency as the ESCO model is built around delivering energy savings to their customers.

And our ability to deliver on our customer for life mission.

So speaking of Sterlite integration continues and we are investing in the areas of systems and training processes as well as adding additional personnel and other resources required to scale. This business, while maintaining the service quality and reliability that is essential to our success.

We recently established a dialogue with a major new customer prospects for their maintenance service business.

This is one of several opportunities, which we're working on today the opportunity which was sourced through our ESCO partner is with a retail organization of approximately 400 locations primarily in the west and southeast and we expect progress on this opportunity to be announced in Q4.

Continuing to build out our customers for life strategy, we recently expanded our business into the commercial electric vehicle charging station markets through the acquisition of old track. This strategic acquisition was a result of several quarters of research and due diligence on the EV charging market and potential partners.

Importantly, this move was in response to growing customer requests for assistance with their EV charging needs across our retail industrial commercial and public sector clients.

After a comprehensive process, we were fortunate to find bolt track and its prior owner Kathleen Conners, who shares very similar cultures business strategy and ethics is strong long term customer commitment that we both seek to differentiate ourselves through comprehensive solutions Kathy.

Kathleen is an EV industry pioneer with over 13 years experience.

Installing.

Charging systems with a vast and diversified portfolio of commercial industrial and municipal municipal customers.

Kathleen will continue with Orion is ahead of our EV charging slash mold tech business.

Morris and entertainment destinations manufacturing facilities hospitals health care et cetera.

Charging infrastructure will need to be put in place to sufficiently support this dramatic shift towards evs.

Charging will be an increasingly important component of our high quality customer experience as well as an important amenity to attract and retain employees and visitors at various facilities.

California is already mandating the inclusion of charging stations for construction projects and $5 billion in federal and state funding has been authorized to support EV adoption in the building of charging infrastructure over the next five years nationwide.

<unk> team is well versed in advising customers on how to qualify for and utilize these incentives.

We have already begun a range of efforts to introduce vault <unk> solutions and capabilities to the Orion sales and service team. It will take time to get everyone up to speed, but the array of old track teams are excited by the new opportunities expanded volume value proposition and extended customer reach.

Discussed moving forward.

Similarly, some of the supply chain and other challenges that had been slowing customer decision, making are gradually receding, which we also view as a positive sign as.

As for our own supply chain position the environment themes on a gradual trend of improvement and we remain in strong position.

Our active management has allowed us to meet almost all of our demands within our normal delivery timeline of approximately two weeks or less.

Again, our U S based led lighting manufacturing capabilities continue to support our industry leading delivery timeline.

As for inflation, we have worked hard to offset these impacts through our proactive sourcing efforts and offsetting price adjustments efforts that helped benefit our Q2 gross profit percentage performance.

A few callouts on our Q2 performance before I turn it over to per <unk>.

The global online retailer that we also discussed in prior calls declined 900000 compared to the same period prior year as they abruptly stopped new warehouse construction in Q1 of this year.

Without the impact from these two accounts the business grew approximately 5%.

In Q2, we saw positive growth in our government sector, where we have a very significant pipeline of projects. We expect to begin in Q1 fiscal year 'twenty four.

Our new distribution business.

Our <unk> sorry, our distribution business also increased as our strategy of expanding geographic coverage and improving the strength of partnerships is paying off.

Our turnkey business was primarily impacted by the decline of our number one customer we likewise have a significant pipeline of opportunities that will begin in Q4 and Q1.

Lastly, we are making great strides in our maintenance business and are excited about the cross selling to come in both lighting and our new EV business platform.

Finally, <unk> and I look forward to meeting with some of you in person at the Craig Hallum Alpha Select investment conference in New York on November 17, or at Investor events next year in the interim if you have questions or would like to schedule a call with management. Please contact our IR team who is <unk>.

Information is included in today's press release, otherwise I look forward to speaking with investors on our next quarterly call in February .

I will pass the call to <unk> to discuss our financial results balance sheet and our outlook for the balance of fiscal 2023.

Thank you Mike.

Current year periods were impacted by project delays as we have outlined earlier on the call.

Revenue for both the second quarter and year to date periods increased when revenue from our largest customer and the large global online retailer are excluded.

Reflecting the strength of our core business.

Our gross profit percentage improved sequentially to 25, 3% in Q2 2003 as compared to 19, 8% in fiscal Q1, 'twenty three but declined versus our 29, 5% performance in Q2 'twenty two.

Fiscal Q2, 'twenty three product gross margin would have increased compared to 2022 were it not for the Unabsorbed plant costs.

The year ago benefit from an employee retention payroll tax credit, which reduced operating expenses by <unk> eight.

$8 million and a noncash equity based compensation charge.

Operating expenses increased 200000 sequentially from Q1, 'twenty three primarily due to integration initiatives in our maintenance services business, plus noncash equity based compensation costs related to our Ceo's retirement.

Or <unk> 90 per share.