Q4 2023 Orion Energy Systems Inc. Earnings Call
Yeah.
[music].
Good morning, everyone and welcome to the Orion Energy systems fiscal 2023 fourth 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 Bill Jones Investor Relations to begin.
Thank you and good morning.
Mike Jenkins Orion CEO will open today's call to provide perspective on Orion's current business outlook.
Per protein Orion's CFO will then review the company's Q4 and full year results financial position and other financial matters and then we will take investor questions. A replay of the call will be posted to the Investor Relations section of Ryan's website at Orion lighting Dot com.
Remarks that follow and answers to questions May include statements that are forward looking within the meaning of the private Securities Litigation Reform Act of 1995. 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 outlook are also forward looking.
These forward looking statements are subject to various risks that could cause actual results to differ materially than currently expected such.
Such risks risks include among other matters.
Items that the company has described in its press release issued this morning as well as in its SEC filings.
Except as described therein the company disclaims any obligation to update such forward looking statements that are made as of today.
Reconciliations of certain non-GAAP financial metrics to GAAP measures are also included in today's press release now I will turn the call over to CEO , Mike Jenkins.
Thank you Bill good morning, and thanks to everyone for joining us today.
Well fiscal 'twenty two 'twenty three posed some challenges Orion closed the year with our strongest quarter and finished within our revenue guidance for fiscal 'twenty three at $77 4 million over the past year, we have built a pipeline of opportunities providing us strong momentum heading into fiscal 'twenty four.
We believe our company is better positioned for long term success than ever before as we now provide a much broader offering of complementary products and services to a larger and more diversified base of customers and prospects.
Building on our core expertise in led lighting and controls over the last two years Orion has expanded into maintenance services for lighting and light electrical needs and more recently into the rapidly growing market for commercial EV charging solutions. We expect these two businesses to deliver roughly one third.
Of our revenue in fiscal 'twenty four versus no revenue contribution two years ago.
These new businesses business areas align perfectly with our core mission of helping customers achieve their energy efficiency and environmental goals.
They also leverage core areas of expertise and turnkey project capabilities to build upon our customers for life commitment.
Both cases, we had been approached by some of our largest customers about our ability to support them in these areas.
Well, Ryan has proven expertise and skill and designing managing and executing large national led lighting retrofit projects along with customer demand for maintenance services led us to enter this space.
To expand the capabilities reach and growth potential of our maintenance business. We acquired the satellite operations in January 2022.
And continue to build out our service platform and capabilities.
Maintenance is a mission critical business.
As such we need to ensure that we have the resources talent systems.
To deliver the reliable high quality and responsive services required to build long term relationships.
As with the maintenance business, our entry into the EV charging space was in part driven by National account customers, who had asked us about our ability to help them navigate this new area.
Our research led us to volt track a pioneer in commercial EV charging solutions, we found that our approach to solving customer needs was very much like our led retrofit business, where the value of the solution starts with site surveys engineering and custom solutions tailored to the customer's unique needs and <unk>.
Seats through construction installation and commissioning all with a centralized point of contact and accountability.
Importantly, we felt the mission and leadership at ball check we're highly compatible with those in Iraq and that together, we could substantially expand <unk> national market opportunity.
From a strategic standpoint, Orion made the decision years ago to be a technology implement or leveraging the benefits of cutting edge technologies with smart engineering design and high quality implementation and service that formed strong customer bonds as the complexity of electrical systems grow and become increasingly interconnected.
Connected we believe Orion is well positioned to help our customers and partners navigate this landscape and implement their plans.
In addition by maintaining much of our manufacturing in the U S. We.
We benefit from high quality and faster and more predictable delivery times as well as the benefit of providing made in America products to customers, who prefer a required them.
Turning to some fiscal 'twenty three highlights we acquired <unk> in early October 22, and that launched us into the EV charging space. The business is off to a strong start delivering revenue of $6 3 million in the second half of fiscal 'twenty three versus our initial expectation of three to 5 million.
Yeah.
We anticipate substantial growth in <unk> in the coming years as we build out their capabilities to support the rapid growth of electric vehicles and associated infrastructure across the U S.
As an example, during our fourth quarter would track secured an initial order for level three DC fast charge infrastructure for an electric school bus pilot program in Boston the <unk>.
First phase involves charging systems for 20 out of a fleet of 120 buses with a contract value of approximately $1.5 million and the prospect of additional orders in the future.
Of course, driving the demand for EV charging infrastructure, our forecast and estimates that.
That estimate Evs will represent about 50% of the new vehicle fleet by 2030 and 80% by 2040. The administration has also recently announced new mileage standards that will likely accelerate growth in the EV market.
Given the rapidly growing demand we are investing in a variety of initiatives to support both <unk> ability to scale its business historically.
Historically <unk> business has been concentrated in the northeast surrounding it space in Massachusetts.
Support <unk> and building out a national footprint, we are funding infrastructure personnel and other resources to enable them to both source and execute projects across the U S.
We are also working on opportunities for cross selling to build new revenue opportunities from customers across our business portfolio.
These efforts take time to engage that we believe they will begin to bear fruit in the second half of fiscal 'twenty four.
Turning to maintenance services revenues rose approximately 150% to $14 6 million in fiscal 'twenty, three benefiting from organic growth and full year contribution.
From our stay light lighting acquisition.
Excuse me.
And in services provide an ideal complement to our project related businesses, allowing us to expand our value to add new and existing customers, while creating a growing base of recurring revenue.
We believe orion's competitive advantages in customer service and turnkey project management transfer well to the maintenance business recently, we signed a preventative maintenance agreement with our largest customer building on our existing reactive maintenance program and supporting our growth outlook for fiscal 'twenty four.
We are adding capacity in this business and are also getting processes in place to support long term growth just as we are it would track in both cases, there is plenty of opportunity, but to ensure high levels of customer satisfaction is critical that we put the right infrastructure.
Our infrastructure and processes in place.
Turning to our led lighting business the end of our fiscal year and the Q1 is typically slow except for rollover projects from the prior year.
A previously announced $4 million project from a long term automotive customer completed in Q4, and we are gearing for the start of a $9 million Department of defense project, which shifted into fiscal 'twenty four.
We expect this project to ramp in quarter, two and to be largely complete by the end of this fiscal year.
We also have a logistics related project that is also picking up in early fiscal 'twenty four.
This customer is expected to be $5 million to $10 million in annual revenue range with the potential for additional business in subsequent years.
In our energy service company or ESCO channel, we anticipate growing demand from key partners. This growth is a reflection of their customers increasing focus on ESG goals. In addition to cost savings and ROI targets generally speaking led lighting retrofit.
Projects provide very clear ESG benefits with some of the most compelling returns on investment ranging from 30% to 50% or more with rebates, providing two to five year payback periods. This compares to solar installations are typically involved 15 to 20 year paybacks.
On the marketing front, our digital marketing strategy continues to make progress in expanding awareness and engagement with Orion solutions.
We launched a new friendly sales friendly website in late 2022, which is providing a nice lift in page views unique user visits and qualified leads I encourage you to take a look.
From a sales leadership standpoint, we hired Ken pool as our EVP of sales and January Ken is a highly experienced sales executive who comes to Orion from a super ESCO in just a few months. He has helped US focus our efforts and demonstrated himself as an important asset supporting our future growth.
Our sales efforts, we are making selected investments investments in our sales team as well as in our EV and maintenance businesses importantly in this tight labor market. We are finding that Orion is ESG focus as well as our involvement in the EV charging space.
<unk> helpful.
<unk> helpful in attracting talent to our company.
Reflecting on our expected growth across led lighting maintenance services and EV charging solutions. We currently expect fiscal 'twenty for revenue to grow 30% or more to approximately $100 million.
With a greater proportion of revenue expected in the second half this outlook anticipates at least $30 million in aggregate revenue from maintenance services, and EV charging solutions and the balance from the.
The led lighting business.
Today, our customers carbon emission goals, such as getting to net zero electrification strategies and related ESG goals are opening new areas of engagement and opportunities across our business, particularly with larger national accounts.
For example, a major Orion customer highlighted their conversion to led lighting and their annual ESG report demonstrating the importance of environmental progress to all of their stakeholders.
We are proud of the hard work our team has undertaken to diversify and strengthen our business, though we still have work to do and integrating our new businesses and enhancing our sales marketing and cross selling initiatives, reflecting on the progress. We have made I am excited about our growth prospects for fiscal 'twenty four.
Moving forward.
With that I will hand, the call to <unk> to discuss our financials and our financial outlook for fiscal 'twenty four.
Thank you Mike.
As Mike mentioned, we ended our fiscal year 2023, with our strongest quarter of the year with Q4 revenue of 21 6 million.
$23 million in Q3, and $22 6 million in Q4 22.
Our Q4 performance reflected an expected rebound in project activity.
As expect as anticipated.
Full fiscal year 2023 was within our provided guidance range and finished at 77 4 million, which.
Which declined from $124 4 million in fiscal 2022, primarily due to the expected year over year decrease in activity with Orion largest customer.
And with the global online retailer as well as delays in certain large projects.
The wind down of the multiyear project with our largest customer resulted in a $47 million revenue decrease in fiscal 'twenty three versus the prior year.
However, as Mike mentioned Orion was successful in diversifying its revenue base growing business outside of our largest customer in the online retailer by $6 4 million or 11% over fiscal 'twenty two.
Gross margin was 21, 9% in Q4 23 as compared to 23, 8% in Q4, 22, reflecting a shift in product mix and under absorption of certain fixed costs on lower revenues, we expect our gross profit percentage to trend higher in fiscal 'twenty four out of four.
Full year basis, with some quarterly variation based on the revenue mix and fixed overhead absorption.
Total operating expenses were $9 6 million in Q4, 23 compared to $6 6 million in Q4, 'twenty two with the increase primarily due to a $2 $5 million earn out accrual related to the bold trek acquisition as well as some added G&A.
Due to the consolidation of bold trek.
For fiscal 'twenty three.
Total expenses were $33 5 million as compared to $25 5 million in the prior year, reflecting both truck acquisition costs.
$8 million.
Higher G&A expenses related to the consolidation of <unk> and stay light lighting, which was acquired in Q4, 'twenty two and therefore not fully reflected in the prior year results.
We recorded a Q4 dollars 23 net loss of $5 1 million or <unk> 16 per share versus the Q4 'twenty to net loss of $1 2 million or <unk> <unk> per share primarily due to higher operating expenses related to the bolt truck acquisition.
Orion reported a fiscal 'twenty three net loss of $34 3 million or $1 eight per share compared to fiscal 'twenty to net income of $6 1 million or <unk> 19 per share to.
The decrease reflects a $17 8 million noncash valuation allowance charge against deferred tax assets in fiscal 'twenty, three as well as lower revenue acquisition costs and associated operating expenses in fiscal 2023.
The noncash tax charge does not impact <unk> ability to offset future income with existing Nols.
Our cash flow from operations was strong in Q4 23 at positive $3 million due to strong cash receipts on certain projects and some inventory reductions for.
For the year, Ryan used $2 3 million of cash for operating activities in fiscal 'twenty three.
Some of that related to maintaining higher than normal inventory levels to ensure against supply chain disruptions based on a return to more normal supply chain activity.
In Q4, 'twenty three we began to actively reduce inventory levels and plan to further reduce our inventories by another $4 million to $5 million in fiscal 'twenty, four assuming near normal supply.
Chain conditions continue through the year.
In fiscal 'twenty, three we had approximately 600000 of capital expenditures and expect those investments to double in fiscal 'twenty, four and support of our maintenance and <unk> businesses.
At the close of fiscal 'twenty three.
Working capital was $24 $9 million, including inventory investments of $18 2 million.
Liquidity, which we define as cash plus borrowing availability on our Ryan's credit facility was $23 2 million, including $16 million of cash and 7.2 million available on our credit facility.
We had $10 million of borrowings outstanding on this facility at year end.
We expect our cash and liquidity position to remain healthy in fiscal 'twenty four.
US and our solid financial position to support growth initiatives across the business.
Regarding our financial outlook, we have reiterated our expectation for fiscal 'twenty for a revenue growth of 30% or more to approximately $100 million with momentum building as we progress through fiscal 'twenty, four and a greater proportion of revenue in the second half of the year.
Our revenue guidance is based on approximately $34 million of aggregate revenue expected for maintenance services and EV charging solutions, our newest businesses and the balance from led lighting products and solutions, which includes projects for national accounts, ESCO partners and distribute them abuse and channel sales.
As for M&A, while we will continue to maintain a pipeline of future opportunities for the near term. Our focus is on integrating the two recent acquisitions and investing in their growth and success, which are primary growth drivers for Orion.
And with that I'll turn the call over to the operator for questions.
If you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
In the interest of time, we ask that you limit yourself to two questions and rejoin the queue for any additional questions.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Eric Stine with Craig Hallum.
Hi, Mike.
Eric.
Hey, good morning.
So wondering if you can just maybe drill down a little bit more.
The outlook for fiscal 'twenty four so appreciate you breaking out the easy and maintenance services piece.
For the remainder of it maybe just how you see that are a little more color.
Between National Law Challenge ESCO and distribution.
Our electrical distributors those channels and then just curious you mentioned some of the projects that you expect to move forward and having good visibility and I mean, how would you kind of put your visibility as it stands today versus what it might be in a normal year as you're entering yet.
Sure.
Good questions.
In terms of the business segments, we're really right now planning for growth across the board.
And all of the segments clearly we have a very major government.
Piece of business, which is coming through as we've talked about before $9 million, which effectively is ramping in Q2 that will be a big contributor for the fiscal year, but we do see nice growth.
With our top customer going into next year, we expect double digit growth there both on the project side and on the maintenance side.
As well as our ESCO channel as well.
Distribution I think we also have a like have an opportunity to grow double digits. So right now we're forecasting double digit double digits for all of the segments.
Into next year in terms of visibility.
There are certainly some.
Some.
Some vagueness as we look farther and farther out but the near term we feel pretty good about the pipeline about the projects that we see and the initiation we are waiting for a few larger things to activate in the second half of the year, but at this point in time, we don't see any reason.
But those won't materialize.
Got it and then maybe for my second one just.
When thinking about bold track.
Do you anticipate the decisions being made at the National account level I mean, do you think that this will be.
Kind of a site by site decision or.
Given that these were done at the right part of the reason we did this was.
Because of feedback from some of those large customers than it would be more of.
A national decision.
I think it's going to be a mix moving forward I think some accounts may take a proactive approach and do something.
A national basis, as part of their brand image and to support their guests and customers I think probably the majority of its going to be more localized regional.
Obviously, the states have different.
Incentives in place to support EV. So I think it will be a bit more localized and regional but I think that most of the large accounts right now are working through their strategy of deployment over the next couple of years. So the deployment may be.
Regional and local but I think ultimately they are all going to get to the same place that they're going to have to have a national strategy.
Okay. Thank you.
Okay.
Our next question comes from the line of Amit Dayal with HC Wainwright.
Thank you good morning.
Everyone.
Good morning.
Hi, guys. So with respect to the EV pipeline can you share what kind of customers.
In that pipeline I know you mentioned.
Neat related or fleet type customers.
Is there any retail just any color on.
What type of customers are looking into deploying these solutions.
Yes, it's really across the spectrum right now I mean, we have businesses, we showcased earlier fleet opportunities with municipal municipalities.
<unk> Fleet project, we did one in Boston was just was with Boston public schools.
That project was phase one and we expect additional phases to them, we're seeing a lot of private businesses.
Same vertical sectors that we participate in on the led lighting side getting very interested in this and we are actively engaging with national accounts right now.
And that's one of the reasons why we are aggressively trying to build out the infrastructure. It would track so that we can activate more comprehensively our cross selling efforts across the business.
So it's.
It's a difficult question to answer.
Whether one is more than the other we're seeing broad acceptance of the need for EV charging infrastructure, and I think customer or customers and accounts are really starting to think through their electrification strategy. So it's really coming from all areas.
Understood. Thank you for that and then.
Now you have sort of three distinct business lines.
Just trying to get a sense of what the operational synergies are that you can exploit.
These are different types of products are offering.
<unk>.
And then along those lines.
Okay.
Where will you focus in terms of where do you see the bigger opportunity I guess is that maintenance or EV or continuation of the LCD side.
All of these it looks like the growing double digit for you if you had to prioritize.
Which would you choose.
We go after.
Well I think I would answer that by going back to a point you made which is that we see all of these businesses growing double digits, we see them as highly synergistic which is why we think we.
Holding nicely to our customers for life model, so that as customers evolve from led projects customers can move to maintenance and clearly all customers as I said earlier I am thinking about your electrification strategy.
From an operational standpoint, our priority is to unleash the topline synergies and cross selling efforts between all three of them to help our customers. There is a lot for our customers to navigate here and we think that we can be a strategic partner to them in all three of those areas. So in terms of the business, we feel comfortable that we.
Can grow all of them independently and even faster together moving forward.
And then maybe you can give.
And just to touch on the first part of your question.
Amit.
From a leverage standpoint think about that probably mostly as.
The back office functions that we should be able to leverage a fair amount for these operations.
But the operational level.
Run relatively independent.
Okay, Yes, I have some follow ups around this but I'll take it offline. Thank you so much guys.
Thank you.
Our next question comes from the line of Alex Rygiel with B Riley Securities.
Thank you and good morning, good morning, gentlemen.
I appreciate the guidance on the topline and the directional guidance with regards to gross margins, but if you could dig a little bit deeper into sort of the path to a rebound in gross margins over the coming quarters and years and talk about.
Longer term, where you hope to.
<unk> gross margins back to you.
Yeah, I'll start off on that Alex.
I think that.
The projects that we have visibility into for fiscal 'twenty, four give us confidence to make the comment that was in <unk>.
My comments about having a rebound in gross margin rate.
As we performed through fiscal 'twenty four.
As part of that inherent in that is the increase in overall revenues, which will help us absorb some of our fixed costs that will be both say from an overall opex standpoint.
As well as.
Obtaining better absorption within the plan for our led lighting manufacturing so I would think that.
From a product standpoint, we ought to get back into the mid to high twenties.
And from a services standpoint.
<unk> back to that 20% range and potentially should.
It should be better than that in the coming year and as we continue to grow we would expect.
<unk>.
To continue to leverage the infrastructure. So those would increase over time as revenue grows.
And similar question as it relates to G&A.
How should we think about that either in a dollar basis or a percent of revenue basis going forward.
I think yes.
Don't typically guide dollar basis, we expect to continue to.
Leverage the fixed cost I think one of the things that we mentioned in our remarks is we are making some investments in the EV business to help them to nationalize if you will.
Expand their footprint to be more national in scope, so theres certainly some.
Investments on that side of the business and then.
Overall I would as we.
To grow.
Revenue I would expect.
That will get back to.
10% ish EBITDA level.
And that.
As we grow in the future we can go beyond that as well.
Thank you very much.
Yeah.
As a reminder to ask a question at this time. Please press star one one on your telephone.
Our next question comes from the line of Andrew Shapiro with Lawndale capital management.
Hello can you hear me.
Hi, Andrew Thanks.
So.
I have.
Follow up on Alex's questions on gross margins and then I have a ballpark question here. So you referred in your release and comments to certain fixed cost impacting.
Gross margins.
And are we talking about historical overhead and strips absorption or can you expand on what.
Some of the new costs are and whether there were recurring nature and this is the fixed costs, you're referring to inside the gross margin.
Within Ma.
Margin, it's I'd say are primarily our historical costs, there would be the under absorption of the manufacturing facility based on lower sales and we also have.
Fixed costs.
Within gross margin on the services line, because we do have some.
Okay human resources that are fixed in nature.
On the services line that is.
Can either leverage or deals so just curious.
Your historical fixed costs Theres, nothing new that got put in through gross margin those incremental investments are all in your SG&A side is that right Thats correct, Okay, and then on <unk>.
Question here.
Is you took.
An accrual on the.
On the earn out.
It was $2 5 million was that just for the quarter and are you able to share what.
Q4 volt trick was for you versus.
Prior year private <unk> Q4 revenues were.
Just to get a feel for what its growth cadence.
I guess, what I would comment on is we have publically commented on there.
There are physical.
Their calendar.
<unk> business being a $4 8 million dollar business.
I am going to stay away from commenting on their historical since we did not.
I'm.
Personally for those results.
So.
I would just stick with the three four.
In the current year earn out was that for the quarter, then and that was based on revenues or cash flow generation, what what what triggered that particular earn out amount and achievement of it.
The earn out is.
Based on EBITDA and EBITDA target.
There were 2.5 that was recorded was recorded in the quarter.
There was a previous amount recorded in Q3 of <unk>.
$1.5 million.
So just so that we're clear.
The 3 million $3 million of that for <unk>.
Was accrued for the fiscal 'twenty three.
Earn out target and that will be paid.
Probably in July .
This calendar year.
And then an additional $1 million was.
Crude.
There is accumulative.
Potential earn out which would.
Occur after the third year of.
Owning both trucks, so that would be paid potentially.
In 2025.
Okay. Thank you I have other questions I'll back out into the queue and come back.
<unk>.
And I'm, sorry, I'll correct that.
There would be 26 of that cumulative payments.
That concludes the question and answer session I will now turn the call over to Mike Jenkins for closing remarks.
Okay.
Thank you operator, and thank you all for participating on today's call I look forward to updating you in meeting and engaging with many of you in the coming months as we execute our growth plan in fiscal 'twenty for us.
As part of our Investor Relations outreach, we are conducting meetings at the LD Micro conference in California Today, and Tomorrow June six and seven and we are participating in the virtual ideas conference on Wednesday June 21.
For more information on these events or if you would like to schedule a call with management. Please contact our IR team, whose information is included on today's press release.
You.
Today's conference call is now concluded. Thank you and you may now disconnect.
Okay.
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Okay.
Okay.
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