Orion Energy Systems, Inc. (OESX) Earnings Call Transcript & Summary

Hello and welcome to the Orion Energy Systems, Inc. 2020 Annual Meeting of Shareholders. I'll now turn the call over to the Chair, Mike Altschaefl. Please go ahead.

Good afternoon, ladies and gentlemen. We welcome everyone here today to the 2020 Orion Energy Systems, Inc. Annual Meeting of Shareholders, which is being held as a virtual meeting. The meeting will please come to order. I am Mike Altschaefl, CEO and Board Chair for Orion Energy Systems, Inc., and I will act as Chair of this meeting. Steve Barth of Foley & Lardner and the Board's Secretary will act as secretary of the meeting. Garrett Bishop of Foley & Lardner has been appointed as the inspector of elections for the shareholder actions to be taken at this meeting. As a preliminary matter, a virtual meeting is one that takes place via an electronic format. An audio feed from this meeting is being webcast as we speak. This webcast incorporates shareholder validation capabilities, which allow shareholders to vote in real time during the meeting until the polls are closed. Given the current climate, we believe that holding a virtual meeting expands shareholder access while simultaneously protecting the health of everyone wanting to attend our annual meeting. Our shareholders anywhere globally can attend this meeting and other interested parties can listen to this webcast over the internet. If you are a shareholder and did not enter this meeting by using your 16-digit control number found on your proxy card, you will be unable to vote your shares unless you enter this control number. It is now 1:01 p.m. Central Time and the polls are open. Please note that the polls will close in several minutes, so we urge you to vote your shares now if you have not already submitted a proxy or otherwise voted. If you have already submitted your proxy, you need not vote again. However, you may revoke your proxy by voting online at this meeting. We will first hold the official business portion of the meeting. Following the business meeting, we will have a question-and-answer session where questions can be submitted via the web portal during this meeting. [Operator Instructions] I would like to start the meeting by introducing the other members of our Board of Directors participating virtually through the webcast today. Alan Howe; Mike Potts; Ellen Richstone, Ellen is also the current Chair of our Audit and Finance Committee; Mark Williamson, Mark is also the current chair of our compensation committee; Tony Otten, Tony is also the current lead director; and Kenny Young. Today, Kenny Young will be retiring from service as a member of our Board of Directors. On behalf of the Board of Directors, I would like to extend our sincere appreciation for his valued service, guidance, advice and dedication to the company and wish him the best. And for me personally, I want to thank Kenny for his time and commitment. His advice and counsel has been very valuable over the last 3 years. Thank you, Kenny. I would also like to introduce the other members of our executive team. Bill Hull. Bill is our Chief Financial Officer, Chief Accounting Officer and Treasurer; and Scott Green. Scott is our Chief Operating Officer. Finally, I would like to introduce Dan Kramer, the representative present from our independent public accounting firm, BDO USA, LLP. Mr. Barth has advised me that the notice of meeting and the notice of Internet availability of proxy materials were mailed beginning on June 22 to all shareholders as of the June 10 record date of the meeting. Copies of the proxy materials are posted on the company's website. As a record -- as of the record date for this meeting, a total of 30,419,701 shares of common stock were outstanding and eligible to vote. Mr. Barth has advised me that there are shareholders present by proxy representing approximately 25,036,051 shares of our common stock or approximately 82% of the total number of shares eligible to vote at the meeting, constituting a quorum. Accordingly, I declare this annual meeting to be properly, legally convened, and we are ready to transact the legal portion of this meeting. It is now 1:04 p.m. Central Time. And since everyone has now had the chance to vote, I hereby declare that the polls are officially closed. The first item of business to be presented for shareholder consideration at this meeting is the election of Michael J. Potts and Ellen B. Richstone to serve as directors for terms to expire at the 2021 Annual Meeting of Shareholders and until their respective successors are duly qualified and elected. Based on a preliminary tabulation provided by the inspector of elections, each of the director nominees have each been elected by over 69% of the shareholder votes cast at the meeting. Therefore, Michael J. Potts and Ellen B. Richstone have been duly elected as directors of the Board to serve until the 2021 annual meeting and until their respective successors are duly qualified and elected. Congratulations, and thank you. The second item of business to be presented for the shareholder consideration at this meeting is a resolution approving on an advisory basis, the compensation of our named executive officers as disclosed in the company's 2020 annual meeting proxy statement. Based on a preliminary tabulation provided by the inspector of elections, the compensation of our named executive officers has been approved by over 67% of the shareholder votes cast at the meeting. Therefore, I hereby declare that shareholders have approved the compensation of our named executive officers. The third item of business for shareholder consideration at this meeting is the ratification of the appointment of BDO USA, LLP to serve as the company's independent registered public accounting firm for fiscal 2021. Based on a preliminary tabulation provided by the inspector of elections, the ratification of the appointment of BDO USA, LLP to serve as the company's independent registered public accounting firm for fiscal 2021 has been approved by over 98% of the shareholder votes cast at the meeting. Therefore, I am -- I hereby declare that the appointment of BDO USA, LLP to serve as the company's independent registered public accounting firm for fiscal 2021 has been ratified. There being no other legal business to come before this meeting, this legal portion of the meeting is hereby adjourned. Now I'd like to introduce Bill Hull, our Chief Financial Officer, Chief Accounting Officer and Treasurer. Together, we will provide a presentation on some of the accomplishments and future plans of our company. With that, I'll turn it over to Bill. Bill?

Thank you, Mike. Before we begin, I need to tell you that certain matters we will discuss will be forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as we believe, anticipate, expect or words of similar importance. Similarly, statements that describe our future plans, objectives, strategies or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect our anticipated results. Such risks and uncertainties include, but are not limited to, the factors summarized in our Form 10-K for our fiscal year ended March 31, 2020. Copies of our Form 10-K are available on the SEC's website, which is www.sec.gov, or through a link on our website located at www.orionlighting.com. The forward-looking statements made at this meeting are only made as of the date of this meeting, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors and other shareholders. You should look to our website, www.orionlighting.com, as an important source of information regarding our company.

Thanks, Bill. Orion's vision statement is very simply stated as quality delivered safely. We deliver quality products and services to our customers on a timely basis in a safe manner for both our members and our customers. Our mission is to enable business to digitize and reduce carbon footprint by providing innovative LED lighting systems and turnkey project implementation, including installation and commissioning of fixtures, controls and IoT systems, ongoing system maintenance and program management. Orion has 4 core values. The first 2, integrity and respect, guide our interactions between our members as well as with our customers, suppliers and community. Our ability to be flexible, react quickly to changing market conditions and make timely decisions, allows us to successfully compete with much larger competitors. And finally, Orion has a culture of being reliable and doing whatever it takes to deliver on our customer promise. Orion has a strong U.S. presence. Our corporate headquarters is located in Manitowoc, Wisconsin, included on our campus is our 260,000 square-foot manufacturing facility, including fabrication, coating, assembly and logistics. Our Jacksonville, Florida office is home to our project management, project engineering, new product development, and Orion maintenance services teams. Substantially, all of Orion's products incorporate LED technology. We have a broad line of products, services, smart lightning and IoT controls allowing us to meet the full range of basic to sophisticated customer needs. We have 7 main products: custom product solutions geared towards large national accounts with multiple facilities and varying business needs; high bay, usually installed in industrial buildings with 20-foot plus ceiling heights; troffer, which are fixtures installed in suspended ceilings, usually in office and other commercial environments; linear, which encompass a large variety of standard and customer -- custom fixtures commonly used in retail and other commercial settings; and closed, which are a variety of fixtures that include protection from the environment; exterior, such as parking lots, garages and outdoor area lights; and finally, IoT controls, which are various Internet of Things and smart lighting related controls. Orion has 4 paths to the market. The first is the Orion Engineered Systems channel where we focus on large national accounts with turnkey LED lighting and control solutions customized for each customer's unique needs. Often, these accounts also retain Orion to provide design, installation, commissioning of controls and other services. Customers include our larger national accounts and public sector entities. Our second path to the market is the U.S. markets channel, which primarily sells to energy service companies or ESCOs. Our third path to the market is the Orion distribution services channel, which sells through manufacturer representative agencies in a network of broad line North American distributors. In fiscal 2021, we are launching a fourth path to the market, Orion maintenance services, where we will provide lighting and electrical maintenance and other services specifically targeted to large national customers, utilizing our turnkey, one point of contact approach. Our existing customers have experienced our ability to very effectively manage projects, and we view this as a natural extension of our business along with the opportunity to build significant recurring revenue streams. Finally, we have business across a broad range of markets and industries: industrial, which includes manufacturing, assembly and distribution facilities; commercial, which is primarily office environments; retail, which can include big box retailers, grocery store chains and others and can be for either the retail locations or distribution centers; automotive, we have strong credentials in the automotive assembly plants with Toyota and Ford, 2 of our largest customers; logistics, which includes warehouse, distribution, cold storage and transportation facilities; health care, we have completed projects in a number of VA hospitals and other healthcare facilities; agriculture, this market often uses our enclosed product, including Vapor Tight and Wet Listed product; and finally, the public sector with examples, including military bases, U.S. post offices, VA hospitals and school systems. I wanted to touch briefly on the COVID-19 situation. Certainly, the COVID-19 pandemic has disrupted business, trade, commerce and financial and credit markets in the U.S. and globally. Orion's business has been adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020. Our primary concern has been and will continue to be the safety of our members, our customers and our suppliers. Orion has implemented a number of operating protocols to reduce the risk for our members, and I would like to thank again all of our dedicated members that have allowed us to continue to operate and meet the needs of our customers throughout the pandemic. As an essential business, Orion products and services are needed to ensure energy and lighting infrastructure. And Orion, therefore, has continued to operate throughout the pandemic. We did experience a curtailment of activity in the last few weeks of our fiscal 2020 and during the first quarter of fiscal 2021, including the delay of project installations for a major national account. Fortunately, this project resumed this week as announced in our earnings call yesterday. As part of our response to the impacts of COVID-19 pandemic, during the fourth quarter of fiscal 2020, we did implement a number of cost reduction and cost conservation measures, which have been effective. Fortunately, we have seen government and customer restrictions begin to lessen during the Orion's fiscal 2021 first quarter. This is very encouraging as we begin to see projects that were deferred begin to start again. With that overview of our business, I'll turn the call back over to Bill to give a little more depth on the financial side of the business.

Thank you, Mike. What we have in front of us is our condensed income statement for the year 2020 and 2019. A couple of things I wanted to point out. Our sales of $150.8 million came in 129% over the prior year sales of $65.8 million. Our gross margin percentage was 24.6% versus 22.1% in the prior year. Net income was $12.5 million or $0.40 per diluted share versus a loss of $6.7 million or $0.23 per share in the prior period. Now on our non-GAAP reconciliation. You could see how we get from net income down to EBITDA. We ended the year with $14.7 million in EBITDA and that compares to the prior year of a loss of $4.3 million in EBITDA. On the balance sheet, a couple of things I'd like to point out. So our total assets increased to $72.5 million from $56 million in the prior period. Our cash balance grew to $28.8 million from $8.7 million in the prior year. And also, we -- our debt is about $1 million higher -- about $800,000 higher. So we grew that cash in the business, as you could see on the next slide. So we generated cash flow from operations of $20.3 million in our fiscal year ended 2020 compared to a decrease in cash in the prior year of $5 million. And finally, these are some performance measures that we watch. So these are graphs of various performance metrics. They show how Orion ramped up. As you can see, the inventory in the accounts receivable, our working capital ramped up during the growth of our business last year. And in the bottom, you could see the gross profit, gross margin, operating expenses, and those are key things we watch, and it shows how we manage that during the growth phase of our business. Now I'll turn it back over to Mike.

Great. Thanks a lot, Bill. I want to spend a couple of minutes just overviewing Orion's strategic direction. We have 5 initiatives under our strategic direction. First, we will focus on larger opportunities in all 4 of our market channels. Our turnkey, project and program management capabilities are most valued differentiators in the marketplace. We have strong credentials and have the people, systems and processes in place to be successful. We believe there remains significant market opportunity for conversion from older technologies to LED. Second, we will build our new Orion Maintenance Services division. Again, we have strong credentials in place. It provides us with the opportunity to build significant recurring revenue streams with the possibility of multiyear contracts. Third, we will expand our smart controls and IoT capabilities, enabling our customers to digitize their businesses. We are well positioned to own the entire system, including facility audits, system design, engineering, installation of lighting fixtures and controls, commissioning controls, integrating IoT technology, linking lighting, energy management and operational controls into management dashboard systems and providing ongoing service. Fourth, we will expand our current successful new product development to focus on developing high-margin niche products. Examples include things like white light technology to combat bacteria, fungus, mold and mildew, incorporating ultraviolet light into some of our products. Certain UV light has been shown to kill bacteria and to inactivate viruses. In addition, we are working with a business partner to incorporate UV technology into an air movement product. And horticultural lighting. We expect the market potential for vertical farming and other horticultural lighting opportunities to grow significantly. The fifth and final initiative of our strategic direction results from our recent successes and current market conditions. In addition to organically expanding the nature and scope of our products and services offered to our customers, we are actively exploring potential business acquisitions, which could more quickly add expanded and different capabilities to our product and services offerings. We believe the current business climate in our industry could create attractive acquisition opportunities. I'm extremely proud of what our company was able to accomplish in fiscal 2020 by focusing on our key areas of strength and competitive advantages. Our strategy is resonating with customers. Orion's fiscal 2020 revenue grew 129% to just over $150 million, and we were successful in expanding our gross profit percentage to 24.6% from 22.1% last year. At the same time, through continued expense management and discipline, we were able to leverage our costs resulting in significant improvements in profitability, cash flow and our year-end financial position. We achieved record profitability in fiscal 2020 with full year net income of $12.5 million or $0.40 per diluted share compared to a net loss of $6.7 million or $0.23 per share in fiscal 2019, an improvement of over $19 million. That wraps up our overview of the company, our strategy and performance from last year. And we now will move to the question-and-answer session of our shareholder meeting. At this time, however, we have had no questions submitted for us to answer. And so with that, I would like to thank all of you for joining us on our virtual meeting today. We appreciate your support and would appreciate your continued support of Orion Energy and wish you a great day and look forward to talking with you next year. Thank you.

Thank you. The event has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.