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

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Fall Investment Conference 2025. The next presenting company is Orion Energy Systems, Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Sally Washlow, Chief Executive Officer with Orion Energy Systems, Inc. Ma'am, the floor is yours.

Thank you, and thank you all for joining us today. Alongside me today is Per Brodin, our CFO as well, and we will be available to answer any questions you might have after our presentation. So again, thank you for joining us today. I will go to our next slide, our safe harbor and really start on Slide 3, our organizational mission. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service, and I'll walk you through that today. At a glance, Orion provides optimally efficient LED lighting systems, commercial and industrial EV charging infrastructure solutions and lighting and electrical maintenance and managed services. We believe we are an attractive investment opportunity. Noting some of our recent share price, we're a little bit north of $7.40 today, and our market cap is slightly higher than $26 million. The last trailing 12 months of sales have been just around $80 million. Some of the investment merits that we'd like to highlight are that we provide diversified revenue streams in EV, lighting and maintenance. We have opportunity for reoccurring revenue capabilities. We have completed over $6.5 million in annualized overhead reductions and believe we have an optimized cost structure that unlocks our operating leverage. We have a strong and long-term customer base, which I'll share some examples in coming slides. We have nimble engineering and can customize many solutions for our customers, along with a proprietary supply chain with manufacturing flexibility. And over 10% of our ownership is held within directors and officers. Our business segments contain Lighting, Maintenance & Technical Services and EV Charging Systems. Within Lighting, we have the ability to design, manufacture and install energy-efficient LED lighting systems. We have completed over 25,000 projects with a strong focus on the commercial and industrial retrofit business. We are involved in interior and exterior applications, and we have deep control options, including IoT to deliver to our customers, along with multiple go-to-market models, including full turnkey service, which I'll touch upon in the coming slides, and we have several repeat clients. In our Maintenance & Technical Services group, we have the ability to deliver reoccurring services across our lighting and EV systems. We provide preventative and reactive maintenance, along with special projects that come about while we're on site with our customers. And many of these services are held within 3-year contracts, which provides a nice opportunity for reoccurring revenue. In EV charging, we are a provider of end-to-end commercial EV charging solutions. We will support site design, installation and commissioning within this segment. We provide the leading equipment within North America, specifically ChargePoint & ABB, and we mainly work with Level 2 and DC fast charge Level 3 for fleets. We have national execution capabilities in this segment and again, an ability for reoccurring revenue through maintenance and networking. Orion has the unique ability to provide nimble technology and unrivaled ROI for our customers. Some of the value-add and competitive advantages that we bring are noted here. Our industry-leading technology and design enables us to have the highest energy efficiency and smart design delivered to our customers, which then turns into the highest ROI for our customers. In these areas, we can start early with our customers to meet the needs of their ROI as we're designing solutions for them. We bring this through in our unique turnkey capability and the ability to execute the project from concept to completion for our customers. We have design and manufacturing flexibility, which has now been brought through in our flexible and cost-efficient supply chain. What you'll see on the left here in the picture is our U.S.-based manufacturing. We have 266,000 square feet of manufacturing capability out of our Wisconsin facility, which enables our customers to be compliant with the Buy American Act and the BABA compliance as well. We also have accelerated product development and can bring product to market within 4 to 6 months versus 12-plus months, enabling market leadership. And we do this through our flexible supply chain, utilizing our manufacturing here in Wisconsin or through our global supply chain as well with manufacturers in Asia and Mexico as well. We have a broad sales reach. We work in several channels, whether it be national accounts through agent networks and ESCOs and resellers. And we have a blue-chip customer base with repeat business, which provides access through retrofit and connected ceiling IoT opportunities. Within Lighting, I'll share a bit more about our custom manufacturing and unrivaled response. Our proprietary manufacturing approach through our facility in Manitowoc, Wisconsin and our global partner affords us maximum flexibility. We are able to maintain significant component inventory and material and finished goods for quick turnaround projects through warehousing in our Wisconsin facility as well as custom manufacturing capability within our Wisconsin facility for specific national accounts and rollouts. And as I've also mentioned, we are BAA and BABA compliant through our facility in Wisconsin. Within our maintenance and managed services, this provides reoccurring maintenance revenue. We also have preventative and reactive lighting, electrical services and EV maintenance. We work nationwide through a network of skilled and certified lighting and electrical professionals, and we also have a dedicated 24-hour response for any emergency or nonemergency lighting and electrical issues. Within our EV charging segment, we bring over 15 years of EV expertise and experience. We are a premier reseller of LED charge EV -- of leading EV charging stations, and we are a full turnkey provider. We are the contractor preferred for ChargePoint, ABB, InCharge and others, meaning they're coming to us for some of their customers for the installation. We have 7,300 charging ports under our management, and we also support the networking maintenance, which affords reoccurring revenue. We're a partner to the utilities Make-Ready Programs, and we also provide national coverage. On the left here is one of the installations at Hilton in Watertown, New York. This is one example of the work that we do. I've also mentioned our turnkey capabilities. Orion brings discrete, bespoke and turnkey capabilities to projects, both large and small. You can see in the wheel on the right, it starts with a factory audit, then we're working on design with our customers, manufacturing, installing the product, working to make sure that they are obtaining the proper rebates. We provide warranty coverage for our work as well as maintenance. So we are a full solution provider and preferred for Fortune 100 and other global leaders in industries ranging from manufacturing to retail logistics. Here are some of the great customers that have partnered with us over the years from food and beverage, automotive, retail, sectors of the government, medical institutions as well as the Massachusetts Department of Transportation. I want to share with you today the work that we did with Clarios. Their goal was to maximize energy savings and optimize the visual environment of a 100,000 square foot facility that they had in Florence, Kentucky. By replacing outdated and inefficient fluorescent technology, Clarios wanted a one-for-one fixture replacement for their fluorescent troffers and linear high bay fixtures. The result was that we installed over 800 fixtures, saving them substantial amount of energy cost reduction and energy reduction as well as 218 tons of annual carbon dioxide reduction. Another client example is in EV charging, we focus mainly on the fleet business within this installation at the Haverhill High School supporting their EV transit vans. We installed 6 DC ChargePoint fast charging stations. This project was over $400,000 and fulfilled their needs. You might have also seen recently some press releases we have shared regarding the work that we do with the Greater Boston Public School Systems as they electrify their fleet of school buses. In summary, how we achieve our mission is that Orion Energy Systems provides one source solutions for LED and EV charging. To highlight a bit more about that, just this morning, we have a press release regarding an $11 million electrical infrastructure project that was awarded specifically for exterior LED lighting and EV charging. This is a great example of how customers come to us for multiple solutions, and we have the ability to deliver. We provide substantial reduction in energy costs for LED projects averaging payback of 1 to 4 years. We have advanced product design with some of the highest performance in the industry. And I've also mentioned our flexible supply chain and manufacturing footprint, including our U.S.-based manufacturing facility. We have an expanded product portfolio, including exterior products and a TritonPro contractor line as well as multiple go-to-market models, including Orion's turnkey project management to match our customer needs, and we are expanding our lighting maintenance services. Our senior management team consists of myself, recently appointed the CEO in April of 2025. I have been on the Board of Directors since 2022. Per Brodin, our CFO, who is on the call today, has been with the company since October of 2020; and Scott Green is our COO, who has multiple years of experience in lighting and came to us in 2013 through our acquisition of Harris Lighting. A summary slide here of our quarterly revenue margin and EBITDA and liquidity data. As I mentioned earlier, our trailing 12 months is just around $80 million, and we have had substantial gross margin improvement over the last several quarters, approaching 30%. That concludes our presentation. I would now open it up for questions.

Bear with me as I go through our questions, and I will read them. Can you walk us through your strategy for driving reoccurring revenue? Absolutely. Our strategy for driving reoccurring revenue sits with -- really within every segment of our business. Maintenance is the best performer of reoccurring revenue because through the preventative maintenance that we do, we are constantly in there supporting our customers, preventing outages that they might have and then also looking at potential future needs of their organization, whether it's expanding EV charging capabilities that they need based upon usage of what's going on with the current infrastructure that they have or looking to partner with them in other sites. The same goes for LED lighting. There's even talks now, the early years of LED lighting retrofits, there is now the opportunity to go in and what we'll say -- call re-LED of some of those prior projects that have occurred as well. And really then continuing to drive maintenance and service contracts within the EV and lighting segment. Along with the EV segment, there is the ability for reoccurring revenue from the actual operations of the stations themselves. Another question. As you look to grow the business, does Orion face any significant capacity constraints? We don't foresee any capacity constraints in the future for our business because of our global supply chain. We can call upon our global manufacturers to support us from a product standpoint, along with our capabilities in Wisconsin. And then as we deliver and execute upon the business, we partner and subcontract with electricians throughout the U.S. so we can flex up and flex down our workforce as needed. There is also a question regarding today's press release regarding the up to $11 million electrical infrastructure product we announced and how will this project work and play out over time? We expect that a substantial portion of this revenue will be recognized in our FY '26 fiscal year, which ends March 31. Another question. How does the pipeline in your EV segment look? Have there been any change since the new administration took over? Do most of these opportunities come through the channel? Our EV segment, we have taken a conservative approach to EV this year based upon the first half of the year when the new administration took over. There was a lot of noise, pullback on funding as well. So we did feel that there was a bit of a slowdown. But as things have settled down and even NEVI funding has been reinstalled, reinstated, we feel pretty confident about our EV pipeline and the segment. Not with a lot of growth particularly this year based upon some of the headwinds that we faced at the beginning of the year, but it certainly has been showing some pickup after things settle down with the new administration. Another part of the question is the segment getting more competitive. It's been a competitive segment. We also expect that some players might not want to stay within the segment. So we also look for opportunities to grow in other regions and take advantage of what we see could be some fallout in the business as well. To what extent does your U.S.-based manufacturing footprint provide pricing or compliance advantages versus import-heavy competitors? So we -- our U.S.-based manufacturing is extremely competitive on a like-for-like product when the needs require it to be made in the U.S. Many government projects, in particular, require that. So we are absolutely compliant, and we are quite competitive not only from a pricing standpoint but from a technology and product standpoint as well where some of these projects, the import-heavy competitors aren't even able to bid on this. But so that we can deliver a full range of products to our customers, we do have partners and have imported product as well. And that's one of the great things about our flexible supply chain and product mix is that we can meet the needs of customers where they're at based on projects. Bear with me while I refresh questions as well. There's quite a few coming in. We appreciate them. Given the $6.5 million Boston Public School award, how scalable are similar fleet electrification opportunities with other municipalities? We think that Boston Public Schools is a great example of investing in the infrastructure of EV charging, specifically for fleets and buses that go back and are sitting idle at night. So we certainly have even expanded our sales team to go after other areas of the country as well. And the great work that we've done within Boston Public Schools, we think will be a great point of reference to then grow to other municipalities. I can't say we've won any others specifically yet, but we are investing and focused on growing that capability. We have a question here about gross margins, and we also have our CFO, Per, on the line. So I think he can provide the best insights on this, and I'll add any comments. So Per, I want to make sure you can hear me, and we can hear you.

I can. I actually did lose the questions. If you wouldn't mind reading the question, I'll answer it.

I will. I will. The gross margins have bounced around a lot. What are the main drivers of this volatility? And where do you see gross margin going forward?

Okay. So I'll say the most basic cause of margins bouncing around, I'd say, are revenue volumes. We do have a share of fixed costs that run through gross margin, both in the -- on the product side as well as on the service side. So as we are at a low volume revenue quarter, those margins tend to be depressed by those volumes because of the fixed costs. One other somewhat recent dynamic was in our maintenance business, which we restructured by eliminating some unprofitable contracts. So that business had gone into the negative margin stage for a lot of the business, particularly associated with the Stay-Lite acquisition. Those contracts all were eliminated. And so you've seen the improvement over the past year plus on the margins in the maintenance side. And then we have also tried to just improve the design of our products overall. So we're constantly looking for ways to reduce the costs associated with our products so that we can improve margins even on similar volumes.

Thanks, Per. This question feeds a little bit into that. I'll answer this one. Maintenance revenue grew over 20% last quarter, what is the trajectory and how will reoccurring contracts impact revenue stability? I'll add a little bit on to what Per said. When we restructured our maintenance business, many of the unprofitable contracts we did not renew. So we think that the reoccurring contracts are at good margin and provide a nice, stable base of business for us, and we expect to continue to grow that segment. So on behalf of Orion, we really appreciate your time today with us and a great series of questions as well. There were a number of them, and I couldn't get to all of them. Please feel free to follow up with Per or myself, and I will turn it back over to the operator.

Thank you. Ladies and gentlemen that concludes Orion Energy Systems, Inc.'s presentation. You may now disconnect, and please consult the conference agenda for the next presenting company.