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

Good day, and welcome to the IAccess Alpha Virtual Best Ideas Summer Investment Conference for 2026. Our 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, CEO of Orion Energy Systems, Inc. Please go ahead.

Thank you, and good day, everyone. I will be presenting on behalf of Orion Energy Systems. And with me today on the call is Per Brodin, our CFO, who will also be available during the Q&A portion of the session. So I'll go through our presentation and then happy to take any of your questions. An overview of Orion is that we are in the LED lighting and controls market, lighting maintenance and EV charging. I'll move to our organizational mission is that we help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. And I'll share with you today how we accomplished this. Our 3 main business segments are Lighting, Maintenance and Technical Services and EV charging systems. Within Lighting, we design, manufacture and install energy-efficient LED lighting systems. We have multiple go-to-market models within our Lighting segment, and that is either going direct to end users and doing a full turnkey solution with them. We have a distribution channel, and we also work with energy service companies, also known as ESCOs. We've completed over 25,000 projects in the Lighting segment, and our focus is mainly on commercial and industrial retrofit business. In our Maintenance and Technical Services group, this is what has enabled us to deliver reoccurring revenue and services across Lighting and EV systems. We provide preventative and reactive maintenance in these segments. We also have special projects that we deliver for our customers through the segment. And as I've mentioned, we have reoccurring revenue in this segment with 3-year contracts. So we are in and out of customers daily with long-term contracts. In EV charging systems, in this segment, we are providing end-to-end commercial EV charging solutions. We don't focus on the residential market. In that segment, we would do multifamily, but not pure-play residential. We are a full turnkey provider of EV charging systems with site design, installation and commissioning. And we also work with some of the leading equipment suppliers, which I'll share in a couple of slides as well. We work with Level 2 and DC fast charge that is mainly Level 3 charging for fleets. And we have national execution capabilities within the segment as well. Something that is unique about Orion is really our turnkey capabilities. We bring discrete and bespoke turnkey capabilities to projects large and small for our customers. This can start with a facility audit, then working on the design to help them achieve the most energy-efficient solution. We can then manufacture the product in our warehouse and also manufacturing facility in Manitowoc, Wisconsin. We will install the product. We work with our customers on rebates and warranty work as well along with maintenance. So because of these capabilities, we serve as a preferred U.S. provider for Fortune 100 and other global leaders in industries ranging anywhere from manufacturing to retail and logistics as well. I'll share in a couple of slides who we're proud to call our customers. Within Lighting, as I've noted, and you can see some pictures here of our facility in Manitowoc, Wisconsin. We have 266,000 square feet of manufacturing and warehousing capability. Through this, we have a proprietary manufacturing approach using our facility here in Wisconsin, along with a global partner network of contract manufacturers. Our supply chain enables us to maintain significant component, material and finished goods inventory for quick turnaround projects. Often in the lighting segment of the business, those that can turn around a project the quickest and have very high service levels will win the project award. Our custom manufacturing capability for specific national accounts and rollouts has also enabled us to win a large amount of the projects and customers we serve. And we are BAA and BABA compliant by utilizing our facility based here in Manitowoc, Wisconsin. Here's a case study of a turnkey project that we did in our Lighting segment. The customer was Element Materials Technology. They are a global leader in product testing, inspection and certification services. Their challenge was that their 83,000 square foot flagship testing facility relied on fluorescent and metal-halide lighting systems consuming a significant amount of energy. Their goal in working with Orion was to maximize their energy savings while also enhancing the lighting performance and improve the light quality and distribution across their testing areas, office spaces and parking lots. We were able to do a facility audit and work with them to deliver a system that not only worked for the interior, but also the exterior of their facility. We are able to reduce their maintenance costs and also implement a sustainable solution. This solution saved them close to $50,000 of annual energy cost reduction. And this is just one example of the turnkey work that we do day in and day out with many of our global customers. Within maintenance and managed services, this provides an opportunity of reoccurring maintenance revenue. As I've mentioned, we are in day in and day out with our customers providing preventative and reactive lighting, electrical services and EV maintenance. Working with our nationwide network of skilled and certified lighting and electrical professionals, our customers can count on us for dedicated 24-hour response for any emergency or nonemergency lighting and electrical services issue that they might encounter. And our EV charging segment came to us through an acquisition when we acquired Voltrek, a company based in the Northeast, and they had 16 years of EV expertise and experience. We are now a premier reseller of leading EV charging stations, and we're also a full turnkey service provider. We are a contractor and a preferred equipment supplier for companies such as ChargePoint, ABB and others such as Alpitronic as well. There are 8,000 charging points under management that we have worked on. And in this segment of our business, there is an opportunity for networking maintenance and reoccurring revenue as well. Here's a case study of a client that we are proud to call a customer of ours, the Boston Public School Systems. In support of Boston's Green New Deal initiative, the Boston Public Schools decided to electrify its entire school bus fleet and the charging infrastructure was needed to support these buses. We have won several projects installing EV charging systems within the Boston Public Schools fleets and their bus yards. They came to us because the charging needed to be reliable, efficient and handle the energy demands of multiple buses charging simultaneously. We have been able to move their fleet to a more sustainable and environmentally mode of transportation. And we're also able to install user-friendly, reliable state-of-the-art charging stations. So it is easy for the bus drivers to pull into the depot and easily charge their systems. This has also enabled a reduction of fuel and maintenance costs for their school bus fleet. And we've had a couple of announcements just this past year within the Boston Public School systems and the work that we continue to do to support this infrastructure need. Overall, Orion is leveraging our long-term customer relationships to diversify. We are adding new and additional capabilities to fuel revenue growth, as I've mentioned, from new and existing customers. Within LED lighting, we provide high-efficiency LED fixtures, and we do retrofits and new installs. And we can work at the beginning with these customers for their lighting design and layout needs. In maintenance and technical services, we are providing preventative maintenance programs, and we also go beyond that and provide system upgrades and repairs as necessary. This has also led us into electrical contracting, where we are doing electrical contracting work for many of our customers, whether it's in new construction, in retail and industrial or also leveraging and installing battery storage and energy systems for our customers as well. Often, many of these electrical contracting projects have come from existing relationships that we have and customers asking us to provide more work once we're already on site. And within EV charging, we work within the infrastructure space, and we're providing not only site planning and installation, but we also provide network integration support as well. With our entrenched blue-chip customer base, as I noted earlier, we are proud to call many of these brands long-term customers. A thing to point out with many of these customers is that it often started as a single fixture sale that subsequently expanded to other offerings and long-term relationships. As I demonstrated on the slide before, we are often brought in to do one scope of work, and then it has expanded into electrical contracting and maintenance as well. With many of these brands, we are the leading or sole provider of design, installation and maintenance of their LED lighting systems. And with our recent business transformation, we are offering electrical contracting and other services such as battery storage systems to increase the lifetime value of each of these customers that we service. Our product portfolio is expanding as well. Over the past few weeks, we have recently introduced our data center product that we have been working for months behind the scenes with one of the hyperscalers to bring to them a solution that provides them energy efficiency and is also customized to meet their needs. We are proud to call this a customer of ours as we work closely with them to make sure that not only were we able to customize this to meet their needs, but also build it in our Wisconsin facility to offer shorter lead times as well. Another area that we've expanded into lighting is the roadway products, which you'll see on the streets and highways of America. This is a new line that we are announcing this year as well. And this is another product where customers came to us and asked us to build this product. And in the services realm, as you can see, there are 3 new areas here, whether it's maintenance, project management or electrical contracting, these are all solutions that have been based out of customers coming to Orion because of the great work that we do, they're coming to us asking, can you provide and deliver more services to us. So why we win and why we consistently win versus our competitors is we apply unique and reliable capabilities to, as I mentioned, many long-term partners. We provide industry-leading technology and design. We develop through our own engineering team, the highest energy efficiency LED and smart design to deliver the highest ROI to our customers. Our unique turnkey capability enables us to execute a project from its concept, completion and then wrap that around with ongoing maintenance and services. We have design and manufacturing flexibility. We have a flexible and cost-effective supply chain. We can go to global partners as part of our contract manufacturing network or we can utilize our own facility in Wisconsin to provide U.S.-based manufacturing for shortened lead times and also to be compliant with the Buy American Act. We have a broad and diversified sales reach. I often like to say that we meet the customers where they're at, whether it's going directly through national accounts, through our agent network and working closely with ESCOs and resellers. We have a dedicated service team that provides white glove servicing to many of our long-term customers, and we have trusted long-term relationships that have enabled us to add on sales opportunities as an incumbent partner of choice to many of the customers that we have served for decades. Our growth drivers going forward is really taking a holistic approach to drive growth with a customer-centric focus to drive long-term sustainability. We are doing this 3 ways: leveraging our existing customer base. As I noted, oftentimes, a conversion on a single sales fixture often turns into multiyear initiatives. And revenue and margin growth is expected to come from not just new logos, but also existing accounts. Within service expansion, we have multiyear maintenance and electrical contracting programs, which allows us to increase revenue per customer year-over-year and gives us line of sight into revenue every year. And with new products and bundled solutions, examples such as data center lighting, roadway lighting, project management and electrical contracting services, all products that have come to us through partnering with our customers asking what else can we do for them and what do they need Orion to provide. In summary, how we achieve our mission is that we are a one source solution for LED and EV charging projects. We provide substantial reduction in energy cost for LED projects that average a payback of 1 to 4 years. Our advanced product design and portfolio will provide the highest lumen per watt performance in the industry and our flexible supply chain and manufacturing footprint, including our U.S.-based manufacturing facility gives us a competitive advantage. We have expanded our product portfolio, including exterior projects, products and a TritonPro contractor line, and we have multiple go-to-market models matching a customer's need and recent expansion into lighting maintenance services. Our management team is myself as the CEO. I joined from the Board in April of 2025. With me today to answer questions is Per Brodin, who has been our CFO since October of 2020; and Scott Green, who is not on the call, is our COO and came to Orion through our acquisition of Harris Lighting in 2013. Here is a snapshot of our revenue, margin, EBITDA and liquidity data. We just completed our fiscal '26 at March 31, and came in at slightly over $86 million in revenue with a gross margin of 32.4%, a nice increase over FY '25. Our adjusted EBITDA was $2.2 million, and our working capital and liquidity have remained strong. This is the end of our presentation. I am happy to take questions now. So bear with me as I go to the Q&A section.

I'll start with fiscal '27 guidance calls for revenue of $95 million to $97 million. What are the primary drivers supporting that outlook today? The primary drivers that support our outlook is, we announced recently, we came into this fiscal year with a backlog of $30 million. So that plays quite a bit into our backlog. Some of those are projects and won't necessarily get all recognized in this fiscal year, but $30 million is the strongest backlog that we've had in years. What also doesn't play into our guidance is our maintenance business, and that is around $15 million as well. So that's about $45 million of our $95 million to $97 million that we have line of sight through our maintenance business and then also our backlog. And our long-term-standing customers that we work with day in and day out bring us strong confidence that we can hit the $95 million to $97 million in revenue. Another question, and I'll have Per Brodin, answer this one, our CFO, is the company has delivered 6 consecutive quarters of positive adjusted EBITDA. What operational changes have been most important in driving that improvement.

I'd say the primary drivers of and changes we made relate to the costs that we took out of the business a little over a year ago. We took approximately $6 million of cost out of the business to help drive profitability at our current and expected near-term sales levels. Part of that effort included taking costs out of product by redesigning some of the componentry that goes into products and reduce those costs as well as taking out indirect costs associated with the projects we do as well as other OpEx savings. That has helped drive our improvement in gross margin rate, leaving more to flow through to the bottom line and put us back on the path of positive adjusted EBITDA over those 6 recent quarters.

Thanks, Per. There are a lot of questions regarding our recent entry into data centers. So I'm going to try to summarize them and answer it as one question with a couple of threads here. So in regards to our new relationship with the data center customer and how we see it playing out in this fiscal year as well as future years is -- we expect much of the revenue from the data center customers to come toward the end of our current fiscal year. So we are in FY '27, our year-end is March 31. So more toward the back half of this year and then really ramping up in our fiscal '28. How this relationship came about and what was so exciting for us in this realm is that it was a mix of our experience in turnkey lighting and understanding not only how to bring the most energy-efficient lighting to data centers, which is obviously, a price of entry in working with any of these data centers because from day 1, they need to find a way to save energy, but how we were able to customize it for them to make it easier to install. So when it shifts to the data center, it is just about as much plug and play as it can be for them and really taking out some of their installation cost as well. And that led to our ability to make it within our Wisconsin facility and customize it to their needs and really shrink the lead time to get that to them as well. So we think this could be a substantial opportunity for our company. Each data center campus has multiple buildings. And within each building is a 7-figure lighting opportunity. So there'll be a lot more to come as the products start shipping to these data centers and the build-out continues. But as I mentioned, more toward the back half of our fiscal '27 and then into '28. There's a bit of questions about electrical contracting as well and how we see the mix of electrical contracting evolving in the revenue mix over the next couple of years. We see -- and maybe I'll take a step back from this question. Lighting is a substantial portion of Orion's business. But then within lighting, we do full turnkey service. And then electrical contracting as well has grown out of a lot of the turnkey lighting that we've provided. So over time, I think that closer to 40% of our revenue could be from the services that we deliver, whether it's installing the lighting, the maintenance services and electrical contracting as well, maybe moving to even 50% of our revenue outlook as well as the need for electrical contracting continues to grow. And just to give a more clear example of how some of this has evolved over time is that we'll start with a customer with a small lighting contract and to install the lights -- and we find out when we get there, the systems are out of code. And what might have happened in the past is that they contracted with someone else to bring their systems up to code, and they're turning back to us and asking if we can do that work, which then turns into 7-figure opportunities for us. So we think that there's a lot of runway in the future years for that type of work as well. I'm just looking through there's a lot -- there's a couple of other questions here. I think most of them we have mentioned. The shifting of maintenance and revenue over time, again, as part of our services, we really believe that, that will continue to grow. And at one point, we could be at 50% product and 50% services. So with that, and so everyone can get to the next webinar, I would like to thank you all for joining us today, and I will turn it back to Kelly for closing remarks.

Thank you. That concludes Orion Energy Systems, Inc.'s presentation. You may now disconnect. Please consult the conference agenda for the next presenting company. Thank you.