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

Thank you. Good morning, everyone, and welcome to Orion Energy Systems Fiscal 2027 First Quarter Conference Call. At this time, all participants are in a listen-only mode. In this call, Sally Washlow, Orion's CEO and pair of protein, its CFO, will review the company's first quarter results as well as its fiscal 2027 outlook. Then we will open the call to investor questions. Today's call is being recorded. A replay will be posted in the investor section of the company's website over at ianlighting.com. I will now turn the call over to Para Brodine, Orion CFO. Thank you, Stephen.

First, as a reminder, prepared remarks and answers to questions include statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally include words such as anticipate, leave, expect, project, or similar words. Also, any statements describing future objectives or goals, company plans, and outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to differ materially from current expectations. Risks include, among other things, those that Orion has described in its press release issued this morning and in its SEC filings. Except as described therein, Orion disclaims any obligation to update or revise forward-looking statements made as of today. In addition, reconciliations of certain non-GAAP financial metrics to their nearest GAAP measures are also provided in today's press release. And now I will turn the call over to Orion CEO, Sally Washlow.

Thank you, Per. Good morning, everyone. And thank you for being with us today. I am pleased to report our results for Q1, our seventh consecutive quarter of positive adjusted EBITDA. The first quarter of fiscal 2027 represents an excellent start to the year. In Q1, we delivered on the growth we established in the previous year. Fiscal 2026 was a successful turnaround year for Orion. marking a return to growth in both revenue and profitability. fiscal 26 came in at 86 million in revenue and 2 million in positive adjusted EBITDA. Results that outperformed our guidance. Fiscal 26 was a year in which we put ourselves on a path of profitable growth. And in the current fiscal 2027, we expect to achieve revenue of 95 to 97 million and positive adjusted EBITDA for the full fiscal year. As to Q1 fiscal 2027, year over year, Orion recorded a 32% jump in revenue coming in at $25.7 million. A 15% increase in gross margin coming in at 34.6%. net income of 2 million up from a negative 1.2 million and adjusted EBITDA of 2.5 million up from 200,000 year over year. Today's earnings report is also further illustration of the improving quality of our sales funnel, the impact of our cost containment initiatives, and the continuous strengthening of our proprietary supply chain. Automotive, retail, and public sector engagements continue to show notable strength and continued growth. With customers like public bus fleets, the Orion Voltrek EV charging segment is recognized widely for its ability to complete complex EV charging infrastructure projects. We are focused on scaling this business across a broader customer base and geographic footprint. And we are especially confident about this business with our recent appointment of industry leader Karen Peck to head EV charging infrastructure sales. Furthermore, the hyperscale data center market looks especially attractive now that we have made our initial entry into it. Our customers recognize that we meet them where they are, whether we deliver a product-only solution or provide complete turnkey, full-service electrical infrastructure. by our own products that are designed engineers and made in Banna-to-Walk, Wisconsin. Over the decades, Orion has built a well-earned reputation for quality products, on-site service, and an ability to scale no matter how big the customer or project. We have a reputation for unmatched reliability with a proprietary supply chain that includes a Made in America facility enabling us to deliver on time and on budget. And we are widely known for our unsurpassed ability to deliver turnkey installation and services for electrical infrastructure and EV charging stations. Today's Q1 fiscal 27 earnings report is a further validation that Orion is prepared to meet this moment when we have a confluence of three growth drivers in the electrification of industrial America. Number 1, the reshoring, refurbishment, and resurgence of US industrial facilities ranging from manufacturing to retailing to government. Number two is the electrification of vehicular fleets of major enterprises in both the private and public sectors ranging from nationwide logistics to school districts. And number three, the building boom of AI-driven data centers typified by the multi million engagement we announced in Q1 with our multi-purpose linear lighting fixture designed specifically to integrate quickly and easily into the floor plan of data centers. Today's report also highlights several growth initiatives. Our focus is on expanding opportunities and revenues within new and existing large customers in the automotive, retail, and public sectors, whether by deployment of LED lighting systems, electrical infrastructure, or EV charging infrastructure. our focus on maximizing our service and maintenance to long-term EV charging customers. and our focus on adding capabilities such as data center lighting solutions, battery energy storage systems, electrical contracting, and our recently announced LED roadway lighting product. Delivering efficiency and cost-effective solutions at scale to industrial America at a time of unprecedented need, we believe that Orion is an emerging provider of choice for AI and IoT-driven electrification to Fortune 100 corporations and other global leaders. Orion designs, installs, and maintains LED lighting systems, EV charging stations, and a complete footprint electrical infrastructure for some of the largest enterprises in the United States. Whether deployed independently or in a combination with our partners, Orion's discrete, bespoke, and turnkey solutions generate unrivaled ROI to industry facilities requiring the most demanding standards of efficiency, reliability, and compliance. Made in America for its fourth decade, Orion is meeting the moment for an industrial build out that is reshoring, refurbishing, and reasserting leadership throughout the United States. that let me turn to Orion CFO, Per Brodine, to review our financial performance and outlook.

Thank you, Sally. Today we reported Q1-27 revenue of $25.7 million as compared to $19.6 million in Q1-26, an increase of over 30%. LED lighting segment revenue in Q1 27 was $17.7 million, compared to $12.9 million in Q1 26. Q127 lighting segment revenue performance reflected increased project activity and distribution channel sales partially offset by a decrease in ESCO channel sales. Orion's expanded LED lighting project pipeline and efforts to drive growth in the distribution channel are continuing to contribute to higher expected revenues in fiscal 27. Lighting achieved a Q127 gross margin of 37.8% versus 31.8% in Q126. Maintenance segment revenue was $4.1 million in Q-127, up from $4 million in Q-126. We achieved a maintenance segment gross margin of 28.3% in Q1-27 versus 22.4% in Q1-26. EV charging solutions revenue was $4 million in Q127 compared to $2.7 million in Q126, reflecting relative strength despite sector-wide uncertainty regarding the market environment in the United States. EV achieved a gross margin of 26.9% in Q1-27 versus 33.8% in Q1-26. Our overall gross profit margin was 34.6% in Q127 versus 30.1% in Q126. Q-127 included a benefit of approximately 130 basis points for the net effect of tariff changes and refunds. We expect our overall gross margin to remain strong throughout fiscal 27, though it will likely vary on a quarter-by-quarter basis due to revenue mix and volume changes. Total operating expenses were 6.8% in Q1 from 6.9 million in Q1 26. Reductions in compensation costs in general and administrative expenses were mostly offset by increased commission expenses, including in sales and marketing costs. Reflecting stronger gross margin and lower operating expenses, Orion's Q127 net income was $2 million, or 47 cents per diluted share. or 48 cents basic per common share. compared to a net loss of 1.2 million or 37 cents per share in Q1 26. adjusted EBITDA was positive 2.5 million in Q127 versus 200,000 in Q126. As Sally noted, this was Orion's seventh consecutive quarter of positive adjusted EBITDA. Regarding our outlook, as Sally highlighted, we expect a continued increase in profitable growth in fiscal 27 with positive adjusted EBITDA on revenue between $95 to $97 million. And this concludes our prepared remarks. Operator would you please commence the question and answer session.

Thank you. At this time we will conduct the question and answer session. reminder to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again We will ask that you please limit to two questions at that time. Please recue. stand by we will compile the Q&A roster. Our first question comes from the line of Amit Dayal of HC Wainwright. Your line is now open.

Thank you. Good morning, everyone, and thank you for taking my questions. Congratulations on the win in the AI Data Center space. looks like a pretty significant market has opened up for you over there. So in that context, Sally, are you being conservative with the outlook for fiscal 2027 revenues?.

Good morning, Amit, and thank you. I don't think we're being overly conservative with our revenue. We're certainly bullish on the year. With entry into the data center as we announced, we worked with a customer to really build the right solution that we could scale to other customers as well. So I think we're in the pretty early innings of data centers and we have conversations going on with others, but we'll wait till later in the year to provide any further updates.

Okay, thank you. And then can you talk about some of the pipeline, I guess, that you are building for that market? What kind of activities are you undertaking? What kind of discussions are you having with potential customers? Just any color on how that sales pipeline is being built up and do you expect to convert some of that pipeline in the next few quarters, or will it take a little bit more time for you to start getting more momentum with orders from this space?.

Yes, so particularly in this space, we think a lot of it will come in our next fiscal year in terms of revenue. We are starting to ship product. Oftentimes, how we're winning in this arena is you're winning building projects. by building on a data center campus. And as they grow, we're winning more and more. Not going to say we're single sourced as well. Most have mitigated their risk. So we believe that the pipeline will continue to grow as we.

we continue to deliver in that channel. Just one follow up on that. Should we assume the deployments at a single data center could be significantly larger or multiples of what What a typical deployment for a single facility is usually for you guys?.

Yes, buildings often represent.

7 figures per building. Okay. Understood. I'll step back and thank you so much.

Thank you. Our next question comes from the line of Eric Stein, Craig Holland. Your line is now open.

Hi, Sally. Hi, Per. Good morning. Hello. So, just curious, I mean, obviously a pretty positive commercial environment on the demand side. I know last quarter you did provide a backlog number, and I also know that was because you were entering the fiscal year, but curious whether it's being more specific about backlog or just commentary on where backlog stands, exiting the corridor, You know, the positive order trends that you saw end of fiscal 26, presumably those have continued into the first quarter and what you're seeing here in the second quarter. As we exited the first quarter, our.

Pipeline was right around 24 million, or I'm sorry, backlog. as Sally mentioned, the strength of our pipeline, we think continues to improve. So we expect to see some significant conversions as we move forward,.

where we sit today. Got it and I know that backlog you know at a point in time can be There's a lot of timing to that specific number, but that's helpful. Um, then maybe, um, so you talked about the guide 95 to 97. I know that at least to this point, you've not been including anything. Um, from the potential opportunity with Home Depot, the stores where you're doing the outside lighting, But there's that inside opportunity. So just curious where that stands. I know you'd made progress. I think you were the only company that was really in the mix for that. It was more about dialing things in. But maybe where that stands, and could that still be fiscal 27 revenue, or would that be more fiscal 28?.

We're still in play on opportunities like that and quite frankly some others as well. So there's testing that goes on and final product selection, but we're still pretty positive about that opportunity.

Okay, thank you. Thanks. Thank you. Our next question comes from a line of Gaoxiang Shihang of Singular Research. Your line is now open.

Good morning, guys. Can you all hear me? Yes. Nice. Nice, Carter. My first question is on the exterior lighting program, you sized it at 14 to 15 million and it was supposed to be complete by the end of the first half. How much of that ran through Q4 and Q1 and what's left to deliver?.

You might be confusing a couple different announcements we had with our about our largest customer. 45-ish million opportunity we mentioned with them was a three-year contract for the maintenance services that we provide that will occur over fiscal years beginning April 1st, 2026, so fiscal 27, 28, and 29. We had also discussed previously an exterior project, which we said was in the $15 million range, most of which has been recognized in Q4 and Q1. So we're pretty much through most of that. And then to the previous caller's questions, we still have an opportunity that we've talked for an interior project, but we do not have that order yet, but do believe it's progressing and are optimistic that will come through.

I'll call it in the relative near term. Okay. And on the gross margin sustainability, if we We have the $300,000 of tariff benefit and as you guys have indicated that services are going to trend towards 50% of revenue as you indicated in your deck. Where does the consolidated gross margin kind of actually settle at the end of fiscal 27?.

You know, we still foresee that it would settle in the, you know, 30-plus range. But, you know, there are, to your comment in my script, there was that 130 basis point related to tariffs and previous quarter had some one-time type BENEFITS IN IT. SO I THINK, YOU KNOW, 30 TO 32% RANGE IS.

how we're thinking about things at this time. Okay. I know you guys are still maintaining 95 to 97 million and with positive EBITDA. Already, we are already in the positive terrain. What kind of drop should we assume on the roughly 70 million of revenue left in the air? What kind of risks are there? Yes. I'm sorry, did you say risks? No, what kind of, I suppose, pullback on the EBITDA numbers that will drag it into just the negative territory for the $70 million? I think it'd have to be some type of.

unexpected performance from a, I mean, assuming we achieve the top line guidance, then there'd have to be something that would happen from a negative basis on gross margin rate that would impact that or some unexpected operating expense that we don't anticipate.

Okay, and I'll just sneak in one last question. On, you know, on your June date, You said in June that the data centers, the distribution typically with being in the low margins. But if we are to, look at the capex that is required for these data center roadway volumes to come through as you hope. At what revenue level does the plan require any kind of investment?.