MANITOWOC, Wis. — Orion Energy Systems, Inc. (NASDAQ: OESX) (Orion Lighting), a provider of energy-efficient LED lighting and controls, maintenance services and electrical vehicle (EV) charging station solutions, today reported results for its fiscal 2023 second quarter ended September 30, 2022 (Q2’23). Orion will hold an investor call today at 10:00 a.m. ET (details below); online pre-registration required to receive the call dial-in information.
| Q2 Financial Summary | Prior Three Quarters | |||||||||||||||||||
| $ in millions except per share figures |
Q2’23 | Q2’22 (1) | Change | Q1’23 | Q4’22 | Q3’22 | ||||||||||||||
| Revenue | $17.6 | $36.5 | ($18.9) | $17.9 | $22.1 | $30.7 | ||||||||||||||
| Gross Profit | $4.4 | $10.8 | ($6.4) | $3.6 | $5.3 | $7.6 | ||||||||||||||
| Gross Profit % | 25.3% | 29.5% | (430bps) | 19.8% | 23.8% | 24.9% | ||||||||||||||
| Net (Loss) Income | ($2.3) | $3.7 | ($6.0) | ($2.8) | ($1.2) | $1.1 | ||||||||||||||
| EPS | ($0.08) | $0.12 | ($0.20) | ($0.09) | ($0.04) | $0.04 | ||||||||||||||
| Adjusted EBITDA (2) | ($1.5) | $4.0 | ($5.5) | ($2.9) | ($0.4) | $2.1 | ||||||||||||||
| Cash & Equivalents | $12.5 | $14.7 | ($2.2) | $9.4 | $14.5 | $17.3 | ||||||||||||||
| (1) Q2’22 results include a $1.6M employee retention payroll tax credit which increased gross profit by $0.8M and reduced operating expense by $0.8M. (2) See EBITDA and Adjusted EBITDA reconciliation below. |
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Q2 Financial Highlights
- Q2’23 revenue was $17.6M compared to revenue of $36.5M in Q2’22 and $17.9M in Q1’23.
- Q2’23 gross profit percentage was 25.3% vs. 29.5% in Q2’22 and 19.8% in Q1’23. The year-over-year variance was primarily due to the fixed cost absorption impact of lower business volume, while the improvement over Q1’23 reflected a higher margin revenue mix and cost management efforts.
- Orion had a Q2’23 net loss of ($2.3M), or ($0.08) per share, compared to net income of $3.7M, or $0.12 per share, in Q2’22 and ($2.8M), or ($0.09) per share, in Q1’23.
- Q2’23 Adjusted EBITDA was negative ($1.5M) compared to $4.0M in Q2’22, reflecting lower revenue and gross profit, but improved over negative ($2.9M) in Q1’23, due to a higher gross profit percentage.
- Orion ended Q2’23 with $32.5M in working capital, including inventory of $16.8M. Orion had approximately $23.7M of liquidity at the close of Q2’23, comprised of $12.5M of cash and equivalents and $11.2M of availability on its credit facility.
CEO Commentary
Mike Altschaefl, Orion’s CEO, commented, “The first half of our fiscal year was impacted by the continuation of customer project delays which began in the second half of last year, as well as some project cancelations. However, we did see several customers re-engaging during Q2’23, which should enable us to initiate several larger LED lighting projects in our second half and into the next fiscal year. We continue to support a diversified pipeline of large project opportunities for logistics, automotive, and other industrial companies, as well as for public sector entities, that we expect to commence in the second half. Our long-term outlook is excellent, with a broad range of opportunities. Our principal challenge today is assessing when some larger projects will begin.
“In our lighting and electrical maintenance services business, the integration of Stay-Light Lighting with Orion Maintenance Services (OMS) is progressing well. Lighting and electrical maintenance services provide an important, growing base of recurring revenue that complements our other solutions and supports our ‘customer for life’ philosophy.
“Last month, we entered the electric vehicle (EV) charging market through the acquisition of Voltrek, a top-tier commercial EV charging solutions provider. EV charging is a high-growth market that is highly complementary to our project management capabilities, our national account, ESCO, and distribution partner paths to market and our maintenance business. Charging stations are an increasingly important part of a high-quality retail customer experience as well as an integral amenity for employees and other stakeholders. We see significant cross-selling potential across these businesses and demand driven by ramping EV sales, supported by significant state and federal subsidies for EV charging infrastructure. EV charging has the potential to become a significant revenue opportunity for Orion over the next three to five years.”
Business Outlook
FY 2023 revenue to date has progressed more slowly than expected due primarily to ongoing customer project delays and some project cancellations. Based on its current project pipeline, Orion continues to expect FY 2023 second half revenue to be much stronger than the first half, with full year revenue ranging between $90M and $110M. The mid-point of this revenue range would represent double-digit revenue growth compared to FY 2022, outside of the revenue from Orion’s largest customer.
Key factors expected to impact Orion’s FY 2023 performance include:
- Large national logistics, automotive, industrial, and public sector customers moving forward with delayed and new projects.
- Growth in Orion’s maintenance services business revenue to over $15M in FY 2023.
- Continued revenue growth in the Company’s ESCO channel and from electrical contractors.
- Revenue of approximately $15M in FY 2023 from the Company’s largest customer via a mix of projects for new facilities, exterior LED lighting, other lighting and electrical projects and maintenance services.
- Additional revenue from new customers as a result of ongoing sales and marketing activities.
Orion cautions investors that its business outlook is subject to a range of factors that are difficult to predict, including but not limited to those listed above, as well as supply chain disruptions, including shipping and logistics issues, component availability, rising input costs, labor supply challenges, the continuous effects of the COVID-19 pandemic, and other potential business and economic environment impacts.
Q2 Financial Results
Orion’s Q2’23 revenue was $17.6M compared to $36.5M in Q2’22. The prior-year quarter benefitted from several large projects, including projects for a large national retail customer and a global online retailer, which did not recur in Q2’23.
Q2’23 gross profit percentage was 25.3% compared to 29.5% in Q2’22 and 19.8% in Q1’23. The year-over-year decrease is primarily due to lower fixed cost absorption from lower revenues. The sequential gross margin improvement versus Q1’23 was due to a higher-margin revenue mix of projects, ongoing supply chain and cost management efforts, and the benefit of prior price increases helping to offset higher input costs.
Total operating expenses grew to $7.4M in Q2’23 from $5.8M in Q2’22, principally due to non-cash equity-based compensation costs associated with our CEO’s retirement and G&A expenses related to Stay-Lite Lighting, which was acquired at the beginning of Q4’22. Sequentially, operating expenses increased approximately $0.2M, primarily related to growth and integration initiatives in the combined maintenance services business and non-cash equity-based compensation costs associated with our CEO’s retirement.
Orion reported a Q2’23 net loss of ($2.3M), or ($0.08) per share, as compared to Q2’22 net income of $3.7M, or $0.12 per share, mainly due to lower revenues and gross profit percentage in the current year period, as well as the benefit of a $1.6M tax credit in Q2’22. Likewise, Orion generated negative Adjusted EBITDA of ($1.5M) in Q2’23 versus Adjusted EBITDA of $4.0M in Q2’22.
Balance Sheet
Orion ended Q2’23 with $32.5M in working capital, including inventory of $16.8M. Orion had approximately $23.7M of liquidity at the close of Q2’23, including cash and cash equivalents of $12.5M and $11.2M available on its working capital credit facility. Orion drew $5.0M on its working capital credit facility at the end of Q2’23 to provide greater liquidity to support the business and in anticipation of the Voltrek acquisition which closed in October. On November 4, Orion amended its credit facility to add selected working capital from its acquired businesses to the borrowing base, thereby providing Orion with additional available borrowing capacity and liquidity.