MANITOWOC, Wis. — Orion Energy Systems, Inc. (Orion Lighting), a provider of energy-efficient LED lighting and control systems and electrical maintenance services, reported results for its fiscal 2023 first quarter ended June 30, 2022 (Q1’23). Orion also announced separately its CEO Transition Plan.
Mike Altschaefl, Orion’s CEO and Board Chair, commented, “In Q1’23 we saw a continuation of customer project delays that also impacted our results in the second half of last year, along with some slowing of our sales cycle as new and existing customers work through current economic conditions. Despite the slow start to this year, we believe Orion has a robust pipeline of opportunities that should commence in the second half of our fiscal year. We continue to view all our paths to market including national accounts, ESCOs and distribution – as important to Orion’s growth and development, as we build and diversify our revenue sources in FY 2023 and beyond.
“Importantly, the growing scale and complexity of LED lighting and controls, alternative energy strategies and ongoing maintenance requirements creates an ideal backdrop for our unique turnkey capabilities with one point of contact and accountability. Orion’s energy efficiency and sustainability service and capabilities and our ‘customer for life’ commitment position us well to grow our penetration of the substantial LED lighting and maintenance services opportunities we are targeting. We continue to expand our active major national account base as these customers are best positioned to benefit from our turnkey design-build-install-maintain capabilities.
“The high quality, energy efficient design, and reliability and of our LED lighting solutions are also well-suited and gaining traction in the Energy Service Company (ESCO) market. Given our alignment with ESCOs’ mandate to deliver energy efficiency solutions, we are focusing additional resources on this path to market, which we believe can deliver substantial future growth. We are also building on our distribution channel, where we recently added three new sales agents to expand our national footprint.
“Rounding out our ‘customer for life’ solutions offering is our growing lighting and electrical maintenance services business which we expanded with the acquisition of Stay-Lite Lighting, a nationwide lighting and electrical maintenance provider, in January 2022. We are building a growing base of recurring maintenance services revenue to complement our LED lighting solutions and turnkey project business. Our maintenance business remains on track to generate meaningful growth in fiscal 2023 and in future periods, as we expand our ability to support our customers in meeting their operational, financial and environmental sustainability goals.
“In terms of M&A, we have developed a strong pipeline of potential targets that we continue to evaluate as to their valuation, fit with our business, creation of new opportunities, and potential synergies. We remain disciplined and prudently cautious in this effort and believe that the current market environment could present some attractive opportunities to build and diversify our business. We believe our liquidity, capital position and borrowing capacity provide solid support for both our ongoing business and our M&A process and expect our cash position and borrowing base to strengthen as we advance through the year.”
FY 2023 is starting more slowly than expected due primarily to ongoing customer project delays and a slowing sales cycle that seems related to current and future economic uncertainties. As a result, Orion now expects a modest sequential revenue improvement in Q2’23 over Q1’23 and full-year FY 2023 revenue of between $90M and $110M. This range principally reflects potential variability in the timing of large customer projects. This updated FY 2023 revenue outlook implies double digit organic growth in business outside of its largest customer.
Key factors expected to influence Orion’s FY 2023 performance include:
- Large national customers moving forward with delayed projects.
- Growth in Orion’s maintenance services business revenue.
- Successfully closing several in-process large commercial and public-sector project opportunities.
- An expected rebound in Orion’s automotive sector business.
- Revenue of approximately $20M 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 enhanced 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 COVID-19 pandemic, and other potential business and economic environment impacts.
Q1 Financial Results
Orion’s Q1’23 revenue was $17.9M compared to $35.1M in Q1’22. The prior-year quarter benefitted from several large projects, including for a large national retail customer and a global online retailer, which did not recur in Q1’23.
Q1’23 gross profit percentage was 19.8% compared to 29.1% in Q1’22 and 23.8% in Q4’22 – primarily due to lower fixed cost absorption on lower revenues. Orion’s past price increases have been effective in mitigating higher input costs.
Total operating expenses grew 5.3% to $7.2M in Q1’23 from $6.8M in Q1’22, due to higher G&A expenses, partially offset by lower sales and marketing costs. The Q1’23 period included a full quarter of expenses related to Stay-Lite operations, which were not included in the prior-year period. These Stay-Lite expenses accounted for most of the increase in overall G&A expense.
Orion reported a Q1’23 net loss of ($2.8M), or ($0.09) per share, as compared to Q1’22 net income of $2.5M, or $0.08 per share, principally due to lower revenues and gross profit percentage in Q1’23. Likewise, Orion generated negative Adjusted EBITDA of ($2.9M) in Q1’23 versus Adjusted EBITDA of $4.0M in Q1’22.
Orion ended Q1’23 with $29.5M in working capital, including inventory of $18.8M. Orion had approximately $25M of liquidity at the close of Q1’23, including cash and cash equivalents of $9.4M and $15.8M available on its working capital credit facility.
|Q1 Financial Summary||Prior Three Quarters|
|$ in millions except
per share figures
|Gross Profit %||19.8%||29.1%||(930bps)||23.8%||24.9%||29.5%|
|Net Income (Loss)||($2.8)||$2.5||($5.3)||($1.2)||$1.1||$3.7|
|Adjusted EBITDA (2)||($2.9)||$4.0||($6.9)||($0.4)||$2.1||$4.0|
|Cash & Equivalents||$9.4||$15.9||($6.5)||$14.5||$17.3||$14.7|
(1) Results include a $1.6M employee retention payroll tax credit, under the American Rescue Plan Act of 2021. The credit increased gross profit in the period by $0.8M and reduced operating expense by $0.8M.
(2) See Adjusted EBITDA reconciliation below.
In a separate release, Orion announced that Michael H. Jenkins, the Company’s Executive Vice President and Chief Operating Officer, will assume the role of Chief Executive Officer following the retirement of Mike Altschaefl, Orion’s Board Chair and CEO, effective November 10, 2022. Jenkins will also join Orion’s Board, effective November 10th, to serve an initial term through the Company’s 2023 annual meeting.
Mike Jenkins is an accomplished executive leader with a strong track record of business and financial achievement built over more than 25 years. He joined Orion last year as part of a long-term strategic leadership and planning process and was selected to serve as CEO based on his significant leadership, operational, and sales and marketing skills and contributions.
Altschaefl will continue to serve on Orion’s Board of Directors following his retirement through the Company’s 2023 annual meeting of shareholders and, thereafter, may provide consulting services to the Company until December 31, 2023.
Orion’s lead independent director, Anthony L. Otten, will assume the role of Orion’s independent Board Chair immediately following the Company’s 2022 annual shareholders meeting, on August 4th. Otten has served on Orion’s Board since August 2015 and as lead independent director since June 2017. His experience as a public company CEO and business leader, combined with his capital markets experience, merger and acquisition experience, and contributions to Orion’s Board make him well qualified to serve as Board Chair.
Otten commented, “We have been working hard to build Orion’s management team and strategic vision to support the Company’s long-term growth and profitability. Orion has a very exciting future, offering substantial growth potential that is rooted in our ‘customer for life’ vision to provide a growing base of related products and services with exceptional quality and service. Mike Jenkins has demonstrated passion and impressive management, strategy and sales skills that should allow him to lead the advancement of our business, including our environmental, social and governance goals.
“We are very grateful to Mike Altschaefl and his leadership as CEO and Board Chair. Mike led the repositioning of Orion’s core focus and value proposition on a range of exciting opportunities. He returned the business to profitability, restored our balance sheet strength, helped build out our talented management team, and expanded our customer base and capabilities. Mike has a deep commitment to Orion stakeholders which is reflected in his decision to remain on the Company’s Board in retirement. We look forward to his continued guidance going forward.”
Prior to joining Orion as its Chief Operating Officer and Executive Vice President in November 2021, Jenkins served for eight years as the Construction and Consumer Business Director, General Manager – Americas of Bostik, Inc., an industrial adhesive and sealing products provider with over $2.4B in annual sales. Jenkins was directly responsible for the full profit and loss statement (P&L) of a several hundred-million-dollar business with six manufacturing plants and over 400 associates across North America.
During his tenure, revenue nearly tripled, as he worked to transform the business into a systems provider. He identified strategic acquisitions, performed due diligence, negotiated and closed several acquisitions, integrated the businesses without disruption and created numerous cross-selling opportunities to accelerate growth. He also instilled a performance-driven culture based on a common vision and helped build Bostik brand recognition through innovative and disruptive marketing campaigns focused on key specifiers (Architects, Engineers and Designers). Previously, Jenkins served in various sales and marketing leadership roles with Kohler Company, Master Lock and Illinois Tool Works.Tagged with financial results, Orion Energy Systems