Orion Energy Systems - Q2 2024

Transcript

Operator (participant)

Fiscal 2024 second quarter conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Bill Jones, Investor Relations. Please go ahead.

Bill Jones (Head of Investor Relations)

Thank you, and good morning, everyone. Thank you for joining today's call. Mike Jenkins, Orion's CEO, will begin with an overview of Orion's business, strategy, and outlook, followed by Per Brodin, Orion's CFO, who will discuss second quarter and year-to-date results, the company's financial position, and its financial guidance. We will then open the call to investor questions. Today's conference call is being recorded, and a replay will be posted on the Investor Relations section of Orion's website, orionlighting.com. Remarks that follow and answers to questions include statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally include words such as anticipate, believe, expect, project, or similar words. Also, any statements that describe future objectives and goals, plans, or outlook are also forward-looking.

Such forward-looking statements are subject to various risks that could cause actual results to differ materially than currently expected. These risks include, among others, matters that the company has described in its press release issued this morning, as well in its filings with the Securities and Exchange Commission. Except as described therein, the company disclaims any obligation to update forward-looking statements which are made as of today's date. Reconciliations of certain non-GAAP financial metrics to GAAP measures are also provided in today's press release. I will now hand the call to Mike Jenkins.

Mike Jenkins (CEO)

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. As anticipated in our last call, Orion's business progressed in the second quarter with both sequential and year-over-year revenue growth of 17%, reflecting the revenue momentum we anticipated building as we progress through fiscal 2024. September was our strongest month of the year and within our top three months since the start of fiscal 2023 for both both our lighting business and our overall total. Per will discuss our Q2 performance and financial guidance a bit later in the call. Now I'd like to start by providing an overview of our strategy and performance across the business segments.

Within our lighting business, the $9.6 million Department of Defense European LED retrofit project began in earnest in Q2, with revenues of approximately $1.2 million, and we expect to complete the bulk of this project in the fiscal year. This project experienced some unexpected startup issues working its way through the EU regulatory bodies, but is now in full swing, and we expect to catch up in the second semester of fiscal 2024. We anticipate several other larger retrofit projects to contribute to the balance of this fiscal year, including a project for a global technology customer, as well as continued growth from a long-term global warehouse logistics sector customer. We also expect meaningful revenue to come from an outdoor lighting project for Orion's largest customer. We feel good about our growing pipeline of lighting business.

We also anticipate solid full-year growth in LED lighting revenue from our ESCO and electrical contractor distribution channels. In fact, the technology customer retrofit project I just mentioned was sourced through a relatively new ESCO partner. By their nature, ESCOs are focused on delivering energy savings and environmental benefits to their customers. LED lighting retrofits are right in the sweet spot of their value proposition as they provide significant, quantifiable, long-term energy savings and generally a full return on investment within two to five years. Our ESCO business was up 43% in quarter two and 38% for the first six months, which includes our expanded relationship with our large warehousing logistics customer, but excludes the DoD project, which was sourced through an international ESCO.

We are continuing to build our base of productive agent and distribution channel relationships, focusing on partners who recognize the value of our high product quality, leadership and energy-efficient performance, and our commitment to the highest levels of customer service. To extend our penetration in our distribution channels, we recently launched a new line of more value-oriented products that incorporate the industry-leading design, quality, and energy efficiency for which Orion is known within the trade. These new products include TritonPro LED Retrofit High Bay and other interior fixtures, as well as an expanded line of Harris-branded exterior LED lighting products. They were developed in response to requests for more competitively priced LED contractor-grade fixtures that incorporate Orion's strong design and product quality. Feedback has been very positive, and we've recorded over $1 million in revenue from these new products in quarter two, their first quarter of availability.

Our quoting activity has been strong, and we look to accelerate sales of these products in the second half of fiscal 2024. Importantly, these products also provide a solid margin contribution. Also, on the product front, we recently debuted several new products that are compliant with the Build America, Buy America, or BABA Act, and we expect that they will be well received by those customers who prefer U.S.-manufactured products. BABA is a certification which requires 55% or greater of material content in products to come from U.S. sources. The BABA standard was created as part of the federal IRA bill, and it stipulates state, municipal, and schools to use BABA-compliant products when possible in order to receive federal funds. Orion is uniquely positioned to provide this product due to our U.S.-based manufacturing facility and capabilities.

As you may know, over the past 24 months, we have diversified our business into two new complementary areas, which include electrical maintenance services, as well as providing turnkey electric vehicle, or EV, charging station solutions. These new areas are well aligned with our core mission of helping customers achieve their business and sustainability goals, while providing Orion with exciting cross-selling opportunities. Many of our customers had previously asked us about our ability to help them in these areas, which was a key factor in our decision-making to enter these spaces. We entered the commercial industrial EV charging solutions market in our third quarter of last year with the acquisition of Voltrek.

We had a large bus project in quarter four of last year and then saw revenue dip sequentially in Q1 this year as we managed through Voltrek's integration and the build-out of its sales and project management teams to support expanding revenues and a broader geographic reach. Our EV segment rebounded strongly in quarter two, delivering $3.4 million of revenue versus no contribution in the year prior. We anticipate continued growth at Voltrek in the coming periods as the business capitalizes on its long-term track record of success, growing market interest in EVs throughout the U.S., and our ability to cross-sell these solutions with our strong base of customers and partners. Projections are that 50% of the new vehicle fleet will be EVs by 2030 and 80% by 2040.

Businesses everywhere are now considering their electrification and EV charging strategy to support their employees, customers, and their own fleet needs. Orion is well positioned to help our customers and partners through this exciting and rapidly evolving journey. Our maintenance services business also delivered both sequential and year-over-year revenue growth. We acquired Stay-Lite Lighting in quarter one of last year, and with the acquisition came a number of multiyear contracts, some of which are now no longer profitable, given a range of cost increases, including higher subcontractor costs, that have occurred over the past several years. To address these inflationary pressures, we have updated our pricing for new and existing customers to better reflect our current cost structure. We've been working to renegotiate contracts as they came up for renewal, and we are making progress.

We have renegotiated three out of four of our most significant legacy contracts and believe this effort will return maintenance to solid profitability as these new price levels continue to impact our results in the second half of fiscal 2024. We recognize our pricing effort could result in the loss of some business and could therefore provide a modest near-term revenue headwind for the segment. Nonetheless, there are plenty of growth opportunities in this space, and we believe that we can restore profitability while delivering high standards of service and great value to our customers. We recently finalized a three-year preventative maintenance agreement with our historically largest customer. Orion will provide LED lighting and light electrical preventative maintenance services to our customers, approximately 2,000 retail stores nationwide. The agreement formalizes and builds upon services we initiated in February, and scaled through July.

Overall, I am pleased with the progress we are making, though we still have work to do in terms of integrating our lines of business and in pursuing expanded revenue opportunities. We are excited about our expanded array of solutions to offer customers and partners and are encouraged by their interest. We have already secured product sales and new projects through our cross-selling initiatives between all three of our segments. This remains an area of focus for the business that we believe we can deliver growth synergies as we move forward. In summary, we believe we are building a strong and diverse business for long-term success. We expect to see our total revenue accelerate across the business in the second half of fiscal 2024, and as such, have reiterated our $100 million revenue guidance for fiscal 2024.

Now I'll pass the call to Per Brodin to discuss our financials and fiscal year outlook in more detail.

Per Brodin (CFO)

Thanks, Mike. Orion's Q2 2024 revenue improved 17% to $20.6 million, from $17.6 million in Q2 2023, primarily reflecting Voltrek activity in the current quarter and maintenance revenue growth, which was partially offset by lower lighting revenues. Revenue also grew 17% on a sequential basis compared to the first quarter of fiscal 2024. As discussed previously, we have several larger lighting projects, including the European DoD project and a large outdoor project, which we expect to ramp meaningfully in the second half of fiscal 2024. We recognized $1.2 million of revenue on the Department of Defense project in Q2 2024, which leaves approximately $8 million of remaining revenue to complete this project. Our first half revenues rose 8% to $38.2 million from $35.5 million in the first half of fiscal 2023.

Our gross profit grew to $4.6 million from $4.4 million in Q2 2023, in spite of a decline in gross profit percentage. Notably, our gross profit margin improved on a sequential basis, reflecting the improved terms on three significant maintenance contracts and better absorption of fixed costs across all businesses. As Mike discussed, our gross profit percentage is being impacted by inflationary challenges over the past several quarters on legacy contracts in our maintenance business. During the quarter, we renegotiated pricing on three of four of our most significant legacy contracts, and we are working to update other legacy contracts as well. Our maintenance business also began benefiting from a new three-year agreement to provide preventative maintenance services for our largest customer. In Q2, our efforts led to an improvement in service margin from -11.2% in Q1.

Although it's still slightly negative, we expect further margin benefits in the back half of this fiscal year, driven by the rollout of our new pricing. Gross margin on products improved approximately 250 basis points to 30.1% in Q2 2024, from 27.6% a year ago. This increase is attributable to new product sales and overall higher volumes, benefiting fixed cost absorption. Reflecting the steps taken in our maintenance business and our expectation of growing sales volume in the business overall, we expect our blended gross margin to improve further in the second half of this fiscal year.

Our Q2 operating expenses increased to $8.7 million from $7.4 million in Q2 2023, mainly due to the addition of Voltrek, Voltrek operations, included $1.1 million of earn-out accrual and $200,000 of intangible amortization related to the acquisition. Operating costs declined sequentially from $9.6 million in Q1 2024, due to lower compensation-related costs and a large credit write-off that occurred in Q1 2024. We recorded a Q2 2024 net loss of $4.4 million, or $0.14 per share, including the Voltrek earn-out, versus a net loss of $2.3 million, or $0.07 per share in Q2 2023. Cash used in operations was $4 million in Q2 2024, reflecting operating results and a $1.5 million Voltrek earn-out payment, partially offset by positive net working capital effects.

We achieved positive free cash flow in September and expect positive free cash flow over the balance of this fiscal year. At September 30, we had current assets of $45.3 million, which included inventory of $20.2 million, accounts receivable of $16.1 million, and cash of $4 million. Working capital was $16.2 million at the close of Q2 2024. Total current liquidity, including cash plus $8.9 million of revolver availability, was $12.9 million. We expect our liquidity position to improve in the second half of the fiscal year based on the expected ramp in revenues. In addition, we are looking at additional ways to enhance our liquidity, primarily through a potential mortgage on our corporate headquarters. As mentioned, in Q2, we started several larger projects and finalized a nationwide maintenance agreement.

In addition, our backlog sits at $21.1 million at September 30. All of these things and more contribute to our full-year revenue outlook. Reflecting these and other factors, we have reiterated our expectation for revenue growth of 30% or more in fiscal 2024, implying total revenue of approximately $100 million. The achievement of this goal implies a meaningful revenue improvement in the second half of the year. Based on this growth expectation, we also expect a solid improvement of our second-half bottom-line performance. With that, I'll ask the operator to begin the Q&A session.

Operator (participant)

Thank you. And as a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our first question. Our first question will come from the line of Eric Stine from Craig-Hallum. Your line is open.

Eric Stine (Senior Research Analyst)

Hi, everyone. Thanks for taking the questions.

Per Brodin (CFO)

Hi, Eric.

Eric Stine (Senior Research Analyst)

So, hey, so when thinking about the second half, you called out the DoD project, which has already started, and the lighting project. So I guess want to clarify if that started or when you expect that to start. But just curious, are there any other large projects that you would point to, you know, things that give you the confidence in that ramp. Clearly, you're reiterating it, so you've got that confidence. I was just trying to gauge that.

Mike Jenkins (CEO)

Sure. There are a number of things. So obviously, the DoD project, as we spoke about, we talked about an exterior project for our largest customer, which is all basically happening in the second half of this year, moving forward. And that's a mid-seven figures kind of project and rollout. We do expect that our number two customer, which we've disclosed, is a global logistics company and warehouse company. We expect that business to continue to scale as we move forward, which on a year-on-year basis, will give us nice growth. And there are other—the global technology project, which we spoke about, we do expect to recognize revenue on that moving into the second half of the year.

So there are a number of nice projects which we expect activation shortly, some of which are already in flight and should scale.

Eric Stine (Senior Research Analyst)

Got it. So the DoD one is already in, that's already underway, and the others, I mean, fair to say you're waiting on, but they're, you know, you've gotten good visibility into those starting?

Mike Jenkins (CEO)

That's right. Yeah.

Eric Stine (Senior Research Analyst)

Okay.

Mike Jenkins (CEO)

In the DoD one, we would have we were anticipating a bit more revenue in Q2. I referenced in my comments that we did experience some startup issues getting through-

Eric Stine (Senior Research Analyst)

Mm-hmm

Mike Jenkins (CEO)

EU regulatory bodies. So that we view that miss basically to be caught up in the second half of the year.

Eric Stine (Senior Research Analyst)

Yeah.

Per Brodin (CFO)

Yeah. And just for the math, Eric, that, you know, we did say we recognized $1.2 million of that in the second quarter. The total project is in the $9.6 million neighborhood. There was a few hundred thousand recognized in Q4 of fiscal 2023, so there's about $8 million left that we expect the majority of that, virtually all of that, to be recognized in the second half.

Eric Stine (Senior Research Analyst)

Okay, got it. And then on the maintenance contracts, and I know you said you've renegotiated three of four, but you've got some others out there. I'm curious if you can kinda quantify, you know, how many others might be out there that you would look to renegotiate. And then curious if you have, you know, the mechanisms that you've got in place now, whether, you know, there are some—there's some variability to the contracts based on market conditions, or are they just short enough in nature that it would just be kind of an ongoing renegotiation, you know, whenever they come up?

Mike Jenkins (CEO)

Sure. Yeah, as indicated on the last call, we were able to kind of off cycle, address pricing on a couple of these contracts. We have fully got, renegotiated three out of our top four, so we have one major contract, which, is still out there, that we need to work on. The way it works is basically we've renegotiated pricing, and then all these accounts have their normal kind of RFP cycle. And so, we will be working through that, and some of those are up, as early as, the beginning of our fiscal year, early in our fiscal year.

Per Brodin (CFO)

Maybe, Eric, a little more context. Four large contracts really are the bulk of the piece of maintenance that is at Stay-Lite. So there are other miscellaneous contracts, but those four would represent the bulk of the revenue in that part of the segment.

Eric Stine (Senior Research Analyst)

Okay. And so the last major one is that—that's where you've kind of, I mean, maybe to simplify it, you've presented them with the new pricing, and now they go through a process, and hopefully in the RFP process, you would win.

Mike Jenkins (CEO)

Yeah, I mean, certainly we're going through with all of them, and that's the one that's remaining. So yes, I mean, in principle-

Eric Stine (Senior Research Analyst)

Okay

Mike Jenkins (CEO)

... those are in on having conversations right now, so.

Eric Stine (Senior Research Analyst)

Yep, understood. Okay, maybe last one for me, just on the EV opportunity. I think I've asked this before, but just curious, you know, obviously your customers, they, many of them requested these capabilities from you. Do you expect this to be a decision that's, you know, by, by company over their footprint, or is it more kind of a site-by-site decision?

Mike Jenkins (CEO)

I think it can work both ways. I think it really depends on how they run their businesses and how centralized or decentralized they're, they are as a company. I think some will go basically across the country, and we're, we're having some conversations with folks like that. And others, it will really depend on whether or not they have a fleet location out of that facility, et cetera. So I think it's gonna work both ways.

Eric Stine (Senior Research Analyst)

Okay, thank you.

Per Brodin (CFO)

Thank you, Eric.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Amit Dayal from H.C. Wainwright. Your line is open.

Amit Dayal (Managing Director of Equity Research)

Thank you. Good morning, guys. Just on the EV-

Per Brodin (CFO)

Good morning, Amit.

Amit Dayal (Managing Director of Equity Research)

Morning. On the EV topic, is pipeline more sort of corporate and enterprise, or is there some government-related opportunities as well?

Mike Jenkins (CEO)

Yeah, there certainly are both private and public opportunities. We currently do business with municipal governments, that's part of, kind of the legacy of Voltrek, as well as with private companies, and so we see growth in both areas. We were recently at a federal government show, trade show, and there was a tremendous amount of conversation about the electrification strategy of the federal government for their own use and facilities. So I think downstream, we're gonna see rapid adoption in both areas.

Amit Dayal (Managing Director of Equity Research)

Okay, thank you. And then on the Voltrek, earn-out, could you remind us, you know, what remains to be paid out, et cetera?

Per Brodin (CFO)

Yes, we made the payment I referenced in September of $1.5 million toward the fiscal 2023 earn-out, and then there was another $1.5 million paid in October towards that $3 million earn-out. There will then be the opportunity for a fiscal 2024 earn-out. That amount would be paid in the second quarter of calendar second calendar fiscal 2025, to the extent it's earned, and that is a $3.5 million dollar opportunity. And then the following year, there's a $4 million opportunity, plus a kicker for a cumulative EBITDA earnings over the first three years of ownership, which could be a max potential of an incremental $3.15 million. That would be paid at the same time as the fiscal 2025 earn-out opportunity.

Amit Dayal (Managing Director of Equity Research)

Okay, thank you for that. Appreciate it. And then maybe just on the, you know, the service and maintenance segment. I know you're going through a lot of sort of renegotiations, et cetera, but are you also actively trying to add new clients at this point? Or are you sort of trying to, you know, clear out your existing setup with the legacy contracts before you move to adding new customers?

Mike Jenkins (CEO)

Sure. Well, we actually did add quite a bit of new business with our number one customer, as we talked about on the preventative side, for 2,000 locations. So that was a big add to the team in terms of new volume. So right now we're certainly digesting that. We're building out and shoring up our resources around that, and then, at the same time, focused on profitability for the legacy business. We do see growth opportunities out there, but we certainly want to approach this a bit step by step and address the profitability of the legacy business as our first order of priority right now.

Amit Dayal (Managing Director of Equity Research)

You know, if the service margin is normalized for you guys, how much of a lift should we expect, you know, to the overall blended margin?

Per Brodin (CFO)

Well, I think if you look at the blend, you know, think about the blend of the margin, you know, we expect to ultimately get back to our—what we've experienced as a more traditional service margin for that business. So, that's not gonna happen over the next quarter or so as we continue to renegotiate these contracts, but that's where we are certainly targeting that this business is headed.

Amit Dayal (Managing Director of Equity Research)

Okay. I'll follow up on that one, you know, later. But that's all I have for now, guys. Thank you so much.

Mike Jenkins (CEO)

Thanks, Amit.

Per Brodin (CFO)

Thanks, Amit.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Alex Rygiel from B. Riley Securities. Your line is open.

Mike Jenkins (CEO)

Hello, Alex.

Operator (participant)

Alex, your line is open. You may be on mute. Alex, if you could disconnect and try using the call me feature.

Per Brodin (CFO)

I thought she just came through.

Mike Jenkins (CEO)

Oh, does that mean-

Operator (participant)

Alex, go ahead.

Min Cho (Equity Research Analyst)

Hi, this is Min Cho for Alex Riegel. Can you hear me?

Mike Jenkins (CEO)

Yes.

Per Brodin (CFO)

Sure, hi, Min.

Min Cho (Equity Research Analyst)

Okay. Oh, that's so confusing because I logged in as myself, but okay, sorry about that. A couple of quick questions. Just given the interest rate environment, are you seeing any kind of project delays or just slowdown in bidding opportunities for some of the larger projects?

Mike Jenkins (CEO)

At this point in time, we have not seen any substantial delays that we could attribute to that. None at all.

Min Cho (Equity Research Analyst)

Okay, good to hear. Also, in terms of your Voltrek business, sounds like it's progressing fairly well here. Are you still on track to hit kind of that $10 million-$12 million in revenue for the full year? Can you talk a little bit about the pipeline and maybe how big this business can get for you in the next couple of years?

Mike Jenkins (CEO)

Sure. Sure, yeah. We, we did say earlier that we thought that between the Voltrek business and the maintenance business, that it would be around a third of the business overall. We still think we're on track for that, plus or minus. The 10-12 that you referenced for Voltrek, given our current run rate, coming out of this quarter, we definitely feel like that's achievable. And in terms of the longer view of Voltrek and the EV space more broadly, as I referenced in my comments, you know, the macro environment remains very strong towards EVs. It won't be perfectly linear, but it's directionally strong. And we do see the opportunity to grow a business of, you know, $20 million-$50 million in the next couple of years.

Min Cho (Equity Research Analyst)

Excellent. And then, it's nice to see that you reiterated your revenue guidance for the full year. Just any thoughts on EBITDA for the second half of this year? Can you exit on a positive EBITDA, and how do we get there?

Per Brodin (CFO)

Well, in my comment, I certainly mentioned that we expect, you know, our improved and increasing sales to translate into bottom-line results. So we do expect, as I mentioned, to be free cash flow positive, which I think implicit in that is also being EBITDA positive, as we leave the year. But say that our year-to-date performance would indicate we probably not finish the year with a net positive result.

Min Cho (Equity Research Analyst)

Okay. And then just one final question: I believe you had a large DoD contract for your PUREMOTION product, and it was awaiting funding. Any update on that or any just update on some of your newer kind of, I guess, more value-add products?

Mike Jenkins (CEO)

So the PUREMOTION, the project that you referenced is still live. It is still, but it's basically on a hold status right now with the DoD. So we do expect that that project will, at some point, move forward, but we don't have timing at this point in time.

Min Cho (Equity Research Analyst)

Okay, great. Thank you.

Operator (participant)

Thank you. One moment for our next question. As a reminder, to ask a question, that's star one one for questions. Our next question comes from the line of Andrew Shapiro from Lawndale Capital Management. Your line is open.

Andrew Shapiro (Founder and CEO)

Hi, thanks. I'm just trying to get drilled down into this, the maintenance, contract stuff and the losses. When you define a contract as a legacy contract, what do you mean? And when was Stay-Lite acquired?

Per Brodin (CFO)

By legacy contract, we mean it was something that was an existing customer of Stay-Lite when they were acquired. We acquired Stay-Lite effective January 1, 2023.

Andrew Shapiro (Founder and CEO)

Okay. So fairly recent and all that. Now-

Per Brodin (CFO)

Sorry, 2022.

Andrew Shapiro (Founder and CEO)

Okay. And these contracts, I think you said in the last call when I asked questions, were around three years or so in duration. So I guess that may be medium term to long term for this kind of business. What are you doing differently in your new maintenance contract bidding to share, I guess we'll call it margin risk, or to mitigate this risk? Is it just that you're pricing it higher and hoping that you won't have another wave of inflation? Are you doing it with a shorter duration on the pricing? How are you approaching it differently?

Mike Jenkins (CEO)

Yeah. So each of the customers have their own specifics around how you can tender and go through an RFP process. So we are, you know, confined by some of those protocols from the customers. Clearly, what we would like to do is build in a reasonable level of escalation into our contracts, given the inflationary environment that we've experienced over the last couple of years. Where that's not possible, then we have to take those inflationary challenges that are anticipated over the future into account when we go through the RFP process.

Andrew Shapiro (Founder and CEO)

Okay. And last call I also had asked about, and I think you said you, at the time, you were negotiating improvements, and it looks like you got three out of the four. And you said on the contracts that wouldn't amend, the furthest the runoff would take you is into the spring. So of those kind of contracts where they won't amend to allow for a price increase, et cetera, and that are going to expire later in the spring, do you expect those customers to then renew at your, you know, higher and better terms? Or that's gonna be kind of annualized revenue that you were generating that will not be added back in?

Can you kind of give a range to help quantify or get our arms around, I guess, the amount of revenue from that subsegment that we wouldn't mind necessarily going away, but we shouldn't count on, you know, continuing?

Mike Jenkins (CEO)

Yeah, that is actually correct. The number of these contracts are going to naturally expire in spring, actually in quarter one of our next fiscal year. Some of them are the end of April and in that timeframe. So the renegotiations that we've done are basically for the current contract period, then we'll go through the cycle for the next round of RFPs. At this point in time, those are active conversations which are starting, and I really have no guidance to provide on any of that, as those are active conversations with customers.

Andrew Shapiro (Founder and CEO)

Okay. And like how large in terms of revenue is the whole Stay-Lite segment here? That I guess includes a combination of profitable and unprofitable.

Per Brodin (CFO)

Yeah, when we acquired Stay-Lite, we disclosed that they were a $9 million-$10 million business.

Andrew Shapiro (Founder and CEO)

Okay. The renegotiated ones, the ones that you opened up your interperiod, was this just to get to break even on those contracts, or the pricing would provide for profitability at your normal margin or somewhere in between?

Mike Jenkins (CEO)

Yeah, moving forward, you know, it is our mandate to have these contracts be profitable, so not just break even.

Andrew Shapiro (Founder and CEO)

No, I understand that. No, I understand that, Bill, in terms of the new ones, but right now you've gotten some contracts amended interperiod before they expire, and you got some improvement. But the improvement you got, did you get just to break even? Did you get to your desired margin, or did you get to somewhere in between?

Mike Jenkins (CEO)

Yeah, all of these contracts, the pricing changes that we're making would allow for the company to be profitable on these contracts. They are rolling out, so we don't recognize the change in all cases immediately, 'cause there's often a backlog and those types of things, so the full impact of these contract changes and pricing changes occur over time. But the goal and what we've implemented is for all of these accounts to drive profitability.

Andrew Shapiro (Founder and CEO)

Okay, and two other follow-ups, not on the Stay-Lite. Voltrek, when does that acquisition and anniversary end? Remind me, the earn-out targets are not just revenue-based, but they're EBITDA-based, right?

Mike Jenkins (CEO)

The anniversary of Voltrek just occurred this past month in October, so we've just now anniversaried it, and the earn-out is based on EBITDA, not on revenue.

Andrew Shapiro (Founder and CEO)

Okay. And the DoD contract profitability, as you build that thing out, the accounting on that, that's not like some kind of completion of contract type of accounting, or is it?

Per Brodin (CFO)

I mean, to some degree, that's a decent way to think about it. It's based on installation of the fixtures, which, you know, is a decent analog for percentage of completion. So as we-

Andrew Shapiro (Founder and CEO)

Okay.

Per Brodin (CFO)

Yeah. Impacting multiple buildings on those bases, so it's as we install the fixtures, we recognize the revenue.

Andrew Shapiro (Founder and CEO)

Okay. Lastly, you made a comment about potentially seeking a mortgage on the headquarters building. Of course, this is not the optimal time to go lock in some kind of long-term rate. When does your current bank line, what's its maturity date?

Per Brodin (CFO)

December of 2025.

Andrew Shapiro (Founder and CEO)

Okay, and your pricing is what? Reference rate, plus what? What's the margin on that?

Per Brodin (CFO)

There's three bands. It's SOFR plus 1.50-2.25.

Andrew Shapiro (Founder and CEO)

Okay. Are we in the toughest band right now, in light of the fact we're not generating positive EBITDA?

Per Brodin (CFO)

That is correct.

Andrew Shapiro (Founder and CEO)

Okay, great. Thank you.

Operator (participant)

Thank you. With that, this concludes our Q&A session. I would now like to turn the conference back to Mr. Jenkins for closing remarks.

Mike Jenkins (CEO)

Thank you, and thanks to everyone for joining and listening to our call today. I look forward to updating investors and stakeholders in coming months and quarters as we execute on our growth objectives for fiscal 2024. We continue to take opportunities to meet with investors in person or virtually. We are presenting at the Sidoti & Company Virtual Conference on November 15th, and I encourage you to listen to our presentation and/or to register for a one-on-one call. For more information on our planned events, or if you would like to schedule a call with management, you can contact our investor relations team, whose information is in today's press release. Thank you very much. Have a good day.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.