Orion Energy Systems - Q3 2026

Transcript

Operator (participant)

Good morning, everyone, and welcome to Orion Energy Systems' Fiscal 2026 Third-Quarter Conference Call. At this time, all participants are in a listen-only mode. In this call, Sally Washlow, Orion's CEO, and Per Brodin, its CFO, will review the company's third-quarter results and its fiscal 2026 and fiscal 2027 outlooks. We will then 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, orionlighting.com. I will now turn the call over to Per Brodin, Orion's CFO. Please go ahead.

Per Brodin (CFO)

Thank you, Michelle. First, 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, believe, 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 our current expectations. Risks include, among other matters, 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. Now I'll turn the call over to Orion CEO, Sally Washlow.

Sally Washlow (CEO)

Thank you, Per. Good morning, everyone, and thank you for being with us today. I am delighted to report our results for Q3, our fifth straight quarter of positive Adjusted EBITDA. In our last investor call, I said that we were on track to achieve 3 milestones in FY 2026. Milestone one: maintain our NASDAQ listing and maximize our opportunity for growth in shareholder value. As our shareholders can attest, we have checked that box. Milestone two: by the end of third quarter, the enactment of a growth, profitability, and cost containment initiative that enables Orion to become a recognized long-term market leader. As today's earnings report can attest, we have checked that box too. Milestone three: by the end of the fourth quarter, $84 million in revenue at or near a positive Adjusted EBITDA for the full fiscal year.

As we announced two weeks ago, we believe we are on track to meet or exceed this milestone. The most illustrative way to bring you up to date about Orion is to review the two news items we announced a couple of weeks ago. First, we upticked our guidance range for our current fiscal year and set expectations for increasingly profitable growth in our next fiscal year, which begins April 1st. We raised our FY 2026 outlook to a range of between $84 million and $86 million in revenue at positive Adjusted EBITDA. Again, that's up from our previous outlook of $84 million in revenue at or approaching positive Adjusted EBITDA. Our guidance range increase was sparked by our Q3 expectations of about $21 million in revenue and our fifth straight quarter of positive Adjusted EBITDA, which are indeed the results that we are reporting today.

Additionally, we now expect positive adjusted EBITDA for the full FY 2026, which ends March 31st. We expect continued up and to the right profitable growth in FY 2027 with positive adjusted EBITDA on revenue between $95 million-$97 million. We based our uptick on increasing orders and the success of our recent cost structure improvements. A few of these recent orders include an exterior lighting project valued between $14 million-$15 million, beginning now in our current Q4, with the bulk of it completed in the first half of our FY 2027. This is an example of how we expand our scope of work within our current customer base. We expect more of this expansion in FY 2027, along with more new customer wins as well.

Our strategy to expand the products and services we provide is exemplified by the recent three-year renewal of the maintenance contract, as well as our growing backlog. We grow our business by listening to our customers and developing the products and services they need. Another area of focus that we are continuing to quote and win more and more work is within electrical infrastructure, which we define as integrated offerings within our LED lighting and EV charging lines of business. An emerging example of this for some customers is our initial integration of a localized battery storage solution that enables facilities to minimize cost and maximize efficiency by drawing on stored energy. Another example is the Orion Voltrek announcement just this week of our latest work for the Boston Public Schools, a $4 million installation of 105 EV charging stations and related infrastructure.

Orion Voltrek is a recurring partner in the BPS initiative to electrify 100% of the district's 750 school buses, the largest school bus electrification program in the Northeast. As I've said before, a number of industrial, commercial, and public sector facilities operated by some of the largest enterprises in the United States rely on Orion. Year after year, our largest long-time customers stay with us and grow with us because we deliver unsurpassed quality and unsurpassed ROI on an ongoing basis. One reason that they rely on us is that we are reliable, in part because our proprietary supply chain enables us to maximize efficiencies, minimize dwell times, and avoid choke points. As they also know, that our built-from-the-ground-up supply chain also helps insulate us from the risk factors associated with the headlines of the day.

Another reason our customers rely on us is that we earn more of their confidence the more we do with them. That includes retailers, two of the largest automakers on Earth, and one of the biggest school systems in America. Customers require the most demanding standards of efficiency, reliability, and compliance, repeatedly increase our scope of work because we deliver on time and on budget. We see increasing market customer and market demand ahead of us, as evidenced by our uptick expectations of growth and profitability through FY 2027. We expect to benefit from market tailwinds, especially in building, reshoring, and refurbishing industrial facilities ranging from data centers to manufacturing plants to big-box retail stores and public sector buildings. EV fast charging continues to be an area of opportunity, according to Perrin Research.

While the U.S. EV charging market faced uncertainty in 2025, the most recent Perrin report expects 8% growth in 2026. Perrin also cites growth trends in ports per site and rip and replace of existing EV charging infrastructure. It foresees what it calls a private-led expansion and improved CPO economics. The report puts a premium on execution quality and asset efficiency. We believe we have right-sized and recalibrated Orion for that environment that Perrin describes, and we believe that puts us in position for market expansion, product extensibility, and profitable growth. We could not be more energized about the remainder of the current fiscal year and the entirety of the next year. With that, let me turn to Orion CFO, Per Brodin, to review our financial performance and outlook.

Per Brodin (CFO)

Thank you, Sally. Today, we reported fiscal Q3 2026 revenue of $21.1 million compared to $19.6 million in Q3 2025. LED lighting segment revenue was $12.1 million compared to $13.2 million in Q3 2025, reflecting decreased project activity and ESCO channel sales, partially offset by an increase in distribution channel sales. Orion's expanded LED lighting project pipeline and efforts to drive growth in the distribution channel are expected to continue to contribute to higher revenues in Q4 2026 and into fiscal 2027. In addition, we are expecting a very strong Q4 from the Turnkey Group. Lighting achieved a Q3 2026 gross margin of 30.6% versus a 30.2% in Q3 2025, with pricing increases, cost reductions, and sourcing initiatives amplified by a more favorable Q3 2026 project and revenue mix contributing to this performance.

Maintenance segment revenue increased 13% to $4.4 million in Q3 2026 from $3.9 million in Q3 2025, reflecting the benefit of new customer contracts and the expansion of some existing relationships. We achieved a maintenance segment gross margin of 25.5% in Q3 2026 versus 26.4% in Q3 2025. EV charging solutions revenue was $4.7 million in Q3 2026 compared to $2.4 million in Q3 2025, reflecting the expected completion of a significant project within the quarter. EV achieved a gross margin of 36.7% in Q3 2026 versus 30% in Q3 2025. Our overall gross profit margin increased to 30.9% versus 29.4% in Q3 2025, reflecting pricing and cost improvements in all segments, particularly LED lighting and EV. We expect our overall gross margin to remain strong in Q4 2026 and throughout fiscal 2027, though it will likely vary on a quarterly basis due to revenue mix and volume.

Total operating expenses declined to $6.1 million in Q3 2026 from $7 million in Q3 2025, reflecting ongoing overhead and personnel expense reductions. Reflecting stronger gross margin and lower operating expenses, Orion's Q3 2026 net income was $160,000 or $0.04 per share compared to a net loss of $1.5 million or $0.46 per share in Q3 2025. Adjusted EBITDA improved to positive $761,000 in Q3 2026 versus $32,000 in Q3 2025, reflecting continued cost control and financial discipline. As Sally mentioned, this was Orion's fifth consecutive quarter of positive adjusted EBITDA. That puts our trailing 12-month adjusted EBITDA at $1.6 million on sales of $81.5 million. Year-to-date, cash provided by operating activities was $400,000 through Q3 2026 compared to $1.3 million in the prior year period. During the year, we have also had a $1.3 million net paydown of our revolving credit borrowings.

working capital was $8.9 million at Q3 2026 versus $8.7 million at year-end. Available financial liquidity was $11.8 million versus $13 million at year-end. Notably, we recently raised net proceeds of approximately $6.4 million through the issuance of 500,000 shares of common stock, which provides us with growth capital and the ability to pay down amounts outstanding on our revolving credit facility. Regarding our outlook, as Sally noted, last month we increased our expectations for growth and profitability for our current fiscal year and set expectations for increasing growth and profitability in our next fiscal year, which begins April 1st. We raised our fiscal 2026 outlook to a range of between $84 million and $86 million in revenue at positive Adjusted EBITDA. That's up from our previous outlook of about $84 million in revenue at or approaching positive Adjusted EBITDA.

Now we expect positive Adjusted EBITDA for the full fiscal 2026, which ends March 31st. We also announced that we expect a continued increase in profitable growth in fiscal 2027 with positive Adjusted EBITDA on revenue between $95 million and $97 million. This concludes our prepared remarks. Operator, would you please now commence the question and answer session?

Operator (participant)

Thank you. To ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In fairness to all, we ask that you please limit yourself to two questions before reentering the queue. One moment while we compile our Q&A roster. Our first question comes from the line of Eric Stine with Craig-Hallum Capital Group. Your line is open, sir. Please go ahead.

Eric Stine (Technology and Industrials Analyst)

Hi, Sally. Hi there. Good morning.

Per Brodin (CFO)

Morning.

Eric Stine (Technology and Industrials Analyst)

Hey. So maybe just starting with the external lighting project, the $14 million-$15 million, obviously very good to see. Just curious, I know some contribution in Q4, but maybe just for help on our side, any early thoughts on kind of linearity of revenue 1Q, 2Q of fiscal 2027. And then it also sounds like you're pretty optimistic that I know you've been doing significant work with Home Depot over time, but that this $14 million-$15 million has some expansion potential with it as well.

Per Brodin (CFO)

Hey, Eric. It's Per. I think maybe the way to think about it is we did start with some of those projects in, say, late January of this quarter. We expect that effort to ramp in January, February, and March. I've said we expect the majority of that revenue to hit in the first half. Actually, we expect to be complete by the end of July. I would think that there's some initial revenue and ramp in the fourth quarter here of 2026. I would expect that over those first five months of fiscal 2027, it'll be a little bit more of a steady earnings on revenue.

Eric Stine (Technology and Industrials Analyst)

Yeah. That sounds helpful. And then the expansion potential tied to that project, if there is some, then maybe expand on that.

Sally Washlow (CEO)

Yeah. Hi, Eric. We think that there's potential expansion, as we've noted, within this customer. We work closely with them day in and day out. That probably would not be in the, we'll call it, the first half of the year as we continue to be a partner with them.

Eric Stine (Technology and Industrials Analyst)

Okay. And then just second one quick. Very good to see the OpEx come down again. Per, I believe you termed it as a result of ongoing cost reduction initiatives. So where could that potentially go? I mean, is this kind of a quarterly runway we should think about, or is there potential further reductions?

Per Brodin (CFO)

We'll continue to try to manage those operating expenses as closely as we can. I think a lot of that effort, as you would suspect, ends up being finding cost savings to mitigate other cost increases. So I would think that ongoing expenses would be at that level or potentially slightly more, but probably at least in Q4, that that operating expense number would start with a 6.

Eric Stine (Technology and Industrials Analyst)

Okay. Thank you.

Per Brodin (CFO)

Thanks.

Operator (participant)

Thank you. And again, as a reminder, to ask a question, please press star 11 on your telephone. Our next question comes from the line of Gowshihan Sriharan with Singular Research. Your line is open. Please go ahead.

Gowshihan Sriharan (Research Analyst)

Good morning, guys. Can you hear me?

Per Brodin (CFO)

Yes.

Sally Washlow (CEO)

Yeah.

Gowshihan Sriharan (Research Analyst)

All right. Congratulations on your quarter.

Sally Washlow (CEO)

Thank you.

Gowshihan Sriharan (Research Analyst)

On the maintenance side, you've clearly had some big win with the large retailer. I'm curious just about the next year of customers. Are you seeing those smaller and midsize enterprises adopt a similar preventative maintenance model, or is this still more of a one-customer phenomenon at this stage?

Sally Washlow (CEO)

So no one's to the scale that this large retailer is for us in that division, but we are seeing increases month-over-month within some of our other customers and continue to pursue new customers and contracts within the space.

Gowshihan Sriharan (Research Analyst)

Gotcha. And with a strong run of contract wins with a handful of large customers, can you talk about how you're underwriting the execution risk? I know in the past, you've experienced some delays. Any kind of orders or penalties? How much room is there in your margins and guidance if one of these programs experiences the kind of delays that you have seen in the past?

Per Brodin (CFO)

I think that risk exists on an ongoing basis, and we've, let's say, temporary outlook with that potentiality. So I would say that we have tried to take into account any issues that might arise that we have at least some visibility to at this point.

Gowshihan Sriharan (Research Analyst)

Gotcha. All right. I'll jump back in the queue. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Matthew Dunn with Hanover Investors Management. Your line is open. Please go ahead.

Matthew Dunn (Investment Analyst)

Great. That's Matt Dunn with Hanover Investors Management. Wanted to ask about the distribution segment. You referenced that you're seeing some success there. Just wanted to get a little bit more color around that. What's driving that success, and what type of runway you see with that as well?

Sally Washlow (CEO)

Hi, Matt. So driving that success, we're out there with the customers expanding our relationships. As noted, we expanded the team that calls on that channel earlier this year, and that's proving to bear fruit. And also, we're looking at developing products from the request of customers in that channel as well. So we expect to engage further in the channel and deliver the products that they're asking for us to deliver as well.

Matthew Dunn (Investment Analyst)

Great. Great. Thanks, Sally. I did also want to ask about the electrical infrastructure opportunity. How much revenue are you getting from that newer area of your business to date? And I guess I just have a hard time really sizing how large the opportunity is over time. What can you share around all that?

Sally Washlow (CEO)

So the shape of the revenue that we get is certainly evolving from what traditionally we'd say product sales, and some of that even comes from the EV segment and the installation that we do there. And we're developing this, so I guess I don't have a hard number for you. But where we're getting some of these projects from is expansion within maybe an installation job that we had. And there's expanded work to do on-site. We're there, and they're requesting us to do that expansion of work, which can be seven figures in terms of the scope of those jobs that they ask us to do. So initially, when we got there, we didn't expect it, and then it's further grown.

Matthew Dunn (Investment Analyst)

Okay. And so how significant is the revenue that's contributing so far, or is it still it's really not a huge amount of revenue, and it's more of a future expected additional revenue that it's going to add?

Sally Washlow (CEO)

Yeah. We're continuing to build it. As we build out our plans for next year, we look at what the potential of this could be.

Per Brodin (CFO)

Maybe a different way to think about it, Matt, is we have had some good wins on that standpoint, both from, let's say, an overall win on a couple of jobs. And we've also had, to Sally's point, a couple of expansions on what started as lighting projects. That is not yet fully in our results through the end of Q3. A lot of that is, I'll say, one business, but some of that will be recognized in Q4, and some of that will go into fiscal 2027. And we're hoping to build on those successes as we go. So it's a little hard to size it at this point.

Matthew Dunn (Investment Analyst)

Great. I appreciate the help.

Per Brodin (CFO)

Thanks.

Operator (participant)

Thank you. This concludes the question and answer session. I will turn the call back over to Sally Washlow for concluding remarks.

Sally Washlow (CEO)

I want to thank everyone again for taking time to join us today. We look forward to updating investors on our fourth-quarter call in early June. Between now and then, we look forward to meeting with many of you or to meet, whether it's in person or virtually. We will be presenting at a number of conferences, so please watch for our forthcoming announcements regarding scheduling. Please also reach out to our investor relations team to set up a meeting or for any other information. Their contact information is at the bottom of today's press release. Many thanks again for your interest in Orion. I look forward to continuing to update you on our progress.

Operator (participant)

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