Orion Energy Systems, Inc.

Good morning, everyone, and welcome to the Orion Energy Systems Fiscal 2024 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After some prepared remarks, we will conduct a question-and-answer session. I would now like to turn the conference over to Bill Jones of Vessel Relations to begin.

Thank you, and good morning, all. Mike Jenkins, Orion's CEO, will begin today's conference call with a review of Orion's current business strategy and outlook. Per Brodine, Orion's CFO, will then discuss the company's first quarter results, financial position, and guidance, among other matters, and then we will take investor questions. Today's conference is being recorded, and a replay will be posted to the investor relations section of Orion's website at 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. These forward-looking statements generally include words such as anticipate, believe, expect, project or similar words. Additionally, any statements that describe future objectives and goals, plans or outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to differ materially than currently expected. These risks include, among other factors, matters that the company has described in its press release issued this morning as well as in its filings with the SEC. Except as described therein, the company disclaims any obligation to update forward-looking statements that are made as of today's date. Reconciliations of certain non-GAAP financial metrics to GAAP measures are also included in today's press release. Now, let me turn the call over to Mike Jenkins.

Thank you, Bill. Good morning, and thank you all for joining us this morning. While Q1 was a more modest quarter as previously suggested, we remain very confident in our pipeline of opportunities for the balance of the fiscal year which we believe position us well to deliver meaningful growth over fiscal 23. Our confident outlook is supported by the expanded array of complementary products and services that we have put into place over the past two years to better meet our customers' evolving needs. Per will discuss our Q1 performance and guidance in more detail later in the call, while first I will provide a brief overview of how we have repositioned our business to meet our customer demands. As you may know, building on our proven expertise in design and implementation of large national LED lighting retrofit projects, we expanded into lighting and electrical maintenance services, and then last year we entered the market for electrical vehicle charging solutions. Importantly, both of these initiatives were in response to customer inquiries regarding our ability to service needs in these areas. Orion Maintenance Services was launched in fiscal 21 to support our largest client with reactive maintenance services for their lighting and light electrical needs. Given the scale and geographic scope of our client's requirements, we quickly recognized the need to expand our service footprint and capabilities, and we proceeded to acquire StateLight Lighting in Q1 of fiscal 23. Last week, we announced the signing of a three-year agreement with our largest customer to provide preventative lighting maintenance to approximately 2,000 stores nationwide. This program started in February and has scaled over the last several months. Given the increasing complexity of lighting systems and controls, Internet of Things solutions, and other electrical systems, we view maintenance as a growth opportunity and an ideal way to expand the value we can provide to our customers over the long term. We continue to build out the scope of this business to ensure we have the resources, talent, and appropriate systems in place to deliver reliable, high-quality, and timely service to national customers, customers who may have hundreds or even thousands of locations across the country. Our maintenance solutions business also provides other benefits to Orion, which include a growing base of recurring revenue, as well as a regular, ongoing presence in customer locations. This positions us well to both understand and deliver products and services to meet ever-evolving needs. In October of 22, we also entered the rapidly growing market for commercial and industrial EV charging solutions with the acquisition of Voltrek. As I mentioned, a growing number of customers had asked about our capabilities in this area. After researching the market, we quickly realized that our best path to enter the space was by partnering or acquiring a company with capabilities, experience, and customer service commitment essential for success. We were fortunate to find Voltrek, a pioneer in commercial EV charging solutions with deep expertise, strong industry relationships, and an excellent track record. Most importantly, Voltrek had a business model and philosophy that was very similar to our turnkey LED retrofit solution business. In our lighting business, turnkey solutions involve initial site surveys and custom product designs engineered for the customer's unique needs. From there, we progressed through the on-site installation and system commissioning, all with one central point of contact and accountability – that provides the customers with a very streamlined and easy project solution. Our EV charging solution business model is very similar to this, as it requires upfront site visits, followed by custom design and planning to meet each customer's needs. In both cases, Orion is positioned to provide ongoing maintenance and support. Historically, Voltrek's business was focused in the Northeast near its headquarters in Massachusetts. We are investing in a variety of initiatives to support Voltrec's ability to scale its business for national reach. We are investing in personnel, infrastructure, and other resources to enable them to source and execute projects across the country and to more closely integrate their offerings and financial reporting within Orion. While the process of building Voltrec's team and infrastructure has imposed short-term constraints on their activities during the first quarter, We are very excited by the progress they are making in building out their team and capabilities. EV charging revenue dipped sequentially in Quarter 1-24 as the unit managed through the integration and personnel recruiting processes. Segment contributed $1.2 million of revenue in Q1-24 versus no revenue for Orion in Q1 of 23 and 3.4 in Q4 of 23. One note that in Q4 of 23, there was a large school bus project, which we've previously mentioned, that significantly improved this quarter's results. We anticipate substantial growth at Voltrac in coming quarters and years as the business builds upon its expanded base of customers and projects across the U.S. Driving demand for EV charging infrastructure, our forecast EVs will represent roughly half of the new vehicle fleet by 2030, The current administration also recently announced new mileage standards that are likely to drive continued growth in EV adoption. Importantly, we believe these new business areas are well aligned with our core mission of helping customers achieve their financial and sustainability goals. At Orion, we leverage the benefits of cutting-edge technologies and custom design, engineering, implementation, and high-quality service to develop and manage long-term customer relationships. Basically, we help customers and partners navigate, implement, and maintain increasingly complex and interconnected electrical systems. Additionally, outside of components, we manufacture most of our products in the U.S. at our Manitowoc, Wisconsin facility. Our manufacturing capabilities provide flexibility, customization, and industry-leading delivery timeframes with Made in America solutions. In our maintenance services business, Revenue declined slightly to $3.8 million in Q1 of 24 from 4-1 in Q1 of 23 due to decreased activity with a larger customer, including some special projects. The business also saw a profit decrease in the period, reflecting a combination of legacy pricing embedded in the Staylight organizational contracts, as well as higher subcontractor costs. We are now rolling out updated pricing for both new and existing customers to better reflect our current cost structure. In the case of some legacy arrangements, we have secured significant price increases to position the business for appropriate profitability. While essential, we recognize that this effort will likely result in some loss of business that could provide a modest headwind for the segment. There are plenty of growth opportunities in maintenance, and we're investing to ensure we can deliver and maintain high levels of customer satisfaction. After many months of work, we recently finalized a three-year preventative maintenance agreement with our largest customer, a well-regarded national retailer. This agreement formalizes and builds upon services we initiated in February and scaled through July. Under this agreement, Orion will provide LED lighting and light electrical preventative maintenance services to approximately 2,000 retail stores on a nationwide basis, in addition to the existing reactive maintenance business in place. Lighting revenues were $12.6 million in Q1-24 versus $13.9 in Q1-23, again reflecting variability in timing of larger turnkey projects. Several projects are now ramping in Q2, including installations on a $9.6 million LED retrofit project in Europe for the Department of Defense, which we expect to conclude this fiscal year. This project, which started later than we originally expected, was sourced in conjunction with a large international ESCO. In addition, we have recently commenced on an outdoor lighting retrofit project for our largest customer, and anticipate roughly $5 million or more in revenue expansion from an existing customer in the warehouse logistics sector through an ESCO partner. Both of these new pieces of business have potential for additional revenue beyond fiscal 24. Besides what I've mentioned, we also anticipate solid full-year growth in our ESCO and electrical contractor channels. where we continue to build a base of productive relationships with partners who appreciate our quality, value, reliability, and high levels of customer service. Our ESCO business closed quarter one up over 30%, excluding the Department of Defense project, and we expect strong growth to continue throughout fiscal 24. End customers in the ESCO channel are particularly focused on energy savings and environmental goals, to help them combat higher energy prices and CO2 production. Generally speaking, LED lighting retrofits provide obvious and very quantifiable environmental benefits and high returns on investment, ranging from 30 to 50 percent ROI with two to five-year payback periods. This compares to solar panel installations that typically involve 10 to 20-year paybacks. To support growth in the ESCO and electrical contractor channels, we recently launched a new line of value-oriented high bay lighting products that we call Triton Pro and an expanded line of exterior LED fixtures. These new product lines were developed in response to customer and partner requests for a broader array of more competitively priced products, so we are quite optimistic about their sales potential. Reflecting these various factors, we expect our second quarter revenue to to be higher than Q1, and we anticipate the second half of fiscal 24 to be meaningfully stronger than the first half. Finally, I want to point out that since our last call, Orion published our second annual sustainability report to review our mission, progress, and goals. I encourage everyone to take a look at that report, which is available on the homepage of our website, orionlighting.com, and provide us any feedback you have. Sustainability and conservation initiatives are proving to be very important to many of our large corporate customers, and we expect these initiatives to play an important role in our long-term growth. While we still have work to do to build out and integrate our new lines of business, we are very proud of the progress our teams have made to date and excited about the expanding set of opportunities ahead. With that, I will hand the call to Per Brodine to discuss our financials and fiscal year outlook in more detail.