Orion Energy Systems, Inc.

Good morning, everyone, and welcome to Orion Energy Systems Fiscal 2025 Third Quarter Conference Call. At this time, all participants are in listen-only mode. I will now turn the call over to Bill Jones, Investor Relations, to begin.

Thank you, Olivia, and good morning to everyone joining this call today. Mike Jenkins, Orion CEO, and Per Brodine, CFO, we'll review the company's Q3 25 results and outlook. And following the prepared remarks, we'll open the call to investor questions. Today's conference is being recorded. A replay will be posted on Orion's corporate website, orionlighting.com, in the investor section. As a reminder, prepared remarks and answers to questions to follow will 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 goals or objectives, company plans or outlook are also forward-looking. Such forward-looking statements are subject to various risks that could cause actual results to differ materially from current expectations. Risks include, among other matters, those that Orion has described in its press release issued this morning and in its filings with the Securities and Exchange Commission. Except as described therein, Orion disclaims any obligation to update or revise forward-looking statements, which are made as of today. Reconciliations of certain non-GAAP financial metrics to the nearest GAAP measures are also provided in today's press release. And with that, I will now turn the call over to Orion CEO, Mr. Mike Jenkins.

Thanks, Bill, and thank you all for joining us today. As highlighted in today's press release, we have had significant developments and progress in quarter three, yet our revenue performance was disappointing. I believe the actions we have taken over the past year have put Orion in a stronger position for substantially improved performance in fiscal 26 on both top and bottom lines. I will let Per walk you through our Q3 results, and I will focus my remarks on actions we have taken to position Orion for meaningful revenue growth as well as substantial bottom line improvements as we move forward. On the revenue side, over the past few months, we have landed seven new LED lighting contracts and opportunities with revenue potential of $100 to $200 million over the next five years. This new business is the result of changes we have been making in our sales, marketing, product, and services offerings to better meet customer needs. Building on this success, we are reorganizing our operations to further enhance and focus our go-to-market approaches, which has been resonating with long-term and new customers. We have also continued to work on business process improvements that lower our overall fixed operating costs to reduce our revenue break-even level and increase the contribution from incremental revenue. This is work that we needed to do as it is important in helping us to manage through inevitable variability in the timing of large orders. We have also made substantial progress over the past 18 months in improving product and service margins. In our lighting business, Cost engineering, enhancing our plant layout, and supply chain strategies have allowed us to redesign products and processes so that we are able to deliver the same high performance but at lower cost of goods. As a result, we have been able to remove total cost from our manufacturing site. This engineering and product know-how has also helped us produce Triton Pro and which is a line of products designed to provide more price-sensitive customers with a competitive product line with strong performance. Triton Pro margins are accretive to our overall lighting margin, considering they do not require a lot of fixed cost, as they are produced through a network of contract manufacturers to Orion's specifications. As we have discussed at length, margins in our maintenance business have made a substantial rebound due to strategic pricing and restructuring decisions made last year. Orion's total Q3 2025 blended gross margin percentage improved 490 basis points to 29.4%. This is the second highest quarterly rate in seven years as a result of all of our work in the above areas. Considering the increase in gross margin as well as reductions to fixed costs, We have reduced Orion's annual break-even point by at least 20% between $78 and $85 million, depending on our revenue mix, from approximately $105 to $115 million over the past two years. Progress on our revenue break-even was reflected in slightly positive Q3 adjusted EBITDA. Stepping back to look at larger industry trends, the lighting industry as a whole has faced headwinds due to higher interest rates, a slowdown in new commercial construction projects, and uncertainty around the economy. Despite this backdrop, as I mentioned, Orion has landed a strong base of new projects that we outlined in today's press release. Looking forward, the substantial return on investment, typically one to four years moving from fluorescent to LED, and better light quality that are provided by our LED lighting solutions should continue to make LED retrofit projects compelling capital investments. Adding urgency for LED retrofits is the rollout of mandates that prohibit the sale of fluorescent lighting fixtures and the replacement tubes due to the safety and environmental issues they pose. A particular concern is the danger of mercury utilized in fluorescent tubes and the safety challenges of handling and disposing them. In addition, there are substantial energy efficiency, maintenance, and illumination benefits from converting to LED lighting. There are now 14 states which have either or are in the process of adopting these fluorescent bands. It is important to note that these mandates are fully state-driven and are not tied to federal regulations nor funding. Please go to our website at orionlighting.com for more information regarding these bands. Turning to our Voltrek EV charging solutions business, we expect a strong close to fiscal 25 from projects, including some under Eversource Energy's EV Make Ready program that were previously expected in Q3 2025. Revenue from the EV charging segment is up 48% year-to-date, And Voltrak, a pioneer in EV charging solutions, is well positioned to continue its growth trajectory in fiscal 26. Of course, the prospect of federal funding for EV charging is now unclear as the new administration is sought to halt disbursements under the $5 billion Electric Vehicle Infrastructure Act, or NEVI, program. It is too early to tell ultimately where the NEVI funding program is going. Importantly, Orion has very little exposure to NEVI-funded projects in our fiscal 26 outlook, though the elimination or reduction of funding, tax credits, and rebates could impact the plans of some customers. Despite this near-term uncertainty, we remain bullish about our growth prospects in our EV charging business, as evidenced by the value of our pipeline growing sequentially in the quarter. Orion Voltrak is a strong player in the EV charging solution space with a broad portfolio of successful projects across the country. As a result, we believe we are uniquely positioned to address the EV charging station needs of larger corporate and public sector organizations with large footprints. Even today, there is a very pressing need to build out additional infrastructure to properly support the current installed base of EVs And that need grows each day as new vehicle shipments continue to expand the installed base of commercial and consumer electric vehicles. Even with reduced federal support, we believe the market opportunity is sufficiently large to continue Voltric's growth in fiscal 26 and longer term. Whether EVs eventually comprise 25 percent or 50 percent or more of all domestic vehicles, the infrastructure to properly support those vehicles will still need to be substantially expanded. Turning to our electrical maintenance business, we believe it provides a very solid long-term platform on which to build a growing base of recurring revenue with excellent cross-fertilization potential with LED lighting. We also believe this business will benefit from the increasing complexity, interactivity, and importance of electrical systems monitoring and controls. Following our restructuring of this business, we are now in a position to begin adding new customers, and we have closed one significant account, which will begin in Q4 and is expected to grow to $2 to $5 million per annum. As we often mentioned, our year-to-date maintenance revenue has been impacted by pricing increases that resulted in the intentional loss of a few large unprofitable customers. Importantly, these actions have allowed us to solidify our business and bring our gross margin percentage back into the range that is positively contributing to our company. The gross margin in maintenance rebounded over 2,000 basis points to 26.4% in Q3 2025, up from 6.2% in Q3 2024. In addition, we have begun to win new business from existing and new customers that provides a solid base to grow upon. With that as a backdrop, I'd like to discuss the reorganization of our business that we disclosed in today's release. The purpose of this reorganization is to focus our team and resources to better serve our customers and enhance our revenue and profit opportunities, while also working to streamline our operating overhead. We anticipate $1.5 million of further annual cost reductions through targeted staffing eliminations. Also, senior management and the board have agreed to forego 10% of their salaries and retainers to the balance of fiscal 25 and until business performance improves. We are reorganizing our three business segments into two commercial business units, or CBUs, that target very different end customer needs. The first unit, Solutions, is focused on developing and executing our LED lighting, EV charging, and maintenance services business for large and complex corporate, government, and super ASCOs, where we provide turnkey solutions, as well as to other private sector accounts. The solution CBU focuses on combining leading products and technology with services to create a strong value proposition. Services provided include activities like site audits, custom product and systems engineering, installation, commissioning, system maintenance, and overall project management. The second unit, partners, will focus on accelerating LED lighting and EV charging product sales by catering to the unique needs and dynamics of Orion's distribution partners, including energy service, companies, or ESCOs, and our distributors and agents. These channels require portfolio products to meet their needs for levels of efficiencies and price points. To better serve this market, Orion has developed new product lines, such as Triton Pro, that balance smart design, performance, and energy efficiency with more competitive price points. These new products have been well received, and our partners have built a significant mutual pipeline of new projects using Triton Pro. Our focus through the new structure is to get even closer with our customers through dedicated teams to discover our customers' unmet and future needs. We will be able to take this insight into our product and services development process to provide greater value and the ability to capture more new business. Orion has already commenced these realignments and expects the new structure to be fully implemented and effective as financial reporting segments as of April 1, 2025. Orion has built a strong platform of very competitive product and service solutions that help our customers meet their energy savings, workplace safety, and sustainability goals. In addition, we deliver the highest levels of lighting and electrical project expertise with elite customer service and delivery. We now have an expanding project pipeline of opportunities across our business, which give us strong confidence for the coming quarters. Reflecting the impact of the change in timing of new business projects, we have reduced our fiscal 25 revenue outlook to a range of 77 to 83 million dollars. This outlook implies Q4 25 revenue of 19 to 25 million, which would be approximately in line or better than any of our first three quarters of this year. This outlook is based on the current business climate, initial revenue expected from large national LED projects, as well as significant sequential rebound in Orion's Voltrac EV charging solutions business. Due to stronger than anticipated new maintenance service opportunities, we now expect fiscal 25 maintenance services revenue to decrease by approximately two to three million in fiscal 25, versus our initial expectation of a $4 to $5 million decline. Looking ahead and considering a growing base of customers and large projects expected to engage over the next several quarters, we believe Orion is well positioned to achieve double-digit revenue growth and positive adjusted EBITDA in fiscal 2026. We plan to provide a more specific fiscal 2026 revenue outlook when we report Q4, 25 results in June. Now I'll turn it over to Per Brodine.