Orion Energy Systems, Inc.

Good morning, everyone, and welcome to Orion Energy Systems' fiscal 2026 second quarter conference call. At this time, all participants are in a listen-only mode. In this call, Sally Washlow, Orion's CEO, and Per Brodine, its CFO, will review the company's second quarter results and its fiscal 2026 outlook. Then we will open the call to investor questions. Today's conference 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 Brodine, Orion CFO.

Thank you, Rivka. First, as 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 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 will turn the call over to Orion CEO, Sally Washlow.

Thank you, Per. Good morning, and thank you for being with us today. I am extremely pleased to report our Q2 results highlighting a year-over-year increase of more than one-third in gross profit. This is also our fourth straight quarter of positive adjusted EBITDA. We recorded incremental growth in total revenue and significantly more than that in maintenance services, even as we unburdened ourselves of an unprofitable contract. And we saw a welcome bounce back in EV charging as the sector-wide uncertainty of the earlier part of the year began to dissipate. When we last convened, I said that we were on track to achieve three milestones in fiscal 2026. Milestone one, by the end of the second quarter, a positive resolution that enables a publicly traded Orion to maximize its opportunity for growth in shareholder value. We achieved that by maintaining our NASDAQ listing. Milestone two, By the end of the third quarter, the enactment of a growth profitability and cost containment initiative that enables Orion to become a recognized long-term market leader in its core businesses. This is already contributing in the second quarter as we reported 34% higher gross profit and the fourth straight quarter of positive adjusted EBITDA. 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. We are on plan and our expectation for the fiscal year is unchanged. We have only just begun and we are demonstrating building towards sustainable and profitable growth beginning in the second half of this year. Even In these early innings, it is gratifying to see that our work is being increasingly recognized and not just by our shareholders. Our partners and customers have long recognized Orion as their go-to partner for installation, ongoing maintenance, and managed services for LED lighting and EV charging. We are also seeing an increase in activity related to quoting and winning work within electrical infrastructure. As I noted in our last call, industrial, commercial, and public sector facilities operated by some of the largest enterprises in the United States rely on Orion. With products made in America, along with a global supply chain, and now in our fourth decade, Orion serves as a go-to provider to Fortune 100 corporations and other global leaders in sectors ranging from manufacturing to government to retail. A recent illustration is last month's announcement of a major retailer's three-year renewal with us representing reoccurring revenue of between 42 million to 45 million. Our largest long-time customers stay with us year after year because we deliver unsurpassed quality and unsurpassed ROI. Whether deployed independently or in a combination with our ESCO and distribution partners, Orion Solutions deliver unrivaled ROI to industrial facilities requiring the most demanding standards of efficiency, reliability, and compliance. That recognition serves us particularly well at this pivotal moment. Just in Q2 alone, we saw an upswing in the lighting market with the recent Dodge Momentum Index report that commercial, industrial, and public sector construction planning is 33% ahead of year-ago levels. We see an improved outlook in the EV charging market with the confidence-boosting federal declaration reassuring the availability of $5 billion in government EV charging funds. We are beginning to see increased opportunities for electrical infrastructure installation and maintenance, with megatrends from reshoring to refurbishing to replacing manufacturing and other industrial plants in the United States. All of these tailwinds mean that Orion has a multi-sector, reoccurring revenue wind at our back, whether it is in lighting, EV charging, or maintenance services. As I promised on our first call, we will continue to keep you apprised with increasing frequency and with increasing granularity throughout this fiscal year and beyond. Now, drilling down further on the second quarter. Once again, Q2 featured solid stability and progress in our three business lines, as well as positive guideposts for the rest of the fiscal year. The quarter resulted in enhanced margins, reduced costs, and meaningful progress on the bottom line. We remain in a solid position for the full fiscal year. Orion's Q2 26 revenue was 19.9 million versus 19.4 million in Q2 25. Q2 26 gross profit grew 800 basis points to 31% versus 23.1% in Q2 25. And we achieved our fourth consecutive quarter of positive adjusted EBITDA. Per will provide details in a minute. Let's look at a quick snapshot of some of the highlights from Q2, which featured solid accomplishments in our three business lines. In lighting, we had some significant new business wins exemplified by $11 million in government lighting and up to $7 million in LED lighting for facilities belonging to some of the biggest names in the automotive industry. In EV charging, we saw a welcome bounce back from the uncertainty that the entire EV sector experienced in the first few months of the year. A particular Q2 highlight was the $8.5 million in EV charging work in Massachusetts. We also saw the confidence-boosting federal clarification reassuring the availability of $5 billion in government EV charging funds. In maintenance, these and other engagements featured ongoing managed services that ramp reoccurring revenue and ensure a close, continuous, and expanding relationship with our enterprise customers. It's also important to note a couple of particular points about Q2. One is that our maintenance services achieved significant growth even while allowing the lapse of an unprofitable contract. Another is that EV charging showed a welcome bounce back from the uncertainty that the entire EV sector experienced in the first few months of the year. Our Q2 gross profit, now at 31%, a year-over-year jump of more than one-third, was also a standout. This was largely achieved by continuing reductions in LED lighting fixture costs via our ongoing improvements in reengineering, plant efficiency, and improved sourcing, as well as via both margin and volume increases in our maintenance services business. We continue to benefit from the success of our cost control initiatives, and we expect to see ongoing improvement throughout the rest of the fiscal year. On the new business front, we continue to build our expanding pipeline of contracted LED lighting projects, even as we penetrate and radiate within existing maintenance services customers. We are laser focused on increasing sales in our LED lighting distribution business. On the new product front, We continue to gain traction with our value-based LED lighting fixtures. The marquee name here is Triton Pro, designed and engineered in response to popular demand from both customers and channel partners. Triton Pro is competitively priced LED lighting line that is getting traction with a number of customers. We also continue to partner with our customers to bring together seemingly discrete products and services into the connected tissue domain of electrical infrastructure, a name we've been dropping lately, you may have noticed. Electrical infrastructure integrates offerings like LED lighting, high voltage EV charging stations, and a high impact array of maintenance and managed services. We'll have more to say about this initiative as well. For now, suffice to say that it is in response to requests from our customers, as well as those mega trends I mentioned earlier. Data centers, AI, manufacturing, retail, electrification, industrial and complete commercial fleet management, and others. These are the headlines of the day. You see these headlines in the Wall Street Journal, in Barron's, in your hometown paper. You may have noticed that you see them in Orion press releases too. Orion sits squarely in the confluence of these mega trends, and it has solutions to not just serve them, but to accelerate them. With that, let me turn to Orion CFO, Per Brodine, to review our financial performance and outlook.

Thank you, Sally.

Today we reported fiscal Q2 26 revenue of $19.9 million as compared to $19.4 million in Q2 25 with two of Orion's three segments growing year over year. LED lighting segment revenue decreased 2% to $10.7 million compared to $10.8 million in Q2 25 reflecting increased project activity and distribution channel sales offset by lower ESCO channel sales. Orion's expanded LED lighting project pipeline and efforts to drive growth in the distribution channel are expected to contribute to higher revenues in the back half of fiscal 26 versus fiscal 25. Lighting achieved a Q2 26 gross margin of 27.5 percent versus 25.4 percent in Q2 25 with pricing increases, cost reductions, and sourcing initiatives being amplified by a more favorable Q226 project and revenue mix. Maintenance segment revenue increased 18% to $4.5 million in Q226 from $3.8 million in Q225, reflecting the benefit of new customer contracts and the expansion of some existing relationships. We achieved a maintenance segment gross margin of 23.7% in Q2 26 versus 15.3% in Q2 25 as there was a significant inventory charge recorded in Q2 25 as part of the segment restructuring. EV charging solutions revenue was 4.8 million in Q2 26 compared to 4.7 million in Q2-25, reflecting the expected completion of a significant project within the quarter. EV achieved a strong gross margin of 45.8% in Q2-26 versus 23.7% in Q2-25 due to a strong improvement in sales mix. Our overall gross margin increased 790 basis points to 31% versus 23.1% in Q2-25, reflecting pricing and cost improvements in all segments, particularly LED lighting and maintenance. We expect overall gross margin to remain strong in fiscal 26, though it will likely vary on a quarter-by-quarter basis due to revenue mix and volume. Total operating expenses declined to $6.4 million in Q2-26 from $7.7 million in Q2-25, reflecting ongoing overhead and personnel expense reductions and earn-out expense of $0.6 million in Q2-25 that did not recur in 2026. We expect operating expense to approximate Q2 levels in the remaining two quarters this year. Reflecting stronger gross margin and lower operating expenses, Orion's Q2 26 net loss improved to 0.6 million or 17 cents per share from a net loss of 3.6 million or $1.10 per share in Q2 25. Adjusted EBITDA improved to a positive 0.5 million in Q2 26 versus a negative 1.4 million in Q2 25 reflecting cost control and financial discipline. As Sally mentioned, this was Orion's fourth consecutive quarter of positive adjusted EBITDA that puts our trailing 12-month adjusted EBITDA at $0.9 million on sales of $80 million. Year-to-date cash provided by operating activities improved to $1.3 million in Q2-26 from a use of cash of $2.5 million in the prior year period primarily due to the improved bottom line performance. During the year, we have also had a net pay down of our revolving credit borrowings by $1.25 million. Net working capital was $8.1 million at Q2 26 versus $8.7 million at year end, primarily reflecting the use of cash to pay down on the revolver. Available financial liquidity was $13.5 million versus $13 million at year-end. During the quarter, we issued $1 million of common stock and made $875,000 of cash payments to partially satisfy the Voltrek earn-out obligation. Turning to our Fiscal 26 outlook, we have reiterated the Fiscal 26 revenue growth expectation of 5%, to approximately $84 million that we initiated in June. We have also reiterated that our revenue growth outlook positions Orion to approach or achieve positive adjusted EBITDA for the full fiscal year, depending on revenue mix. This growth outlook anticipates modest growth in LED lighting and electrical maintenance revenues and flat to slightly lower EV charging revenues. And this concludes our prepared remarks. Operator, would you please commence the question and answer session?

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Eric Stein of Craig Hallam Capital Group. Your line is now open.

Hi, Sally. Hi, Per. Good morning.

Good morning.

So maybe just starting on the EV business, I mean, clearly a positive development with clarity from the government. And, you know, I know that a lot of your business there has been through utility programs. But I guess I'm curious what you are seeing with some of your customers. And I think this maybe goes hand in hand with the energy infrastructure initiatives and a bundled offering. But I do know that part of the reason that you made this acquisition a while back is because your customers were requesting these capabilities. So just curious what you're seeing from your enterprise customers.

Hi, Eric. Yeah, we're absolutely seeing some of that from our enterprise customers bringing, whether it's an LED lighting project that would have started out as that, but bringing then charging into their parking lots as well. So that is some of the things that we're seeing in that. Our business was... had a lot of utility programs, but I think you've seen in recent announcements further expansion of the work with Boston Public Schools, MassDOT, as well as the state continues to build out its infrastructure, and then hiring additional salespeople. We hired a gentleman based in our Florida office to help further expand our geographic reach as well, and we have a couple of other areas targeted. that we're investigating right now and more to come on that.

Okay. And then, I mean, I guess segue to energy infrastructure. Is this something where you feel like you can accelerate some of that traction if you are going to the market with more of a bundled offering? Or maybe that's, you know, I'm not sure if that's how you think about it or not, but a bundled offering where, again, a customer just has one point of contact for for everything that they want to do.

Yeah, we're certainly looking at that. And a lot of it has been developed through customer requests. We're on site. They see the work that we do. An example of this would be it started as an LED lighting project, but maybe they need help bringing their facilities up to code. And then they turn to us to say, can you do that and manage that project for us as well? So those are where the work in electrical infrastructure is expanding, and we're at the very beginning of this as well, but even energy storage so that they look to offload the peak time, so working to develop relationships to bring energy storage into their facilities as well.

Got it. Okay, maybe... Maybe last one, you know, just you had the maintenance agreement renewal. I think we can all kind of guess who that customer is. But, you know, just curious, maybe not to that size, given who that customer is. But, you know, what are you seeing on that front? Clearly, you are sounding more positive, although modest growth this year, you know, certainly long term on the maintenance side. What are you seeing in terms of demand there from other enterprise customers?

So we have some other customers as well. It's a little bit of a slower build as we work with them, but month over month, that revenue is growing with them as well and the trust that they have in us. So we think that that will continue to expand.

Okay, thank you.

One moment for our next question. Our next question comes from the line of Samir Joshi of HC Wainwright. Your line is now open.

Good morning, Sally. Thanks for taking my call. Just a little bit more on the EV outlook. I know you are expecting flat or slightly lower year-over-year growth there. But in terms of the strategy going forward, given that these funds are now away, the $5 billion are being made available, do you expect or are you planning to have some kind of a geographic expansion or maybe a roll-up with some other similar businesses that might increase the size of your EV offering? Yeah.

Hi, Samira. We are certainly looking at a geographic expansion and, you know, of no hiring a sales gentleman to lead our Jacksonville office and then other areas of the country as well. The teams are working on mapping out where we best have personnel and then also where there's a lot of EV infrastructure work going on. So we certainly expect further geographic expansion.

Understood. Switching to lighting, I think one of the things I may have misheard, but just making sure, the $42 to $45 million recurring revenue potential, is that over the life of the contract, or what do those numbers represent?

Yeah, it's a three-year contract renewal, so that's over the life of the three-year contract.

Okay. And then, of course, I should have started with congratulations on the cost control efforts and results, but I also heard during the commentary from both of you the word ongoing. Should we expect... further improvements in gross margins to like mid-30s or near that level? And on the operating expense front, I have noticed in the last couple of quarters your sales and marketing expense as a percent of revenues have reduced. Are there some synergies you are seeing there that we may have missed?

Yes, Amir, I think a couple thoughts on those questions.

I'll try to catch all of them. On the expense line, I think what I tried to convey is that the Q2, the most recent quarter that we completed from an OPEC standpoint, is the level that I think we expect for the next two quarters. We are, I think some of the other comments are aimed at saying that we will continue to look for savings opportunities that are out there, but at the same time, we'll also look for opportunities that we may need to invest a little bit of money as we did with the sales person in EV, because we think that will have a good payback for us as we expand sales in the EV segment. From a margin standpoint, I don't think in the near term we have an expectation of getting into the mid-30s. I think being in the neighborhood of the high 20s to 30 is probably more realistic. As I mentioned, there will definitely be some fluctuation there depending on mix as well as sales volumes that cover fixed costs within our COGS structure. Hopefully that clarifies those two.

Yeah, I understand. No, thanks for that, Kala. This last one may be just a clarification. The $875,000 paid during the quarter, were they part of – on a gap accounting basis from a previous quarter or – Are these $835,000 included in the OPEX that are for the September ending quarter?

The $875,000 that was paid had been accrued as of March 31st, as was the $1 million that was paid in equity. So we had the larger accrual at March 31st. We made those two payments. And then there's still a remaining balance that, as we've disclosed separately, is subject to arbitration. So we expect that to play out over the next quarter or so.

And has that been accrued, or is that pending the settlement?

We've accrued what we believe is the appropriate amount, and that was accrued as of March 31st. Great.

Thanks a lot for taking my question.

Thanks, Samir.

As a reminder, please remember to dial star 11 on your telephone and if you would like to ask a question. One moment for our next question. Our next question comes from the line of Bill DeZellum of Titan Capital Management. Your line is now open.

Thank you. I have a group of questions. I'd like to start with the lighting business. You brought in some talent to build reignite ESCO distribution revenues. Would you please discuss whether there's been any tangible benefit yet, and I recognize it's very early to ask the question, or whether that pipeline is still developing?

Bill, it's Per. Yeah, I think in my remarks I mentioned that in the quarter, our distribution channel revenues increased, and that's where the main talent addition that we discussed back in the June timeframe was mentioned. I think that he has landed on solid ground and with a running start of some sort because of his connections within the industry. We think that he will continue to build that. That was consistent with another comment I made in my commentary. So I think the ESCO channel, we've not made recent investments from a sales standpoint in that channel, but that is a channel that we will also press on to ensure that we can maximize the opportunities on all three of the lighting channels.

So in spite of his short tenure, there already has been a benefit. So if that's the case, presumably one doesn't hit their full stride and at maximum performance in just a few months. So presumably that business builds and that's part of what your comments were alluding to relative to the remainder of the year.

That's correct. And we have high expectations as we move forward into the next two years.

Great. And, Per, did I hear you in response to my question also say that you will be adding additional sales talent in the distribution arena? And if that is the case, are you essentially waiting for – you know, a little higher revenue so that you can pay for that individual who will then generate the next level and start layering on top of layers?

No, I did not say that. I'd say that it's something that would certainly be considered as the current executive continues to perform and as we, you know, evaluate other opportunities to grow that channel. But no firm plans at this time.

Okay, thank you. That's helpful. And then I'd like to shift to maintenance real quick. The corridor, you said, had a headwind because you had an unprofitable maintenance contract that you walked away from. How much of a revenue headwind was that in the corridor?

I don't have the exact number right now at my fingertips, but it was from last quarter, so quarter over quarter, or last year, I apologize. As those contracts lapse, then we're growing the business in other areas was the intent of that.

Last year, we essentially were wrapping up that contract in Q2 of fiscal 25.

So there was headwind. of a tough comp, but it was not. I just say round numbers, it would have been less than half a million dollars.

Okay, thank you very much. And then, did you add any notable business beyond your largest customer in the maintenance arena this quarter specifically?

We have continued to add some customers or growth within customers beyond the large customer. The large customer does take up a significant portion of it, so they're of note to us because they are growing every month and we'll continue to watch their growth and further partner with them and gain more customers in that area.

Maybe another way to think about it, Bill, is we've gained... new customers over the past year and the business we're doing with them has expanded as we've moved forward in that relationship.

I'm going to build off of that. Do you see an opportunity with those customers to continue to build further as you execute or are you now reaching kind of a steady state run rate with them and you'll be needing to add additional Not that you don't want to already, but you'll need to add additional customers to build revenue further.

I think it will be a little bit of both. We don't believe we're at run rate with some of these newer customers, so we think that will continue to expand, and we think we will continue to attract new customers as we move forward. Right.

Okay. That is helpful. And then... At a high level, do you see the maintenance business as a lead generator for product sales, whether it be lighting or EV?

I mean, we are seeing some of that with the maintenance products. Product sales within that segment are increasing. So, certainly, we look to all customer segments. touch points as potential lead generators into other areas.

I guess, Sally, where I was going with that is, does it give you a special insight that you may not otherwise have if you weren't inside the customer's four walls doing the work?

Yeah, so I guess to answer that part of it, Absolutely. We see some of that with the expansion of some of the services that we're doing. Had we not been within the four walls of the customer and maybe doing work in other areas and they're asking, can you project manage this part of, you know, bringing some of our systems up to code as well? We wouldn't have gotten that business had we not been there working side by side with them.

That's helpful. Thank you. And then I know I'm taking up a lot of time, but one additional question or clarification relative to the EV business. I thought two different things in terms of your commentary. One is some level of caution for the remainder of the year for sales there, but that there's also more clarity on the EV rules and that bodes well for the future. So let me try to put a fine point on it here, that the Q1 EV revenue was $2.7 million. Here in Q2, it was $4.8 million. Are you anticipating approximately holding at this $4.8 million for the next couple of quarters, or do you continue to see some level of growth from the $4.8 million?

Yeah, I think we're cautious on our guidance for the year because we ultimately lost a couple months there with all the uncertainty at the beginning of the year, but our expectation is to be flat to a little bit down in EV for the year, but I think your numbers are right in the realm of what we expect to do for the next couple quarters to deliver on that and start to regain some momentum from what was basically lost or at a standstill in the first quarter.

Great. Thank you both for the answers and letting me take all the questions. You bet.

One moment for our next question. Our next question comes from the line of Steve Rudd of Blackwall. Your line is now open.

Very encouraging results. Can you talk about the cost containment? I mean, obviously, we're seeing a top line trend of growth. From a cost containment and cost leveraging point of view or infrastructure leveraging point of view, how much more room do we have to go?

I interpret your question properly. We think we have

Step back, you know, earlier in the year, we think we right-sized the business so that we could be at or above break-even in the $80 to $83 million of revenue standpoint. And that's on an adjusted EBITDA basis. I think, you know, that we have four consecutive quarters of positive adjusted EBITDA and $80 million of trailing 12 revenues. I think that's holding true. so and then if you look at our guidance we obviously are expecting a little bit stronger performance in the second half compared to the first half to get to the 84 million in terms of what we can deliver with the infrastructure that we have we think that we can leverage this infrastructure quite a bit there certainly certainly are some variable costs such as commissions on sales we always are happy to pay increases in commission. That means our sales are increasing. So it'll be some things like that that will come to us, but we think on an overall basis, we'll be able to leverage this infrastructure with a fair amount of revenue growth.

So it's your assessment at this point that you have your baseline costs exactly where you'd like them to be and not much more to be done there?

I'd say in general, yes, but to one of my previous comments, you're always looking for opportunity for savings, and some of that you may need to try to find money to invest in growth opportunities, and that's the balance that we'll continue to work on as we move forward.

Okay. All right. Thanks very much. Thank you.

This concludes our Q&A session. I'll now turn the conference back to Sally Washlow for concluding remarks.

I want to thank everyone again for taking time to join us today. We look forward to updating the investors on our third quarter call in early February. In the interim, we hope to have an opportunity to meet with many of you either in person or virtually. We will be presenting at a number of conferences including the Craig Hallam Alpha Select Conference on November 18th. Details will be coming out tomorrow, and the Singular Best of the Undercovered Conference on December 11th. We will announce details via press releases. Please also reach out to our investor relations team with any questions or to set up a meeting. Their contact information is at the bottom of today's press release. Thank you again for your interest in Orion. I look forward to updating you on our progress next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.