November 7, 2023
Orion's Revenues Rise Amidst Financial Headwinds
Growth and challenges: a mixed financial quarter for Orion with revenue up but profitability in question.
Orion Energy Systems, Inc. (NASDAQ: OESX), has reported a 17% increase in revenue in the second quarter of fiscal year 2024, reaching $20.6 million for the period ending September 30, 2023. This growth is notable compared to the same quarter in the previous year, which saw revenues of $17.6 million.
While Orion has shown some revenue growth, it is also facing several challenges, including a deteriorating cash position, widening net losses, increasing operating expenses and declining shareholders' equity. The financials reflect a need for cautious financial management and strategic measures to improve profitability and cash flows.
LED Lighting Division Performance: The company's LED Lighting division reported a rise in revenue to $13.6 million in Q2'24 compared to $12.6 million in the first quarter, despite a slight decrease from $14.1 million in the same quarter of the previous year. This change is attributed to the engagement of larger projects for national customers towards the end of Q2’24. Notably, the division is executing a $9.6 million European retrofit project for the Department of Defense (DoD), among other high-profile projects.
Maintenance Services and EV Charging Solutions: The maintenance services segment showed a 5% increase year-over-year, attributed to a new 3-year service contract. On the other hand, EV charging solutions displayed robust growth with revenue climbing to $3.4 million in Q2’24 from $1.2 million in the preceding quarter.
Management’s Strategic Approach: Orion’s CEO Mike Jenkins highlighted the revenue growth in Q2 and pointed out the operational progress within their LED lighting and EV charging solutions. He underscored the commencement of installation for the DoD retrofit contract and outlined the expectation of this project’s substantial completion within the fiscal year. Jenkins also emphasized the challenges faced in the maintenance services sector, indicating a strategy to negotiate pricing to reflect inflationary costs.
Future Projections and Business Outlook: Orion maintains a 30% revenue growth outlook for FY’24, expecting significant strides in the second half of the year. The company anticipates strengthened EV charging solution sales and LED lighting growth driven by ongoing and upcoming large projects.
Financial Takeaways:
Increase in Total Revenue:
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Product revenue increased from $12.8 million in the three months ended September 30, 2022, to $15.6 million in the same period in 2023, showing a growth of approximately 22%.
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For the six months ended September 30, year-on-year revenue increased from $35.5 million in 2022 to $38.2 million in 2023, a growth of about 7.6%.
Decreased Cash Position:
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Cash and cash equivalents have significantly decreased from $16.0 million as of March 31, 2023, to $4.0 million as of September 30, 2023. This represents a decrease of approximately 75%.
Net Loss:
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The company reported a net loss of $4.4 million for the three months ended September 30, 2023, compared to a loss of $2.3 million for the same period in 2022. The net loss widened by about 88%.
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The net loss for the six months ended September 30 increased from $5.2 million in 2022 to $11.0 million in 2023, more than doubling the loss year-over-year.
Operating Cash Flows:
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Net cash used in operating activities significantly increased from $6.6 million for the six months ended September 30, 2022, to $11.3 million for the same period in 2023. This suggests a higher cash burn rate in operations.
Equity Erosion:
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Total shareholders’ equity decreased from $33.2 million as of March 31, 2023, to $22.6 million as of September 30, 2023. This is a decline of about 32%, indicating erosion in the value of the company for shareholders.
Orion Energy Systems' recent financial results present a company in the midst of strategic expansion, with significant developments in LED Lighting and EV charging segments. While growth is evident in revenue, the company continues to navigate challenges in profitability, particularly in its maintenance services due to legacy contract pricing and inflationary pressures. Orion’s executive leadership expresses a clear strategy focused on renegotiating contracts and expanding product offerings to strengthen their market position.
The outlook for FY’24 revenue remains optimistic as the company anticipates continued growth from its diversified portfolio of energy solutions.
