November 6, 2024
6 Insights from Orion’s Quarterly Earnings Report
A certain product family hits $4 million in six months; restructuring updates shared.
Orion Energy Systems Inc. reported a challenging second quarter of fiscal 2025, with total revenue down 6% to $19.4 million compared to $20.6 million in the same period last year. Key factors included a 20% decline in LED lighting revenue, which fell from $13.6 million to $10.8 million due to delayed projects and the completion of a significant European retrofit in the prior quarter. Despite these setbacks, the company highlighted the growing demand in its electric vehicle (EV) charging solutions, which saw a 40% revenue boost largely driven by new contracts with Boston Public Schools and Eversource Energy.
The quarter also reflected Orion's continued restructuring efforts in its maintenance services segment, where revenue increased by 5% to $3.8 million as contract repricing and new opportunities helped offset losses from previous unprofitable contracts. Orion’s CEO, Mike Jenkins, underscored a strong pipeline of LED projects expected to launch in the second half of the fiscal year, including a new $25 million contract with a major retailer. The company’s revenue outlook for FY 2025 remains at around 10% growth, with a substantial revenue weighting anticipated for Q4 due to ongoing and delayed projects across various sectors.
1. Recap of Comments Relating to the LED Business:
Orion Energy Systems noted a 20% decline in LED lighting revenue, dropping to $10.8 million in Q2 FY 2025 compared to $13.6 million in the same quarter the previous year. The decline was attributed to project delays and the completion of a significant Department of Defense (DoD) retrofit project that had positively impacted prior results.
CEO Mike Jenkins highlighted that several larger LED lighting projects did not commence as planned but are expected to start in the second half of the fiscal year, contributing to a stronger Q4 performance. The company remains optimistic, as evidenced by robust quoting activity from both long-standing and new customers. Notably, Orion secured a $25 million contract with a major national retailer for new store construction LED fixtures.
2. Potential Impact of Increased Tariffs
In the earnings call Jenkins was asked about the potential impact of tariffs on their LED products. He expressed concerns about pricing pressures stemming from increased competition, which has intensified as a result of a normalized supply chain and reduced shipping costs for imported products. This, in turn, heightens the competitive pressure from foreign manufacturers, particularly in the LED market, and raises questions about Orion’s ability to maintain profitability under potential tariff adjustments.
Jenkins emphasized the company's awareness of these market shifts, saying, "We’re closely monitoring tariff developments and the related increase in competition from foreign suppliers, which could impact our pricing strategies and margins in the LED segment."
3. Restructuring in the Service Business Unit:
Orion underwent a restructuring in its maintenance services segment due to what it described as the intentional non-renewal of unprofitable legacy contracts. This restructuring involved reducing staffing levels and vacating a leased facility, which incurred approximately $300,000 in restructuring and severance costs in Q2 FY 2025.
The strategic decision aimed to optimize the maintenance division, which had become unprofitable due to inflationary pressures. Despite these challenges, the maintenance segment showed revenue growth of 5% to $3.8 million, signaling a recovery driven by contract repricing and new opportunities that offset the impacts of previous losses.
4. October as the Strongest Month of the Year:
CEO Mike Jenkins stated, “In fact, the strongest month of the year from an order standpoint," referencing October as a pivotal month for securing new orders, which surpassed their projections for annual performance.
5. Future Guidance:
Orion revised its revenue growth outlook for FY 2025 to approximately 10% growth, reflecting a shift from an earlier forecast of 10-15% due to delays in LED lighting projects.
This guidance emphasizes a stronger weighting of revenue expected in the fourth quarter, primarily from anticipated large national projects across various sectors, including automotive, retail, and public services. The company also expects to generate positive adjusted EBITDA in the second half of FY 2025.
6. Titan Pro Product Family Performance:
The Triton Pro compact linear high bay product family has been highlighted as a significant contributor, generating over $4 million in revenue year-to-date and boasting an open pipeline of over $18 million. The successful launch of Triton Pro and its new offerings, such as round high bays and troffers, are expected to drive future growth, especially as states begin to implement regulations banning fluorescent fixtures and replacement tubes, which is anticipated to create additional demand for LED solutions.
The earnings report highlighted Orion Energy Systems' proactive strategies amid challenges in the LED market and its restructuring efforts to enhance profitability. The company's optimism is rooted in what it describes as strong project pipelines and strategic growth areas such as EV charging and compliance-driven LED lighting solutions.
As the company navigates through project delays, the emphasis on their Triton Pro product line and re-bolstering of its maintenance services business indicate a focus on sustainable growth moving into the latter part of FY 2025.
