Good morning, everyone. And welcome to the Orion Energy Systems Fiscal 2023 Fourth 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. Today's conference is being recorded. I would now like to turn the call over to Bill Jones, Investor Relations, to begin.

Thank you and good morning. Mike Jenkins, Orion's CEO, will open today's call to provide perspective on Orion's current business and outlook. Per Brodin, Orion's CFO, will then review the company's Q4 and full-year results, financial position and other matters and then we'll take investor questions. A replay of the call will be posted to the Investor Relations section of Orion's website at orionlighting.com. Remarks that follow and answers to questions may 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 or similar words. Additionally, any statements that describe future plans, objectives, goals and outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than currently expected. Such risks include, among others matters, items that the company has described in its press release issued this morning as well as in its SEC filings. Except as described therein, the company disclaims any obligation to update such forward-looking statements that are made as of today. Reconciliations of certain non-GAAP financial metrics to GAAP measures are also provided in today's press release. Now, I will turn the call over to CEO, Mike Jenkins.

Thank you, Bill. Good morning, and thanks to everyone for joining us today. While fiscal 2023 posed some challenges, Orion closed the year with our strongest quarter and finished within our revenue guidance for fiscal 2023 at $77.4 million. Over the past year, we have built a pipeline of opportunities providing a strong momentum heading into fiscal 2024. We believe our company is better positioned for long term success than ever before, as we now provide a much broader offering of complementary products and services to a larger and more diversified base of customers and prospects. Building on our core expertise in LED lighting and controls, over the last two years, Orion has expanded into maintenance services for lighting and light electrical needs, and more recently into the rapidly growing market for commercial EV charging solutions. We expect these two businesses to deliver roughly one-third of our revenue in fiscal 2024 versus no revenue contribution two years ago. These new businesses business areas align perfectly with our core mission of helping customers achieve their energy efficiency and environmental goals. They also leverage core areas of expertise and turnkey project capabilities to build upon our customers for life commitment. In both cases, we had been approached by some of our largest customers about our ability to support them in these areas. Orion's proven expertise and skill in designing, managing and executing large national LED lighting retrofit projects, along with customer demand for maintenance services, led us to enter this space. To expand the capabilities reach and growth potential of our maintenance business, we acquired the Stay-Lite operations in January 2022 and continue to build out our service platform and capabilities. Maintenance is a mission critical business. As such, we need to ensure that we have the resources, talent, systems to deliver…

Thank you, Mike. As Mike mentioned, we ended our fiscal year 2023 with our strongest quarter of the year, with Q4 revenue of $21.6 million versus $20.3 million in Q3 and $22.6 million in Q4 2022. Our Q4 performance reflected an expected rebound in project activity. As anticipated, full fiscal year 2023 was within provided guidance range and finished at $77.4 million, which declined from $124.4 million in fiscal 2022. primarily due to the expected year-over-year decrease in activity with Orion's largest customer and with a global online retailer, as well as delays in certain large projects. The wind down of the multi-year project with our largest customer resulted in a $47 million revenue decrease in fiscal 2023 versus the prior year. However, as Mike mentioned, Orion was successful in diversifying its revenue base, growing business outside of our largest customer and the online retailer by $6.4 million or 11% over fiscal 2022. Gross margin was 21.9% in Q4 2023 as compared to 23.8% in Q4 2022, reflecting a shift in product mix and under-absorption of certain fixed costs on lower revenues. We expect our gross profit percentage to trend higher in fiscal 2024 on a full-year basis with some quarterly variation based on the revenue mix and fixed overhead absorption. Total operating expenses were $9.6 million in Q4 2023 compared to $6.6 million in Q4 2022, with the increase primarily due to a $2.5 million earnout accrual related to the Voltrek acquisition, as well as some added G&A [Technical Difficulty] consolidation of Voltrek. For fiscal 2023, operating expenses were $33.5 million as compared to $25.5 million in the prior year, reflecting Voltrek acquisition costs of $4.8 million and higher G&A expenses related to the consolidation of Voltrek and Stay-Lite Lighting, which was acquired in Q4 2022 and, therefore, not…

[Operator Instructions]. Our first question comes from the line of Eric Stine with Craig-Hallum

So, wondering if you can just maybe drill down a little bit more into the outlook for fiscal 2024. So appreciate you breaking out the EV and maintenance services piece. But for the remainder of it, maybe just how you see that or a little more color between national accounts, ESCO and distribution or electrical distributors, those channels. And then just curious, you mentioned some of the projects that you expect to move forward and have good visibility. How would you kind of put your visibility as it stands today versus what it might be in a normal year as you're entering it?

In terms of the business segments, we're really right now planning for growth across the board in all the segments. Clearly, we have a very major government piece of business, which is coming through as we've talked about before, $9 million, which effectively is ramping in Q2. That'll be a big contributor for the fiscal year. But we do see nice growth with our top customer going into next year. We expect double-digit growth there both on the project side and on the maintenance side, as well as our ESCO channel as well. Distribution, I think we also have an opportunity to grow double digit. So, right now, we're forecasting double digits for all the segments into next year. In terms of visibility, there's certainly some vagueness as we look farther and farther out. But the near term, we feel pretty good about the pipeline, about the projects that we see and the initiation. We are waiting for a few larger things to activate in the second half of the year. But at this point in time, we don't see any reason that those won't materialize.

Maybe for my second one, just when thinking about Voltrek, how do you anticipate the decisions being made, say, at the national account level? Do you think that this will be kind of a site-by-site decision? Or given that these were done – or part of the reason you did this was because of feedback from some of those large customers that it would be more of a national decision.

I think it's going to be a mix moving forward. I think some accounts may take a proactive approach and do something on a national basis as part of their brand image and to support their guests and customers. I think probably the majority, it's going to be more localized, regional. Obviously, the states have different incentives in place to support EV. So I think it will be a bit more localized and regional. But I think that most of the large accounts right now are working through their strategy of deployment over the next couple of years. So the deployment may be regional and local, but I think, ultimately, they're all going to get to the same place that they're going to have to have a national strategy.

Our next question comes from the line of Amit Dayal with H.C. Wainwright.

With respect to the EV pipeline, can you share what kind of customers are in that pipeline? I know you mentioned fleet related or fleet type customers? Is there any retail? Just any color on what type of customers are looking into deploying these solutions?

Yeah, it's really across the spectrum right now. We have businesses we showcased earlier, fleet opportunities with municipalities. The fleet project we did in Boston was just was with Boston Public Schools. And that project was phase one, and we expect additional phases to them. We're seeing a lot of private businesses in the same vertical sectors that we participate in, on the LED lighting side, getting very interested in this. And we are actively engaging with national accounts right now. And that's one of the reasons why we're aggressively trying to build out the infrastructure of Voltrek, so that we can activate more comprehensively our cross selling efforts across the business. So it's a difficult question to answer, whether one is more than the other. We're seeing broad acceptance of the need for EV charging infrastructure. And I think customers and accounts are really starting to think through their electrification strategy. So it's really coming from all areas.

Now you have sort of three distinct business lines, just trying to get a sense of what the operational synergies are that you can exploit for these different types of products and offering? And then along those lines, where will you focus, in terms of where do you see the bigger opportunity? Is it maintenance or EV or continuation of the LED side? Like, all of these looks like they're growing at double digit for you. If you had to prioritize, which would you choose to really go after?

Well, I think I would answer that by going back to the point you made, which is that we see all of these businesses growing double digit. We see them as highly synergistic, which is why we think they fold in nicely to our customers for life model, so that as customers evolve from LED projects, customers can move to maintenance. And clearly, all customers, as I said earlier, are thinking about their electrification strategy. So from an operational standpoint, our priority is to unleash the top line synergies and cross selling efforts between all three of them to help our customers. There's a lot for our customers to navigate here. And we think that we can be a strategic partner to them in all three of those areas. So in terms of the business, we feel comfortable that we can grow all of them independently, and even faster together moving forward.

Just to touch on the first part of your question, Amit, I think from a leverage standpoint, think about that probably mostly as the back office functions that we should be able to leverage a fair amount for these operations. But the operational level, they run relatively independent. So it's mostly the back office functions.

Our next question comes from the line of Alex Rygiel with B. Riley Securities.

I appreciate the guidance on the top line and the directional guidance with regards to gross margins, but if you could dig a little bit deeper into sort of the path to a rebound in gross margins over the coming quarters and years and talk about, longer term, where you hope to get gross margins back to.

I'll start off on that, Alex. It's Per. I think that the projects that we have visibility into for fiscal 2024 give us confidence to make the comment that was in my comments about having a rebound in gross margin rate as we perform through fiscal 2024. Well, as part of that, inherent in that is the increase in overall revenues, which will help us absorb some of our fixed costs. That'll be both, say, from an overall OpEx standpoint, as well as obtaining better absorption within the plant for our LED lighting manufacturing. So I would think that, from a product standpoint, we ought to get back into the mid to high 20s. And from a services standpoint, it leads back to that 20 range and potentially should be better than that in the coming year. And as we continue to grow, we would expect to continue to leverage the infrastructure. So those would increase over time as revenue grows.

Similar question as it relates to G&A. How should we think about that either on a dollar basis or percent of revenue basis going forward?

I think we don't typically guide dollar basis. We expect to continue to leverage the fixed costs. I think one of the things that we mentioned in our remarks is we are making some investments in the EV business to help them to nationalize, if you will, expand their footprint to be more national in scope. So there's certainly some investments on that side of the business. And then, overall, as we continue to grow revenue, I would expect that we'll get back to 10-percent-ish EBITDA level, and that as we grow in the future, we can go beyond that as well.

[Operator Instructions]. Our next question comes from the line of Andrew Shapiro with Lawndale Capital Management.

I have a follow-up on Alex's questions on gross margins. And then I have a Voltrek question here. So you referred in your release and comments to certain fixed costs impacting gross margins. And are we talking about your historical overhead and it's just absorption? Or can you expand on what some of the new costs are and whether they are of a recurring nature, and this is the fixed costs you're referring to inside of gross margin?

Within margin, it's, I'd say, primarily our historical costs. There would be the under-absorption of the manufacturing facility based on lower sales. And we also have fixed costs within gross margin on the services line because we do have some human resources that are fixed in nature on the services line that as – you can either leverage or deleverage…

So, it's just your historical fixed costs. There's nothing new that got put in through gross margin? Those incremental investments are all in your SG&A set. Right?

That's correct.

A Voltrek question here, is you took a an accrual on the earnout. I think it was $2.5 million. Was that just for the quarter? And are you able to share what q4 Voltrek was for you versus prior year private Voltrek's Q4 revenues were, just to get a feel for what its growth cadence is?

I guess what I would comment on is we have publicly commented on their calendar 2021 business being a $4.8 million business. I am going to stay away from comments here on their historical since we did not account personally for those results. So I think I would just stick with the $3.4 million that we did in the current year.

Your earn-out, was that for the quarter then and that was based on revenues or cash flow generation? What triggered that particular earn-out amount and achievement of it?

The earnout is based on EBITDA, an EBITDA target. And the $2.5 million that was recorded was recorded in the quarter. There was a previous amount recorded in Q3 of $1.5 million. Just so that we're clear, $3 million of that $4 million was accrued for the fiscal 2023 earnout target, and that will be paid probably in July of this calendar year. And then, an additional $1 million was accrued for – there's a cumulative potential earnout, which would occur after the third year of owning Voltrek. So, that would be paid potentially in 2025. I'm sorry, I'll correct that. That would be 2026, of that cumulative payment.

That concludes the question-and-answer session. I'll now turn the call over to Mike Jenkins for closing remarks.

Thank you, operator. And thank you all for participating on today's call. I look forward to updating you and meeting and engaging with many of you in the coming months as we execute our growth plan in fiscal 2024. As part of our investor relations outreach, we are conducting meetings at the LD Micro conference in California today and tomorrow, June 6 and 7, and we are participating in the Virtual Ideas Conference on Wednesday, June 21. For more information on these events, or if you would like to schedule a call with management, please contact our IR team whose information is included on today's press release. Thank you.

Today's conference call is now concluded. Thank you. And you may now disconnect