Orion Energy Systems (OESX) Misses Q4 EPS by 5c, Revenues Miss

Orion Energy Systems (NASDAQ: OESX) reported Q4 EPS of ($0.02), $0.05 worse than the analyst estimate of $0.03. Revenue for the quarter came in at $25.9 million versus the consensus estimate of $28.08 million.

Highlights

• Orion’s US-based manufacturing operations are open for business, allowing it to deliver on its 10-day order shipment customer service promise.
• Orion continues to add and develop new large national account customer relationships, though many project starts have been delayed as a result of COVID-19.
• FY 2020 revenue rose 129% to $150.8M, principally due to major national account activity, particularly one large national turnkey LED lighting and controls retrofit project.
• Orion achieved profitability with FY 2020 net income of $12.5M, or $0.40 per share.
• FY 2020 gross profit rose 155% to $37.1M, with a gross margin of 24.6%, up from 22.1% in FY 2019.
• EBITDA* substantially improved to $14.7M in FY 2020 vs. an EBITDA loss of ($4.3M) in FY 2019.
• Cash and equivalents increased to $28.8M at the end of FY 2020 vs. $8.7M at the end of FY 2019.

Mike Altschaefl, Orion’s CEO and Board Chair, commented, "FY 2020 was a transformational year as Orion successfully executed a major nationwide turnkey design-build-install LED lighting system and controls retrofit project for a major account, as well as other large account projects and made substantial progress adding to our pipeline of major national account opportunities.

“Despite what was in every respect an impressive year, like many companies, we were adversely impacted by the actions taken by various government entities to control the spread of the COVID-19 pandemic beginning in March. Since we were designated an essential business, our US-based manufacturing operations were allowed to remain open. Nonetheless, we experienced a curtailment of activity in the last few weeks of our fiscal year. As a result, approximately $5M of previously anticipated FY 2020 product and service revenue was put on hold, as was the launch of multiple other projects, including those with new national accounts, most of which are now expected to result in revenue in FY 2021 and FY 2022.

“Anticipating a challenging near-term business climate, we took proactive steps to reduce our overhead and operating costs resulting in one-time charges totaling approximately $0.4M in Q4’20. These cost reductions were substantially implemented by the April 1 start of our FY 2021.

“Our success in FY 2020 with our major national account customer demonstrates our ability to provide turnkey project services of a significant scale on a national basis. In January, we announced that we were awarded approximately $18M to $20M of additional business that we originally anticipated to complete during Q4’20 and Q1’21. This was expected to be approximately 130 locations. After completing approximately 30 locations through mid-March of 2020, the project was temporarily suspended by our customer due to the COVID-19 situation. Cumulatively, through March 31, 2020, we have completed approximately 880 locations and provided certain other products and services to this customer resulting in total revenues of approximately $125.4M. Total revenues during FY 2020 for this customer were approximately $111.8M. In addition to the temporarily suspended 100 locations under contract, we estimate that our customer has approximately 500 additional locations remaining. We generally expect the remaining approximately 600 locations to be retrofitted during Q4 of FY 2021 and throughout FY 2022. We also expect to provide additional products and services to this customer.

“There have been some pockets of business strength, as Orion secured initial project commitments from two new large national accounts during Q4’20. Unfortunately, due to the COVID-19 pandemic, these projects were suspended, and we are now working to assess updated timelines. Orion also secured approximately $4.8M in initial contracts for a global online retailer that were started as planned in Q4’20. The customer has awarded Orion approximately $2M in additional work so far for FY 2021 and is expected to be a meaningful source of revenue going forward. Orion was also recently awarded a $3.1 million project to install our LED lighting systems in a large government facility in Nevada, with work currently expected to commence in Q2'21.

Growth Initiatives “In FY 2020, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting and controls systems with design, build, installation and project management services, including being awarded a very large project for a major national account. To build on this success, we are evolving our business strategy to further leverage this unique capability, while making targeted additions to the scope and nature of our products and services to enhance the value we can provide to our customers.

“In particular, we are working to develop recurring revenue streams, including lighting and electrical maintenance services, with an emphasis on utilizing IoT enabled sensor technology to collect data and assist customers in the digitization of this data, along with other potential services. We are committed to expanding this portion of the business and have hired a senior leader with significant recurring maintenance services experience to lead this initiative. We also plan to expand our “smart-building” and “connected ceiling” IoT capabilities, along with related software and control technology products and services offerings. While we intend to pursue these expansion strategies organically, we also are actively exploring potential acquisitions that could accelerate our progress.

“During FY 2020, we expanded our senior sales team to enhance our engagement with large national account customers best positioned to appreciate the value of our unique turnkey LED retrofit capabilities. Under this leadership, we continue to broaden and deepen our engagement with new and existing customers, yielding meaningful contributions to our sales pipeline, although many of these projects are now on hold as a result of COVID-19.

“We continued to invest in product development over the past year and launched several compelling new products. We are particularly excited about the strong competitive position of our new Harris LED High Bay Star Line lighting fixture and our IP rated round Harris LED UFO High Bay fixture. These high-quality fixtures deliver superior energy efficiency at very attractive pricing compared to competitive products. Due to the unfortunate COVID-19 situation, we are relaunching our LED retrofit fixtures designed to combat bacteria, fungus, mold and mildew – used for high-traffic areas such as schools, healthcare, foodservice and fitness facilities, as well as in other high-risk public spaces. Our fixtures combine Orion's Britex™ antimicrobial coating with violet white light in 400 to 430 nanometer wavelength. This solution adds a significant layer of additional protection for facility safety. We are experiencing significant market interest in this product, which is available today. We are also beginning to work on incorporating ultraviolet light into some of our products. Certain UV light has been shown to kill bacteria and to inactivate viruses. In addition, we are working with a partner to incorporate UV technology into an air movement product that could also be incorporated into lighting and smart ceiling systems.”

FY 2021 Outlook and GoalsMr. Altschaefl added, “We expect our first half results to be severely challenged by the ongoing impact of the COVID-19 pandemic on our customers, access to their facilities, their financial position and CAPEX priorities. Although it is currently difficult to predict the scope and timing of near-term business activity, recent customer dialogues suggest that more LED retrofit activity, including the completion of existing contracts, is currently likely to start taking place during the second half of our fiscal year, as customers hopefully move gradually toward more normalized trends. This time frame also includes our current expectations for the commencement of some other very significant opportunities with new national accounts. While our customers are currently delaying projects due to impacts of COVID-19, we are currently not seeing any significant order cancellations, which gives us confidence in the second half of FY 2021.

“Importantly, we have put Orion in a strong position to navigate the challenges ahead. We ended FY 2020 with $28.8M in cash and equivalents, which we believe provides us a solid financial base to support our business over the coming quarters, and we will continue to look for ways to manage costs and cash flows, enhance margins and drive our bottom line performance.

“Given the uncertainty of near-term business activity related to the COVID-19 pandemic, we are not able to provide reliable revenue or other financial goals for FY 2021 at this time. Directionally, we do anticipate far more challenging business conditions, particularly in the first two quarters, in which our revenues will likely fall below those in our respective year-ago periods. We currently anticipate revenue will begin to build on a sequential basis from a challenging first and second quarter as customer activity thereafter hopefully begins to progress toward more normalized levels over the course of the second half of our year. We also anticipate the likelihood of operating losses in the first and second quarter but are optimistic that our business will return to profitability in the third and fourth quarter. Importantly, we believe Orion is well positioned for FY 2022 financial results to return to at least the levels achieved in FY 2020.”

For earnings history and earnings-related data on Orion Energy Systems (OESX) click here.

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