Orion Energy Systems (NASDAQ: OESX), a Wisconsin-based provider of energy-efficient LED lighting and controls, maintenance service and EV charging solutions, recently released Q3 FY2023 results – with little change from the negative trends of the first half of this fiscal year. Q3 revenue came in at $20.3M dropping 34% versus $30.7M in revenue the prior year Q3. Profitability also declined to 23.6% in Q3 FY2023 compared to 24.9% in the prior year Q3, and compared to 25.3% in Q2 FY2023. The decline in profitability was attributed to lower absorption of overhead costs and a higher mix of service revenue which garners lower margins.
Orion suffered a Net loss of income for Q4 FY2023 of -$24M, after recording a non-cash tax charge of $17.8M (“a result of the conclusion that it is more likely than not that the domestic deferred tax assets will not be realized.”) Costs related to Orion’s recent acquisitions (Stay-Lite Lighting and Voltrek) also played a significant role in the Q3 FY2023 operating loss, adding nearly $2M in operating expenses – including a $1.5M accrual for the Voltrek earnout. As part of the deal for Voltrek, there is an earnout potential (measured on EBITDA contributions) over three years: $3M in Year 1(FY2023), $3.5M in Year 2, $4M in Year 3, plus a cumulative kicker for an additional $4M. A $1.5M accrual for the earnout is expected in the final quarter of this fiscal year based on the current performance of the newly-created EV Segment which reports the electric vehicle part of Orion’s business.
CEO Mike Jenkins, in his first earnings call since his appointment as CEO in November 2022, reflected on the continued impact of customer delays in large LED lighting projects, including a $4M+ automotive customer, the start of a $9M Department of Defense project, as well as softness in Orion’s electrical contractor/distribution channel. He noted that Orion’s ESCO channel pipeline of opportunities should drive significant growth in FY2024. CEO Jenkins highlighted the better-than-expected contributions from Orion’s most recent acquisitions (Voltrek for the new EV charging solutions business, and Stay-Lite for the electrical maintenance services business). He noted the recent addition to the leadership team of Executive VP of Sales, Ken Poole, “from outside of the lighting industry” (formerly with super-ESCO Johnson Controls) bringing deep knowledge of the ESCO market and project management.
Orion now has four reportable business segments following the creation of the EV division:
OSG (Orion Services Group) selling lighting products, providing construction, engineering, installation and maintenance services
ODS (Orion Distribution Services) selling lighting products through manufacturer’s reps, electrical distributors and contractors
USM (Orion US Markets) selling commercial lighting systems and energy management systems to ESCO’s and contractors
EV (Orion Electric Vehicle) offers electrical charging expertise and provides turnkey solutions with ongoing support to all commercial verticals
| Orion Business Segment | Q3 FY23 Rev
(Millions) |
% of total Rev Q3 FY23 | Q3 FY22 Rev
(Millions) |
% of total Rev Q3 FY23 |
| OSG | $8.6 | 43% | $20.0 | 65% |
| ODS | $3.7 | 18% | $4.9 | 16% |
| USM | $5.1 | 25% | $5.8 | 19% |
| EV (new in Q3 FY23) | $2.8 | 14% | – | – |
| Total | $20.3 | 100% | $30.7 | 100% |
Looking ahead to the final quarter of FY2023, Orion expects a sequential increase in revenue in Q4 over Q3 FY2023, but are bringing the full year FY2023 revenue outlook down again, this time to a range of $77M to $80M (just a quarter ago at the end of Q3 FY2023 the target range had been $90M to $110M). The FY2023 full year result will be compared against the prior full year FY2022 revenue of $124.4M. No doubt looking for a note of optimism in the face of the current results, the Q3 press release notes that Orion expects FY2024 revenue growth of 30% or more over FY2023, and confirms that the company will provide more specifics on this FY2024 outlook in the Q4 results reporting.
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Orion Reports Q3 FY2023: https://investor.oriones.com/news-releases/news-release-details/orion-energy-systems-reports-q3-revenue-203m-reiterates-fy24
Orion Form 10-Q – Results for Q3 FY2023: https://investor.oriones.com/static-files/721e367e-45b2-452a-87d5-1424b0ccb573
