Good day, ladies and gentlemen, and welcome to the Orion Energy Systems Fiscal 2021 Fourth Quarter Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Bill Jones. Sir, you may begin.

Thank you, and good afternoon, everyone. Michael Altschaefl, Orion's CEO and Board Chair, will open today's call with an overview and discuss the current business outlook. Orion's CFO, Per Brodin, will then review additional financial items, after which we will open the call to questions. An archived replay of this call will be available later today in the Investor Relations section of Orion's corporate website. This call is taking place on Tuesday, June 1, 2021. Remarks that follow and answers to questions include statements that the company believes to be 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 words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking statements. These statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among other matters, matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission. Except as described, the company disclaims any obligation to update forward-looking statements, which are made as of today's date only. Reconciliations of certain non-GAAP financial metrics to the corresponding GAAP measures are also provided in today's press release. This is available on the Investor Relations section of Orion's website, www.orionlighting.com. With that, let me turn the call over to Mike. Mike?

Thanks, Bill. Good afternoon, everyone, and thank you for joining us today. Orion executed a strong finish to fiscal '21 with nearly $117 million in revenue and improved gross margin; net income of $5.2 million, exclusive of a tax benefit; solid operating cash flow; and a very strong balance sheet. It was really a tale of 2 halves of the year, with the first half severely impacted by the COVID-19 pandemic, and the second half demonstrating a return to the true strength of the business platform we have built. Revenue in the second half of fiscal '21 rose 33% over the year ago period to nearly $80 million, driven by pent-up project demand, as many customers returned to pre-COVID levels of activity. Our strong rebound and full year performance was possible as a result of the hard work and dedication of the entire Orion team. The perseverance of our people throughout the pandemic has been amazing. The commitment of our people enabled us to successfully navigate the pandemic challenges and to emerge as a stronger and more diversified company with a broader set of growth opportunities and long-term potential. Our people are clearly what make Orion a successful company. During fiscal '21, we worked to expand and diversify our customer base and our business pipeline. As a result of these efforts, our largest customer represented about 56% of fiscal '21 revenues as compared to 74% in fiscal '20, our first full year of business with this customer. We believe this customer will remain an important but smaller part of our business in the coming years, with its share of our annual revenue expected to be about 1/3 of our total revenue in fiscal '22. We achieved this progress through our success in developing significant new national account relationships in our…

Thanks, Mike. Orion's fourth quarter fiscal '21 revenue increased $9.6 million or 37% to $35.5 million from $25.9 million in Q4 fiscal '20, supported by strong national account activity as businesses rebounded from pandemic-related disruptions earlier in the year. Q4 '21 benefited from several large national retrofit projects, including projects for a large national retailer and a specialty retail customer with minimal COVID-19 impacts. We achieved full year fiscal '21 revenue of $116.8 million, despite the significant challenges presented by COVID-19 work stoppages and project delays that began last March and continued through mid-August. Orion's gross profit improved to $9.2 million in fourth quarter fiscal '21 from $5.8 million in fourth quarter fiscal '20, and our gross profit percentage improved to 26% from 22.3%. For the full year, gross profit was $30.1 million in fiscal '21 versus $37.1 million in fiscal '20, primarily related to lower revenue. Our gross profit percentage increased 120 basis points to 25.8% in fiscal '21 from 24.6% in fiscal '20 due to improved product margin as well as supply chain and input cost management. Fourth quarter fiscal '21 operating expenses were $6.7 million versus $6.1 million in the prior year period, improving to 18.8% of sales versus 23.7% in the respective periods because of the impact of significantly higher business volume. Total operating expenses declined to $23.3 million in fiscal '21 versus $24 million in fiscal '20. Orion generated EBITDA of $2.9 million in the fourth quarter of fiscal '21 compared to 0 in fourth quarter fiscal '20, reflecting higher revenue and gross margin. Fiscal year '21 EBITDA was $8.4 million versus $14.7 million in fiscal year '20 and reflecting lower year-over-year business volume. The fourth quarter and fiscal year '21 included a noncash tax benefit of $20.9 million or $0.67 and $0.66 per share,…

[Operator Instructions] Our first question comes from the line of Amit Dayal from H.C. Wainwright.

Mike, with respect to the services business, could you give us some color on how this is tracking for you in terms of maybe customers that you have signed up for this? Or what portion of revenues this was in the fourth quarter?

Sure. The revenue so far for our Maintenance Services division has been rather modest. We've not reported actual numbers for it. It is a growing business that we invested in during fiscal '21. And as I mentioned during my comments, we expect it to grow into a significant business for us in the future. So I'm not quite prepared to talk about actual customers at this time. But if we would enter in any substantial contracts that require disclosure, we would do that. But I will tell you that we're having fruitful conversations with some of our existing larger national accounts of how to work into some of their service opportunities and also talking with new customers about opportunities. So we're optimistic about it. We think we're in the right space. We think there's opportunity, and we expect to be able to talk more about it in the future.

No, that's understandable. And then when we think about the services opportunity for you, should we think about it in terms of this tracking against new deployments? Or do you have an opportunity to offer this to older customers or prior deployments as well?

Sure. We absolutely have the opportunity to offer this to past deployments also. So we see it as an opportunity to bring it to the table when we are talking with a new customer about their installation needs of having this ongoing maintenance capabilities for them. But we certainly are also going to be going back to our existing customers where we've got installations in place to talk with them about our ability to provide lighting, electrical as well as some other maintenance services to them. So it's really as wide open for us of both new and prior installations. It also is open to us for customers we have not done installations for in the past. So there really are several different areas that provide opportunity for us for the services business.

Okay. And then with respect to the outlook for fiscal '22, the $150 million to $155 million in revenues, is majority of that already in backlog or contracted? How should we think about you? How much of that is? Sort of already in the pipeline for you?

Sure. We probably kind of talk about a little more from a pipeline standpoint as to where we stand. So no, I'm not going to -- today, at this early stage, say that all of that is in -- absolutely in backlog or contracted. What's normal for our business is that we have a fair amount of business that comes to us during a fiscal year that we both sell and perform, but we are really encouraged. We feel comfortable setting out that my goal of revenues for next year based on the customer conversations we've had. We build up our plan based on specific discussions with customers, our larger national accounts, the feel for where we might be with distribution as well as with our ESCO and contractor business. And we feel confident about where we stand on it right now. So we do have contracts in place that we've announced previously to continue with some of our larger national accounts and the conversations in the public sector and some other areas of automotive, and health care continue to be very promising. So that's my view, Amit.

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

Any chance you could quantify the headwinds as it relates to sort of your revenue guidance?

Well, I think maybe the way I would suggest we think about that is that we have laid out this revenue range of $150 million to $155 million, knowing that there are certain headwinds out there for us. And we just felt it was important given what we assume many investors understand is going on, not only in our industry, but just generally in the manufacturing businesses that there are some challenges with supply chain for a variety of reasons that I mentioned on the call today. And so we think that if there is not a significant worsening of what we're facing right now. We feel very comfortable with that. But we just felt it was important to at least say that either the recurrence of significant COVID-19 pandemic impacts, which we, at this point, do not see or if some of the supply chain challenges or labor shortages could get much worse, it could have an impact. So I'm really not prepared to kind of give a specific dollar amount or percentage to it. And right now, we continue to feel that we have laid out a number that we are comfortable this time with $150 million to $155 million.

And then regarding your M&A -- go ahead.

Alex, I just thought I add something, too. If you look at our balance sheet, I think you'll see that we've made some strategic investments from an inventory standpoint. So we are doing what we can to mitigate those headwinds, and we'll continue to do that as part of our managing of this risk as much as possible.

Great, we actually -- if I can just, one more thing, Alex, sorry to interrupt you. We actually see -- some of these things are going to happen, they're part of business. We actually see them as an opportunity to outperform our competitors because we think we are the ability to make decisions to be nimble. As Per mentioned, we've got the financial strength to take more physical fold of inventory order further out. And so we take these things in stride and feel very good about our ability to still perform given some of those challenges.

And then with regard to your pipeline of projects for larger customers, obviously, it appears to be very strong. Can you talk about how these may roll in or roll out over the next few quarters? And should we be at all concerned about sort of the time line of rollout and any potential delays?

Well, at this point, we are not seeing any possibilities of delays, either from -- for the several things that I've mentioned that could impact our business. And from what we are seeing, our customers continue to be performing well. We've often said that we would encourage shareholders to think about the full year and the fact that we do have a project-based business, in addition to our services business, and we have recurring revenues in some respects. But repeat customers on a number of projects, sometimes things can bump around between quarters for a little bit for a variety of reasons. It may often be because a customer is not quite ready for us in a facility, they need to push it out for a few weeks. And those could have some impacts from a quarter-to-quarter basis. So we really would encourage people to be thinking about what we're providing as our sales goal and guidance for the full fiscal year as to how we are going to perform for this current year. But we are very encouraged by the last half of fiscal '21, that came in right where we had given an indication of back in both November and February, so we do think we have a history of being able to see pretty well out and give a good range of where we think we might be.

Our next question from the line of Eric Stine from Craig-Hallum.

So maybe just sticking with the outlook for fiscal '22. I know that in the past, you had thought that fiscal '22 would exceed fiscal '20 and that EBITDA and EPS would be better than fiscal '20 and maybe just stick into EBITDA. I mean is -- was that left down just as kind of a nod to the uncertainty related to some of the costs and some of the supply chain issues? Or is that something that we should still think that if you come in at that revenue range, you likely would exceed fiscal '20 from an EBITDA perspective?

Yes, I think that if we come in at the $150 million, we should be right around that same EBITDA range as 2020. The EPS is, obviously, going to be different because of the fact that we're now going to book tax provision, so yes.

Got it. Okay. So you're basically just assuming, I guess, both revenues and EBITDA, if things stay as is, do you feel good about that level?

Yes.

Okay. Good. Maybe just on the acquisitions, the pipeline there, I mean, as you think about that, I mean, do you envision those more as bolt-on acquisitions? Or are you actually looking at some large acquisitions? And then I'm also curious, is this a result of some feedback that you've gotten from customers to add this to your turnkey offering in some of these applications? Any thoughts there would be great.

Absolutely. We actually previously have looked at both opportunities of some small or mid-sized bolt-on acquisitions. And we've looked at some situations that one could say we would be a little bit more transformative of a larger size, Eric. And we feel we have the financial strength and the ability to raise money if we need to through debt markets, perhaps equity to look at something larger if it really makes sense for our company and for our shareholders. So we are not limiting ourselves to in any direction of large versus small, but want to be open to all opportunities. But certainly, from a management team and a Board standpoint, we understand that as opportunities get larger, the dip needs to be more clear and the opportunity needs to be something that we think really can be good for our company and good for all of our stakeholders. Secondly, we do have some conversations with customers when they say, are you getting into these areas, can you help us in some of these areas? So some of these things that I've mentioned have been driven by customers asking about our ability to help them in different areas. Maintenance Services is certainly one of those we've talked about, which is one of the goals we could perhaps ramp up with an acquisition. But we also think that there could be some interesting opportunities when we think things like solar, maybe EV charging stations, we've got a very large retail big box customer base over the years. And we expect some of those may be looking down, continuing to look at some of those options, some probably have solar already, some might have it. And EV charging stations might be more prevalent in some of these areas in the future. So part of it, we look at it is we have excellent project management capabilities. And if we can find something that fits with our customer base, fits with those core skills that we have, is around the electrical, energy saving, energy storage area, these are just things that we want to look at. So we wanted to make it clear that we are more active than we had been in the past. That's partly because we've been successful, and we feel we have a strong balance sheet and a good vision of where we want to go as a company.

Got it. And then the Maintenance Services, I mean, I would assume that, that would fit pretty well with expanding in these other areas, solar, EV charging storage, wherever it may be.

It really would. And part of it for us is that we are a company that physically kept things installed. And so whether it's installing light fixtures or installing lighting controls or start installing sensors, one, somebody has to do the installation for some of these things. And again, that goes back to your program management capabilities and project management capabilities. And number two, all of those things we've talked about do require ongoing maintenance services. And so it's great full complement of things we can bring to the table for potential customers to not only help them upfront but then be with them in the future with those systems to keep them well maintained.

Our next question is come from the line of Cliff Rakowski as a private investor.

So it's difficult to check seasonality of your company because, obviously, last year was very unusual, and your revenues have grown. So would you say that in the coming year, there will be some kind of -- it will be weighted towards the beginning, towards the end, it will be linear? Or you come out strong? Are you kind of planning to have supply chain difficulties this current quarter and then to make up for it in the later quarters or anything like that?

Sure. Well, I think that I would go back a little bit to what I commented in one of the earlier questions that we would encourage people to think about an annual basis for us when we are laying out our revenue guidance for the year. We had last fiscal year provided some quarterly information just because it was such an unusual year with COVID and things got delayed and then came back very strong. We thought it was helpful to tell people that the second half of our year is going to be very strong. So to say that it is going to be straight linear, we don't think we can say that. We continue to feel confident about the revenue range we're laying out for fiscal '22 of $150 million to $155 million. We don't see some of the challenges we've talked about having a significant initial impact to us. And we'll see how things progress. We've kind of baked in some of those challenges right now into what we've laid out for our revenue goal for this year, clip, and we'll see how things kind of develop as we go along. So I think, again, just ask shareholders to keep in mind that we are project-based and repetitive customers that sometimes we can be a little bit lumpy from quarter-to-quarter as things kind of move around. But often if not because things were canceled, they simply are delayed and they might flow into the next quarter for us.

Okay. That's understandable. Also, about gross margin, it seems like this past quarter, you were already well ahead of the fiscal year '20 gross margin. And I mean, you are -- I think, you are predicting EBITDA around the fiscal year '20 level. So are you saying that gross margin will kind of go down in the next year? And if so would that be because of the semiconductor shortages? Or is that just you being safe?

This is Per. I think the way we look at it is we've been working on expanding margins, particularly gross margin over time. I think that will still be an objective for us. If we're able to do that, we certainly would outperform fiscal '20 at the gross margin line. I think one thing you need to keep in mind, probably from a fiscal '20 standpoint, is that was a year of significant growth. And so the company probably hadn't made all the infrastructure investments that were necessary to support a $150 million business. And so as it ramped up from a business volume standpoint, it was also necessary to add some more resources internally that show up now in the operating expenses section to accommodate that level of revenue.

[Operator Instructions] Our next question will come from the line of [ David Dorette ] as a private investor.

Mike, you guys hear me?

Yes.

Okay. I got -- you have a medical background for years. So my 3 questions I have are going to be laser-focused to PureMotion product and what you guys are doing there. I think it was a little early to ask you guys when you announced it, you've had time to get out in the field and get some feedback. So first -- my first question is, tell me about competition, when you were looking at this technology, this [indiscernible] technology and you chose that, what other competitors come close to their product? Is there any out there? That's question one. Questions two, addressable market. Schools, food processing plants, airports, all these type of fields can use this type of UVC product to kill the COVID. What has been your feedback if you've talked to any of them, big large companies? And give me a scale of 1 to 10, 10 being excited when they see the product of PureMotion, are they excited? Do they look like they would be interested in the UVC product to cure the COVID or at least reduce the COVID spread in their facilities? And then my last question is if and when you got a big order for UVC product for the PureMotion, could you guys -- do you have the production capacity to supply the product to the consumer?

So let me do my best to answer those, I might kind of lead back-and-forth between the 3 of them. So first of all -- from a competitive standpoint, as you provably know and perhaps others on the call, UVC has been used for a long time to impact air, if you will, or treat air through air systems and also through water systems. And so there is competition out there. We did look at other technology and others who have certain units that provide both air movement as well as UVC. And we decided to partner with an existing business partner with their air movement technology because we thought it was a good balance between being designed very well, having intellectual property that protected the air motion side of things. And the initial work they had done in the market gave us some confidence that we thought this could be a very good product. And so we work with them to incorporate this into a product that we could launch for ourselves is this PureMotion product. Things that we looked at when compared to competitors, we tried to understand where things were from a design standpoint. From a serviceability standpoint, one of the things that people need to think about down the road is how do you service something like this, a safety standpoint. UVC cannot be directly impacting people. And so we helped design this UVC chamber in this fixture. That has gone through UL testing and passed. And when we sell it, it does not need to be specifically noted as being something dangerous because the light is completely encapsulated inside the fixture chamber. So those were some of the things we thought about from a competitive standpoint. And yes, we felt very confident this was one…

And I'm not showing any further questions in the queue. I'd like to turn the call back over to Mike Altschaefl for any closing remarks.

All right. Thank you, Victor, and thanks again to everyone who joined us today for our call, and we appreciate your interest in Orion. We will be participating in the Craig-Hallum Virtual Investor Conference tomorrow, June 2, and we will also be participating in the LD Micro Invitation on June 8, which is also virtual. And during the period of social distancing, we have participated in several other virtual conferences, which are recorded and available on our website. And as always, you can contact our IR team with any questions or to schedule a call with management, and their contact information is included in today's press release. Well, thanks again. We look forward to updating all of you on our fiscal '22 Q1 call. Have a good rest of the evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.