Earnings Call Transcript - OESX Q2 2023

Operator, Operator

Good morning and welcome to the Orion Energy Systems Fiscal 2023 Second Quarter Conference Call. Today's conference is being recorded. I will now turn the call over to Bill Jones of Investor Relations. You may begin.

Bill Jones, Investor Relations

Thank you and good morning. Mike Altschaefl, Orion’s CEO will open today’s call with an overview of Orion’s results and strategy. Mike Jenkins, Orion’s COO will then provide more perspective on the business, including sales and operations. Per Brodin, Orion’s CFO will review the company’s Q2 and year-to-date results, financial position and financial outlook, and then we'll open the call to investor questions. An archived replay of this call will be posted to the Investor Relations section of Orion’s website at www.orionlighting.com. Remarks that follow and answers to questions may include statements that may 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 similar words. Additionally, any statements that describe future plans, objectives, goals and the business 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 that the company has described in its press release issued this morning and its filings with the Securities and Exchange Commission. Except as described therein, the company disclaims any obligation to update forward-looking statements that are made as of today’s date. Reconciliations of certain non-GAAP financial metrics to the corresponding GAAP measures are also provided in today’s press release, available at the Investor Relations section of the company’s website. Now, I will turn the call over to Mike Altschaefl.

Mike Altschaefl, CEO

Thanks, Bill. Good morning and thank you for joining today’s call. This morning, we reported our second quarter results and reiterated our full-year revenue outlook. Our second quarter results reflect the impact of some continued customer delays in the initiation of several large LED lighting projects, which has pushed these opportunities into future periods. Almost all of our larger project opportunities remain in place. We did see one customer halt their new projects in response to changes in their near-term facility needs. The good news is that we expect most of these projects we have been discussing for a few quarters to commence in our third or fourth fiscal quarters, providing momentum as we head into our next fiscal year. Among these opportunities are significant projects with logistics, industrial, automotive, and public sector customers. Additionally, our pipeline of project opportunities is expanding, driven by a steady increase in new project quoting activity with existing customers and some significant new prospects. While the timing and pace of business activity remains hard to predict, stepping back, we do see strengthening interest in Orion's mission of delivering high quality, innovative, industry-leading products in our growing range of services to meet customer goals for energy efficiency, workplace safety, cost reductions, environmental and other business goals. Further, our unique and proven ability to provide turnkey solutions to design, produce, install and maintain increasingly complex LED lighting and control systems, and now EV charging solutions, addresses a growing need for organizations with large national or regional footprints with hundreds and sometimes thousands of locations. Last month, we entered the electric vehicle charging market through the acquisition of Breeze, a top-tier commercial EV charging solutions provider. We are very excited about this expansion of our portfolio of solutions for our existing and future customers and believe this business has the potential to become a significant revenue opportunity for us over the next three to five years. Let me now turn the call over to Mike Jenkins for some additional commentary and insights on our business.

Mike Jenkins, COO

Thank you, Mike. To start off, like a lot of people right now, I am fighting a cold, so please forgive any coughing or if I pause to take a drink. Fundamentally, Orion is built around a core focus on high-quality products and industry-leading customer service for all of the markets we serve, along with proven capability of turnkey solutions for large national accounts with multiple locations. We believe our model of manufacturing turnkey capabilities and strong ESCO distribution partners are unique in the industry and give us access to an increasing amount of the market. While our history has been in lighting, we have been expanding our reach and capabilities into complementary areas, including lighting and electrical maintenance services, and recently into commercial electric vehicle charging solutions, recognizing the opportunity to broaden our product and service offerings to our current and future customer base. We have centered ourselves on a customer for life philosophy in which we focus on providing technical solutions delivered through several models that help end customers achieve their goals. We have three primary go-to-market models: ESCO partners, distribution partners, and our own turnkey model. Our turnkey services leverage our ability to help large national customers assess their site requirements and then design solutions, produce custom products, integrate controls, and manage the installation and commissioning of these systems to meet each customer's specific requirements. Our ESCO business is built with a strong network of partners who are typically providing turnkey solutions, where Orion provides product and potentially other services as support. Orion's distribution business is primarily focused on new build and agricultural markets and local geographic areas. Finally, we are building the capability to provide ongoing maintenance services, not just for lighting, but also for our new EV charging business. We are also working to educate customers on the total cost of ownership of lighting and other systems so they can see the long-term advantage of using highly energy-efficient products that are built to last under demanding applications. What is clear is that investing a bit more on the front end in the higher quality, energy-efficient solutions that Orion provides will deliver a substantially higher long-term return on investment while also providing substantial reductions in CO2 emissions. Our model is resonating with a growing customer base. We are working to build on our success to both expand our customer base as well as our breadth of products and services. Ongoing customer dialogues demonstrate that there is a growing appreciation of the value Orion can provide directly or through partners, and that the value only increases in proportion with the size of the customer, the number of locations, and the complexity of their needs. Unfortunately, these larger engagements take longer to develop, and as we have seen, their project timing can be impacted by factors outside our control. However, as we build the business, we expect the impact of such factors will diminish by our growing scale. Recapping what I said on our last call, we have been focusing on energy-efficient LED lighting solutions with turnkey capabilities. We have also been building our sales into the energy service company or ESCO market and through our electrical contractor relationships. The ESCO market in particular is a perfect match for our focus on high quality and energy efficiency as the ESCO model is built around delivering energy savings to their customers. While this market experienced a negative comparable to the prior year in Q2, we expect year-end growth to be positive by adding to the number of partners we work with and several major end customer projects delivered through our ESCO partners. Starting in Q4, from our success serving large national accounts, we saw the opportunity to expand our value into the lighting and electrical maintenance areas. We formed the Orion Maintenance Services division to provide lighting and electrical maintenance services to meet the needs of our customers. The acquisition of Stay Light in January greatly accelerated our capabilities to support customer and partner needs. We plan to leverage this platform to support our direct lighting and end customers to support our ESCO partners. In our recently acquired EV charging business, we are making strides as well. Speaking of daylight integration, we are investing in systems and training processes, as well as adding additional personnel and resources required to scale this business while maintaining the service quality and reliability that is essential to our success. We have purposefully kept our focus on serving our existing maintenance customers to ensure a solid transition. We are focused on growing this business by expanding current maintenance relationships and through cross-selling with current end customers and ESCO partners. We believe that there is substantial long-term growth potential for this business, which is an ideal complement to other businesses, both because it provides a growing base of recurring revenue for Orion and because of the cross-selling synergies it provides between our LED lighting and controls and our new EV charging solutions. We recently established a dialogue with a major new customer prospect for the maintenance service business. This is one of several opportunities which we're working on today. The opportunity, which was sourced through our ESCO partner, is with a retail organization of approximately 1,400 locations, primarily in the west and southeast, and we expect progress on this opportunity to be announced in Q4, continuing to build on our customers for life strategy. We recently expanded our business into the commercial electric vehicle charging station market through the acquisition of Voltrek. This strategic acquisition was a result of several quarters of research and due diligence on the EV charging market and potential partners. Importantly, this move was in response to growing customer requests for assistance with their EV charging needs across our retail, industrial, commercial, and public sector clients. After our comprehensive process, we were fortunate to find Voltrek in its prior owner, Kathleen Connors, who shares very similar cultures, business strategy, and ethics, a strong long-term customer commitment, and we both seek to differentiate ourselves through comprehensive solutions. Kathleen is an EV industry pioneer with over 13 years of experience in installing charging systems with a vast and diversified portfolio of commercial, industrial, and municipal customers. Kathleen will continue with Orion as the head of our EV charging and Voltrek business. EV sales are expected to triple from 2021 through 2025, becoming nearly a quarter of new vehicle sales, and the market is expected to continue to expand at a similar rate through this decade. To address this growing base of vehicles, stores, businesses, schools, offices, housing complexes, tourist and entertainment destinations, manufacturing facilities, hospitals, healthcare, etc., a charging infrastructure will need to be put in place to sufficiently support this dramatic shift toward EVs. EV charging will be an increasingly important component of a high-quality customer experience, as well as an important amenity to attract and retain employees and visitors at various facilities. California is already mandating the inclusion of charging stations for new construction projects, and $5 billion in federal and state funding has been authorized to support EV adoption and the building of charging infrastructure over the next five years nationwide. The Voltrek team is well versed in advising customers on how to qualify for and utilize these incentives. Voltrek's focus has been primarily in New England, and we see the opportunity to significantly expand their footprint and growth potential through our national customer base and electrical maintenance services network, as well as through our ESCO and distribution partners. We have already begun a range of efforts to introduce Voltrek solutions and capabilities to the Orion sales and service team. It will take time to get everyone up to speed, but the Orion and Voltrek teams are excited about the new opportunities, expanded value proposition, and extended customer reach. Turning to sales and marketing briefly, we have been ramping up our outreach efforts via industry conferences, participating in two major events during the second quarter. Both events generated meaningful new conversations with customers and channel partners, which we will work to convert into future business. We are also far along in the website overhaul project to enhance the value and ease of use for customers and partners. We believe the updated site is on the cutting edge of what is being done in our industry, and we're targeting its launch by the end of calendar 2022. As for the overall industry environment, we are seeing positive signs of customers refocusing on LED lighting projects that have been delayed. Several have re-engaged with us in the past several weeks to discuss moving forward. Similarly, some of the supply chain and other challenges that have been slowing customer decision-making are gradually receding, which we also view as a positive sign. As for our own supply chain position, the environment seems to be on a gradual trend of improvement and we remain in a strong position. Proactive management has allowed us to meet almost all of our demands within our normal delivery timeline of approximately two weeks or less. Again, our US-based LED lighting manufacturing capabilities continue to support our industry-leading delivery timelines. As for inflation, we've worked hard to offset these impacts through proactive sourcing efforts and offsetting price adjustments efforts that help benefit our Q2 gross profit percentage performance. A few callouts on our Q2 performance before I turn it over to Per. As we have discussed before, the major retrofit project and our number one account has largely been completed, and we see the impact in our revenue decline in Q2 year over year. The decline of this customer in Q2 was $18.7 million out of our total decline of $18.9 million. The global online retailer that we also discussed in prior calls declined $900,000 compared to the same period prior year as they abruptly stopped new warehouse construction in Q1 of this year. Without the impacts from these two accounts, the business grew approximately 5%. In Q2, we saw positive growth in our government sector where we have a very significant pipeline of projects we expect to begin in Q1 of fiscal year 24. Our new distribution business has also increased as our strategy of expanding geographic coverage and improving the strength of partnerships is paying off. Our ESCO business, as mentioned earlier, took a step back in Q2 as a result of some large projects taking longer than anticipated. All of these projects are still moving along, and we look forward to announcing some exciting news in this area in Q4 and Q1. Our turnkey business was primarily impacted by the decline of our number one customer while we likewise have a significant pipeline of opportunities that we'll begin in Q4 and Q1. Lastly, we are making great strides in our maintenance business and I'm excited about the cross-selling to come in both lighting and our new EV business platform. Finally, Per Brodin and I look forward to meeting with some of you in person at the Craig-Hallum Alpha Select Investment Conference in New York on November 17th or at investor events next year. In the interim, if you have questions or would like to schedule a call with management, please contact our IR team whose information is included on today's press release. Otherwise, I look forward to speaking with investors on our next quarterly call in February. Now, I will pass the call to Per Brodin to discuss our financial results, balance sheet, and our outlook for the balance of fiscal 2023.

Per Brodin, CFO

Fiscal '23 second quarter revenue was $17.6 million versus $36.5 million in Q2 '22, and fiscal 2023 first half revenue was $35.5 million versus $71.6 million last year. Current year periods were impacted by project delays, as we have outlined earlier on the call. Revenue for both the second quarter and year-to-date periods increased when revenue from our largest customer and the large global online retailer are excluded, reflecting the strength of our core business. Our gross profit percentage improved sequentially to 25.3% in Q2 '23 as compared to 19.8% in fiscal Q1 '23, but declined versus our 29.5% performance in Q2 '22. The year-over-year decrease was principally due to lower fixed cost absorption due to lower revenues. Conversely, our expectations for higher revenues in the second half of this fiscal year should have a positive impact on a realized gross profit percentage. The sequential improvement in gross profit Q2 '23 versus Q1 '23 reflected a higher margin revenue mix of projects, ongoing supply chain and cost management efforts, and the benefit of prior price increases offsetting higher input costs. Fiscal Q2 '23 product gross margin would have increased compared to 2022 were it not for the unabsorbed plant costs. Second quarter fiscal '23 operating expenses were $7.4 million versus $5.8 million a year ago, principally due to higher general and administrative expenses related to the January 2022 acquisition of Stay Light, the year-ago benefit from an employee retention payroll tax credit, which reduced operating expenses by $0.8 million, and a non-cash equity-based compensation charge. Operating expenses increased by $200,000 sequentially from Q1 '23, primarily due to integration initiatives in our maintenance services business, plus non-cash equity-based compensation costs related to our CEO's retirement. Orion reported a net loss of $2.3 million or $0.08 per share in Q2 '23 as compared to net income of $3.7 million or $0.12 per share in Q2 '22, and a slight improvement over our Q1 '23 net loss of $2.9 million or $0.09 per share. As of quarter-end, working capital improved to $32.5 million from $29.5 million at the close of Q1 '23 and compared to $32.9 million at the close of Q4 '22. Our working capital includes $16.8 million of inventory investments intended to position Orion to execute on our expected increases in volume. Orion remains in a strong financial position with approximately $23.7 million of liquidity that includes cash and cash equivalents of $12.5 million and over $11 million of availability in our credit facility. In addition, last week we amended our credit facility to include the assets of our two recent acquisitions, which increased our asset borrowing base and credit availability. In September, we drew $5 million on a revolving debt facility to strengthen our working capital position, and in anticipation of the Voltrek acquisition. In today's press release, we reiterated our fiscal 2023 revenue outlook of between $90 million and $110 million. This range reflects potential variability in the timing of several large customer projects and other factors outlined in today’s release. The midpoint of this range would represent strong double-digit revenue growth, excluding our expectations for our larger customer and the large online retailer, reflecting continued progress in diversifying our revenue sources. Based on our revenue outlook, we expect to be cash positive in the second half of this fiscal year. Accordingly, we expect our cash and liquidity position to improve through the balance of the fiscal year. This should keep us in a strong position to support our growth initiatives across the business, including M&A, while we continue to develop our pipeline of future opportunities. Our near-term focus is on integrating our recent acquisitions to ensure their success, as well as investing in organic growth opportunity initiatives. And with that, let's turn the call back over to the operator for Q&A.

Operator, Operator

Our first question comes from Sameer Joshi with H.C. Wainwright. Your line is open.

Sameer Joshi, Analyst

Thanks. Good morning. Thank you. I'm also fighting a cold, sorry. On the funding front, you mentioned and it is known that there is this $5 billion that is distributed through the states. Whereas Voltrek is focused primarily in the Northeast. Are there plans to expand that team so that they can avail and be positioned to capitalize on all or most states' plans that will come through in the first quarter of next year?

Mike Jenkins, COO

Sure. Hi, Sameer, it's Mike Jenkins. To answer your question, yes, we are expanding the team. We're adding resources to it right now. We see a lot of growth opportunity under the current platform, in the current location. So we want to continue to drive very strong growth that Kathleen has experienced in the Northeast. In addition to that, we want to leverage the rest of our turnkey resources to help expand this platform nationally. And so there are discussions underway right now about exactly how to do that. As I mentioned in my remarks, there is very strong interest from existing customers about how Orion could help in this space moving forward.

Sameer Joshi, Analyst

Okay. And then just a follow-up on that. I think in the announcement of the transaction, there was a $4.8 million number during 2021 as a top-line number for Voltrek. Is it tracking similarly for this year, and given that the earnouts are significant in the $1 million to $2 million to $3 million ranges over the next two or three years, what level of revenues are you expecting from this say in fiscal '24 and '25?

Per Brodin, CFO

Hi Sameer, it's Per. We did disclose on the initial call announcing the Voltrek transaction that their revenues were $4.8 million in 2021, and that we expect between $3 million and $5 million of revenue associated with that business in the second half here of fiscal '23. Given that we recently acquired the entity, we're still in the process of determining what we think the opportunity is specifically for fiscal '24 and hope to be in a position to discuss that in more detail on the February call. But I think as we mentioned on the call a month ago, we see significant opportunity for this business, and it's the reason that we went down this path.

Sameer Joshi, Analyst

Understood. Thanks for that, Per. And just one last one from me. Gross margins have improved significantly sequentially, and given that the second half revenue is expected to be much higher than the first half revenue, should we expect to return to that 28% to 30% blended gross margins in the next two quarters? Or how do you see that?

Per Brodin, CFO

I think the best way to think about it is, we obviously achieved a 25.3% in the current quarter, and we're doing everything we can to maintain or improve on that. We expect our revenues to be higher in the third quarter of fiscal '23, which should improve our absorption in managing the costs as carefully as we can. So we would expect to improve on the 25.3% as those revenues continue to increase.

Sameer Joshi, Analyst

Got it. Thanks once again and good luck on the Voltrek execution.

Operator, Operator

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

Aaron Spychalla, Analyst

Yeah, good morning. It's Aaron Spychalla for Eric. Thanks for taking the questions. Maybe first good to see several customers reengaging and confidence in starting projects in the second half and into next fiscal year. Can you just elaborate a little bit more on the confidence there, any gating items that might be required? And then just on the customer that kind of halted, any more color that you can share there, magnitude sounds like it obviously wasn't related to you, just more customer specific, but any color would be helpful.

Mike Altschaefl, CEO

Sure. Great questions, and thank you. I'm going to go and reverse order first on our comments about our global online retailer who pulled back in their project business. We first started talking about that back in January or February, where initially they pulled back because they were having issues on their supply chain of getting equipment and other mechanical and steel for the facilities. Shortly thereafter, they announced publicly in a number of places that they felt they had overbuilt to a certain extent for a period of time and decided to take a timeout from doing these new construction facilities where we were providing the overhead lighting in the pick modules. So it was something, frankly, out of our hands. We had expected a fair amount of that business for us. It was five to seven million dollars of business last year, and it kind of stopped very quickly. So that's the one project we are mentioning in our comments this morning about a project that is not going forward. On the positive side, we realize we've talked about several really positive projects for a few quarters, and what we're excited about is that we are seeing them coming to conclusion in terms of getting ready to kick off. So one example, we've talked about working hard on a project for a very large logistics company with many facilities across the United States, and we've been doing some modest amount of business with that customer for the last couple of years as they've gone through planning for a much larger project. We now have a material supply agreement in place with that customer, and we expect to play a very significant role as they go forward with their retrofitting of LED lighting in their facilities across the United States. We expect that business to kick off for us during our fourth quarter of fiscal '23 and then accelerate as we go forward. It's a very nice opportunity, and we're very pleased to have the contract in place, which specifies the pricing, and now it's all about them getting sites ready and kicking off so we can provide product for those locations. The second one I would mention is that we've talked about a really nice large public sector project where we are going to be the tier two contractor to the prime contractor with the federal government. The contractual relationship between that prime contractor and the government took much longer than expected, but we are now in the very final stages of getting that all ironed out, and we expect to be able to talk about that in the near future. That project will also be kicking off at the beginning of the calendar year, our fourth quarter of fiscal '23. We have several very nice size projects in the works that we also see kicking off during the third and fourth quarter of our fiscal year. So those big handful of opportunities give us optimism as we enter the second half and momentum going into fiscal '24. I would add that our other business in both distribution and ESCOs has some very nice activity that's giving us a positive feel as we approach the second half of the year.

Aaron Spychalla, Analyst

Thanks for the color, Mike. And yeah, I missed that it was a global online retailer, so thanks for filling that in. On that ESCO, you did talk about a few of those large opportunities coming later this fiscal year. Can you just kind of talk again about what's unleashing those and what kind of optimism you have as we look to next year from that business?

Mike Altschaefl, CEO

Sure. Yeah, we've really, as we talked about on prior calls, we see a lot of growth opportunity through our ESCO channel and partners. We've put considerable resources and work into building those partnerships and exploring growth opportunities. We've got excellent partners who are bringing forth some significant opportunities across a number of different verticals for us right now. The pipeline for ESCO is probably as significant as it's been in a while, and a number of these really are looking at strategic partners that can help us get into new verticals that, quite frankly, we haven't been in before. I think it's a real win-win kind of partnership.

Aaron Spychalla, Analyst

All right, good. Thanks for taking the questions. I'll turn it over.

Operator, Operator

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

Alex Rygiel, Analyst

Thank you. Could you give us an update on the Pure Motion products and any details as it relates to the first project that was started last quarter?

Mike Altschaefl, CEO

Sure. We continue to work diligently on the Pure Motion product, in particular, the Pure Motion product that has the UVC application in it, which can deactivate viruses and mold and mildew. Alex, it's been a slower process than we expected. We continue to have some very nice opportunities of size that we are working with people on. Those have continued, we've talked about those in the past, and they are ongoing. We also see potential for the base product, which is the air movement product, which can help move air and circulate air within a particular room, resulting in significant energy savings with respect to HVAC systems. We continue to believe we have a strong product. We've had a significant investment in marketing activities during the year, and we're optimistic that we're going to land a couple of nice size projects in the future on that product, but it has gone a little slower than expected.

Alex Rygiel, Analyst

And then on Voltrek, did you acquire any backlog and how does that backlog compare to maybe a year ago to help us understand what the revenue growth rate of that business can be over the next year or two?

Mike Altschaefl, CEO

I think I'd start by saying that we talked about earlier, Voltrek generated $4.8 million during calendar 2021 for their business, and we expect to have revenue of between $3 million and $5 million in the second half of our fiscal year. So obviously, roughly doubling in size from a year ago. Yes, they had backlog as we acquired the business, with very nice activity, and we are able to hit the ground running, which is why we feel there will be nice significant revenues during the second half of the fiscal year. There is a lot of planning that goes into place for EV charging solution projects. And so it's similar to our other business where there are site visits, engineering work that's done, and approval processes. The supply chain for EV also has issued challenges. That means things can build up from a backlog standpoint. We feel good about the backlog they have, and as Mike mentioned earlier, we're making significant investments to expand that business across the United States.

Alex Rygiel, Analyst

Thank you very much.

Operator, Operator

Thank you. One moment for our next question, and our next question coming from the line of Bill Dezellem - Tieton Capital.

Bill Dezellem, Analyst

Thank you, and congratulations on having customers reengaging with you. But I'd actually like to dive into that in a bit more detail. Why do you sense that they are reengaging now given the economic uncertainty? That seems counter to what I would've otherwise anticipated. I'd love to hear insights and comments on that.

Mike Altschaefl, CEO

That's an excellent question. My view is that while we use the words reengage, I also think it's closely linked with seeing the decision-making process for larger projects move a little bit more slowly than in the past. Part of the reason we think we're seeing positive indications about the second half of the year and going into next year is that these projects that have moved slowly through the customer approval process are getting very close to the end. Most of them offer significant energy savings. We've noted that most projects have 50% or greater energy cost reductions. In the past, we’ve seen that even if the economy slows down, it provides an opportunity for companies to reduce expenses moving forward. So certainly we will remain cautious about the economy as everyone is at this point, but we haven't seen it slow down project activity that has been moving through the process with our larger customers.

Bill Dezellem, Analyst

That's helpful, thank you. And then relative to pricing, would you talk a bit about how much you believe that you still need to raise prices further, and to what degree you are finding willingness or tolerance by your customers for you to raise prices?

Mike Jenkins, COO

Yeah, so this is Mike Jenkins. We have done a fair amount of price adjustments as we've seen inflation rise over the last 18 to 24 months. In general, in our industry, we're not seeing the same rate of inflation in terms of costs. Transport costs are starting to decline from ocean freight, lead times are also getting better, and those types of things. So the inflation curve that we observed before has definitely flattened and we're very vigilant in looking at it and making any necessary price adjustments. But inflation moderation has, to a large degree, been our experience thus far.

Bill Dezellem, Analyst

Okay. That is helpful. And then finally your service margin, gross margin increased, something in the neighborhood of 800 to 850 basis points versus the first quarter. Is that increased service gross margin a function of having Stay Light in the mix and some of their expertise, or is there something else going on? Maybe a bit on why such success with gross service margin increasing sequentially.

Per Brodin, CFO

Hey, Bill, it's Per. I would say that the margin within service can vary quite a bit. I wouldn't link it to the expertise that Stay Light brought with their core business. Just a reminder, that service margin includes installation services, not just maintenance services, and that's where the mix could significantly influence that rate on a quarter-to-quarter basis.

Bill Dezellem, Analyst

Great. Thank you all for the perspective.

Per Brodin, CFO

Thanks, Bill.

Operator, Operator

Next question coming from the line of Jeffrey Campbell with Alliance Global.

Jeffrey Campbell, Analyst

Thank you. I just wanted to ask you a question with regard to the structure of the EV charging business. Is this primarily an EPC business? Are you actually going out and procuring real estate or leasing real estate to develop these facilities? And do you envision any change in the way the business works now versus what you see for it as you expand into different parts of the country?

Mike Jenkins, COO

Sure. This is Mike Jenkins. The business itself is a design and installation business. We go out and guide our customers through the process and then manage in a turnkey fashion, the installation. We also sell some products to other channels and partners as well. However, we do not enter into the management of the real estate or leasing products or any of those kind of structures. As far as the future, those things are really not in our current thinking, but we will always be looking at how the industry evolves over time. I also want to highlight what we've discussed before: we have the ability with Voltrek to use multiple suppliers for hardware. Our goal is to provide a range of products and solutions to the customers, have turnkey solutions, similar to what we've done before, and secure ongoing maintenance service contracts, moving towards an opportunity for additional recurring revenues through subscription services with respect to certain products being sold. That's our business model. We don't currently see ourselves owning the actual stations.

Jeffrey Campbell, Analyst

Okay, great. I appreciate that call.

Operator, Operator

Thank you. One moment please for our next question. Our next question coming from the line of Andrew Shapiro with Lawndale Capital.

Andrew Shapiro, Analyst

Hi, good morning. A few questions. If you could on your acquisition of the service business, I guess it was three-quarters, maybe a year ago now. On a prior call, I had asked about your thoughts on its expansion to different geographies, and you thought that that might be via acquisitions maybe more than organic growth. Then the Voltrek acquisition occurred, and I didn't know if the types of business that Voltrek is and the service and maintenance business that you kind of acquired to expand, what synergies, if any, exist, and if you are achieving some of that geographic expansion since Voltrek is so strong in the Northeast.

Mike Altschaefl, CEO

Sure. High level, yes, we see synergies between both of these acquisitions, both with each of those companies and with our existing Orion business. To go back a bit, we felt a strong opportunity to enter the maintenance business in January this calendar year when we closed the acquisition of Stay Light. Stay Light has a nationwide footprint to deliver maintenance services for lighting and miscellaneous electrical services, as well as having 15 states where they can self-perform those services, generally from the upper Midwest out to the East Coast and Southeast. We plan to expand our ability to provide those maintenance services not just through self-performing but also through partnerships with other service providers and continue to develop that nationwide network. As Mike mentioned earlier today, we have our first larger new opportunity for that maintenance business with an entity that has a number of locations primarily in the West. Our feeling today is that while we initially thought we might pursue additional acquisitions in the maintenance side of the business, we believe we can organically grow our existing maintenance business currently. The Voltrek acquisition was the right move, and the synergies between them are that maintenance services for lighting are synergistic with the maintenance services needed for EV charging solution projects. Over time, we can see our technicians who are providing services in the field servicing both lighting customers and EV charging stations. As you build density in different areas of the country, it becomes a very positive business model to have our people doing that work. Finally, I would say that now that we've made these two acquisitions, it's time for us to ensure we integrate them effectively while continuing to focus on how we move forward to grow both businesses organically and through additional acquisitions.

Andrew Shapiro, Analyst

Okay. That's good because I was a little concerned about getting another service maintenance acquisition and just trying to integrate so many things when you guys are trying to execute the business at hand. Now with respect to Voltrek, which is primarily in the Northeast, what is the timing and the plans for rolling out its business model and its business services beyond its geographic strength? Is that going to be organic? How does that unfold occur, and will it wait until after integration?

Mike Jenkins, COO

Yeah, this is Mike Jenkins. We've already started with some customer engagements outside of that core area and believe we can leverage some existing resources and partnerships on the turnkey side to execute outside its core area. But it’s going to be largely an organic build for us.

Andrew Shapiro, Analyst

And then last but not least, can you quantify and describe the timing for which you will or have already recognized the acquisition costs? I would assume either in the SG&A or potentially broken out as a separate line item for the recent Voltrek acquisition, which doesn't start generating revenues and cash generation until this current quarter ending in December.

Mike Jenkins, COO

Sure, I'll take that. You can see in the P&L in today's press release some acquisition-related costs that were recognized in the most recent quarter. In the second quarter, that was around $300,000. There were some acquisition-related costs associated with both Voltrek and some still a little bit for Stay Light. As we move forward, there will be some transaction-related costs that will come through here in the third quarter, and then there will be some integration-related costs. A significant component to understand is the earn-out payments that are associated with the transaction for Voltrek, which will be recognized through the P&L over time. There are earn-out opportunities for fiscal year '23, '24, and '25. Those costs will come through the P&L as we assess they're being earned, and will be paid in a subsequent period after we finalize the progress against those earn-outs.

Andrew Shapiro, Analyst

Is the earn-out metric revenue-based or more cash flow emphasized?

Mike Jenkins, COO

It's EBITDA-based.

Operator, Operator

Thank you. And that concludes the Q&A session. I will now turn the call back over to Mr. Mike Altschaefl for any closing remarks.

Mike Altschaefl, CEO

Thank you, operator. As some of you may know, this is my final earnings call as Mike Jenkins will become our next CEO after our quarterly board meeting on Thursday. I will continue to serve Orion as a Director. I'm confident that Mike has an excellent combination of experience, leadership capabilities, and proven business success to lead Orion to a bright future. I would also like to thank the entire Orion team for the privilege of working with all of you as CEO over the past five and a half years. I'm very proud of the talent and commitment of the team that has allowed us to put the business on an exciting path for the future. I’m truly grateful to have had the opportunity to lead Orion. I would also like to thank our investors and other stakeholders, including our customers, partners, and suppliers who have believed in and supported Orion over the years. So thanks everybody for joining today's call, and the team looks forward to talking with you after our next quarter. Thanks a lot.

Operator, Operator

Today's conference call is now concluded. Thank you for your participation. You may now disconnect.