Orion Energy Systems' Q2 2026 Earnings Call: Contradictions Emerge on Electrical Infrastructure and EV Charging Expansion, Gross Margins, and Recurring Revenue Outlook

Business Commentary:

• Revenue Growth and Profitability Improvements:
• Orion Energy Systems reported a year-over-year increase of more than one-third in gross profit and achieved 4 consecutive quarters of positive adjusted EBITDA in Q2 of fiscal 2026.

• This growth was driven by incremental growth in total revenue and significantly more than that in maintenance services, despite unburdening an unprofitable contract.

• Q2 Financial Performance:

• Orion's Q2 2026 revenue was $19.9 million, compared to $19.4 million in Q2 2025, with gross profit growing 800 basis points to 31%.

• This improvement was attributed to reductions in LED lighting fixture cost, margin and volume increases in maintenance services, and cost control initiatives.

  

• Lighting and EV Charging Sales:

• In lighting, Orion secured $11 million in government lighting and up to $7 million in LED lighting for major automotive industry facilities.

• In EV charging, they achieved $8.5 million in work in Massachusetts, supported by the federal clarification on EV charging funds.

• Maintenance Services Expansion:

• Maintenance segment revenue increased by 18% to $4.5 million in Q2 2026, reflecting new customer contracts and expanded relationships.

• Growth was supported by a major retailer's three-year renewal, representing recurring revenue of between $42 million-$45 million.

• Operational Efficiency and Cost Control:

• Total operating expenses declined to $6.4 million in Q2 2026 from $7.7 million in Q2 2025, reflecting ongoing overhead and personnel expense reductions.
• Cost control was achieved through overhead and personnel expense reductions, and successful implementation of cost control initiatives.
  

Contradiction Point 1

Expansion of Electrical Infrastructure Services

It involves the company's strategic direction and capabilities in expanding its electrical infrastructure services, which could impact revenue growth and market positioning.

What are you seeing with your customers in the EV business given the government's clarity and utility programs? - Eric Stein (Craig-Hallum Capital Group)

2026Q2: Our business had a lot of utility programs, but we have not only expanded further with Boston Public Schools, MassDOT, and the state, but also hired additional salespeople, especially in the Florida office... If this is indeed something that we’re going to pursue, we have a few other areas targeted that we’re investigating. - Sally Washlow(CEO)

Could you provide details on the electrical infrastructure, including what is required to build it and whether it will require significant investment? - Eric Stine (Craig-Hallum Capital Group LLC)

2026Q1: We are in the early stages of this initiative, but our current infrastructure can handle the additional workload, and we'll scale as needed. Investment will grow with the business. This opportunity extends beyond traditional turnkey offerings and EV work. - Sally A. Washlow(CEO & Director)

Contradiction Point 2

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Will gross margins continue to improve toward the mid-30s? - Samir Joshi (HC Wainwright)

2026Q2: I do not think in the near term we have an expectation of getting into the mid-30s. I think being in the neighborhood of the high 20s to 30 is probably more realistic. - Per Brodin(CFO)

Can you break down the components of the op margin that drive performance toward and beyond the midpoint? - James C. Sheedy(RBC Capital Markets)

2026Q1: We currently expect full year GAAP revenue in the range of $185 million to $195 million. This guidance assumes gross margins of approximately 27.5%, operating margins of approximately 1.5% to 2.5% and an effective tax rate of approximately 26%. - Per Brodin(CFO)

Contradiction Point 3

Recurring Revenue and Maintenance Contracts

It involves the company's recurring revenue projections and the status of maintenance contracts, which are crucial for financial stability and future growth.

Can you provide an update on the maintenance agreement renewal? - Eric Stein (Craig-Hallum Capital Group)

2026Q2: We have some other customers as well. It’s a little bit of a slower build as we work with them, but month over month that revenue is growing with them as well and the trust that they have in us. We think that that will continue to expand. - Sally Washlow(CEO)

Do you have visibility into when maintenance contracts might start growing again? - William Joseph Dezellem (Tieton Capital Management, LLC)

2026Q1: We're not talking about the customers, but we have seen some movement. We have to be cautious on it, but we're seeing movement in the other direction, which is people are actually trying to get in contact with us to start to explore new maintenance contracts. - Per Brodin(CFO)

Contradiction Point 4

EV Charging Business Outlook

It involves contrasting outlooks for the EV charging business, which is a critical growth area for the company, impacting expectations for revenue and market share.

What are you observing with customers in the EV business now that government policy clarity has emerged? - Eric Stein(Craig-Hallum Capital Group)

2026Q2: We’re absolutely seeing some of that from our enterprise customers bringing, whether it’s an LED lighting project that would have started out as that, but bringing then EV charging into their parking lots as well. - Sally Washlow(CEO)

What assumptions underpin the flat-to-down outlook for EV charging in FY26, and do you expect macro improvements? - Eric Stine(Craig-Hallum Capital Group LLC)

2025Q4: We're taking a conservative approach to EV charging for fiscal '26. We have a strong pipeline, and we continue to look at EV sales and the need for infrastructure. Our focus is on capturing market share where we can. - Sally Washlow(CEO)

Contradiction Point 5

Expansion Strategy in EV Charging Infrastructure

It involves the company's strategic approach to expanding its EV charging infrastructure business, which is a key area of growth and investment for Orion Energy Systems.

On the EV outlook, you expect flat or slightly lower year-over-year growth. With the $5 billion in funds now available, are you planning geographic expansion or a roll-up with similar businesses to increase the size of your EV offering? - Samir Joshi (HC Wainwright)

2026Q2: We are certainly looking at a geographic expansion and, note, hiring a sales gentleman to lead our Jacksonville office and then other areas of the country as well. We certainly expect further geographic expansion. - Sally Washlow(CEO)

What are the benefits of the new business unit structure? Are salespeople better suited for direct sales or partner channels? - William Dezellem (Tieton Capital Management)

2025Q3: We continue to actively explore geographic expansion in both the commercial and industrial buildings and infrastructure arena as well as utility segments. - Michael Jenkins(CEO)