Orion Energy Systems Inc

NASDAQ:OESX

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, everyone, and welcome to Orion Energy Systems Fiscal 2024 Fourth Quarter Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to turn the conference over to Bill Jones, Investor Relations, to begin.

[William Jones, executive]

Thanks, Michelle, and good morning, everyone, and thank you for joining this call today. Mike Jenkins, Orion's CEO; and Per Brodin, Orion's CFO, will review the company's Q4 and full year results, the company's financial position, and its fiscal '25 outlook. Then we will open the call to investor questions.Today's conference call is being recorded, and a replay will be posted on the Investor Relations section of Orion's website, orionlighting.com. As a reminder, remarks that follow and answers to questions include statements that are forward-looking as per the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally include words such as anticipate, believe, expect, project, or similar words. Also, any statements that describe future targets, goals, or company plans or its outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to differ materially from current expectations. Such risks include, among other matters, matters that Orion has described in its press release issued this morning, as well as in its filings with the SEC. Except as described therein, the company disclaims any obligation to update or revise these forward-looking statements, which are made as of today's date. Reconciliations of certain non-GAAP financial metrics to the closest GAAP measures are also provided in today's press release.Now I will turn the call over to Mike Jenkins. Mike?

[Michael Jenkins, executive]

Thanks, Bill. Good morning, and thank you all for joining today's call. As anticipated, Orion's revenue momentum continued to build across the business in the fourth quarter, enabling us to achieve our strongest revenue quarter of the year and end within our full year revenue guidance. We expect this positive revenue momentum to continue in fiscal 2025 and have guided 10% to 15% revenue growth over fiscal '24 for the full year. A few revenue highlights from our fiscal '24, quarter 4, and year-end. Orion finished at $90.6 million, overall, which is within our latest guidance and is approximately 17% above prior year. Quarter 4 was a strong 22% over prior year. Our Lighting segment grew over 13% in quarter 4 and finished 8% above prior year. Maintenance recorded over $5 million in revenue in quarter 4 while generating positive margin growth and finished over 17% for the full year. Our EV business recorded a record quarter 4 of approximately $5 million, up 42% over prior year, and finished over $12 million for the year, which was about a 96% increase.Let me now provide some commentary on our businesses. Starting off with the LED Lighting solutions, we saw steady progress throughout fiscal '24 in our ESCO and turnkey customer groupings. Our #1 customer grew significantly in the quarter and in fiscal '24 as we expanded our lighting projects and maintenance relationships. On the Lighting side, we began executing exterior lighting retrofits for their stores, as well as a number of their DCs, in addition to new stores, which drove meaningful growth. Both of these areas will be multiyear projects that enable them to upgrade their energy efficiency and lighting performance.Our federal government business took a big step with the execution of our large Department of Defense base project in Germany. This project is done in conjunction with a super ESCO, who is acting as prime contractor on the base and hired Orion to manage the lighting for them on a turnkey basis. The super ESCO is one who we frequently work with and continually selects Orion as their lighting partner. This project contributed over $6 million in revenue for fiscal '24 and will also provide an additional $2 million plus in fiscal '25. This was a very complicated and challenging project executed on a military base half the world away, and our team did a really excellent job showcasing our project management capabilities.Looking forward in Lighting, we expect our business to be supported by a range of projects from both new and long-term customers. We expect to see a rebound in activity for longstanding automotive customers after a lower fiscal '24. Continued strength in our #1 customer, strong opportunities in the public sector, growth with logistics and warehousing customers, as well as the initiation of several large projects in technology, retail, and federal sectors that have been in the planning stages for more than 1 year.We also expect continued growth in lighting product sales to energy service companies, or ESCOs, and our distribution contractor channel, which have responded very favorably to our expanded line of fixtures developed for the value and contractor segment of the energy-efficient fixture market. These new products were introduced last year under the name TritonPro and Harris Exterior. These products balance our commitment to high-quality components, design, and energy efficiency, with more modest price points that let us address a broader base of end-customer budgets. We believe these new products have allowed us to broaden our target market, as evidenced by quoting activities in building pipeline that is now approaching $10 million, all without significant cannibalization of our higher-end product sales.We expect to build on the success of these products in the coming year. Longer term, we also expect our LED Lighting business to benefit from the implementation of state regulations banning the sale of fluorescent fixtures and replacement tubes over the next several years. Currently, 7 states, including California, Hawaii, Oregon, Colorado, Vermont, Maine, and Rhode Island, have approved such regulations, most of which go into effect in 2025, and we expect other states to follow with similar regulations in the future. We have started to see signs of customers accelerating planned LED retrofits into our fiscal '25 as a result. Given Orion's strength in engineering and design, in our industry-leading energy efficiency products, and our multiple go-to-market approaches, we believe these regulatory mandates should support growth in our Lighting business.We are also encouraged by the potential benefits from federal funding that is really just starting to flow from the Build America, Buy America Act, or BABA, which was part of the $550 billion Infrastructure and Jobs Act. The BABA Act requires states, municipalities, and schools to use BABA compliant products when available to receive federal funding. In anticipation of these requirements, we launched a full line of new BABA-compliant LED Lighting fixtures in the third quarter of last year that we produced in our manufacturing facility here in Wisconsin. We are still in the early days of BABA, but believe this should be a growth driver for Orion in the years to come.Turning to our Voltrek EV Charging segment. The business made solid progress in its first full year of operations within Orion, working to build out the Voltrek team, their capabilities, and geographic reach to meet the needs of larger national customers. Voltrek closed fiscal 2024 with record quarterly revenue of nearly $5 million, leading to an annual record revenue level of over $12 million. In Q1 of fiscal '25, we announced over $11 million of contracts for 1 customer slated for completion this year, contributing to our strengthening platform for growth in fiscal '25.In addition, Voltrek continues to develop a solid pipeline of larger opportunities, maintaining a $45 million plus pipeline. Overall, our confidence in Voltrek's outlook is supported by its positive momentum demonstrated in fiscal '24, strong pipeline of opportunities, including cross-selling with our Lighting customers, and significant federal funding to drive infrastructure catch-up needed in the buildout of EV Charging access across the U.S. Opportunities include charging station infrastructure to support EV vehicle fleets across a range of customer segments, including government, commercial, industrial, and retail. Voltrek's decade-plus experience and long-term track record of successful EV charging installations puts Orion in a very favorable and competitive position to compete for EV infrastructure projects, particularly within our national base of lighting customers.Lastly, we were able to make significant strides in enhancing the performance of our electrical maintenance services business during fiscal '24. We were successful in driving revenue growth in the business, primarily due to the contribution of a new 3-year lighting preventative maintenance service agreement for a major customer's approximately 2,000 retail stores nationwide. This new contract, secured with our largest LED lighting customer, continues to confirm the cross-selling synergies between our LED Lighting and Maintenance services businesses.Also, during fiscal '24, we made tough decisions regarding unprofitable contracts from our Stay-Lite acquisition. Many of these multi-year fixed price contracts had become unprofitable due to a variety of inflationary impacts over the past few years. We recognized that we either had to reprice the contract's terms that would allow them to be profitable, or we had to allow the contracts to expire, take the resulting reduction in revenue. Our discipline enabled us to return this segment to meaningful gross profit percentage in quarter 4, and our goal in fiscal '25 is to bring this business to a margin profile more in line with our overall business.As a result of our profitability focus, we did shed approximately $6.8 million in annualized revenue of unprofitable contracts in our quarter 4 fiscal '24 and quarter 1 fiscal '25 period. We expect this to be partially offset in growth from other accounts and new business in the Maintenance segment. Overall, this loss will be a net positive for profitability of our Maintenance business and for Orion. We view Maintenance as a means to provide greater value to some of our key accounts while also providing a base of recurring revenue.Over the past 2 years, Orion has leveraged our industry-leading experience in LED Lighting and project management capabilities to expand and diversify our overall business. The benefits of this transformation are clearly reflected in our quarter 4 and full year revenue and bottom line improvements, as well as in our outlook for fiscal '25. Orion's transformation is also providing new opportunities to build on existing customer relationships by offering new products and services to meet their needs.Turning to our outlook for the business. Orion continues to target fiscal '25 revenue growth of 10% to 15% on a consolidated basis, which includes the reduction in the Maintenance revenue referenced earlier. This outlook is based on expected revenue from large national LED lighting projects for automotive, retail, technology, logistics and distribution, banking, and public sector customers. Additionally, we expect continued growth in our ESCO and agent channels due to the strong response to the quality, energy efficiency, and value of Orion's new and existing products.We expect our EV Charging Solutions business to be driven by current contracts, as well as our growing pipeline of opportunities and achieve 50%-plus growth this year. Maintenance services revenue is expected to contract by approximately $5 million in fiscal '25, so we expect a much better bottom line performance. The revenue decrease is primarily due to the loss of 3 legacy customers that were unprofitable. The revenue impact from the losses is partially offset by growth in other accounts and expected to net to $5 million.With regard to quarterly performance, we expect fiscal '25 to look similar to fiscal '24, with revenue weighted to the second half of the year. We do expect growth for all quarters on a year-over-year basis. With that said, let me now pass the call to our CFO, Per Brodin, to discuss our financials and outlook in more detail.

[John Brodin, executive]

Thank you, Mike, and hello, everyone. I'll briefly review some highlights before we move to Q&A. Our Q4 '24 revenue rose 22.1% to $26.4 million, which compares to $21.6 million in Q4 '23, an improvement of approximately $5 million across all 3 business segments. Full fiscal year '24 revenue increased 17.1% to $90.6 million, a $13.2 million increase over fiscal '23. Fiscal '24 included 96% growth in our EV business, 18% in Maintenance Services growth, and 8% growth in LED Lighting. Both the quarter and the full year reflect the ramp of some larger LED Lighting projects, most notably the Department of Defense contract Mike referred to and the start of a 3-year preventative lighting maintenance service contract for our largest customers' 2,000 retail locations.Looking at margins, our gross profit percentage improved 390 basis points to 25.8% in Q4 '24 versus 21.9% in Q4 '23. For the full fiscal year, our gross profit percentage increased 50 basis points to 23.1% in 2024 from 22.6% in fiscal '23. Both 2024 periods benefited from the impact of higher volume on fixed cost absorption, sales mix, and improved pricing on certain maintenance contracts. Product gross margin improved approximately 370 basis points to 29.8% in fiscal '24 from 24.9% a year ago. The increase is attributable to new product sales as well as the benefit of higher volumes and fixed cost absorption. Reflecting steps taken in the Maintenance business and our expectation for the business overall, we expect our blended gross margin to remain strong in fiscal '25 as we continue to grow sales. However, there will be some negative effect in Q1 as we work through the remaining work orders for the Maintenance contracts that have lapsed.Operating expenses declined to $5 million in Q4 '24 from $9.6 million in Q4 '23, mainly due to the impact of a net earnout reversal of $3 million of previously recognized Voltrek earnout expense in the current year period compared to a $2.5 million earnout expense accrual in Q4 '23. For the full year, operating expenses also declined due to the earnout adjustment but would have increased 6.4% excluding the earnout, due primarily to the inclusion of a full year of Voltrek expenses in the current year and higher commission expense based on higher sales levels, partially offset by lower product testing costs.To highlight a couple of other unusual items that occurred during Q4 this year, we recorded a noncash impairment charge of $456,000 for intangible assets acquired as part of the Stay-Lite acquisition. In addition, we incurred $138,000 of restructuring costs as part of the Maintenance segment realignment and expect to record another $400,000 to $500,000 of charges in fiscal '25, some of which are noncash charges, such as inventory and equipment disposals, as we finalize the wind-down of the 3 Maintenance contracts that have lapsed. Considering higher revenue and improved gross profit percentage and lower operating expenses, Orion's Q4 '24 net income improved to $1.6 million in Q4 '24 versus a loss of $5.1 million in Q4 '23. Likewise for the year, Orion's net loss was cut to $11.7 million, or $0.36 per share, in fiscal '24 from $34.3 million, or $1.08 per share, in the prior year, which included a $17.8 million valuation allowance recorded on the company's deferred tax assets.Cash generated was approximately $175,000 in Q4 '24, primarily reflecting improved operating results partially offset by working capital changes. On March 31st, we had current assets of $44.8 million, including inventory of $18.2 million, accounts receivable of $14 million, and cash of $5.2 million. Net working capital was $16.8 million, and our liquidity, defined as cash plus revolver availability, was $15.3 million. After year-end, we further enhanced our liquidity position by approximately $5 million to over $20 million via an amendment to Orion's bank credit facility, which now exceeds $17.5 million of liquidity that Orion had available at December 31st, 2023, our prior quarter end. The amendment provided a $3.5 million mortgage on our Manitowoc corporate headquarters, plus an additional $1.6 million of borrowing-based enhancements due to a broadening of the defined eligible receivables allowed to be included in the company's borrowing base calculation. As such, we believe we are in a good position to fund each of our business segments and their growth objectives for fiscal '25. As a reminder, we are reiterating our outlook for 10% to 15% revenue growth in fiscal '25, and we'll update this outlook at least quarterly.With that, I'll now ask the operator to start the Q&A session.

[Operator]

[Operator Instructions] And our first question is going to come from the line of Eric Stine with Craig-Hallum Capital Group.

[Eric Stine, analyst]

So it sounds like the 10% to 15% growth outlook for '25 is really LED Lighting, right? If we think about Maintenance, the loss of those contracts offset by Charging. Do you agree with that? And then just curious, what type of visibility do you see? You mentioned $2 million from the DOD project. I know you've got a number of other projects in hand, set to start. But just curious as you look at fiscal '25, what you have in hand today. And I know it's always timing dependent.

[Michael Jenkins, executive]

Yes. As you outlined, we see both LED Lighting and EV as being strong growth drivers for us. As you said, the EV business and the growth in that helps offset some of the decline in Maintenance. But they're both working together for growth. We do have a significant pipeline going into this year on both EV and LED Lighting. We have some very large projects that support both our new and long-term customers. We did reference in the remarks about the automotive customers coming back this year. We did see a softer year in automotive, just based on timing of projects this past fiscal year. That will give us a nice boost. I did reference also one of those automotive customers is really beginning to respond to some of the fluorescent bands that we've seen. There's evidence that they want to accelerate some timing of retrofits as a result of some of the fluorescent bands coming. So, that's why we feel very good about the year in general and feel good about the Lighting business.

[Eric Stine, analyst]

All right. And then maybe just turning to Voltrek. It sounds like you characterized the growth here to this point being really skewed towards fleet opportunities. Just curious, you mentioned synergies with your Lighting customers. Maybe what do you think that contribution is in fiscal '25 and maybe how much of your -- I think you referenced the $45 million plus pipeline?

[Michael Jenkins, executive]

Yes. I would say right now our business is definitely a mix as it continues to be from a historical perspective. In terms of fleets and non-fleet sales, we do see a huge opportunity moving forward with fleet and DC fast charge. The NEVI funds and connecting the interstate highway system, all of that, we see that as an opportunity unfolding over the next several years. The first phases of grants are hitting the street right now at the state level. So, we do see more and more opportunities for fleets as we move forward, and we are engaging with customers about that as well as government sectors.So, the pipeline of over $45 million does not include all of the cross-selling synergies back and forth between Lighting and EV. We actually have a cross-selling pipeline right now that exceeds $30 million between our Lighting and our EV business. And so, we really are pleased in how that's coming together and strengthening.

[Eric Stine, analyst]

And maybe last 1 for me, just sticking with charging. There's been a bit of a shakeout in the EV charging space, a number of the EV charging companies. Just curious, is that something that helps you, hurts you, doesn't matter? Just some thoughts there would be helpful.

[Michael Jenkins, executive]

Yes, I think overall that volatility helps us. We're a well-established company in this space with over a decade of experience. We're partnered with very well-known premier equipment providers like ChargePoint, who's our largest partner. And so we feel really good about our position. Stable partners, trusted name in the industry, and a growing pipeline. So, we've seen some new entrants come and go, but overall, we feel continually optimistic about this space and our ability to compete and win.

[Operator]

And our next question comes from the line of Amit Dayal with H.C. Wainwright.

[Amit Dayal, analyst]

So good to see the diversification starting to now show up in the revenue mix. With respect to this $11 million EV customer, is this an enterprise customer or a government customer that you expect to deploy this year?

[Michael Jenkins, executive]

Yes, we did announce it previously. It's Eversource, which is a utility in Massachusetts. And so, we're contracted with them what they call make-ready work, which essentially is getting essentially all the infrastructure in place. And then on top of that, and in addition to, there's equipment.

[John Brodin, executive]

Maybe just to clarify, Amit, the end user is not the utility. There are customers of Eversource that are the customers purchasing these products and services. But Eversource helps fund those purchases for the customer.

[Amit Dayal, analyst]

Understood. How many units does this translate into, just to get a sense of what the market is looking like, if you can share that?

[Michael Jenkins, executive]

I'm sorry, Amit, you got a little broken up there. Could you please repeat the question?

[Amit Dayal, analyst]

Yes, I was wondering how many units this $11 million translates into? I don't know if you can share that information.

[Michael Jenkins, executive]

Yes, I can't really give units. I can tell you that I believe the total subset of projects underneath that are approximately somewhere around, let's say, 20 to 25 projects.

[John Brodin, executive]

Maybe I'll just clarify one more thing on that, Amit. When we say make-ready, that work is a lot of the infrastructure required for the installation of a charging unit. So, that $11 million may not always include a charging unit itself if the customer decides to only have us do the make-ready work or, say, the ground and below work [indiscernible].

[Michael Jenkins, executive]

Yes. Part of our turnkey solution is to provide that construction work, often to bring the infrastructure in place to then put the charger -- connect the charger to.

[Amit Dayal, analyst]

Understood. And then along those lines, you touched on it a little bit, are you seeing any acceleration in federal funding that could support stronger deployments in the next 1 or 2 years? It's been a little bit slower than what folks might have expected to play out. But is that changing that helps your future outlook?

[Michael Jenkins, executive]

Yes, it does. In EV charging space, there was the $5 billion of NEVI funds that were appropriated. Like a lot of federal programs, they work ultimately through the states. And so things take time for that funding vehicle to go to the states and then for them to comply and begin to grant the monies. So, we're just starting to see some of that NEVI funding hit the street, and I think it will really accelerate over the next 24 months. But it's starting to be applied now. And that's really for DC fast charge infrastructure, which is good.

[Amit Dayal, analyst]

Okay, understood. Just one last one for me. With the maintenance margins now expected to improve from here, overall margins, is there room for further improvement? Or should we model for these levels, mid-20% margins for at least fiscal '25?

[John Brodin, executive]

I think for fiscal '25, we expect to see some modest potential improvement. As I mentioned in my remarks, that won't necessarily flow through in Q1 because of some of the headwinds still that we're facing related to these 3 contracts that are lapsing. But then it should continue to improve in Q2, Q3, and Q4.

[Operator]

And our next question is going to come from the line of B.J. Cook with Singular Research.

[B.J. Cook, analyst]

I just want to clarify. The $45 million EV pipeline, I just wondered if that -- if I remember right, it was $50 million last quarter or so. And that's on net basis. I'm just wondering if that includes some new contracts that moved from the pipeline to [indiscernible] orders. We're looking at on a net basis. I just wondered if you're seeing some growth in the pipeline [ pickup ] for the new contract that turned into firm orders.

[Michael Jenkins, executive]

Yes. Great question, B.J. Yes, absolutely. The opportunity to return our pipeline, once they're closed and landed, then they come out of the pipeline once we begin to activate them as projects. So, that's a constant moving group of opportunities in there. And so a fair amount of those have been realized and are being realized. And so, we're constantly replenishing. So, I would say our pipeline overall is stable to growing. As I mentioned, there are additional opportunities, which we are counting as cost selling back and forth between EV and Lighting that are, let's say, EV related, which are not included in that currently.

[B.J. Cook, analyst]

Appreciate that. And 1 other thing for me, you mentioned the $4 million to $5 million contraction in the Maintenance business. I'm just wondering if that's just a contraction or is that the number for your consolidated revenue outlook?

[Michael Jenkins, executive]

It's a contraction within that segment only, and that's the net impact. In my comments, I referenced the value of the contract loss was about $6.8 million, but we're offsetting that with new business, both with our 3-year preventative agreement, which has been previously announced, as well as potentially some additional business, and we expect that to net to a contraction of $5 million.

[John Brodin, executive]

And our overall growth guidance for the year is net of that $5 million.

[Michael Jenkins, executive]

Yes. It includes that contraction.

[Operator]

And our next question comes from the line of Bill Dezellem with Tieton Capital Management.

[William Dezellem, analyst]

I'd actually like to just follow up on that last point and just doing these numbers in my head. But if you didn't have that $5 million headwind, then your 10% to 15% revenue guidance would be closer to 15% to 20% revenue guidance. Is that correct?

[Michael Jenkins, executive]

That's correct, Bill.

[William Dezellem, analyst]

And so do you view longer term that 15% to 20% revenue growth as the more sustained revenue growth that you would be targeting for the business?

[Michael Jenkins, executive]

Yes, I think somewhere around 15% per annum is definitely a target which we're shooting for and think is attainable.

[William Dezellem, analyst]

Okay, that's helpful. And then 1 other point of clarification before I jump to a couple other questions. The $35 million of cross-selling pipeline, is that LED and EV Charging business, or is that EV only that $35 million represents?

[Michael Jenkins, executive]

$35 million is both. So, part of the synergy, which we've always believed in, is that we can cross-sell Lighting programs to some EV customers and vice versa. Obviously, our base of Lighting customers is larger than EV, and so we thought that would be a bigger growth driver. But we are starting to see some significant opportunities coming the other way as well. So, that's a total between the 2.

[William Dezellem, analyst]

And so those opportunities that are coming the other way, would we be talking about EV Charging business that then is deciding that they would like some of your outdoor lighting solutions to either light up the EV location or the entire parking area where the EV would also be located. Is that the right way to think about that? Or are you actually finding EV customers saying, hey, we'd like you to put LED inside a building that is next door?

[Michael Jenkins, executive]

Yes, it's really all of the above. It's really about the customer more than the specific application. So, we're getting exposure to some new customers, new partners, et cetera, through the 2 businesses working together that is creating synergy and additional opportunities for another segment.

[William Dezellem, analyst]

And then a couple of additional questions here. So, you mentioned that the Orion execution with the ESCO and the military base was really good. Let me start by asking, has this ESCO done other military bases, or was this their first one that they had done outside the U.S.?

[Michael Jenkins, executive]

No, they do quite a few bases. And when I say quite a few, it's a couple per year or per every couple of years. So, these are very large projects, but they do a fair amount in this space. And we've worked with them historically on those as well.

[William Dezellem, analyst]

Okay. So, where I'm going with this is, was your execution strong enough and better than other suppliers in the past that you anticipate that you will receive other business from this ESCO? And I am making the presumption, if they've been doing bases, that they've done well enough that the military will continue to use them in other bases.

[Michael Jenkins, executive]

Yes. They are a longstanding partner of ours, where we've done a number of different sites. I think the execution on the projects in Europe this year was outstanding by our team. I think they would echo that. And so, I think we're well positioned to work with them on future projects.

[William Dezellem, analyst]

And do you see the DOD opportunities outside of the U.S. with this ESCO to be larger or smaller than the opportunities to work with this ESCO on the types of business that you had done historically prior to this European base?

[Michael Jenkins, executive]

It's difficult to say exactly, Bill. I think there's going to be a lot of opportunities moving forward. One of the things that's interesting right now is that the federal government does have an ambition of electrifying essentially all of their assets by 2035. This is what we've been told anyways. And that includes military bases. And so that has a fairly profound impact not only for energy efficiency and LED lighting, but potentially for EV charging and other avenues as well. So, I think moving forward, we would anticipate that there could be more opportunities along these lines, both domestically or abroad.

[William Dezellem, analyst]

And so this could be a federal building in any given city from small to large in the U.S. to a military base in the Middle East. Just anything and everything in between now and 2035.

[Michael Jenkins, executive]

That's our understanding.

[William Dezellem, analyst]

Okay. And then one additional question, if I may. The EV Charging you said was approximately $5 million of revenues this quarter. Do you have a backlog to maintain that pace of business or even increase it to $20 million or more annual run rate?

[Michael Jenkins, executive]

As referenced, our expectation for this year is a 50%-plus growth. So, obviously, on a base of $12 million, that is north of $18 million. We have $11 million with 1 customer that we've referenced already and a $45 million to $50 million pipeline. So, we feel really good about our confidence in our ability to grow this business and achieve the $18 million plus.

[William Dezellem, analyst]

Okay, I wasn't doing that math. So, since I'm failing on the math front, I'll end my questions there. And thank you for all the time.

[Michael Jenkins, executive]

No problem, Bill.

[Operator]

[Operator Instructions] And our next question is going to come from the line of Andrew Shapiro with Lawndale Capital Management.

[Andrew Shapiro, analyst]

I have questions regarding all 3 lines of business. As an immediate follow-up to your discussions here. How do you internally look at and define your sales funnel? Is there a book-to-bill activity? This is in Voltrek. Do you have somewhat of a book-to-bill activity and metrics lens that you're applying to this? And can you provide us investors some clarity on how to think about it and how your sales funnel is configured right now for Voltrek?

[Michael Jenkins, executive]

Well, Andrew, I would say that we look at it a number of different ways. But when we talk about pipeline, typically what we're talking about is -- almost always, we're talking about high-confidence pipeline, which means there's active projects. We have a level of detail around those where we believe it's a good fit. And we are quoting. And so, when I speak of pipeline, that's what I'm talking about. Beyond that, we use various metrics internally with the management teams, et cetera, but we really don't get into that from an external standpoint.

[Andrew Shapiro, analyst]

Okay. And then when you book the project, you're not really billing the project. Generally, what's the timing like? What's the cycle like? You've now quoted it. Now they've signed the deal. What is a typical project timing and billing like?

[Michael Jenkins, executive]

Again, not to cop out here, Andrew, but it really depends. It depends on whether or not we're doing a turnkey installation, we could be doing materials only, these could be just installing a unit on a ready pedestal, or it could be doing make-ready work, which is all the infrastructure to get the power to the site where ultimately we're going to put the station. So, it varies widely. Some of these projects we may -- the scope varies. Some of them we may be able to recognize revenue in a very quick order, and some of them it may be more engaged turnkey where we get progress payments over time.

[Andrew Shapiro, analyst]

Okay. Next question here on Voltrek. Am I correct in calculating here what Per said is that Q4 benefited from a reversal on Voltrek's annual earnout accrual that had accrued up through Q3, right? And I think you said this was $3 million, and that is a singular quarter benefit for Q4. Is that correct?

[John Brodin, executive]

That is correct. So, for Q4, we had a net reversal of $3 million. For the year, we had net expense for the earnout of $300,000.

[Andrew Shapiro, analyst]

Okay.

[John Brodin, executive]

The place that's most visible is in our adjusted EBITDA reconciliation at the end of the press release.

[Andrew Shapiro, analyst]

Okay. So, more importantly, why or how as of Q3 did the accrual get to that excess for such a reversal? Is it that you had a bunch of business expected to close and bill in Q4 that has been bumped into Q1 and beyond?

[John Brodin, executive]

I would say, it's -- I'll start with, through the end of Q3, fiscal '24, we were accruing at the maximum potential liability. And then as we got to -- and then just a reminder, for fiscal '23, the maximum earnout was achieved. So, we continued to accrue at the potential maximum. When we got to the end of the year and could view the actual results, we adjusted our, let's say, thought on what would be achieved. Because for the fiscal year ended March '24, the amount achieved for the discrete fiscal year '24 was $875,000 versus a target of $3.5 million. So, that was a big piece of the reversal. And then we also brought down the amount accrued for what we call the kicker, the cumulative earnout to an amount that was less than 100% of the max. It's based on our outlook. Doesn't impact our view on the expected success of that operation.

[Andrew Shapiro, analyst]

Right. I guess, it just added to a lot of the volatility in thee reported earnings, which unfortunately added to the volatility in the stock that we all encountered over the last year. Going on to the maintenance, the overall side. So, the gross margins you had were really nice increase. What's the gross margin percentage you're trying to get back to, and how long do you think it takes to get there?

[John Brodin, executive]

That's with respect to Maintenance?

[Andrew Shapiro, analyst]

Well, yes, but it was also with respect to, I guess, the overall business. But let's drill down in the Maintenance because that is the main drag. What was the Maintenance gross profit margin in Q4, and about what recovery in margin percentage remains to get this line of business gross margin back up to your company goals?

[John Brodin, executive]

We don't typically disclose the actual margin of the segments, but from a directional standpoint, maintenance increased to mid gross margins, mid-teens, and we expect to see some improvement on that for the remainder of fiscal '25 after we work through Q1 and the drag that these last 3 contracts will have on that business. And then as I said in my other remarks, overall, we expect to see some incremental improvement to what we achieved in Q4, but it will still be that drag in Q1. And at this point, we don't expect it to be significant, but we still are expecting some improvement.

[Andrew Shapiro, analyst]

And is Q1 the timing of the expected write-down in the maintenance area in the coming year that you put in your little forecast, or is that throughout the year?

[John Brodin, executive]

No, that will be Q1, we expect the final contract that lapsed at the end of April. So, we expect by May and June to work through those remaining work orders. Similarly, the other 2 previously lapsed, so that shall all be cleaned up as well for the most part by the end of June.

[Andrew Shapiro, analyst]

Including the equipment write-off you mentioned?

[John Brodin, executive]

Correct.

[Andrew Shapiro, analyst]

Okay. And lastly, and this is on the LED side. Are the new lower-priced products, I think you call them TritonPro and Harris, are they generative of similar gross margins as the more broadly greater-featured, higher-priced product line or are they lower margins?

[Michael Jenkins, executive]

Yes, on a percentage basis, I would say, overall, they're similar to the rest of our portfolio.

[Andrew Shapiro, analyst]

Okay. So, as the sales mix shifts in some way, as these are new products that would start to get a percentage of share, it won't be any drag on the overall gross margin then?

[Michael Jenkins, executive]

No, not on a percentage basis, no.

[Operator]

And this concludes the question-and-answer session, and I will now turn the conference back to Mr. Jenkins for concluding remarks.

[Michael Jenkins, executive]

Great. Again, thank you all for joining us today. We look forward to updating you when we report our Q1 results and as we progress through our fiscal '25. We also hope to speak with you at upcoming investor events, including the Noble Capital Markets Virtual Equity Conference on June 26, a virtual event with one-on-one meeting opportunities. You can contact a Noble conference representative or our IR team to request a meeting at this event. You may also contact our Investor Relations team with any questions concerning today's call or to schedule a call with management. Their contact information is in today's press release. Thanks, again.

[Operator]

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