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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification number) |
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(Address of principal executive offices) |
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(Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the act:
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Title of Each Class |
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Trading Symbol (s) |
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Name of Each Exchange on Which Registered |
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(NASDAQ Capital Market) |
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(NASDAQ Capital Market) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
ORION ENERGY SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
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Page(s) |
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3 |
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ITEM 1. |
3 |
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Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021 |
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4 |
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5 |
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7 |
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8 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
30 |
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ITEM 4. |
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31 |
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ITEM 1. |
31 |
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ITEM 1A. |
31 |
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ITEM 2. |
31 |
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ITEM 5. |
31 |
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ITEM 6. |
32 |
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33 |
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PART I – FINANCIAL INFORMATION
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ITEM 1. |
FINANCIAL STATEMENTS |
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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December 31, 2021 |
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March 31, 2021 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Revenue earned but not billed |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other intangible assets, net |
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Deferred tax assets |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other |
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Deferred revenue, current |
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Current maturities of long-term debt |
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Total current liabilities |
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Revolving credit facility |
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— |
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Long-term debt, less current maturities |
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Deferred revenue, long-term |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies |
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Shareholders’ equity: |
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Preferred stock, $ December 31, 2021 and March 31, 2021; December 31, 2021 and March 31, 2021 |
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Common stock, par value: Shares authorized: and March 31, 2021; shares issued: December 31, 2021 and |
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Additional paid-in capital |
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Treasury stock, common shares: March 31, 2021 |
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Retained deficit |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
3
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
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Three Months Ended December 31, |
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Nine Months Ended December 31, |
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2021 |
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2020 |
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2021 |
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2020 |
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Product revenue |
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$ |
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$ |
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$ |
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$ |
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Service revenue |
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Total revenue |
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Cost of product revenue |
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Cost of service revenue |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Acquisition costs |
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— |
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— |
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Sales and marketing |
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Research and development |
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Total operating expenses |
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Income from operations |
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Other income (expense): |
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Other income |
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— |
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Interest expense |
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( |
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( |
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( |
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( |
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Amortization of debt issue costs |
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( |
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( |
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( |
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( |
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Loss on debt extinguishment |
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— |
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( |
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— |
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( |
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Total other expense |
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( |
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( |
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( |
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( |
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Income before income tax |
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Income tax expense |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Basic net income per share attributable to common shareholders |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares outstanding |
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Diluted net income per share |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares and share equivalents outstanding |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
4
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
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Shareholders’ Equity |
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Common Stock |
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Shares |
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Additional Paid-in Capital |
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Treasury Stock |
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Retained Deficit |
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Total Shareholders’ Equity |
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Balance, March 31, 2021 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
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— |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance, June 30, 2021 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance, September 30, 2021 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance, December 31, 2021 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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5
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
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Shareholders’ Equity |
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Common Stock |
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Shares |
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Additional Paid-in Capital |
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Treasury Stock |
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Retained Deficit |
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Total Shareholders’ Equity |
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Balance, March 31, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
) |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance, September 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase Plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based compensation |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance, December 31, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
6
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Nine Months Ended December 31, |
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2021 |
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2020 |
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Operating activities |
|
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Net income |
|
$ |
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|
$ |
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|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation |
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Amortization of intangible assets |
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Stock-based compensation |
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Amortization of debt issue costs |
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Loss on debt extinguishment |
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— |
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Deferred income tax |
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— |
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(Gain) loss on sale of property and equipment |
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( |
) |
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|
|
|
Provision for inventory reserves |
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
|
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
( |
) |
|
Revenue earned but not billed |
|
|
( |
) |
|
|
( |
) |
|
Inventories |
|
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Accrued expenses and other |
|
|
( |
) |
|
|
|
|
|
Deferred revenue, current and long-term |
|
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
( |
) |
|
Investing activities |
|
|
|
|
|
|
|
|
|
Cash to fund acquisition |
|
|
( |
) |
|
|
— |
|
|
Cash paid for investment |
|
|
( |
) |
|
|
— |
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Additions to patents and licenses |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
|
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from revolving credit facility |
|
|
— |
|
|
|
|
|
|
Payments of revolving credit facility |
|
|
— |
|
|
|
( |
) |
|
Payments to settle employee tax withholdings on stock-based compensation |
|
|
( |
) |
|
|
( |
) |
|
Deferred financing costs |
|
|
( |
) |
|
|
( |
) |
|
Net proceeds from employee equity exercises |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Operating lease assets obtained in exchange for new operating lease liabilities |
|
$ |
— |
|
|
$ |
|
|
The accompanying notes are an integral part of these Condensed Consolidated Statements.
7
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and provider of energy-efficient LED lighting, controls and Internet of Things (“IoT”) systems, including turnkey project implementation, program management and system maintenance to commercial and industrial businesses, and federal and local governments, predominantly in North America.
NOTE 2 — IMPACT OF COVID-19
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Orion’s business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our 2020 fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During the second half of fiscal 2021, Orion experienced a rebound in business. Project installations for their largest customer recommenced, as well installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, during fiscal 2022, there have been customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to ongoing supply chain disruptions and renewed COVID-19 related impacts to their businesses.
As an essential business, Orion provides products and services to ensure energy and lighting infrastructure and we therefore have continued to operate throughout the pandemic. Orion has implemented a number of safety protocols, including limiting travel and restricting access to their facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and requiring face coverings.
As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 they implemented a number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions have lessened in certain jurisdictions, some restrictions continue. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed, extended or terminated. These modifications to Orion business practices, including any future actions they take, may cause them to experience reductions in productivity and disruptions to their business routines. In addition, Orion is required to make substantial working capital expenditures and advance inventory purchases that they may not be able to recoup if our customer agreements or a substantial volume of purchase orders under their customer agreements are delayed or terminated as a result of COVID-19. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced their revenue and profitability in the first half of fiscal 2021. If the resurgence of the COVID-19 pandemic continues, or a future resurgence occurs, Orion’s markets and operations could be impacted and there could be a further material adverse financial impact.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Orion and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and
8
footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2022 or other interim periods.
The Condensed Consolidated Balance Sheet March 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Orion’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on June 1, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts, accruals for warranty and loss contingencies, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.
Concentration of Credit Risk and Other Risks and Uncertainties
Orion's cash is primarily deposited with
Orion purchases components necessary for its lighting products, including lamps and LED components, from multiple suppliers. For the three and nine months ended December 31, 2021,
For the three and nine months ended December 31, 2021,
As of December 31, 2021,
Recent Accounting Pronouncements
Issued: Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. The provisions of ASU 2016-13 and the related amendments are effective for Orion for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Orion is currently evaluating the impact of adoption of this standard on its consolidated statements of operations, cash flows and the related footnote disclosures.
9
NOTE 4 — REVENUE
The following tables provide detail of Orion’s total revenue for the three and nine months ended December 31, 2021 and December 31, 2020 (dollars in thousands):
|
|
|
Three Months Ended December 31, 2021 |
|
|
Nine Months Ended December 31, 2021 |
|
||||||||||||||||||
|
|
|
Product |
|
|
Services |
|
|
Total |
|
|
Product |
|
|
Services |
|
|
Total |
|
||||||
|
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting revenues, by end user |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lighting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy related revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue accounted for under other guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2020 |
|
|
Nine Months Ended December 31, 2020 |
|
||||||||||||||||||
|
|
|
Product |
|
|
Services |
|
|
Total |
|
|
Product |
|
|
Services |
|
|
Total |
|
||||||
|
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting revenues, by end user |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lighting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy related revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue accounted for under other guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
From time to time, Orion sells the receivables from one customer to a financing institution. The total amount received from the sales of these receivables during the three and nine months ended December 31, 2021, was $
The total amount received from the sales of these receivables during the three and nine months ended December 31, 2020 was $
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of December 31, 2021 and March 31, 2021 (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
|
|
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
Contract liabilities |
|
$ |
|
|
|
$ |
|
|
There were
10
NOTE 5 — ACCOUNTS RECEIVABLE, NET
As of December 31, 2021, and March 31, 2021, Orion's accounts receivable and allowance for doubtful accounts balances were as follows (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Accounts receivable, gross |
|
$ |
|
|
|
$ |
|
|
|
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
|
|
NOTE 6 — INVENTORIES, NET
As of December 31, 2021, and March 31, 2021, Orion's inventory balances were as follows (dollars in thousands):
|
|
|
Cost |
|
|
Excess and Obsolescence Reserve |
|
|
Net |
|
|||
|
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
NOTE 7 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, 2021, and March 31, 2021, prepaid expenses and other current assets include the following (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Payroll tax credit |
|
$ |
|
|
|
$ |
— |
|
|
Other prepaid expenses |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
During the three months ended September 30, 2021, Orion recorded a $
11
NOTE 8 — PROPERTY AND EQUIPMENT, NET
As of December 31, 2021, and March 31, 2021, property and equipment, net, included the following (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Land and land improvements |
|
$ |
|
|
|
$ |
|
|
|
Buildings and building improvements |
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office equipment |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Equipment leased to customers |
|
|
|
|
|
|
|
|
|
Plant equipment |
|
|
|
|
|
|
|
|
|
Construction in Progress |
|
|
|
|
|
|
|
|
|
Gross property and equipment |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Total property and equipment, net |
|
$ |
|
|
|
$ |
|
|
NOTE 9 — LEASES
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.
Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments over the lease term. Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-line basis over the lease term.
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
|
|
|
Balance sheet classification |
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
Other long-term assets |
|
$ |
|
|
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
Accrued expenses and other |
|
$ |
|
|
|
$ |
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
|
$ |
|
|
|
$ |
|
|
Orion had operating lease costs of $
The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):
|
Maturity of Lease Liabilities |
|
Operating Leases |
|
|
|
Fiscal 2022 (period remaining) |
|
$ |
|
|
|
Fiscal 2023 |
|
|
|
|
|
Fiscal 2024 |
|
|
|
|
|
Fiscal 2025 |
|
|
|
|
|
Fiscal 2026 |
|
|
|
|
|
Total lease payments |
|
$ |
|
|
|
Less: Interest |
|
|
( |
) |
|
Present value of lease liabilities |
|
$ |
|
|
12
Assets Orion Leases to Other Parties
One of Orion’s frequent customers purchases products and installation services under agreements that provide for monthly payments, at a fixed monthly amount, of the contract price, plus interest, typically over a five-year period. While Orion retains ownership of the light fixtures during the financing period, the transaction terms and the underlying economics associated with used lighting fixtures results in Orion essentially ceding ownership of the lighting fixtures to the customer after completion of the agreement. The portions of the transaction associated with the sale of the light fixtures is accounted for as a sales-type lease under ASC 842. The total transaction price in these contracts is allocated between the lease and non-lease components in the same manner as the total transaction price of other turnkey projects containing lighting fixtures and installation services.
Revenues, and production and acquisition costs, associated with sales-type leases are included in Product revenue and Costs of product revenues in the Condensed Consolidated Statement of Operations.
The following chart shows the amount of revenue and cost of sales arising from sales-type leases during the three and nine months ended December 31, 2021 and December 31, 2020 (dollars in thousands):
|
|
|
Three Months Ended December 31, |
|
|
Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Product revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of product revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 10 — OTHER INTANGIBLE ASSETS, NET
As of December 31, 2021, and March 31, 2021, the components of, and changes in, the carrying amount of other intangible assets, net, were as follows (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||||||||||||||||||
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
||||||
|
Patents |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Licenses |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Trade name and trademarks (indefinite lived) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Developed technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Amortization expense on intangible assets was $
Amortization expense on intangible assets was $
As of December 31, 2021, the weighted average remaining useful life of intangible assets was
The estimated amortization expense for the remainder of fiscal 2022, the next five fiscal years and beyond is shown below (dollars in thousands):
|
Fiscal 2022 (period remaining) |
|
$ |
|
|
|
Fiscal 2023 |
|
|
|
|
|
Fiscal 2024 |
|
|
|
|
|
Fiscal 2025 |
|
|
|
|
|
Fiscal 2026 |
|
|
|
|
|
Fiscal 2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
13
NOTE 11 — ACCRUED EXPENSES AND OTHER
As of December 31, 2021, and March 31, 2021, accrued expenses and other included the following (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Accrued project costs |
|
$ |
|
|
|
$ |
|
|
|
Compensation and benefits |
|
|
|
|
|
|
|
|
|
Other accruals |
|
|
|
|
|
|
|
|
|
Sales tax |
|
|
|
|
|
|
|
|
|
Credits due to customers |
|
|
|
|
|
|
|
|
|
Warranty |
|
|
|
|
|
|
|
|
|
Sales returns reserve |
|
|
|
|
|
|
|
|
|
Legal and professional fees |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Orion generally offers a limited warranty of
Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):
|
|
|
For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accruals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty claims (net of vendor reimbursements) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
End of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 12 — NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net income per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In the computation of diluted net income per common share, Orion uses the treasury stock method for outstanding options and restricted shares.
|
|
|
For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (in thousands) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares and common share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
14
The following table indicates the number of potentially dilutive securities excluded from the calculation of Diluted net income per common share because their inclusion would have been anti-dilutive. The number of shares is as of the end of each period:
|
|
|
For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Common stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted shares |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
NOTE 13 — LONG-TERM DEBT
Long-term debt consisted of the following (dollars in thousands):
|
|
|
December 31, 2021 |
|
|
March 31, 2021 |
|
||
|
Revolving credit facility |
|
$ |
— |
|
|
$ |
— |
|
|
Equipment debt obligations |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
|
|
|
|
Less current maturities |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt, less current maturities |
|
$ |
|
|
|
$ |
|
|
Revolving Credit Agreement
On December 29, 2020, Orion entered into a new $
The replacement of the Prior Credit Agreement with the Credit Agreement provides Orion with increased financing capacity and liquidity to fund its operations and implement its strategic plans.
The Credit Agreement provides for a $
As of December 31, 2021, Orion was in compliance with all debt covenants.
Equipment Debt Obligations
In February 2019, Orion entered into additional debt agreements with a financing company in the principal amount of $
NOTE 14 — INCOME TAXES
Orion’s income tax provision was determined by applying an estimated annual effective tax rate, based upon the facts and circumstances known, to book income (loss) before income tax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three months ended December 31, 2021 and 2020, Orion recorded income tax expense of $
15
As of December 31, 2021 and March 31, 2021, Orion recorded a valuation allowance of $
Uncertain Tax Positions
As of December 31, 2021, Orion’s balance of gross unrecognized tax benefits was approximately $
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as Other long-term liabilities to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in Income tax expense. Penalties and interest are included in the unrecognized tax benefits.
NOTE 15 — COMMITMENTS AND CONTINGENCIES
Litigation
Orion is subject to various claims and legal proceedings arising in the ordinary course of business. Orion does not believe the final resolution of any of such claims or legal proceedings will have a material adverse effect on Orion’s future results of operations or financial condition.
State Tax Assessment
During fiscal 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of Orion's sales and use tax audit is uncertain, the ultimate disposition of this matter is not expected to have a material adverse effect on Orion's future results of operations or financial conditions.
NOTE 16 — SHAREHOLDERS’ EQUITY
Shareholder Rights Plan
On January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amended the Rights Agreement dated as of January 7, 2009 and extended its terms by
Employee Stock Purchase Plan
In August 2010, Orion’s Board of Directors approved a non-compensatory employee stock purchase plan, or “ESPP”. In the three months ended December 31, 2021, Orion issued
|
|
|
Shares Issued Under ESPP Plan |
|
|
Closing Market Price |
|
|
Quarter Ended June 30, 2021 |
|
|
|
|
|
|
|
Quarter Ended September 30, 2021 |
|
|
|
|
|
|
|
Quarter Ended December 31, 2021 |
|
|
|
|
|
|
|
Total issued in fiscal 2022 |
|
|
|
|
|
$ 3.62 - 5.73 |
Sale of shares
16
In March 2020, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, Orion currently has the flexibility to publicly offer and sell from time to time up to $
In March 2021, Orion entered into an At Market Issuance Sales Agreement to undertake an “at the market” (ATM) public equity capital raising program pursuant to which Orion may offer and sell shares of common stock from time to time, having an aggregate offering price of up to $
NOTE 17 — STOCK OPTIONS AND RESTRICTED SHARES
At Orion’s 2019 annual meeting of shareholders held on August 7, 2019, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the “Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from
The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares, performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.
Prior to the 2016 Omnibus Incentive Plan, Orion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “2004 Plan”). No new awards are being granted under the 2004 Plan; however, all awards granted under the 2004 Plan that are outstanding will continue to be governed by the 2004 Plan. Forfeited awards originally issued under the 2004 Plan are canceled and are not available for subsequent issuance under the 2004 Plan or under the Amended 2016 Plan. The Amended 2016 Plan and the 2004 Plan also permit accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.
Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.
The following amounts of stock-based compensation were recorded (dollars in thousands):
|
|
|
For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Cost of product revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
During the first nine months of fiscal 2022, Orion had the following activity related to its stock-based compensation:
|
|
|
Restricted Shares |
|
|
Stock Options |
|
||
|
Awards outstanding at March 31, 2021 |
|
|
|
|
|
|
|
|
|
Awards granted |
|
|
|
|
|
|
|
|
|
Awards vested or exercised |
|
|
( |
) |
|
|
( |
) |
|
Awards forfeited |
|
|
— |
|
|
|
( |
) |
|
Awards outstanding at December 31, 2021 |
|
|
|
|
|
|
|
|
|
Per share weighted average price on grant date |
|
$ |
|
|
|
|
|
|
17
As of December 31, 2021, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of
NOTE 18 — SEGMENTS
Orion has the following business segments: Orion Services Group Division ("OSG"), Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). The accounting policies are the same for each business segment as they are on a consolidated basis.
Orion Services Group Division
The OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for Orion's commercial lighting and energy management systems. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
Orion Distribution Services Division
The ODS segment sells lighting products through manufacturer representative agencies and a network of North American broadline electrical distributors and contractors.
Orion U.S. Markets Division
The USM segment sells commercial lighting systems and energy management systems to contractors and ESCOs.
Corporate and Other
Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).
|
|
|
Revenues |
|
|
Operating Income (Loss) |
|
||||||||||
|
|
|
For the Three Months Ended December 31, |
|
|
For the Three Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion Services Group |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Orion Distribution Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion U.S. Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Revenues |
|
|
Operating Income (Loss) |
|
||||||||||
|
|
|
For the Nine Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion Services Group |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Orion Distribution Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion U.S. Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
18
Operating Income above includes a payroll tax credit, in accordance with IAS 20, for the nine months ended December 31, 2021.
NOTE 19 — SUBSEQUENT EVENTS
Effective on January 1, 2022, Orion acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc. (“Stay-Lite Lighting”), a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $
The initial preliminary estimated fair values of the assets and liabilities acquired are as follows (dollars in thousands):
|
Cash |
|
$ |
|
|
|
Accounts Receivable |
|
|
|
|
|
Inventory |
|
|
|
|
|
Other Current Assets |
|
|
|
|
|
Fixed Assets |
|
|
|
|
|
Accounts Payable |
|
|
( |
) |
|
Accrued Payroll and Other Liabilities |
|
|
( |
) |
None of these amounts are recognized in the accompanying financial statements because the acquisition date occurred subsequent to December 31, 2021. The accounting for the acquisition and the purchase price allocation is preliminary and incomplete as the Company is still in the process of estimating the fair value of identifiable intangibles and contingent consideration associated with this acquisition.
19
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Overview
We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control solutions, project engineering, design energy project management and maintenance services. We help our customers achieve energy savings with healthy, safe and sustainable solutions that enable them to reduce their carbon footprint and digitize their business. We research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all of our sales occur within North America.
Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems. Our principal customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs"). Currently, most of our products are manufactured at our production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development.
We have experienced recent success offering our comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration.
Beginning in fiscal 2021, we have successfully capitalized on our capability of being a full service, turnkey provider of LED lighting and controls systems with design, build, installation and project management services, as we continued a very large project for a major national account. As a result of this success, we have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and services offered to our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We also plan to pursue the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to our customers.
20
We currently plan on investing significant time, resources and capital into expanding our offerings in these areas with no expectation that they will result in us realizing material revenue in the near term and without any assurance they will succeed or be profitable. In fact, it is likely that these efforts will reduce our profitability, at least in the near term as we invest resources and incur expenses to develop these offerings. While we intend to pursue these expansion strategies organically, we also are actively exploring potential business acquisitions which would more quickly add these types of expanded and different capabilities to our product and services offerings. These efforts resulted in our acquisition of Stay-Lite Lighting on January 1, 2022. It is possible that one or more of such potential acquisitions, if successfully completed, could significantly change, and potentially transform, the nature and extent of our business.
We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period and we typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.
We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.
The gross profits of our products and services can vary significantly depending upon the types of products and services we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products and services can cause our profitability to fluctuate from period to period.
Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2022 and is referred to as “fiscal 2022”. We refer to our just completed fiscal year, which ended on March 31, 2021, as "fiscal 2021", and our prior fiscal year which ended on March 31, 2020 as "fiscal 2020". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Orion has three reportable segments: Orion Services Group Division ("OSG"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).
Impact of COVID-19
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Our business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our 2020 fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During the second half of fiscal 2021, we experienced a rebound in business. Project installations for our largest customer recommenced, as well installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, during fiscal 2022, there have been customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to ongoing supply chain disruptions and renewed COVID-19 related impacts to their businesses.
As an essential business, we provide products and services to ensure energy and lighting infrastructure and we therefore have continued to operate throughout the pandemic. We have implemented a number of safety protocols, including limiting travel and restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and requiring face coverings.
21
As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 we implemented a number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions have lessened in certain jurisdictions, some restrictions continue. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed, extended or terminated. These modifications to our business practices, including any future actions we take, may cause us to experience reductions in productivity and disruptions to our business routines. In addition, we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if our customer agreements or a substantial volume of purchase orders under our customer agreements are delayed or terminated as a result of COVID-19. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on our business, liquidity, capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal 2021. If the resurgence of the COVID-19 pandemic continues, or a future resurgence occurs, our markets and operations could be impacted and there could be a further material adverse financial impact.
Acquisition of Stay-Lite Lighting
Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $3.7 million, subject to normal and customary closing adjustments. In addition, depending upon the relative gross profit growth of Stay-Lite Lighting’s legacy business over the next two calendar years, Orion could pay up to an additional $0.7 million in earn out related purchase price. The acquisition was funded from existing cash resources. Stay-Lite Lighting will operate as Stay-Lite, an Orion Energy Systems business. The acquisition accelerates the growth of the Orion Maintenance Services business, a part of Orion Services Group, which provides lighting and electrical services to customers.
Results of Operations - Three Months Ended December 31, 2021 versus Three Months Ended December 31, 2020
The following table sets forth the line items of our Condensed Consolidated Statements of Operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
|
|
|
Three Months Ended December 31, |
|
|||||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
Amount |
|
|
Amount |
|
|
% Change |
|
|
% of Revenue |
|
|
% of Revenue |
|
|||||
|
Product revenue |
|
$ |
22,203 |
|
|
$ |
31,929 |
|
|
|
(30.5 |
)% |
|
|
72.3 |
% |
|
|
72.2 |
% |
|
Service revenue |
|
|
8,511 |
|
|
|
12,322 |
|
|
|
(30.9 |
)% |
|
|
27.7 |
% |
|
|
27.8 |
% |
|
Total revenue |
|
|
30,714 |
|
|
|
44,251 |
|
|
|
(30.6 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of product revenue |
|
|
16,427 |
|
|
|
23,203 |
|
|
|
(29.2 |
)% |
|
|
53.5 |
% |
|
|
52.4 |
% |
|
Cost of service revenue |
|
|
6,646 |
|
|
|
10,042 |
|
|
|
(33.8 |
)% |
|
|
21.6 |
% |
|
|
22.7 |
% |
|
Total cost of revenue |
|
|
23,073 |
|
|
|
33,245 |
|
|
|
(30.6 |
)% |
|
|
75.1 |
% |
|
|
75.1 |
% |
|
Gross profit |
|
|
7,641 |
|
|
|
11,006 |
|
|
|
(30.6 |
)% |
|
|
24.9 |
% |
|
|
24.9 |
% |
|
General and administrative expenses |
|
|
2,873 |
|
|
|
3,030 |
|
|
|
(5.2 |
)% |
|
|
9.4 |
% |
|
|
6.8 |
% |
|
Acquisition costs |
|
|
178 |
|
|
|
— |
|
|
NM |
|
|
|
1.1 |
% |
|
|
— |
|
|
|
Sales and marketing expenses |
|
|
2,862 |
|
|
|
3,120 |
|
|
|
(8.3 |
)% |
|
|
9.3 |
% |
|
|
7.1 |
% |
|
Research and development expenses |
|
|
396 |
|
|
|
391 |
|
|
|
1.3 |
% |
|
|
1.3 |
% |
|
|
0.9 |
% |
|
Income from operations |
|
|
1,332 |
|
|
|
4,465 |
|
|
|
(70.2 |
)% |
|
|
4.3 |
% |
|
|
10.1 |
% |
|
Other income |
|
|
— |
|
|
|
12 |
|
|
|
(100.0 |
)% |
|
|
— |
|
|
|
0.0 |
% |
|
Interest expense |
|
|
(26 |
) |
|
|
(1 |
) |
|
|
2500.0 |
% |
|
|
(0.1 |
)% |
|
|
(0.0 |
)% |
|
Amortization of debt issue costs |
|
|
(15 |
) |
|
|
(20 |
) |
|
|
(25.0 |
)% |
|
|
(0.0 |
)% |
|
|
(0.0 |
)% |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
(90 |
) |
|
|
100.0 |
% |
|
|
— |
|
|
|
(0.4 |
)% |
|
Income before income tax |
|
|
1,291 |
|
|
|
4,366 |
|
|
|
(70.4 |
)% |
|
|
4.2 |
% |
|
|
9.9 |
% |
|
Income tax expense |
|
|
189 |
|
|
|
51 |
|
|
|
270.6 |
% |
|
|
0.6 |
% |
|
|
0.1 |
% |
|
Net income |
|
$ |
1,102 |
|
|
$ |
4,315 |
|
|
|
(74.5 |
)% |
|
|
3.6 |
% |
|
|
9.8 |
% |
*NM - Not Meaningful
22
Revenue. Product revenue decreased 30.5%, or $9.7 million, for the third quarter of fiscal 2022 versus the third quarter of fiscal 2021. Service revenue decreased 30.9%, or $3.8 million, for the third quarter of fiscal 2022 versus the third quarter of fiscal 2021. The decrease in product and service revenue was due to lower project revenues from our largest customer and other customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to supply chain disruptions and COVID-19 related impacts to our businesses. This includes installations from our existing large national retail customer, which represented 48.6% of total revenue in the third quarter of fiscal 2022.
Cost of Revenue and Gross Profit. Gross profit percentage remained flat at 24.9% of revenue in the third quarter of fiscal 2022 and the third quarter of fiscal 2021. Cost of product revenue decreased 29.2%, or $6.8 million, in the third quarter of fiscal 2022 versus the third quarter of fiscal 2021 due to the decrease in our sales. Cost of service revenue decreased 33.8%, or $3.4 million, in the third quarter of fiscal 2022 versus the third quarter of fiscal 2021 also due to the decrease in sales.
Operating Expenses
General and Administrative. General and administrative expenses decreased 5.2%, or $0.2 million, in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. This comparative decrease was primarily due to lower compensation costs in fiscal 2021 as a result of the reduction in revenue forecast.
Sales and Marketing. Sales and marketing expenses decreased 8.3%, or $0.3 million, in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. This comparative decrease was primarily due to a reduction in commission expense on lower sales and decreased travel.
Research and Development. Research and development expenses is relatively flat, in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.
Interest Expense. Interest expense in the third quarter of fiscal 2022 increased $25 thousand compared to the third quarter of fiscal 2021. The increase in interest expense was primarily due to unused borrowing fees.
Orion Services Group Division
Our OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for our commercial lighting and energy management systems. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
The following table summarizes our OSG segment operating results (dollars in thousands):
|
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
20,021 |
|
|
$ |
36,669 |
|
|
|
(45.4 |
)% |
|
Operating income |
|
$ |
970 |
|
|
$ |
4,820 |
|
|
|
(79.9 |
)% |
|
Operating margin |
|
|
4.8 |
% |
|
|
13.1 |
% |
|
|
|
|
OSG segment revenue in the third quarter of fiscal 2022 decreased $16.6 million from the third quarter of fiscal 2021. The decrease in revenue was due to a reduction of project volume from our largest customer and other customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to supply chain disruptions and COVID-19 related impacts to our businesses. This sales decrease led to a corresponding decrease in operating income in this segment.
23
Orion Distribution Services Division
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.
The following table summarizes our ODS segment operating results (dollars in thousands):
|
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
4,942 |
|
|
$ |
3,934 |
|
|
|
25.6 |
% |
|
Operating income |
|
$ |
491 |
|
|
$ |
193 |
|
|
|
154.4 |
% |
|
Operating margin |
|
|
9.9 |
% |
|
|
4.9 |
% |
|
|
|
|
ODS segment revenue in the third quarter of fiscal 2022 increased $1.0 million, compared to the third quarter of fiscal 2021, primarily due to growth of two customers in the third quarter of fiscal 2022. The increase in sales resulted in a corresponding increase in operating income in this segment based on operating leverage.
Orion U.S. Markets Division
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.
The following table summarizes our USM segment operating results (dollars in thousands):
|
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
5,751 |
|
|
$ |
3,648 |
|
|
|
57.6 |
% |
|
Operating income |
|
$ |
1,250 |
|
|
$ |
731 |
|
|
|
71.0 |
% |
|
Operating margin |
|
|
21.7 |
% |
|
|
20.0 |
% |
|
|
|
|
USM segment revenue in the third quarter of fiscal 2022 increased $2.1 million, compared to the third quarter of fiscal 2021, primarily due to a reduction in the impact of Covid-19 on customers in this segment in the fiscal 2022 period compared to fiscal 2021. The increase in sales resulted in a corresponding increase in operating income in this segment based on operating leverage.
24
Results of Operations - Nine Months Ended December 31, 2021 versus Nine Months Ended December 31, 2020
The following table sets forth the line items of our Condensed Consolidated Statements of Operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
|
|
|
Nine Months Ended December 31, |
|
|||||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
Amount |
|
|
Amount |
|
|
% Change |
|
|
% of Revenue |
|
|
% of Revenue |
|
|||||
|
Product revenue |
|
$ |
78,260 |
|
|
$ |
61,890 |
|
|
|
26.5 |
% |
|
|
76.5 |
% |
|
|
76.1 |
% |
|
Service revenue |
|
|
24,065 |
|
|
|
19,453 |
|
|
|
23.7 |
% |
|
|
23.5 |
% |
|
|
23.9 |
% |
|
Total revenue |
|
|
102,325 |
|
|
|
81,343 |
|
|
|
25.8 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of product revenue |
|
|
54,724 |
|
|
|
44,834 |
|
|
|
22.1 |
% |
|
|
53.5 |
% |
|
|
55.1 |
% |
|
Cost of service revenue |
|
|
18,942 |
|
|
|
15,605 |
|
|
|
21.4 |
% |
|
|
18.5 |
% |
|
|
19.2 |
% |
|
Total cost of revenue |
|
|
73,666 |
|
|
|
60,439 |
|
|
|
21.9 |
% |
|
|
72.0 |
% |
|
|
74.3 |
% |
|
Gross profit |
|
|
28,659 |
|
|
|
20,904 |
|
|
|
37.1 |
% |
|
|
28.0 |
% |
|
|
25.7 |
% |
|
General and administrative expenses |
|
|
8,737 |
|
|
|
8,079 |
|
|
|
8.1 |
% |
|
|
8.5 |
% |
|
|
9.9 |
% |
|
Acquisition costs |
|
|
178 |
|
|
|
— |
|
|
NM |
|
|
|
0.3 |
% |
|
|
— |
|
|
|
Sales and marketing expenses |
|
|
8,794 |
|
|
|
7,306 |
|
|
|
20.4 |
% |
|
|
8.6 |
% |
|
|
9.0 |
% |
|
Research and development expenses |
|
|
1,169 |
|
|
|
1,230 |
|
|
|
(5.0 |
)% |
|
|
1.1 |
% |
|
|
1.5 |
% |
|
Income from operations |
|
|
9,781 |
|
|
|
4,289 |
|
|
|
128.0 |
% |
|
|
9.6 |
% |
|
|
5.3 |
% |
|
Other income |
|
|
1 |
|
|
|
56 |
|
|
|
(98.2 |
)% |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
Interest expense |
|
|
(59 |
) |
|
|
(51 |
) |
|
|
15.7 |
% |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
Amortization of debt issue costs |
|
|
(46 |
) |
|
|
(142 |
) |
|
|
(67.6 |
)% |
|
|
(0.0 |
)% |
|
|
(0.2 |
)% |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
(90 |
) |
|
|
100.0 |
% |
|
|
— |
|
|
|
(0.2 |
)% |
|
Income before income tax |
|
|
9,677 |
|
|
|
4,062 |
|
|
|
138.2 |
% |
|
|
9.5 |
% |
|
|
5.0 |
% |
|
Income tax expense |
|
|
2,406 |
|
|
|
52 |
|
|
|
4526.9 |
% |
|
|
2.4 |
% |
|
|
0.1 |
% |
|
Net Income |
|
$ |
7,271 |
|
|
$ |
4,010 |
|
|
|
81.3 |
% |
|
|
7.1 |
% |
|
|
4.9 |
% |
Revenue. Product revenue increased 26.5%, or $16.4 million, for the first nine months of fiscal 2022 versus the first nine months of fiscal 2021. Service revenue increased 23.7%, or $4.6 million, for the first nine months of fiscal 2022 versus the first nine months of fiscal 2021. The increase in product and service revenue was primarily due to multiple projects put on hold in the prior year period as a result of COVID-19 concerns, including the projects for one large national account customer which increased 19.9% in the first nine months of fiscal 2022 versus the first nine months of fiscal 2021.
Cost of Revenue and Gross Profit. Gross profit percentage increased to 28.0% of revenue in the first nine months of fiscal 2022 from 25.7% in the first nine months of fiscal 2021, due primarily to an improvement in product margin on the coverage of fixed costs with significantly higher sales volume, as well as a payroll tax credit. Cost of product revenue increased 22.1%, or $9.9 million, in the first nine months of fiscal 2022 versus the first nine months of fiscal 2021 due to the increase in our sales. Cost of service revenue increased 21.4%, or $3.3 million, in the first nine months of fiscal 2022 versus the first nine months of fiscal 2021 due to the increase in sales.
Operating Expenses
General and Administrative. General and administrative expenses increased 8.1%, or $0.7 million, in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. This comparative increase was primarily due to lower employment costs in fiscal 2021 as a result of COVID-19 related actions and partially offset by the payroll tax credit.
Sales and Marketing. Sales and marketing expenses increased 20.4%, or $1.5 million, in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. This comparative increase was primarily due to an increase in commission expense on higher sales, partially offset by the payroll tax credit.
Research and Development. Research and development expenses decreased 5.0%, or $0.1 million, in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. This comparative decrease was primarily due to the payroll tax credit.
25
Orion Services Group Division
The following table summarizes our OSG segment operating results (dollars in thousands):
|
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
68,961 |
|
|
$ |
57,395 |
|
|
|
20.2 |
% |
|
Operating income |
|
$ |
7,115 |
|
|
$ |
4,634 |
|
|
|
53.5 |
% |
|
Operating margin |
|
|
10.3 |
% |
|
|
8.1 |
% |
|
|
|
|
OSG segment revenue in the first nine months of fiscal 2022 increased $11.6 million from the first nine months of fiscal 2021 due to multiple projects put on hold in the prior year period as a result of COVID-19, including the projects with one large national account customer that increased 19.9% in the first nine months of fiscal 2022 versus the first nine months fiscal 2021. This sales increase led to a corresponding increase in operating income in this segment.
Orion Distribution Services Division
The following table summarizes our ODS segment operating results (dollars in thousands):
|
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
18,264 |
|
|
$ |
16,063 |
|
|
|
13.7 |
% |
|
Operating income |
|
|
3,173 |
|
|
|
1,957 |
|
|
|
62.1 |
% |
|
Operating margin |
|
|
17.4 |
% |
|
|
12.2 |
% |
|
|
|
|
ODS segment revenue in the first nine months of fiscal 2022 increased $2.2 million, compared to the first nine months of fiscal 2021, primarily due to the increase of sales to one customer in the fiscal 2022 period and overall increased engagement in the segment. The increase in revenue resulted in a corresponding increase in operating income in this segment based on operating leverage.
Orion U.S. Markets Division
The following table summarizes our USM segment operating results (dollars in thousands):
|
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|||
|
Revenues |
|
$ |
15,100 |
|
|
$ |
7,885 |
|
|
|
91.5 |
% |
|
Operating income |
|
$ |
3,198 |
|
|
$ |
1,128 |
|
|
|
183.5 |
% |
|
Operating margin |
|
|
21.2 |
% |
|
|
14.3 |
% |
|
|
|
|
USM segment revenue in the first nine months of fiscal 2022 increased $7.2 million, compared to the first nine months of fiscal 2021, primarily due to the impact of COVID-19 in the fiscal 2021 period, and resulted in a corresponding increase in operating income in this segment based on operating leverage.
Liquidity and Capital Resources
Overview
We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted capital expenditures, acquisitions and working capital for one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.
We had approximately $17.3 million in cash and cash equivalents as of December 31, 2021, compared to $19.4 million at March 31, 2021. Our cash position decreased as a result of cash funding for the Stay-Lite acquisition of $3.7 million and a non-controlling equity investment of $0.5 million, partially offset by changes in working capital.
26
Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross profits, cash management practices, cost reduction initiatives, working capital management, capital expenditures, pending or future litigation results and cost containment measures. In addition, we tend to experience higher working capital costs when we increase sales from existing levels.
Cash Flows
The following table summarizes our cash flows for the nine months ended December 31, 2021 and 2020 (in thousands):
|
|
|
Nine Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating activities |
|
$ |
2,315 |
|
|
$ |
(5,644 |
) |
|
Investing activities |
|
|
(4,548 |
) |
|
|
(701 |
) |
|
Financing activities |
|
|
104 |
|
|
|
(10,127 |
) |
|
Decrease in cash and cash equivalents |
|
$ |
(2,129 |
) |
|
$ |
(16,472 |
) |
Cash Flows Related to Operating Activities. Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.
Cash provided by operating activities for the first nine months of fiscal 2022 was $2.3 million and consisted of our net income of $7.3 million adjusted for non-cash expense items of $4.4 million offset by working capital uses of $9.4 million, the largest of which was a $5.2 million decrease in accounts payable.
Cash used in operating activities for the first nine months of fiscal 2021 was $5.6 million and consisted of our net income adjusted for non-cash expense items of $6.2 million and net cash used in changes in operating assets and liabilities of $11.8 million. Cash used by operating assets and liabilities consisted primarily of an increase in accounts receivable of $13.2 million due to higher sales and the timing of collections, and an increase in inventory of $4.2 million on anticipated fourth quarter sales. Cash provided by changes in operating assets and liabilities consisted primarily of an increase in accrued expenses and other of $6.6 million due to timing of billing for completed projects.
Cash Flows Related to Investing Activities. Cash used in investing activities of $4.5 million in the first nine months of fiscal 2022 consisted primarily $3.7 million of cash funded for the acquisition of Stay-Lite Lighting, and an investment of a non-controlling equity stake in ndustrial, Inc. of $0.5 million and purchases of property and equipment.
Cash used in investing activities of $0.7 million in the first nine months of fiscal 2021 consisted primarily of purchases of tooling and equipment.
Cash Flows Related to Financing Activities. Cash provided by financing activities of $0.1 million in the first nine months of fiscal 2022 consisted primarily of proceeds from employee equity exercises.
Cash used in financing activities of $10.1 million in the first nine months of fiscal 2021 consisted primarily of net repayments of $10.0 million on our Prior Credit Agreement.
Working Capital
Our net working capital as of December 31, 2021 was $32.0 million, consisting of $54.4 million in current assets and $22.5 million in current liabilities. Our net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million in current liabilities. Our current accounts payable balance decreased by $5.3 million from the fiscal 2021 year-end primarily due to the reduction in third quarter revenue and timing of invoicing and customer collections. Our accrued expenses decreased from our fiscal 2021 year-end by $2.7 million due primarily to a decrease in accrued project costs.
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We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases, including purchases to support the provision of products and services to our largest customer.
Indebtedness
Revolving Credit Agreement
On December 29, 2020, we entered into a new $25 million Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our prior $20.15 million secured revolving credit and security agreement (the “Prior Credit Agreement”).
The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.
The Credit Agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of December 31, 2021, the borrowing base supports $24.2 million availability of the Credit Facility. As of December 31, 2021, no amounts were borrowed under the Credit Facility.
The Credit Agreement is secured by a first lien security interest in substantially all of our assets.
Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $16.2 million and $19.2 million as of December 31, 2021 and March 31, 2021, respectively. We generally expect our backlog to be recognized as revenue within one year, although the COVID-19 pandemic may extend this time period.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
Our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot currently predict the future impact to our operations by inflation.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual
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Report on Form 10-K for the year ended March 31, 2021. For the nine months ended December 31, 2021, there were no material changes in our accounting policies.
Recent Accounting Pronouncements
For a complete discussion of recent accounting pronouncements, refer to Note 3 in the Condensed Consolidated Financial Statements included elsewhere in this report.
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ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in our Annual Report on Form 10-K for the year ended March 31, 2021. There have been no material changes to such exposures since March 31, 2021.
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ITEM 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2021, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this evaluation, such officers have concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) for the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
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ITEM 1. |
LEGAL PROCEEDINGS |
We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, we do not believe that the final resolution of any of such claims or legal proceedings will have a material adverse effect on our future results of operations.
See Note 15 – Commitments and Contingencies, to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
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ITEM 1A. |
RISK FACTORS |
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which we filed with the SEC on June 1, 2021 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
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ITEM 5. |
OTHER INFORMATION |
None
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ITEM 6. |
EXHIBITS |
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(a) |
Exhibits |
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10.1 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
Inline XBRL Instance Document+ |
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101.SCH |
Inline XBRL Taxonomy extension schema document+ |
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101.CAL |
Inline XBRL Taxonomy extension calculation linkbase document+ |
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101.DEF |
Inline XBRL Taxonomy extension definition linkbase document+ |
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101.LAB |
Inline XBRL Taxonomy extension label linkbase document+ |
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101.PRE |
Inline XBRL Taxonomy extension presentation linkbase document+ |
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104 |
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, has been formatted in Inline XBRL. |
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+ |
Filed herewith |
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* |
Management contract or compensatory plan or arrangement |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 9, 2022.
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ORION ENERGY SYSTEMS, INC. |
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By |
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/s/ J. Per Brodin |
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J. Per Brodin |
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Chief Financial Officer |
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(Principal Financial Officer and Authorized Signatory) |
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