potential warranty claims in excess of our reserve estimates.
You are urged to carefully consider these factors and the other factors described under Part I. Item 1A. “Risk Factors” when evaluating any forward-looking statements, and you should not place undue reliance on these forward-looking statements.
Except as required by applicable law, we assume no obligation to update any forward-looking statements publicly or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
As used herein, unless otherwise expressly stated or the context otherwise requires, all references to “Orion,” “we,” “us,” “our,” “Company” and similar references are to Orion Energy Systems, Inc. and its consolidated subsidiaries.
Overview
We are a leading designerprovide state-of-the-art LED lighting, wireless Internet of Things (“IoT”) enabled control solutions, and manufacturer of high-performance, energy-efficient lighting platforms.energy project management. We research, design, develop, design, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior lighting systems and related services. Our products are targeted for applications in three primary market segments: (i.) commercial office and retail; (ii.)retail, area lighting, and (iii.) 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 focused on providing commercial and industrial facilitiesof light emitting diode ("LED") lighting retrofit solutions in North America using solid state Light Emitting Diode (“LED”) technology.fixtures, many of which include IoT enabled control systems. Our principal customers include large national accounts,account end-users, electrical distributors and energy service companies electrical contractors and electrical distributors.("ESCOs"). Currently, substantially all of our products are manufactured at our leased production facility locationlocated in Manitowoc, Wisconsin, although as the LED market continues to evolve, we are increasingly sourcing products and components from third parties as the LED market continues to evolve in order to haveprovide versatility in our product development.
We have experienced recent success offering our comprehensive project management services to provide solutions using our legacy High Intensity Fluorescent (“HIF”) technology, wenational 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.
We believe the market for LED lighting products has shiftedcontinues to LED lighting systems. Compared to legacy lighting systems, LED lighting allows for better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption.grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other legacylighting technologies. Our LED lighting technologies are nowhave become the primary component of our revenue as we continue to strive to be thea leader in the industry transitionLED market.
We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to LED lighting technology. According to a July 2015 United States Department of Energy report ("DOE report"),period and we estimate the potential North American LED retrofit market within our key product categories to be approximately 1.1 billion lighting fixtures. In fiscal 2016, our LED lighting sales totaled $45,679,000, or 71%,typically generate substantially all of our totalrevenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product revenue, compared to $30,800,000, or 48%,purchasing agreements with major customers with sales completed on a purchase order basis. 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 margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total lighting product revenue for fiscal 2015. We planmix of our sales among higher or lower margin products can cause our profitability to continuefluctuate from period to primarily focus on developing and selling innovative LED products, although we will continue to market and sell legacy HIF solutions in circumstances in which LED solutions may not be our customers' best alternative.
Reportable Segments
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 hasWe have three reportable segments: Orion U.S. Markets Division ("USM"), Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS").
For financial results by reportable segment, please refer to Note 16, "Segment Data" in our commercial lighting systems and energy management systems to the wholesale contractor markets. Our U.S. Markets customers include domestic energy service companies ("ESCOs") and electrical contractors.
The OES divisionsegment develops and sells lighting products and provides construction and engineering services for our commercial LED and High Intensity Fluorescent ("HIF") lighting and energy management systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.
Orion Distribution Services Division ("ODS")
The ODS divisionsegment focuses on selling our lighting products through manufacturer representative agencies and a network of broadline North American distributors. ODS had growth in fiscal 2016
Orion U.S. Markets Division
The USM segment sells commercial lighting systems and energy management systems to revenues of $2,476,000 from revenues of $978,000 in fiscal 2015, with a majority of that business transacting through broadline distributors.
Our Market Opportunity
We provide enterprise-grade LED lighting and energy project solutions. We are primarily focused on providing commercial and industrial facilities lighting retrofit solutions in North America using solid statesolid-state LED technology. While we continue to provide solutions using our legacy HIF technology, weWe believe the market for lighting products has shifted to LED lighting systems. Comparedsystems and continues to legacy lighting systems,grow. We believe that LED lighting technology allows for better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by fluorescent or other legacy technologies.
Our products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their quantity or quality of light. We estimate that our energy management systems reduce our customers’ legacy lighting-related electricity costs by approximately 50% to 80%,or greater, while increasingmaintaining their quantity of light by approximately 50%after the reduced wattage and improving overall lighting quality when replacing traditional fixtures. Our customers with legacy lighting systems typically realize a one to three yearfour-year payback period, and most often 12 – 18 months, from electricity cost savings generated by our lighting systems without considering utility incentives or government subsidies. We have sold and installed our lighting products in over 13,550 facilities across North America, representing approximately 2 billion square feet of commercial and industrial building space, including sales to 178 of the Fortune 500 companies.
Energy-efficient lighting systems are cost-effective and environmentally responsible solutions allowing end users to reduce operating expenses. Based on a July 2015 report published by the United States Department of Energy, or DOE, we estimate the potential North American HIF and LED retrofit market within our primary markets to be approximately 71.1 billion lighting fixtures. OurWe serve government and private sector end-customers in the following primary markets are: (i)markets: commercial office and retail, (ii) area lighting and (iii) industrial high bay applications.
Commercial office and retail.
Our commercial office and retail market includes commercial office buildings, retail store fronts, government offices, schools, hospitals and other buildings with traditionalIndustrial applications.
Our market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities, government buildings and agricultural buildings. These facilities typically containCommercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional fluorescents, LED and incandescent lighting fixtures. We estimate that approximately 50% of this market still utilizes inefficient high intensity discharge ("HID") lighting technologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and HIFearlier generation of LED fixtures. According to the Electric Power Research Institute, or EPRI, HID fixtures only convert approximately 36% of the energy they consume into visible light. We estimate that our lightingenergy management systems generally reduce our customers’ legacy lighting-related electricity costs by approximately 50% to 80% compared to HID fixtures,or greater, while increasing the quantity of light by approximately 50% and improving overall lighting quality.
We believe that utilities within the United States recognize the importance of energy efficiency as an economical means to manage capacity constraints and as a low-cost alternative when compared to the construction costs of building new power plants. Accordingly, many of these utilities are continually focused on demand reduction through energy efficiency. According to our research of individual state and utility programs, 4950 states, through legislation, regulation or voluntary action, have seen their utilities design and fund programs that promote or deliver energy efficiency. In fact, as of May 31, 2016, only Alaska, Delaware, and Maine do not currently have some form of utility or state energy efficiency programs for any of their commercial or industrial customers. Our products are not solely dependent upon these incentive programs, but we do believe that these incentive programs provide an important benefit as our customers evaluate their out-of-pocket cash investments.
Our Solution
Value Proposition.
We estimate our LED lighting systems generally reduce lighting-related electricity costs by approximately 50%Multi-Facility Roll-Out Capability.
We offer our customers a single source, turnkey solution for project implementation in which we manage and maintain responsibility for entire multi-facility roll-outs of our energy management solutions across North American commercial and industrial facility portfolios. This capability allows us to offer our customers an orderly, timely and scheduled process for recognizing energy reductions and cost savings.Rapid Payback Period.
In most retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one toEasy Installation, Implementation and Maintenance.
Most of ourExpanded Product Offerings.
We are committed to continue developing LED product offerings in all of the markets we serve. Our third generation of ISON® class of LED interior fixture delivers a market leading 214 lumens per watt. This advancement means our customers can get more light with less energy, and sometimes fewer fixtures, than with any other product on the market. In fiscal 2018 and 2019, we launched a variety of new products, features and functionality targeting healthcare, food service, high and low temperature environments and other market segments. See "Products and Services" below.Environmental Benefits.
By allowing for the permanent reduction of electricity consumption, our energy management systems reduce indirect CO2 emissions that are a negative by-product of energy generation. We estimate that one of our LEDCompelling Value Proposition. By permanently reducing lighting-related electricity usage, our systems enable our customers to achieve significant cost savings, without compromising the quantity orand quality of light in their facilities. As a result, our products offer our customers a rapid return on their investment, without relying on government subsidies or utility incentives.
Comprehensive Project Management. We also offer our customers a single source solution whereby we manage and are responsible for thean entire retrofit lighting project, includingfrom initial site surveys and energy audits through to installation across the entire North American real estate portfolio.and controls integration. Our ability to offer such acomprehensive turnkey national solutionproject management services, coupled with best-in-class customer service, allows us to deliver energy reductions and cost savings to our customers in timely, orderly and planned multi-facility roll-outs.roll-outs nationwide. We experienced substantial success with offering these services in fiscal 2019 with one national account customer entering into commitments to retrofit multiple locations beginning in the fourth quarter of fiscal 2019 and continuing throughout our fiscal 2020.
Large and Growing Customer Base.
We have developed a large and growing national customer base, and have installed our products in more thanExpanded Sales and Distribution Network.
In addition to selling directly toOur Growth Strategies
Our ability to achieve our desired revenue growth and Market.
Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We now have relationshipsbelieve one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities starting with more than 100 resellersenergy audits and distributorssite assessments that are represented bylead to custom engineering and manufacturing through to fully managed installations. These attributes coupled with our superior customer service, high quality designs and expedited delivery responsiveness resulted in our contract to retrofit multiple locations for a North American networksingle national account. This contract will lead our growth momentum for fiscal 2020 and beyond.
Support success of independent lighting agencies.our ESCO and agent-driven distribution sales channels. We continue to expandfocus on building our sales network and we are also maintaining our in-market sales force which generates revenue through our independent channels.
Continued Product Innovation. We continue to innovate, developing lighting products.fixtures and features that address specific customer requirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits. We also intendcontinue to leveragedeepen our large installed basecapabilities in the integration of HIFsmart lighting systemscontrols. Our goal is to implement all aspects of our energy management system, particularly LEDprovide state-of-the-art lighting products wirelesswith modular plug-and-play designs to enable lighting system customization from basic controls cloud-based power data analysis and storage capabilities for our existing customers.
Leveraging of our operations to increase the profitability of our business and allow us to continue to deliver our compelling value proposition.
Products and Services
Our primary focus has been, and will continue to be, emphasizing our LED lighting fixtures. Currently, substantially all of our products are manufactured at our leased production facility location in Manitowoc, Wisconsin, although we are increasingly sourcing products and components from third parties as the LED market continues to evolve, we also source products and components from third parties in order to have versatility in our product development. However, we do not anticipate significant changes in product sourcing in the near term. We are focused on researching, developing and/or acquiring new innovative LED products and technologies that are innovative infor the retrofit markets, such as the LED door retrofit and exterior LED lighting products.LDRTM. We plan to focus our efforts on creating innovativedeveloping creative new LED retrofit products while continuingin order to sell legacy HIF solutions to customers in markets where LED technology adoption is in its infancy. Together with these products, we offer our customers a variety of integrated energy management services, such as system design, project management and installation.
Products
The following is a description of our primary products:
The LED Troffer Door Retrofit (LDR
TM): The LDRTM is designed to replace existing 4 foot by 2 foot and 2 foot by 2 foot fluorescent troffers that are frequently found in office or retail grid ceilings. Our LDRTM product is unique in that the LED optics and electronics are housed within theInterior LED High Bay Fixtures:
Our LED interior high bay lighting products consist of our Harris high bay, ApolloTM high bay and ISON® high bay products. Our ISON® class of LED interior fixture offers a full package of premium features, including low total cost of ownership, optics that currently exceed competitors in terms of lumen package, delivered light, modularity and advanced thermal management. Our third generation of ISON® class of LED interior fixture delivers up to an exceptional 214 lumens per watt. This advancement means our customers can get more light with less energy, and sometimes fewer fixtures, compared to other products on the market. Our ApolloTM class of LED interior fixtures is designed for new construction and retrofit projects where initial cost is the largest factor in the purchase decision. Our Harris high bay is ideal for customers seeking a cost-effective solution to deliver energy savings and maintenance reductions. In addition, our LED interior lighting products are lightweight andSmart Lighting Controls.
We offer a broad array of smart building control systems that have either been developed by us under the InteLiteTM brand or procured from third parties. These control systems provide both lighting control options (such as occupancy, daylight, or schedule control) and data intelligence capabilities for building managers to log, monitor, and analyze use of space, energy savings, and provide physical security of the space.Other Products.
We also offer our customers a variety of other LEDWarranty Policy. Our warranty policy generally provides for a limited one-year warranty on our HIF products and a limited five-year warranty on our LED products, although we do offer warranties ranging up to 10 years for certain LED products. Ballasts, lamps, drivers, LED chips and other electrical components are excluded from our standard warranty as they are covered by separate warranties
Services
We provide a range of fee-based lighting-related energy management services to our customers, including:
comprehensive site assessment, which includes a review of the current lighting requirements and energy usage at the customer’s facility;
site field verification, or SFV, during which we perform a test implementation of our energy management system at a customer’s facility;
utility incentive and government subsidy management, where we assist our customers in identifying, applying for and obtaining available utility incentives or government subsidies;
engineering design, which involves designing a customized system to suit our customers' facility lighting and energy management needs, and providing the customer with a written analysis of the potential energy savings and lighting and environmental benefits associated with the designed system;
project management, which involves us working with the electrical contractor in overseeing and managing all phases of implementation from delivery through installation for a single facility or through multi-facility roll-outs tied to a defined project schedule;
installation services, for our products, which we provide through our national network of qualified third-party installers; and
recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting fixtures.
We also provide other services whichthat comprise a small amount of our revenue. These services primarily include management and control of power quality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and fixture components into the after-market.
Our Customers
We primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing, and office facilities. As of March 31, 2016, we have installed our products in 13,550 commercial and industrial facilities across North America. In fiscal 2016,2019, one customer accounted for 20.7% of total revenue. We expect this customer will continue to account for even a substantially higher percentage of our fiscal 2020 total revenue. In fiscal 2018, two customers accounted for 11.7% and 10.8% of total revenue. In fiscal 2017, there was no single customer that accounted for more than 10% of our total revenue. In fiscal 2015While we had onecontinue to seek to diversify our customer Ford Motor Company, that accounted for 12%base by expanding our reach to national accounts, ESCOs and the agent driven distribution channel, we expect to continue to derive a significant percentage of our total revenue. In fiscal 2014,revenue from contracts with one customer. These contracts are entered into in the ordinary course of business and provide that we had onewill deliver products and services on a work order or purchase order basis and any purchase order may be terminated prior to shipment. The contracts do not guarantee that the customer Standard Alternative LLC, that accounted for 23%will buy our products or services.
The amount and concentration of our total revenue.revenues with one or more customer may fluctuate on a year to year basis depending on the number of purchase orders issued by our customers. The loss of a significant customer or the termination of a material volume of purchase orders (or the underlying agreements) could have a material adverse effect on our results of operations.
We sell our products in one of twothree ways: (i) directly to commercial and industrial customers using a systematic multi-step process that focuses on our value proposition and provides our sales force with a specific protocol for working with our customers from the point of lead generation through delivery ofrelationships with our products and services; andnational account partners; (ii) indirectly through independent sales agencies and electrical distributors. We believe that partnering with an agency sales force focused on providing technical productbroadline North American distributors; and sales support to our customers provides us with a greater potential for revenue growth.(iii) through ESCOs. Our Distribution Services divisionODS segment focuses on developing and expanding customer relationships with independent manufacturer’s agents and broadline distributors. During fiscal 2016,2019 and fiscal 2018, we engaged more than 18approximately 50 manufacturer representative agencies to expand our reach with broadline distributors and further enhance our ability to growincrease our revenue. We attempt to leverage the customer relationships of these customersdistributors to further extend the geographic scope of our selling efforts. We work cooperatively with our indirect channels through participation in national trade organizations and by providing training on our sales methodologies. We intend to continue to selectively expand our independent sales network, focusing on those geographic regions where we lack sufficient sales coverage.
We have historically focused our marketing efforts on traditional direct advertising, as well as developing brand awareness through customer education and active participation in trade shows and energy management seminars. These efforts have included participating in national, regional and local trade organizations, exhibiting at trade shows, executing targeted direct mail campaigns, advertising in select publications, public relations campaigns, social media and other lead generation and brand-building initiatives.
Competition
The market for energy-efficient lighting products and services is fragmented. We face strong competition primarily from manufacturers and distributors of lighting products and services as well as electrical contractors. We compete primarily on the basis of technology, cost, performance, quality, customer experience, energy efficiency, customer service and marketing support.
There are a number of lighting fixture manufacturers that sell LED and HIF products that compete with our lighting product lines. Lighting companies such as Acuity Brands, Inc., Carmanah Technology Corporation, Energy Focus, Inc., Eaton Corporation plc, Cree, Inc., LSI Industries, Inc., Revolution Lighting Technologies Inc., TCP International Holdings, Inc., and Hubbell Incorporated are some of our main competitors within the commercial office, retail and industrial markets.
We also face competition from companies who provide energy management services. Some of these competitors, such as Ameresco, Inc., Johnson Controls, Inc. and Honeywell International, provide basic systems and controls designed to further energy efficiency.
Intellectual Property
As of March 31, 2016,2019, we had been issued 67104 United States patents and have applied for 2915 additional United States patents. The patented and patent pending technologies cover various innovative elements of our products, including our HIF and LED fixtures. Our patented LDR
We believe that our patent portfolio as a whole is material to our business. We also believe that our patents covering our ability to manage the thermal and optical performance of our LED and HIF lighting products are material to our business, and that the loss of these patents could significantly and adversely affect our business, operating results and prospects.
Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed orders. BacklogOur backlog as of March 31, 20162019 and 2015March 31, 2018 totaled $5,600,000$10.8 million and $7,100,000,$3.3 million, respectively. We generally expect our backlog to becomebe recognized as revenue within one year.
Manufacturing and Distribution
We ownlease an approximately 266,000197,000 square foot manufacturing and distribution facility located in Manitowoc, Wisconsin, where substantially all of our products are manufactured. As part of our business initiatives to adapt to the rapidly evolving LED market and to continue to enhance our competitiveness, we are considering implementing significant changes to our manufacturing production and assembly facility and processes.
We generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract with transportation companies to ship our products and manage all aspects of distribution logistics. We generally ship our products directly to the end user.
Research and Development
Our research and development efforts are centered on developing new LED products and technologies and enhancing existing products. The products, technologies and services we are developing are focused on increasing end user energy efficiency and enhancing lighting output. DuringOver the last three fiscal 2014,years, we developed and commercialized the LDR
We believe that this location is in close proximity to highly regarded engineering and business schools and will offer us a greater supply of technical talent to help us develop new LED products in the future. We also operate research and development lab and test facilities in our Jacksonville, FLFlorida and Manitowoc, WIWisconsin locations.
Regulatory Matters
Our operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment, and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and
State, county or municipal statutes often require that a licensed electrician be present and supervise each retrofit project. Further, all installations of electrical fixtures are subject to compliance with electrical codes in virtually all jurisdictions in the United States. In cases where we engage independent contractors to perform our retrofit projects, we believe that compliance with these laws and regulations is the responsibility of the applicable contractor.
Our Corporate and Other Available Information
We were incorporated as a Wisconsin corporation in April 1996 and our corporate headquarters are located at 2210 Woodland Drive, Manitowoc, Wisconsin 54220. Our Internet website address is www.orionlighting.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC.
Employees
As of March 31, 2016,2019, we had 165approximately 186 full-time and 98135 temporary employees, of which 87202 work in manufacturing. Our employees are not represented by any labor union, and we have never experienced a work stoppage or strike. We consider our relations with our employees to be good.
You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the following risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operationoperations and future growth prospects and could cause the trading price of our common stock to decline.
We have had a history of losses and we may be unable to achieve or sustain profitability or positive cash flows in the future.
We have experienced net losses for the past fourfive fiscal years. Generating net income and positive cash flows in the future will depend on our ability to successfully complete and execute our strategic plan.plan and continue to control costs pursuant to our cost reduction initiatives. The continued implementation of our cost reduction initiatives may negatively impact our sales. In addition, our cost reduction initiatives may not be sufficient to offset our negative cash flows and may plateau over time, reducing our ability to further offset negative cash flows. There is no guarantee that we will be able to achieve or sustain profitability or positive cash flows in the future. Our inability to successfully achieve and sustain profitability and positive cash flows maywill likely result in usour experiencing a serious liquidity deficiency and resulting material adverse consequences that could threaten our viability.
Our financial performance is dependent on our ability to execute on our strategy and achieve profitability.
Our ability to achieve our desired growth and profitability goals depends on our ability to effectively manage our turnkey LED retrofit capabilities to large national account customers, engage distribution and sales agents, develop recurring revenue streams, expand our customer base and improve our marketing, new product development, project execution, customer service, margin enhancement and operating expense management, as well as other factors. If we are unable to successfully execute in any of these areas or on our growth and profitability strategy, then our business and financial performance will likely be materially adversely affected.
We may not be able to obtain equity capital or debt financing necessary to fund our ongoing operations, effectively pursue our strategy and sustain our growth initiatives.
Our existing liquidity and capital resources may not be sufficient to allow us to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives. Currently, we have limited borrowing capacity under our revolving credit facility. As of March 31, 2016,2019, we had $8.7 million of cash and approximately $3,719,000$9.2 million of outstanding borrowings and only $229,000$1.4 million of remaining borrowing capacity available under our revolving credit facility.facility, compared to $9.4 million of cash and approximately $3.9 million of outstanding borrowings and $0.1 million of remaining borrowing availability as of March 31, 2018. If we require additional capital resources, we may not be able to obtain sufficient equity capital and/or debt financing to allow us to continue our normal course of operations or we may not be able to obtain such equity capital or debt financing on acceptable terms or conditions. Factors affecting the availability to us of equity capital or debt financing on acceptable terms and conditions include:
Our current and future financial results and position.
The collateral availability and softening of our otherwise unsecured assets.
The market’s, investors and lenders' view of our company, industry and products.
The perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations.
The price, volatility and trading volume and history of our common stock.
Our inability to obtain the equity capital or debt financing necessary to fund our ongoing operations or pursue our strategystrategies could force us to scale back our operations or our sales initiatives due to the high working capital costs associated with an increase in the sales of our products from existing levels.initiatives. If we are unable to pursue our strategy and sustain our growth initiatives, our business and operating results will be materially adversely affected.
TableWe do not have major sources of Contents
We increasingly relydo not have long-term contracts with our customers that provide us with recurring revenue from period to period. As a result, we generate a substantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new and existing customers and our dependence on third-party manufacturersindividual key customers can vary from period to period as a result of the significant size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately 48%, 42%, and 33% respectively, of our total revenue for fiscal 2019, 2018 and 2017. In fiscal 2019, one customer accounted for 20.7% of total revenue. We expect this customer will continue to account for even a substantially higher percentage of our fiscal 2020 revenue. As a result, we will continue to experience significant customer concentration in fiscal 2020. The loss of this customer or our failure to satisfy its installation requirements in fiscal 2020 could have a material adverse effect on our results of operations and financial condition. In fiscal 2018, two customers accounted for 11.7% and 10.8% of total revenue. In fiscal 2017, there was no single customer that accounted for more than 10% of our revenue. We expect large retrofit and rollout projects to continue to remain a significant component of our total revenue.
The agreements we enter into with several of our key customers (including our largest customer) provide that we will provide products and services on a work order or purchase order basis. These agreements do not guarantee that our key customers will make purchases from us and provide that any purchase order or work order may be terminated prior to shipment. As a result, the manufactureamount and developmentconcentration of our revenues may fluctuate year over year depending on the number of purchase orders or work orders issued by our customers, which may fluctuate due to factors such as our customers’ capital expenditure budgets and general economic conditions. Additionally, commercial office lighting retrofits provide for single large project opportunities. The loss of, or substantial reduction in sales to, any of our significant customers, or a major 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.
The success of our business depends upon market acceptance of our energy management products and services.
Our future success depends on continued commercial acceptance of our energy management products and services and obtaining additional project management retrofit contracts to supplement our contract for our single largest customer in fiscal 2019 and fiscal 2020. If we are unable to convince current and potential customers of the advantages of our lighting systems and energy management products and services, then our ability to sell our lighting systems and energy management products and services will be limited. In addition, because the market for energy management products and services is rapidly evolving, we may not be able to accurately assess the size of the market, and we may have limited insight into trends that may emerge and affect our business. If the market for our lighting systems and energy management products and services does not continue to develop, or if the market does not accept our products, then our ability to grow our business could be limited and we may not be able to increase our revenue or achieve profitability.
Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business.
Our operations and performance are impacted by worldwide economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our products and product components
There continues to be materially adversely affected if our manufacturers werea great amount of debate regarding a wide range of policy options with respect to experience problems with product quality, credit or liquidity issues, or disruptions or delays inmonetary, regulatory, and trade, amongst others, that the manufacturing process or deliveryU.S. federal government has and may pursue, including the recent imposition of thetariffs on certain imports. Certain sourced finished products and certain of the components orused in our products are impacted by the raw materials usedrecently imposed tariffs on China imports. Our efforts to makemitigate the impact of added costs include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations may be adversely affected.
In addition, global economic and political uncertainty has led many customers to adopt strategies for conserving cash, including limits on capital spending. Our lighting systems are often purchased as capital assets and therefore are subject to capital availability. Uncertainty around such availability has led customers to delay purchase decisions, which has elongated the duration of our sales cycles. Weak economic conditions in the past have adversely affected our customers’ capital budgets, purchasing decisions and facilities managers and, therefore, have adversely affected our results of operations. The return to a recessionary state of the global economy could potentially have negative effects on our near-term liquidity and capital resources, including slower collections of receivables, delays of existing order deliveries, postponements of incoming orders and reductions in the number and volume of purchase orders received from key customers as a result of reduced capital expenditure budgets. Our business and results of operations will be adversely affected to the extent these adverse economic conditions affect our customers’ purchasing decisions.
The success of our LED lighting retrofit solutions depend, in part, on our ability to claim market share ahead of our competitors. If we are unable to expand our customer base and increase sales in our targeted markets, our revenues and profitability will be adversely affected.
Participants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely to gain a competitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life of several years following installation. If we are unable to broaden our customer base and achieve greater market penetration in the LED market in a timely manner, we may lose the opportunity to market our LED products and components.
In addition, as we continue to seek to expand our customer base within agent/distribution channels, national accounts and ESCOs, our success will depend in part on our ability to attract and retain talent to execute on our sales model. If we are unable to attract and retain sufficient talent, we may be unable to broaden our customer base, which will adversely affect our revenue and profitability.
We are increasing our emphasis on indirect distribution channels to sell our products and services. If we are unable to attract, incentivize and retain our third-party distributors and sales agents, or our distributors and sales agents do not sell our products and services at the levels expected, our revenues could decline and our costs could increase.
We have significantly expanded the number of our manufacturer representative agencies that sell our products through broadline distributors, many of which are not exclusive, which means that these sales agents and distributors may sell other third-party products and services in direct competition with us. Since many of our competitors use sales agents and distributors to sell their products and services, competition for such agents and distributors is intense and may adversely affect our product pricing and gross margins. Additionally, due to mismanagement, industry trends, macro-economic developments, or other reasons, our sales agents and distributors may be unable to effectively sell our products at the levels desired or anticipated. In addition, we have historically relied on direct sales to sell our products, which were often made in competition with sales agents and distributors. In order to attract and form lasting partnerships with sales agents and distributors, in the future, we will be required to overcome our historical perception as a direct sales competitor. As a result, we may have difficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative effect on our ability to attract and obtain customers, which could have an adverse impact on our business.
Our financial performance is dependent on our ability to executeachieve growth in our average sales margins on our strategy and increase our profitability.
The gross margins of our products can vary significantly, with margins ranging from 15%10% to 50%. While we continue to implement our strategy of transitioning to higher-margin products and reducing the material cost of our products, a change in the total mix of our sales toward lower margin products, a decrease in the margins on our products as a result of competitive pressures driving down the average selling price of our products, lower sales volumes and promotional programs to increase sales volumes could reduce our profitability and result in a material adverse effect on our business and financial performance.
We operate in a highly competitive industry and, if we are unable to compete successfully, our revenue and profitability will be adversely affected.
We face strong competition primarily from manufacturers and distributors of energy management products and services, as well as from electrical contractors. We are also facing increased competition from manufacturers in low-cost countries. We compete primarily on the basis of customer relationships, price, quality, energy efficiency, customer service and marketing support. Our products are in direct competition with the expanding availability of LED products, HID technology, as well as other HIF and LED products and older fluorescent technology in the lighting systems retrofit market.
Many of our competitors are better capitalized than we are, have strong customer relationships, greater name recognition, and more extensive engineering, manufacturing, sales and marketing capabilities. In addition, the LED market has seen increased convergence in recent years, resulting in our competition gaining increased market share and resources. Competitors could focus their substantial resources on developing a competing business model or energy management products or services that may be potentially more attractive to customers than our products or services. In addition, we may face competition from other products or technologies that reduce demand for electricity. Our competitors may also offer energy management products and services at reduced prices in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and
The success of our business depends upon our adaptation to the quickly changing market conditions in the lighting industry and on market acceptance of our lighting retrofit solutions using new LED technologies.
The market for lighting products has experienced a significant technology shift to LED lighting systems. AsIn addition, we continue to explore utilizing our system platform as a result, we are focusing“connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other business solutions on our business primarily on providing lighting retrofit solutions using new LED technologies in lieu of traditional HIF lighting upon which our business has historically relied.
As a result, our future success depends significantly upon the adoption rate of LED products within our primary markets and our ability to participate in this ongoing market trend. To be an effective participant in this growingthe LED market, opportunity, we must keep up with the evolution of LED technology, which has been movingcontinues to move at a fast pace. We may be unable to successfully develop and market new LED products or services that keep pace with technological or industry changes, differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and industry regulations and technology standards. The development and introduction of new LED products may result in increased warranty expenses and other new product introduction expenses. In addition, we will likely continue to incur substantial costs to research and develop new LED products, which will increase our expenses, without guarantee that our new products and services will be commercially viable. We may also spend time and resources to develop and release new LED products only to discover that a competitor has also introduced similar new products with superior performance. Moreover, if new sources of lighting are developed, our current products and technologies could become less competitive or obsolete, which could result in reduced revenue, reduced earnings or increased losses and/or inventory and other impairment charges. Additionally, as the lighting retrofit market continues to shift to LED lighting products from HIF and other traditional lighting products, customer purchasing decisions have been delayed as they evaluate the relative advantages and disadvantages of the lighting retrofit product alternatives and wait for further decreases in the price of LED lighting products. These circumstances have led, and may continue to lead, to reduced revenue for us in the periods affected.
As we attempt to adapt our business organizationand respond to this quickly evolving market, we have been managing through significant change in our vendor supply chain as LED product portfolio and our product revenue continue to increase and we place most of our focus on this LED product line. We currently believe that our continuing efforts to negotiate further lower material input costs will help maintain or improve our LED product gross margins. However, we may not be able to realize the gross margin benefits in the amounts or on the timetable anticipated and we may experience higher warranty expenses in the future as we implement our manufacturing and assembly process changes. It is also possible that, as we continue to focus our sales efforts on our LED product lines, we may increase our risk of inventory obsolescence for our legacy lighting product lines or even for outmoded LED products.
Finally, in connection with our primary focus on selling our LED products, we expect our results of operations to continue to fluctuate from quarter to quarter as customers may continue to delay purchasing decisions as they evaluate their return on investment from purchasing new LED products compared to alternative lighting solutions, the pricing of LED products continues to fall and LED products continue to gain more widespread customer acceptance. Similarly, these circumstances have impacted, and may continue to adversely impact, our product gross margins and our profitability from quarter to quarter.
If we are unable to achieve market acceptance of our lighting retrofit solutions using new LED technologies or realize the expected benefits from our emphasisfocus on promoting our LED technologies, our results of operations and financial condition will likely be materially adversely affected.
The successreduction or elimination of ourinvestments in, or incentives to adopt, LED lighting retrofit solutions depend,or the elimination of, or changes in, part, onpolicies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow, which could materially and adversely affect our revenues, profits and margins.
Reductions in (including as a result of any budgetary constraints), or the elimination of, government investment and favorable energy policies designed to accelerate the adoption of LED lighting could result in decreased demand for our products and decrease our revenues, profits and margins. Further, if our products fail to qualify for any financial incentives or rebates provided by governmental agencies or utilities for which our competitors’ products qualify, such programs may diminish or eliminate our ability to claim market share aheadcompete by offering products at lower prices than ours.
We increasingly rely on third-party manufacturers for the manufacture and development of our competitors.
We have increased our utilization of third-party manufacturers for the lighting systems retrofit market for several yearsmanufacture and may be at a disadvantage in securing future business opportunities from customers that have previously established relationships with one or moredevelopment of our competitors. These disadvantages could reduce our revenueproducts and profitability, which could have a material adverse effect on ourproduct components. Our business, prospects, results of operations, financial condition or cash flows could be materially adversely affected if our manufacturers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in the manufacturing process or delivery of the finished products and financial condition.
Changes in government budget priorities and political gridlock could negatively impact our sales and profitability.
Actual and perceived changes in governmental budget priorities could adversely affect our business depends upon market acceptanceand results of our energy management products and services.
Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply.
We may be vulnerable to price increases for components or raw materials that we require for our products, including aluminum, copper, certain rare earth minerals, electronic drivers, chips, ballasts, power supplies and lamps. In particular, our cost of aluminum can be subject to commodity price fluctuation. We also source certain finished goods externally. Limitations inherent within the supply chain of certain of these component parts, including competitive, governmental, and legal limitations, natural disasters, and
other events, could impact costs, and future increases in the costs of these items, including through the adoption of new tariffs by the United States and other countries, could adversely affect our profitability, as there can be no assurance that future price increases will be successfully passed through to customers. Further, suppliers' inventories of certain components that our products require may be limited and are subject to acquisition by others. In the past, we have had to purchase quantities of certain components that are critical to our product manufacturing and were in excess of our estimated near-term requirements as a result of supplier delivery constraints and concerns over component availability, and we may need to do so in the future. As a result, we have had, and may need to continue, to devote additional working capital to support a large amount of component and raw material inventory that may not be used over a reasonable period to produce saleable products, and we may be required to increase our excess and obsolete inventory reserves to provide for these excess quantities, particularly if demand for our products does not meet our expectations. Also, any shortages or interruptions in supply of our components or raw materials could disrupt our operations. If any of these events occur, our results of operations and financial condition could be materially adversely affected.
Our inability to attract and retain key employees, our reseller network members or manufacturer representative agencies could adversely affect our operations and our ability to execute on our operating plan and growth strategy.
We dorely upon the knowledge, experience and skills of key employees throughout our organization, particularly our senior management team, our sales group that require technical knowledge or contacts in, and knowledge of, the LED industry and our innovation and engineering team. In addition, our ability to attract talented new employees, particularly in our sales group and our innovation and engineering team, is also critical to our success. We also depend on our distribution channels and network of manufacturer representative agencies. If we are unable to attract and retain key employees, resellers, and manufacturer representative agencies because of competition or, in the case of employees, inadequate compensation or other factors, our results of operations and our ability to execute our operating plan could be adversely affected.
If our information technology systems security measures are breached or fail, our products may be perceived as not have major sourcesbeing secure, customers may curtail or stop buying our products, we may incur significant legal and financial exposure, our business, results of recurring revenueoperations and depend upon a limited number of customers in any given period to generate a substantial portionfinancial condition could be materially adversely affected.
Our information technology systems involve the storage of our revenue. Theconfidential information and trade secrets as well as our customers’ personal and proprietary information in our equipment, networks and corporate systems. Security breaches expose us to a risk of loss of this information, litigation and increased costs for security measures, loss of revenue, damage to our reputation and potential liability. Security breaches or unauthorized access may in the future result in a combination of significant customers legal and financial exposure, increased remediation and other costs, theft and/or unauthorized use or publication of our trade secrets and other confidential business information, damage to our reputation and a major customerloss of confidence in the security of our products, services and networks that could have an adverse effect upon our business. We take steps to prevent unauthorized access to our corporate systems, however, because the techniques used to obtain unauthorized access, disable or sabotage systems change frequently or may be designed to remain dormant until a triggering event, we may be unable to anticipate these techniques or implement adequate preventative measures. Further, the risk of a security breach or disruption, particularly through cyber-attacks, or cyber intrusion,
including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against. In addition, hardware, software or applications we procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise network and data security.
If our information technology systems fail, or if we experience an interruption in their operation, then our business, results of operations and financial condition could be materially adversely affected.
The efficient operation of our business is dependent on our operations.
earthquake, fire, flood and other natural disasters;
employee or other theft;
attacks by computer viruses or hackers;
power outages; and
computer systems, internet, telecommunications or data network failure.
Any interruption of our information technology systems could result in decreased revenue, by securing large retrofitincreased expenses, increased capital expenditures, customer dissatisfaction and multi-facility roll-out projects from new and existing customers and our dependence on individual key customers can vary from period to period as a result of the significant size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately 37%, 36%, and 45% respectively, of our total revenue for fiscal 2016, 2015 and 2014. In fiscal 2014 and fiscal 2015, our top customer accounted for 23% and 12% of our total revenues, respectively. In fiscal 2016, there was no single customer that accounted for more than 10% of our revenue. While we are making efforts to increase our sources of recurring revenue, we expect large retrofit and roll-out projects to continue to remain a significant component of our total revenue. Additionally, commercial office lighting retrofits provide for single large project opportunities. As a result, we may continue to experience customer concentration in future periods. The loss of, or substantial reduction in sales to,potential lawsuits, any of our significant customers, or a major customer,which could have a material adverse effect on our results of operations in any given future period.
Product liability claims could adversely affect our business, results of operations and financial condition.
We face exposure to product liability claims in the event that our energy management products fail to perform as expected or cause bodily injury or property damage. Since virtually all of our products use electricity, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. Particularly because our products often incorporate new technologies or designs, we cannot predict whether or not product liability claims will be brought against us in the future or result in negative publicity about our business or adversely affect our customer relations. Moreover, we may not have adequate resources in the event of a successful claim against us. A successful product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages and could materially adversely affect our results of operations and financial condition.
Our inability to protect our intellectual property, or our involvement in damaging and disruptive intellectual property litigation, could adversely affect our business, results of operations and financial condition or result in the loss of use of the product or service.
We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as employee and third-party nondisclosure and assignment agreements. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
We own United States patents and patent applications for some of our products, systems, business methods and technologies. We offer no assurance about the degree of protection which existing or future patents may afford us. Likewise, we offer no assurance that our patent applications will result in issued patents, that our patents will be upheld if challenged, that competitors will not develop similar or superior business methods or products outside the protection of our patents, that competitors will not infringe upon our patents, or that we will have adequate resources to enforce our patents. Effective protection of our United States patents may be unavailable or limited in jurisdictions outside the United States, as the intellectual property laws of foreign countries sometimes offer
less protection or have onerous filing requirements. In addition, because some patent applications are maintained in secrecy for a period of time, we could adopt a technology without knowledge of a pending patent application, and such technology could infringe a third party’s patent.
We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise learn of our unpatented technology. To protect our trade secrets and other proprietary information, we generally require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely affected.
We rely on our trademarks, trade names, and brand names to distinguish our company and our products and services from our competitors. Some of our trademarks may conflict with trademarks of other companies. Failure to obtain trademark registrations could limit our ability to protect our trademarks and impede our sales and marketing efforts. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
In addition, third parties may bring infringement and other claims that could be time-consuming and expensive to defend. Also, parties making infringement and other claims may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our products, services or business methods and could cause us to pay substantial damages. In the event of a successful claim of infringement, we may need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, or at all. It is possible that our intellectual property rights may not be valid or that we may infringe upon
We are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the credit agreement, resulting in our being unable to borrow under our credit agreement and other negative consequences.
Our credit agreement with Wells FargoWestern Alliance Bank National Association contains provisions that may limit our future borrowing availability and may from time to time require us to maintain a minimum fixed charge coverage ratio.amount of cash on deposit and available borrowing capacity under such credit agreement as of the end of each month. The credit agreement also contains other customary covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare orinvestments, pay any dividend or distribution on our stock, redeem, repurchase or repurchaseretire shares of our stock, or pledge or dispose of assets.
There can be no assurance that we will be able to comply with the financial and other covenants in our credit agreement. Our failure to comply with these covenants could cause us to be unable to borrow under the credit agreement and may constitute an event of default which, if not cured or waived, could result in the acceleration of the maturity of any indebtedness then outstanding under the credit agreement, which would require us to pay all amounts then outstanding. Such an event could materially adversely affect our financial condition and liquidity. Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any credit renewal terms. Any failure to comply with such covenants wouldmay be a disclosable event and may be perceived negatively. Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future.
Our retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous materials.
When we retrofit a customer’s facility, we typically assume responsibility for removing and disposing of its existing lighting fixtures. Certain components of these fixtures typically contain trace amounts of mercury and other hazardous materials. Older components may also contain trace amounts of polychlorinated biphenyls, or PCBs. We currently rely on contractors to remove the components containing such hazardous materials at the customer job site. The contractors then arrange for the disposal of such
components at a licensed disposal facility. Failure by such contractors to remove or dispose of the components containing these hazardous materials in a safe, effective and lawful manner could give rise to liability for us, or could expose our workers or other persons to these hazardous materials, which could result in claims against us which may have a material adverse effect on our results of operations, financial condition, cash flows or reputation.
The cost of compliance with environmental laws and regulations and any related environmental liabilities could adversely affect our results of operations or financial condition.
Our operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety. These laws and regulations frequently change, and the violation of these laws or regulations can lead to substantial fines, penalties
Our corporate office building is currently listed for sale or lease; any sale of our building will likely result in a non-cash impairment charge.
We currently own, but have listed for sale or lease, our corporate office building in Manitowoc, Wisconsin. We evaluate long-lived assets, including property, plant, and equipment, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable; as of March 31, 2019, the value of our long-lived assets was deemed recoverable. However, any sale of our building will likely result in a non-cash impairment charge, as the building is currently listed for below its net book value and, as a result, will have an adverse impact on our results of operations during the period the impairment charge is incurred.
We expect our quarterly revenue and operating results to fluctuate. If we fail to meet the expectations of market analysts or investors, the market price of our common stock could decline substantially, and we could become subject to securities litigation.
Our quarterly revenue and operating results have fluctuated in the past and will likely vary from quarter to quarter in the future. The results of one quarter are not an indication of our future performance. Our revenue and operating results may fall below the expectations of market analysts or investors in some future quarter or quarters. Our failure to meet these expectations could cause the market price of our common stock to decline substantially. If the price of our common stock is volatile or falls significantly below our current price, we may be the target of securities litigation. If we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs, management’s attention could be diverted from the operation of our business, and our reputation could be damaged, which could adversely affect our business, results of operations or financial condition.
Our net operating loss carryforwardscarry-forwards provide a future benefit only if we are profitable and may be subject to limitation based upon ownership changes.
We have significant federal net operating loss carryforwardscarry-forwards and state net operating loss carryforwards.carry-forwards. While our federal and state net operating loss carryforwardscarry-forwards are fully reserved for, if we are unable to return to and maintain profitability, we may not be able to fully utilize these tax benefits. Furthermore, generally a change of more than 50% in the ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for federal income tax purposes. An ownership change may limit a company’s ability to use its net operating loss carryforwardscarry-forwards attributable to the period prior to such change. We believe that past issuances and transfers of our stock caused an ownership change in fiscal 2007 that may affect the timing of the use of our net operating loss carryforwards, but we do not believe the ownership change affects the use of the full amount of our net operating loss carryforwards. As a result, our ability to use our net operating loss carryforwardscarry-forwards attributable to the period prior to such ownership change to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for us.
If we fail to establish and maintain effective internal controls over financial reporting, could harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. In fiscal 2012,As of March 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls were not effective due to certain identifieddesigned and operating effectively. The material weaknesses which were remediated during fiscal 2013. Additionally,previously identified as of March 31, 2016,2017 and March 31, 2018 were the result of operating ineffectiveness of controls related to management's review over the accounting close process, contract costs, and forecasts used to support certain fair value estimates. The material weaknesses were not fully remedied as of March 31, 2018, but were remediated as of March 31, 2019. There can be no assurance that we identified awill not experience another material weakness in our internal control over financial reporting as a result of our insufficient review of non-routine revenue transactions and the related accounting entries.future. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. We are actively engaged in developing a remediation plan designed to address this material weakness. If the remedial measures are insufficient to address this material weakness or if additional material weaknesses or significant deficiencies in the internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and Orion could be required to restate its financial results. TheA failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and in a timely manner or to detect and prevent fraud, could result in a restatement of our financial statements, and could also cause a loss of investor confidence and decline in the market price of our common stock.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will continue to depend in part on the research and reports that securities or industry analysts publish about usour business or our business.us. If these analysts do not continue to provide adequate research coverage or if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
The market price of our common stock could be adversely affected by future sales of our common stock in the public market by us or our executive officers and directors.
We and our executive officers and directors may from time to time sell shares of our common stock in the public market or otherwise. We cannot predict the size or the effect, if any, that future sales of shares of our common stock by us or our executive officers and directors, or the perception of such sales, would have on the market price of our common stock.
We are not currently paying dividends and will likely continue not paying dividends for the foreseeable future.
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our existing revolving credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions and other factors that our board of directors deems relevant. The restriction on and decision not to pay dividends may impact our ability to attract investors and raise funds, if necessary, in the capital markets.
Anti-takeover provisions included in the Wisconsin Business Corporation Law, provisions in our amended and restated articles of incorporation or bylaws and the common share purchase rights that accompany shares of our common stock could delay or prevent a change of control of our company, which could adversely impact the value of our common stock and may prevent or frustrate attempts by our shareholders to replace or remove our current board of directors or management.
A change of control of our company may be discouraged, delayed or prevented by certain provisions of the Wisconsin Business Corporation Law. These provisions generally restrict a broad range of business combinations between a Wisconsin corporation and a shareholder owning 15% or more of our outstanding common stock. These and other provisions in our amended and restated articles of incorporation, including our staggered board of directors and our ability to issue “blank check” preferred stock, as well as the
provisions of our amended and restated bylaws and Wisconsin law, could make it more difficult for shareholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger, tender offer or proxy contest involving our company.
Each currently outstanding share of our common stock includes, and each newly issued share of our common stock will include, a common share purchase right. The rights are attached to, and trade with, the shares of common stock and generally are not exercisable. The rights will become exercisable if a person or group acquires, or announces an intention to acquire, 20% or more of our outstanding common stock. The rights have some anti-takeover effects and generally will cause substantial dilution to a person or group that attempts to acquire control of us without conditioning the offer on either redemption of the rights or amendment of the rights to prevent this dilution. The rights could have the effect of delaying, deferring or preventing a change of control.
In addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of benefits, including accelerated vesting of stock options and restricted stock awards, upon a change of control.control and a subsequent qualifying termination. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby adversely affecting the market price of our common stock. These provisions may also discourage or prevent a change of control or result in a lower price per share paid to our shareholders.
None.
On March 31, 2016, we entered into a purchase and sale agreement ("Agreement") with Tramontina U.S. Cookware, Inc. ("Tramontina")a third party to sell and leaseback our manufacturing and distribution facility for a cash purchase price of approximately $2,600,000.located in Manitowoc, Wisconsin. The transaction closed on June 30, 2016. Pursuant to the Agreement,agreement, a lease was entered into on June 30, 2016, in which we are negotiating a lease with Tramontina under which we will leaseleasing approximately 200,000197,000 square feet of the building for not less than three years, with rent at $2.00 per square foot per annum.years. The lease will containcontains options by
We own our approximately 70,000 square foot technology center and corporate headquarters adjacent to our leased Manitowoc manufacturing and distribution facility, of which we leasesub-lease a portion to a third party. Both facilities are used by all of our segments.parties. We also lease office space in the following locations:
In fiscal 2018, we did not renew the leases for our 5,600 square foot of office space in Houston, Texas and our 3,100 square foot of office space in Chicago, Illinois.
The facilities noted above are utilized by all our business segments.
We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date hereof,of this report, we are unable to currently assess whether the final resolution of any of such claims or legal proceedings may have a material adverse effect on Orion’sour future results of operations. In addition to ordinary-course litigation, we arewere a party to the proceedings described below.
On March 27, 2014, we were named asNovember 10, 2017, a defendant inpurported shareholder, Stephen Narten, filed a civil lawsuit filed by Neal R. Verfuerth, our former chief executive officer who was terminated for cause in November 2012, in the United States DistrictCircuit Court for Manitowoc County against those individuals who served on our board of directors during fiscal years 2015, 2016, and 2017 and certain current and former officers during the Eastern District of Wisconsin (Green Bay Division).same period. The plaintiff, alleges, among other things,who purported to bring the suit derivatively on behalf of us, alleged that wethe director defendants breached their fiduciary duties in connection with granting certain agreements entered into withstock-based incentive awards under our 2004 Stock and Incentive Awards Plan and that the plaintiff, includingdirectors and current and former officers breached their fiduciary duties by accepting those awards. During the plaintiff’s employment agreement, and violated certain laws. The complaint seeks, among other relief, unspecified pecuniary and compensatory damages, fees and such other relief asfirst quarter of fiscal 2019, the court may deem just and proper. On November 4, 2014, the court granted our motion to dismiss six of the plaintiff's claims. On January 9, 2015, the plaintiff filed an amended complaint re-alleging claims that were dismissed by the Court, including, among other things,parties reached a retaliation claim and certain claims with respect to prior management agreements and certain intellectual property rights. On January 22, 2015, we filed a motion to dismiss and a motion to strike certainsettlement of the claims made in the amended complaint. On May 18, 2015, the court dismissed the intellectual property claims re-alleged in the January 9, 2015 amended complaint. At the court's direction, the parties attempted to mediate the matter in May 2016, but were unsuccessful in resolving the matter. We believe that we have substantial legal and factual defenses to the plaintiff's claims and allegations remaining in the case and that we will prevail in this proceeding. We intend to continue to defend against the claims vigorously.
None.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Shares of our Common Stock
| High | Low | ||||||
| Fiscal 2016 | |||||||
| First Quarter | $ | 3.48 | $ | 2.17 | |||
| Second Quarter | $ | 2.59 | $ | 1.73 | |||
| Third Quarter | $ | 2.50 | $ | 1.58 | |||
| Fourth Quarter | $ | 2.25 | $ | 1.18 | |||
| Fiscal 2015 | |||||||
| First Quarter | $ | 2.51 | $ | 2.00 | |||
| Second Quarter | $ | 4.44 | $ | 2.30 | |||
| Third Quarter | $ | 7.22 | $ | 3.50 | |||
| Fourth Quarter | $ | 8.11 | $ | 4.71 | |||
Shareholders
As of June 9, 2016,May 31, 2019, there were approximately 229210 record holders of the 28,059,35129,601,669 outstanding shares of our common stock. The number of record holders does not include shareholders for whom shares are held in a “nominee” or “street” name.
Dividend Policy
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our existing credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions (including those under our loan agreements) and other factors that our board of directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table represents shares outstanding under our 2003 Stock Option Plan, our 2004 Stock and Incentive Awards Incentive Plan, and our 2004 Equity2016 Omnibus Incentive Plan as of March 31, 2016.
| Equity Compensation Plan Information | Equity Compensation Plan Information | Equity Compensation Plan Information |
| |||||||||||||||||||
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares | Weighted Average Exercise Price of Outstanding Options and Restricted Shares | Number of Securities Remaining Available for Future Issuances Under the Equity Compensation Plans (1) |
| Number of Securities to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares |
|
| Weighted Average Exercise Price of Outstanding Options and Restricted Shares |
|
| Number of Securities Remaining Available for Future Issuances Under the Equity Compensation Plans (1) |
| ||||||||||
| Equity Compensation plans approved by security holders | 3,070,435 | $ | 3.32 | 787,686 |
|
| 1,780,429 |
|
| $ | 1.64 |
|
|
| 107,860 |
| ||||||
| Equity Compensation plans not approved by security holders | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||
| Total | 3,070,435 | $ | 3.32 | 787,686 |
|
| 1,780,429 |
|
| $ | 1.64 |
|
|
| 107,860 |
| ||||||
(1) | |
Excludes shares reflected in the column titled “Number of Securities to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares”. |
Issuer Purchase of Equity Securities
We did not purchase shares of our common stock during the fiscal year ended March 31, 2016.
Unregistered Sales of Securities
We did not make any unregistered sales of our common stock during the year ended March 31, 2019 that were not previously disclosed in a Quarterly Report on form 10-Q or a current report on Form 8-K during such period.
The following graph shows the total shareholder return of an investment of $100 in cash on March 31, 2011,2014 through March 31, 2016,2019, for (1) our common stock, (2) the Russell 2000 Index and (3) The NASDAQ Clean Edge Green Energy Index. Data for the Russell 2000 Index and the NASDAQ Clean Edge Green Energy Index assume reinvestment of dividends. The stock price performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.
You should read the following selected consolidated financial data in conjunction with Item 7. “Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations" and our consolidated financial statements and the related notes included in Item 8. "Financial Statements and Supplementary Data" of this report. The selected historical consolidated financial data are not necessarily indicative of future results.
| Fiscal Year Ended March 31, |
| Fiscal Year Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||
| (in thousands, except per share amounts) |
| (in thousands, except per share amounts) |
| ||||||||||||||||||||||||||||||||||||||||
| Consolidated statements of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| Product revenue | $ | 64,897 | $ | 65,881 | $ | 71,954 | $ | 72,604 | $ | 90,782 |
| $ | 56,261 |
| $ | 55,595 |
|
| $ | 66,224 |
| $ | 64,897 |
|
| $ | 65,881 |
| |||||||||||||||
| Service revenue | 2,745 | 6,329 | 16,669 | 13,482 | 9,780 |
|
| 9,493 |
|
|
| 4,705 |
|
|
| 3,987 |
|
|
| 2,745 |
|
|
| 6,329 |
| ||||||||||||||||||
| Total revenue | 67,642 | 72,210 | 88,623 | 86,086 | 100,562 |
|
| 65,754 |
|
|
|
|
| 60,300 |
|
|
| 70,211 |
|
|
|
|
| 67,642 |
|
|
| 72,210 |
| ||||||||||||||
| Cost of product revenue(1)(5) | 49,630 | 68,388 | 54,423 | 49,551 | 62,842 | ||||||||||||||||||||||||||||||||||||||
Cost of product revenue (1)(2) |
|
| 44,111 |
| 41,415 |
|
|
| 49,630 |
| 49,630 |
|
|
| 68,388 |
| |||||||||||||||||||||||||||
| Cost of service revenue | 2,015 | 4,959 | 11,220 | 9,805 | 7,682 |
|
| 7,091 |
|
|
| 4,213 |
|
|
| 3,244 |
|
|
| 2,015 |
|
|
| 4,959 |
| ||||||||||||||||||
| Total cost of revenue | 51,645 | 73,347 | 65,643 | 59,356 | 70,524 |
|
| 51,202 |
|
|
|
|
| 45,628 |
|
|
| 52,874 |
|
|
|
|
| 51,645 |
|
|
| 73,347 |
| ||||||||||||||
| Gross profit (loss) | 15,997 | (1,137 | ) | 22,980 | 26,730 | 30,038 | |||||||||||||||||||||||||||||||||||||
| General and administrative expenses(1)(2)(3) | 16,884 | 14,908 | 14,951 | 13,946 | 11,399 | ||||||||||||||||||||||||||||||||||||||
| Goodwill and long lived asset impairment (6) | 6,023 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Acquisition and integration related expenses (4) | — | 47 | 819 | — | — | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing expenses(1)(2) | 11,343 | 13,290 | 13,527 | 17,129 | 15,599 | ||||||||||||||||||||||||||||||||||||||
| Research and development expenses(1) | 1,668 | 2,554 | 2,026 | 2,259 | 2,518 | ||||||||||||||||||||||||||||||||||||||
| Income (Loss) from operations | (19,921 | ) | (31,936 | ) | (8,343 | ) | (6,604 | ) | 522 | ||||||||||||||||||||||||||||||||||
Gross profit |
|
| 14,552 |
|
|
|
|
| 14,672 |
|
|
| 17,337 |
|
|
|
|
| 15,997 |
|
|
| (1,137 | ) | |||||||||||||||||||
General and administrative expenses (1)(3) |
|
| 10,231 |
| 13,159 |
|
|
| 14,777 |
| 16,884 |
|
|
| 14,908 |
| |||||||||||||||||||||||||||
Impairment of assets (4) |
|
| — |
| 710 |
|
|
| 250 |
| 6,023 |
|
|
| — |
| |||||||||||||||||||||||||||
Acquisition and integration related expenses (5) |
|
| — |
| — |
|
|
| — |
| — |
|
|
| 47 |
| |||||||||||||||||||||||||||
Sales and marketing expenses (1) (5) |
|
| 9,104 |
| 11,879 |
|
|
| 12,833 |
| 11,343 |
|
|
| 13,290 |
| |||||||||||||||||||||||||||
Research and development expenses (1) (6) |
|
| 1,374 |
|
|
| 1,905 |
|
|
| 2,004 |
|
|
| 1,668 |
|
|
| 2,554 |
| |||||||||||||||||||||||
Loss from operations |
|
| (6,157 | ) |
|
|
|
| (12,981 | ) |
|
| (12,527 | ) |
|
|
|
| (19,921 | ) |
|
| (31,936 | ) | |||||||||||||||||||
Other income |
|
| 80 |
| 248 |
|
|
| 215 |
| — |
|
|
| — |
| |||||||||||||||||||||||||||
| Interest expense | (297 | ) | (376 | ) | (481 | ) | (567 | ) | (551 | ) |
|
| (493 | ) |
| (333 | ) |
|
| (163 | ) |
| (297 | ) |
|
| (376 | ) | |||||||||||||||
| Gain on sale of OTA contract receivables | — | — | — | — | 32 | ||||||||||||||||||||||||||||||||||||||
Amortization of debt issue costs |
|
| (101 | ) |
| (92 | ) |
|
| (110 | ) |
| — |
|
|
| — |
| |||||||||||||||||||||||||
| Dividend and interest income | 128 | 300 | 567 | 845 | 850 |
|
| 11 |
| 15 |
|
|
| 36 |
|
|
| 128 |
|
|
| 300 |
| ||||||||||||||||||||
| Income (loss) before income tax | (20,090 | ) | (32,012 | ) | (8,257 | ) | (6,326 | ) | 853 | ||||||||||||||||||||||||||||||||||
| Income tax expense (benefit)(2)(3) | 36 | 49 | (2,058 | ) | 4,073 | 370 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | (20,126 | ) | $ | (32,061 | ) | $ | (6,199 | ) | $ | (10,399 | ) | $ | 483 | |||||||||||||||||||||||||||||
| Net income (loss) per share attributable to common shareholders: | |||||||||||||||||||||||||||||||||||||||||||
Loss before income tax |
|
| (6,660 | ) |
|
|
| (13,143 | ) |
|
| (12,549 | ) |
|
|
|
| (20,090 | ) |
|
| (32,012 | ) | ||||||||||||||||||||
Income tax expense (benefit) |
|
| 14 |
|
|
| (15 | ) |
|
| (261 | ) |
|
| 36 |
|
|
| 49 |
| |||||||||||||||||||||||
Net loss |
| $ | (6,674 | ) |
|
|
| $ | (13,128 | ) |
| $ | (12,288 | ) |
|
|
| $ | (20,126 | ) |
| $ | (32,061 | ) | |||||||||||||||||||
Net loss per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Basic | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | $ | (0.50 | ) | $ | 0.02 |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
| $ | (0.73 | ) |
| $ | (1.43 | ) | |||||||||
| Diluted | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | $ | (0.50 | ) | $ | 0.02 |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
| $ | (0.73 | ) |
| $ | (1.43 | ) | |||||||||
| Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| Basic | 27,628 | 22,353 | 20,988 | 20,997 | 22,953 |
|
| 29,430 |
| 28,784 |
|
|
| 28,156 |
| 27,628 |
|
|
| 22,353 |
| ||||||||||||||||||||||
| Diluted | 27,628 | 22,353 | 20,988 | 20,997 | 23,387 |
|
| 29,430 |
| 28,784 |
|
|
| 28,156 |
| 27,628 |
|
|
| 22,353 |
| ||||||||||||||||||||||
(1) | |
Includes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, as follows: |
| Fiscal Year Ended March 31, |
| Fiscal Year Ended March 31, |
| ||||||||||||||||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||
| (in thousands) |
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||
| Cost of product revenue | $ | 36 | $ | 50 | $ | 70 | $ | 114 | $ | 189 |
| $ | 2 |
|
| $ | 12 |
|
| $ | 30 |
|
| $ | 36 |
|
| $ | 50 |
| |||||||||
Cost of service revenue |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||
| General and administrative expenses | 1,148 | 1,056 | 1,025 | 578 | 548 |
|
| 764 |
|
|
| 929 |
|
|
| 1,337 |
|
|
| 1,148 |
|
|
| 1,056 |
| ||||||||||||||
| Sales and marketing expenses | 235 | 360 | 485 | 451 | 501 |
|
| 54 |
|
|
| 155 |
|
|
| 139 |
|
|
| 235 |
|
|
| 360 |
| ||||||||||||||
| Research and development expenses | 43 | 33 | 13 | 21 | 29 |
|
| 2 |
|
|
| 6 |
|
|
| 99 |
|
|
| 43 |
|
|
| 33 |
| ||||||||||||||
| Total stock-based compensation expense | $ | 1,462 | $ | 1,499 | $ | 1,593 | $ | 1,164 | $ | 1,267 |
| $ | 825 |
|
| $ | 1,102 |
|
| $ | 1,605 |
|
| $ | 1,462 |
|
| $ | 1,499 |
| |||||||||
(3) | Fiscal 2018 includes $1.8 million of restructuring expense and $1.4 million benefit on the reversal of an accrual for a loss contingency. Fiscal 2016 includes a $1.4 million loss contingency accrual. |
(4) | Fiscal 2018 includes an intangible asset impairment of $0.7 million. Fiscal 2017 includes an intangible asset impairment of $0.3 million. Fiscal 2016 includes expenses of |
(5) | Fiscal 2018 includes expenses of $0.2 million related to restructuring. |
(6) | Fiscal 2018 includes expenses of $0.1 million related to restructuring. |
|
| As of March 31, |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Consolidated balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 8,729 |
|
| $ | 9,424 |
|
| $ | 17,307 |
|
| $ | 15,542 |
|
| $ | 20,002 |
|
Total assets |
|
| 56,021 |
|
|
| 45,325 |
|
|
| 62,051 |
|
|
| 70,875 |
|
|
| 87,805 |
|
Long term borrowings |
|
| 9,283 |
|
|
| 4,013 |
|
|
| 6,819 |
|
|
| 4,021 |
|
|
| 3,222 |
|
Shareholder notes receivable |
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (4 | ) |
|
| (4 | ) |
Total shareholders’ equity |
|
| 17,970 |
|
|
| 23,424 |
|
|
| 35,450 |
|
|
| 45,983 |
|
|
| 64,511 |
|
| As of March 31, | |||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Consolidated balance sheet data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 15,542 | $ | 20,002 | $ | 17,568 | $ | 14,376 | $ | 23,011 | |||||||||
| Short-term investments | — | — | 470 | 1,021 | 1,016 | ||||||||||||||
| Total assets | 70,875 | 87,805 | 98,940 | 102,097 | 125,650 | ||||||||||||||
| Long-term debt, less current maturities | 4,021 | 3,222 | 3,151 | 4,109 | 6,704 | ||||||||||||||
| Shareholder notes receivable | (4 | ) | (4 | ) | (50 | ) | (265 | ) | (221 | ) | |||||||||
| Total shareholders’ equity | $ | 45,983 | $ | 64,511 | $ | 77,012 | $ | 77,769 | $ | 92,769 | |||||||||
The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2016.2019. See also “Forward-Looking Statements” and Item 1A “Risk Factors”.
Overview
We are a leading designerprovide state-of-the-art LED lighting, wireless Internet of Things (“IoT”) enabled control solutions, and manufacturer of high-performance, energy-efficient lighting platforms.energy project management. We research, design, develop, design, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior 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. We operate in three operating segments, which we refer to as Orion U.S. Markets Division ("USM"), Orion Engineered Systems Division ("OES") and Orion Distribution Services Division ("ODS"). USM focuses on selling our lighting solutions into the wholesale markets with customers including domestic energy service companies, or ESCOs, and electrical contractors. OES focuses on selling lighting products and construction and engineering services direct to end users. OES completes the construction management services related to existing contracted projects. Its customers include national accounts, governments, municipalities and schools. ODS focuses on selling our lighting products to a developing network of broadline distributors.
Our lighting products consist primarily of LED and HIFlight emitting diode ("LED") lighting fixtures.fixtures, many of which include IoT enabled control systems. Our principal customers include large national accounts, ESCOs,account end-users, electrical contractorsdistributors and electrical distributors.energy service companies ("ESCOs"). Currently, substantially all of our products are manufactured at our leased production facility locationlocated in Manitowoc, Wisconsin, although as the LED market continues to evolve, we are increasingly sourcing products and components from third parties as the LED market continues to evolve and in order to provide us with versatility in our product development.
We have experienced recent success offering our comprehensive project management services to provide some solutions using our legacy HIF technology,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.
We believe the market for LED lighting products is currently in a significant technology shiftcontinues to LED lighting systems. Compared to legacy lighting systems, we believe that LED lighting
We plan to continue to primarily focus on developing and selling innovative LED products, although we will continue to market and sell legacy HIF solutions in circumstances in which LED solutions may not be our customers' best alternative.
We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a “retrofit.”"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 contractors,distributors and ESCOs and electrical distributors to sell to their own customer bases.
The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 15%10% to 50%. As a result, a change in the total mix of our sales towardamong higher or lower margin products couldcan cause our profitability to fluctuate from period to period. Despite recent economic challenges, we remain optimistic about our near-term and long-term financial performance. We believe that customer purchases of LED lighting systems will continue to increase in the near-term as expected improvements in LED performance and expected decreases in LED product costs to make our LED products even more economically compelling to our customers. Our near-term optimism is based upon: (i) our efforts to expand our Distribution Services customer base; (ii) our intentions to continue to selectively expand our sales force; (iii) our investments into new high-performance LED industrial lighting fixtures; (iv) our expected fiscal 2017 increase in revenue and gross margin as we increase sales of these product lines; (v) our recent improvements in gross margin as a result of our cost containment initiatives and development of higher-performance LED products; and (vi) the increasing volume of unit sales of our new products, specifically our LED high bay lighting fixtures. Our long-term optimism is based upon the considerable size of the existing market opportunity for lighting retrofits, including the market opportunities in commercial office, government and retail markets, the continued development of our new products and product enhancements, including our new LED product offerings, and our efforts to expand our channels of distribution and our cost reduction initiatives. As we attempt to adapt our business organization to the quickly evolving lighting market, we are implementing significant changes to our manufacturing operations to increase our flexibility, remain competitive and lower our cost structure. Implementing these initiatives may result in additional cost and expenses, including asset impairment or write-down charges and other repositioning expenses and charges, which would likely materially adversely affect our reported results of operations. Our anticipated increase in revenues in fiscal 2017 may impact our available cash and borrowing capacity as a result of the high capital costs associated with the increase in the sales of our products from existing levels. As a result, we are pursuing various alternative sources of liquidity, including the sale and leaseback of our manufacturing facility, which is expected to be completed by the end of June 2016, subject to various closing conditions.
Our fiscal year ends on March 31. We refer to our prior fiscal years which ended on March 31, 2014 as “fiscal 2014”, and the year ended on March 31, 2015, as “fiscal 2015”, and our currentjust completed fiscal year, which ended on March 31, 2016,2019, as “fiscal 2016.”"fiscal 2019", and our prior fiscal year which ended on March 31, 2018 as "fiscal 2018". 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 Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).
Market Shift to Light Emitting Diode Products
The rapid market shift in the past several years in the lighting industry from legacy lighting products to LED lighting products has caused us to adopt new strategies, approaches and processes in order to respond proactively to this paradigm shift.industry transition. These changing underlying business fundamentals in this paradigm shifttransition include:
Mitigating LED product end user customer pricing and related component costs, improvingpressure.
Improving LED product performance and reducing customer return on investment payback periods all of which are driving increasingresulting in increased customer preferencespreference for LED lighting products compared to legacy HIF lighting products.
Increasing LED lighting product customer sales compared to decreasing HIF product sales.
Developing IoT enabled control solutions.
Replacing earlier generation LED products.
A broader and more diverse customer base and market opportunities compared to our historical commercial and industrial facility customers.
Increased importance of highly innovative product designs and features and faster speed to marketenhanced product research and development capabilities.capabilities requiring rapid new product introduction and new methods of product and company differentiation.
Significantly reduced product technology life cycles;cycles, significantly shorter product inventory shelf lives and the related increased risk of rapidly occurring product technology obsolescence.
Increased reliance on international component sources.
Less internal product fabrication and production capabilities needed to support LED product assembly.
Different and broader types of components, fabrication and assembly processes needed to support LED product assembly compared to our legacy products.
Expanding customer bases and sales channels.
Significantly longer end user product warranty requirements for LED products compared to our legacy products.
As we continue to focus our primary business on selling our LED product lines to respond to the rapidly changing market dynamics in the lighting industry, we face intense competition from an increased number of other LED product companies, a number of which have substantially greater resources and more experience and history with LED lighting products than we do.
Major Developments in Fiscal 2016 Developments
During fiscal 2019, we signed a series of contracts to retrofit multiple locations for a major national account customer with our state-of-the-art LED lighting systems and wireless IoT enabled control solutions at locations nationwide. We currently expect total revenue from the fourth quartercustomer to be approximately $110 million, dependent on purchase orders, the majority of which we expect to be recognized during fiscal 2014,2020.
Our ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively execute on the following key strategic initiatives:
Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities. These turnkey services were the principal reason we have experiencedobtained our $110 million revenue commitment to retrofit multiple locations for a reductionmajor national account customer. Our success in the amountnational account market segment centers on our turnkey design, engineering, manufacturing and project
management capabilities, which represent a very clear competitive advantage for us among large enterprises seeking to benefit from the illumination benefits and energy savings of LED lighting across locations nationwide. Few LED lighting providers are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations. Incrementally, we are also able to help customers deploy state-of-the-art control systems that provide even greater long-term value from their lighting system investments.
Looking forward, we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing new national account opportunities that leverage our customized, comprehensive turnkey project solutions, and expanding our addressable market with high-quality, basic lighting systems to meet the needs of value-oriented customer segments served by our other market channels. Given our unique value proposition, capabilities and focus on customer service, we are optimistic about our business prospects and working to build sales momentum with existing and new customers.
Support success of our ESCO and agent-driven distribution sales channels. We continue to focus on building our relationships and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels.
Continued Product Innovation. We continue to innovate, developing lighting fixtures and features that address specific customer orders forrequirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits. We also continue to deepen our energy-efficient HIFcapabilities in the integration of smart lighting systems withincontrols. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities.
Leveraging of Orion’s Smart Lighting Systems to Support Internet of Things Applications. We believe we are ideally positioned to help customers to efficiently deploy new IoT controls and applications by leveraging the “Smart Ceiling” capabilities of their Orion solid state lighting system. IoT capabilities can include the management and tracking of facilities, personnel, resources and customer behavior, driving both sales and lowering costs. As a result, these added capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner.
Tariffs and Trade Policies. The United States government has been implementing various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our industrialproducts have been impacted by the recently imposed tariffs on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and exterior markets. We attribute thisraising prices. If we are unable to an increasing awareness withinsuccessfully mitigate the marketplaceimpacts of emerging LED product offerings.these tariffs and other trade policies, our results of operations may be adversely affected. We believe that customers continuethese mitigation activities will assist to defer purchase decisions as they evaluate the costoffset added costs, and performance of these LED product offerings. During the fiscal 2015 third quarter, deferrals of purchasing decisions began to abate as customer purchases of LED lighting systems during our fiscal 2015 back half increased compared to our fiscal 2014 back half. This trend continued during fiscal 2016 as our LED lighting revenue increased by 49% compared to fiscal 2015.
The following table sets forth the line items of our 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 (in thousands, except percentages and per share amounts)percentages):
|
| Fiscal Year Ended March 31, |
| |||||||||||||||||
| 2019 |
|
| 2018 |
|
|
|
|
|
| 2019 |
|
| 2018 |
| |||||
|
| Amount |
|
| Amount |
|
| % Change |
|
| % of Revenue |
|
| % of Revenue |
| |||||
Product revenue |
| $ | 56,261 |
|
| $ | 55,595 |
|
|
| 1.2 | % |
|
| 85.6 | % |
|
| 92.2 | % |
Service revenue |
|
| 9,493 |
|
|
| 4,705 |
|
|
| 101.8 | % |
|
| 14.4 | % |
|
| 7.8 | % |
Total revenue |
|
| 65,754 |
|
|
| 60,300 |
|
|
| 9.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 44,111 |
|
|
| 41,415 |
|
|
| 6.5 | % |
|
| 67.1 | % |
|
| 68.7 | % |
Cost of service revenue |
|
| 7,091 |
|
|
| 4,213 |
|
|
| 68.3 | % |
|
| 10.8 | % |
|
| 7.0 | % |
Total cost of revenue |
|
| 51,202 |
|
|
| 45,628 |
|
|
| 12.2 | % |
|
| 77.9 | % |
|
| 75.7 | % |
Gross profit |
|
| 14,552 |
|
|
| 14,672 |
|
|
| (0.8 | )% |
|
| 22.1 | % |
|
| 24.3 | % |
General and administrative expenses |
|
| 10,231 |
|
|
| 13,159 |
|
|
| (22.3 | )% |
|
| 15.6 | % |
|
| 21.8 | % |
Impairment of intangible assets |
|
| — |
|
|
| 710 |
|
| NM |
|
|
| 0.0 | % |
|
| 1.2 | % | |
Sales and marketing expenses |
|
| 9,104 |
|
|
| 11,879 |
|
|
| (23.4 | )% |
|
| 13.8 | % |
|
| 19.7 | % |
Research and development expenses |
|
| 1,374 |
|
|
| 1,905 |
|
|
| (27.9 | )% |
|
| 2.1 | % |
|
| 3.1 | % |
Loss from operations |
|
| (6,157 | ) |
|
| (12,981 | ) |
|
| (52.6 | )% |
|
| (9.4 | )% |
|
| (21.5 | )% |
Other income |
|
| 80 |
|
|
| 248 |
|
|
| (67.7 | )% |
|
| 0.1 | % |
|
| 0.4 | % |
Interest expense |
|
| (493 | ) |
|
| (333 | ) |
|
| 48.0 | % |
|
| (0.7 | )% |
|
| (0.6 | )% |
Amortization of debt issue costs |
|
| (101 | ) |
|
| (92 | ) |
|
| 9.8 | % |
|
| (0.2 | )% |
|
| (0.2 | )% |
Interest income |
|
| 11 |
|
|
| 15 |
|
|
| (26.7 | )% |
|
| 0.0 | % |
|
| — | % |
Loss before income tax |
|
| (6,660 | ) |
|
| (13,143 | ) |
|
| 49.3 | % |
|
| (10.0 | )% |
|
| (21.7 | )% |
Income tax expense (benefit) |
|
| 14 |
|
|
| (15 | ) |
| NM |
|
|
| 0.1 | % |
|
| — | % | |
Net loss and comprehensive loss |
| $ | (6,674 | ) |
| $ | (13,128 | ) |
|
| 49.2 | % |
|
| (10.1 | )% |
|
| (21.7 | )% |
* | NM = Not Meaningful |
| Fiscal Year Ended March 31, | ||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
| Product revenue | $ | 64,897 | $ | 65,881 | (1.5 | )% | 95.9 | % | 91.2 | % | ||||||
| Service revenue | 2,745 | 6,329 | (56.6 | )% | 4.1 | % | 8.8 | % | ||||||||
| Total revenue | 67,642 | 72,210 | (6.3 | )% | 100.0 | % | 100.0 | % | ||||||||
| Cost of product revenue | 49,630 | 68,388 | (27.4 | )% | 73.4 | % | 94.7 | % | ||||||||
| Cost of service revenue | 2,015 | 4,959 | (59.4 | )% | 3.0 | % | 6.9 | % | ||||||||
| Total cost of revenue | 51,645 | 73,347 | (29.6 | )% | 76.4 | % | 101.6 | % | ||||||||
| Gross profit (loss) | 15,997 | (1,137 | ) | NM | 23.6 | % | (1.6 | )% | ||||||||
| General and administrative expenses | 16,884 | 14,908 | 13.3 | % | 25.0 | % | 20.6 | % | ||||||||
| Goodwill and long lived asset impairment | 6,023 | — | NM | 8.9 | % | — | % | |||||||||
| Acquisition and integration related expenses | — | 47 | (100.0 | )% | — | % | 0.1 | % | ||||||||
| Sales and marketing expenses | 11,343 | 13,290 | (14.7 | )% | 16.8 | % | 18.4 | % | ||||||||
| Research and development expenses | 1,668 | 2,554 | (34.7 | )% | 2.5 | % | 3.5 | % | ||||||||
| Loss from operations | (19,921 | ) | (31,936 | ) | 37.6 | % | (29.5 | )% | (44.2 | )% | ||||||
| Interest expense | (297 | ) | (376 | ) | 21.0 | % | (0.4 | )% | (0.5 | )% | ||||||
| Interest income | 128 | 300 | (57.3 | )% | 0.2 | % | 0.4 | % | ||||||||
| Loss before income tax | (20,090 | ) | (32,012 | ) | 37.2 | % | (29.7 | )% | (44.3 | )% | ||||||
| Income tax expense | 36 | 49 | (26.5 | )% | 0.1 | % | 0.1 | % | ||||||||
| Net loss and comprehensive loss | $ | (20,126 | ) | $ | (32,061 | ) | 37.2 | % | (29.8 | )% | (44.4 | )% | ||||
Revenue.
Product revenueCost of Revenue and Gross Margin.
Operating Expenses
General and Administrative.
Impairment of assets. No impairment charge was recorded in the fourth quarterfiscal 2019. During fiscal 2018, we performed a review of 2016.
Sales and Marketing.
Our sales and marketing expenses decreasedResearch and Development.
Other income. Other income in fiscal 2019 and fiscal 2018 represented product royalties received from licensing agreements for our new products as we continue to increase our cost effectiveness related to launching new products and decrease our reliance on higher-cost third parties.patents.
Interest Expense.
Amortization of debt issue costs. Amortization of debt issue costs in borrowings onfiscal 2019 increased 9.8%, or $9 thousand from fiscal 2018. The increase is due to the execution of our new revolving credit facility.
Interest Income.
Income Taxes. Income tax expense in fiscal 2019 increased immaterially from 2015. Our interest income decreased as we continue to increase the utilization of third party finance providers for a majority of our financed projects.
The following table sets forth the line items of our 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 (in thousands, except percentages and per share amounts)percentages):
|
| Fiscal Year Ended March 31, |
| |||||||||||||||||
|
| 2018 |
|
| 2017 |
|
|
|
|
|
| 2018 |
|
| 2017 |
| ||||
|
| Amount |
|
| Amount |
|
| % Change |
|
| % of Revenue |
|
| % of Revenue |
| |||||
Product revenue |
| $ | 55,595 |
|
| $ | 66,224 |
|
|
| (16.1 | )% |
|
| 92.2 | % |
|
| 94.3 | % |
Service revenue |
|
| 4,705 |
|
|
| 3,987 |
|
|
| 18.0 | % |
|
| 7.8 | % |
|
| 5.7 | % |
Total revenue |
|
| 60,300 |
|
|
| 70,211 |
|
|
| (14.1 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 41,415 |
|
|
| 49,630 |
|
|
| (16.6 | )% |
|
| 68.7 | % |
|
| 70.7 | % |
Cost of service revenue |
|
| 4,213 |
|
|
| 3,244 |
|
|
| 29.9 | % |
|
| 7.0 | % |
|
| 4.6 | % |
Total cost of revenue |
|
| 45,628 |
|
|
| 52,874 |
|
|
| (13.7 | )% |
|
| 75.7 | % |
|
| 75.3 | % |
Gross profit |
|
| 14,672 |
|
|
| 17,337 |
|
|
| (15.4 | )% |
|
| 24.3 | % |
|
| 24.7 | % |
General and administrative expenses |
|
| 13,159 |
|
|
| 14,777 |
|
|
| (10.9 | )% |
|
| 21.8 | % |
|
| 21.0 | % |
Impairment of assets |
|
| 710 |
|
|
| 250 |
|
| NM |
|
|
| 1.2 | % |
|
| 0.3 | % | |
Sales and marketing expenses |
|
| 11,879 |
|
|
| 12,833 |
|
|
| (7.4 | )% |
|
| 19.7 | % |
|
| 18.3 | % |
Research and development expenses |
|
| 1,905 |
|
|
| 2,004 |
|
|
| (4.9 | )% |
|
| 3.1 | % |
|
| 2.9 | % |
Loss from operations |
|
| (12,981 | ) |
|
| (12,527 | ) |
|
| (3.6 | )% |
|
| (21.5 | )% |
|
| (17.8 | )% |
Other income |
|
| 248 |
|
|
| 215 |
|
|
| 15.3 | % |
|
| 0.4 | % |
|
| 0.3 | % |
Interest expense |
|
| (333 | ) |
|
| (163 | ) |
|
| 104.3 | % |
|
| (0.6 | )% |
|
| (0.2 | )% |
Amortization of debt issue costs |
|
| (92 | ) |
|
| (110 | ) |
|
| (16.4 | )% |
|
| (0.1 | )% |
|
| (0.1 | )% |
Interest income |
|
| 15 |
|
|
| 36 |
|
|
| (58.3 | )% |
|
| — | % |
|
| — | % |
Loss before income tax |
|
| (13,143 | ) |
|
| (12,549 | ) |
|
| (4.7 | )% |
|
| (21.8 | )% |
|
| (17.9 | )% |
Income tax benefit |
|
| (15 | ) |
|
| (261 | ) |
| NM |
|
|
| — | % |
|
| (0.4 | )% | |
Net loss and comprehensive loss |
| $ | (13,128 | ) |
| $ | (12,288 | ) |
|
| (6.8 | )% |
|
| (21.8 | )% |
|
| (17.5 | )% |
| Fiscal Year Ended March 31, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
| Product revenue | $ | 65,881 | $ | 71,954 | (8.4 | )% | 91.2 | % | 81.2 | % | ||||||
| Service revenue | 6,329 | 16,669 | (62.0 | )% | 8.8 | % | 18.8 | % | ||||||||
| Total revenue | 72,210 | 88,623 | (18.5 | )% | 100.0 | % | 100.0 | % | ||||||||
| Cost of product revenue | 68,388 | 54,423 | 25.7 | % | 94.7 | % | 61.4 | % | ||||||||
| Cost of service revenue | 4,959 | 11,220 | (55.8 | )% | 6.9 | % | 12.7 | % | ||||||||
| Total cost of revenue | 73,347 | 65,643 | 11.7 | % | 101.6 | % | 74.1 | % | ||||||||
| Gross profit (loss) | (1,137 | ) | 22,980 | (104.9 | )% | (1.6 | )% | 25.9 | % | |||||||
| General and administrative expenses | 14,908 | 14,951 | (0.3 | )% | 20.6 | % | 16.9 | % | ||||||||
| Acquisition and integration related expenses | 47 | 819 | (94.3 | )% | 0.1 | % | 0.9 | % | ||||||||
| Sales and marketing expenses | 13,290 | 13,527 | (1.8 | )% | 18.4 | % | 15.3 | % | ||||||||
| Research and development expenses | 2,554 | 2,026 | 26.1 | % | 3.5 | % | 2.2 | % | ||||||||
| Loss from operations | (31,936 | ) | (8,343 | ) | (282.8 | )% | (44.2 | )% | (9.4 | )% | ||||||
| Interest expense | (376 | ) | (481 | ) | 21.8 | % | (0.5 | )% | (0.4 | )% | ||||||
| Interest income | 300 | 567 | (47.1 | )% | 0.4 | % | 0.6 | % | ||||||||
| Loss before income tax | (32,012 | ) | (8,257 | ) | (287.7 | )% | (44.3 | )% | (9.2 | )% | ||||||
| Income tax expense (benefit) | 49 | (2,058 | ) | 102.4 | % | 0.1 | % | (2.2 | )% | |||||||
| Net loss and comprehensive loss | $ | (32,061 | ) | $ | (6,199 | ) | (417.2 | )% | (44.4 | )% | (7.0 | )% | ||||
Revenue.
Product revenue decreasedCost of Revenue and Gross Margin.
Cost of product revenueOperating Expenses
General and Administrative. General and administrative expenses decreased 10.9%, or $1.6 million, in fiscal 2018 compared to fiscal 2017, primarily due to decreases in employee costs of $1.6 million due to headcount reductions, the release of a loss contingency reserve for $1.4 million, and a decrease in amortization of $0.3 due to a lower intangible balance, partially offset by employee separation costs of $1.8 million. The decrease in employee costs of $1.6 million included the reduction of stock-based compensation expense of $0.4 million. Excluding the employee separation costs and the loss contingency release, general and administrative expenses decreased $2.0 million, or 13.8%.
Impairment of assets. During fiscal 2014 to (1.6)%2018 and fiscal 2017, we performed a review of our definite and indefinite-lived tangible and intangible assets for fiscal 2015. Duringimpairment. In conjunction with this review, we determined that the fiscal 2015 second quarter,carrying value of our Harris trade name intangible asset exceeded its fair value. As a result, we recorded an impairment charge of $12,130,000 related to our long-term wireless control inventory$0.7 million and the related development and intangible costs. Our wireless controls inventory was considered to be impaired based upon current market conditions, including a significant decline during the fiscal year in wireless controls unit volume sales, an increase in product sales in the commercial office and retail market, where the controls product offering is not saleable, limitations in alternative uses for the inventory and the increasing adoption of, and performance improvements in, LED lighting products. Total gross margin excluding the impairment charge decreased from 25.9% for fiscal 2014 to 15.2% for fiscal 2015. Gross margin from our HIF and LED integrated systems revenue for fiscal 2014 was 26.0% compared to 15.0% in 2015, excluding the aforementioned wireless control impairment, for fiscal 2015. The decrease in our lighting gross margin percentage was impacted by (i) product warranty charges; (ii) the increase in the relative sales volume of our lower margin LED products; (iii) higher than anticipated input material costs; and (iv) the decrease in sales volumes of manufactured lighting products and the related under absorption of the fixed expenses associated with our underutilized manufacturing facility. Cost of service revenue decreased$0.3 million, respectively in fiscal 2015 by 55.8% or $6,261,000. Our gross margin on solar PV revenues was 25.6% during2018 and fiscal 2014 compared to 25.3% during fiscal 2015.2017.
Sales and Marketing.
Our sales and marketing expenses decreasedResearch and Development.
Other income. Other income in fiscal 2018 and fiscal 2017 represented product royalties received from licensing agreements for our patents.
Interest Expense. Interest expense in fiscal 2018 increased by 55.7%, or $0.1 million, from fiscal 2014 to fiscal 2015 by 26.1%, or $528,000.2017. The increase was due to spending for samples, testing and certification of our new LED products as we expanded our LED product lines during fiscal 2015.
Amortization of debt for our Orion Throughput Agreement (“OTA”) projectsissue costs. Amortization of debt issue costs in fiscal 2015 compared2018 decreased 16.4%, or $9 thousand from fiscal 2017. The decrease is due to the prior year.revolving credit facility.
Interest Income.
Income Taxes.
| For the year ended March 31, | |||||||||||
| (dollars in thousands) | 2016 | 2015 | 2014 | ||||||||
| Revenues | $ | 38,841 | $ | 37,778 | $ | 38,766 | |||||
| Operating loss | $ | (4,958 | ) | $ | (12,542 | ) | $ | (1,012 | ) | ||
| Operating margin | (12.8 | )% | (33.2 | )% | (2.6 | )% | |||||
Orion Engineered Systems Division
The OES segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. OES also provides turnkey solutions for large national accounts, governments, municipalities and schools.
The following table summarizes our OES segment operating results:
|
| Fiscal year ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Revenues |
| $ | 30,925 |
|
| $ | 23,827 |
|
| $ | 29,501 |
|
Operating loss |
| $ | (1,237 | ) |
| $ | (3,792 | ) |
| $ | (3,647 | ) |
Operating margin |
|
| (4.0 | )% |
|
| (15.9 | )% |
|
| (12.4 | )% |
| For the year ended March 31, | |||||||||||
| (dollars in thousands) | 2016 | 2015 | 2014 | ||||||||
| Revenues | $ | 26,325 | $ | 33,454 | $ | 49,857 | |||||
| Operating income (loss) | $ | (6,982 | ) | $ | (12,431 | ) | $ | 1,260 | |||
| Operating margin | (26.5 | )% | (37.2 | )% | 2.5 | % | |||||
Fiscal 20162019 Compared to Fiscal 20152018
OES revenue increased in fiscal 2019 by 29.8%, or $7.1 million, compared to fiscal 2018 primarily as a result of the increase in volume of turnkey projects, specifically to one large national account customer, which will continue in fiscal 2020.
OES segment operating loss in fiscal 2019 was $1.2 million, an improvement of $2.6 million from fiscal 2018. The improvement in the segment’s operating loss was the result of increased sales, the benefit of lower corporate allocated costs due to the impact of cost reduction initiatives, and a non-recurring asset impairment charge of $0.5 million in fiscal 2018.
OES revenue decreased in fiscal 20162018 by 21.3%19.2%, or $7,129,000,$5.7 million, compared to fiscal 2015. This decrease in revenue was2017 primarily due to customer contractionas a result of capital spending within the manufacturingtiming of delivery of our turnkey projects and industrial sector.
OES segment operating loss decreased 43.8%, or $5,449,000,in fiscal 2018 increased by $0.1 million from fiscal 2015 compared to fiscal 2016.2017. The decrease insegment's operating loss was due to: (i) the segment's long-term inventory controls impairment chargeresult of $5,544,000 incurred during fiscal 2015; (ii) improvements to our fiscal 2016 gross margin related to cost decreases on LED components; and (iii) a decrease in operating expenses for compensation and discretionary expenses resulting from our fourth quarter fiscal 2015 cost containment initiative, partially offset by the segment's fiscal 2016 goodwill impairment charge of $2,038,000 and fiscal 2016 fixed asset impairment charge of $804,000.
Orion Distribution Services Division
The ODS segment focuses on selling lighting products tothrough manufacturer representative agencies and a developing network of broadline North American broadline distributors.
The following table summarizes our ODS segment operating results:results (dollars in thousands):
|
| Fiscal year ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Revenues |
| $ | 24,173 |
|
| $ | 27,906 |
|
| $ | 22,858 |
|
Operating loss |
| $ | (1,742 | ) |
| $ | (325 | ) |
| $ | (927 | ) |
Operating margin |
|
| (7.2 | )% |
|
| (1.2 | )% |
|
| (4.1 | )% |
| For the year ended March 31, | ||||||||
| (dollars in thousands) | 2016 | 2015 | 2014 | |||||
| Revenues | 2,476 | 978 | — | |||||
| Operating loss | (632 | ) | (455 | ) | — | |||
| Operating margin | (25.5 | )% | (46.5 | )% | — | % | ||
Fiscal 20162019 Compared to Fiscal 2015
ODS segment revenue decreased in fiscal 2019 by 13.4%, or $3.7 million, compared to fiscal 2018, primarily due to a decrease in sales volume through our distribution channel.
ODS segment operating loss in fiscal 2019 was $1.7 million, an increase of $1.4 million from fiscal 2018. The increase in segment operating loss was primarily due to decreased sales.
Fiscal 2018 Compared to Fiscal 2017
ODS segment revenue increased in fiscal 20162018 from fiscal 20152017 by 153%, or $1,498,000.$5.0 million. The increase in revenue in fiscal 2016 was primarily due to our transition to a distribution channel sales model migrating direct sales through our manufacturer representative agents. In addition, ODS revenue grew as a result of our expanding manufacturer representative agencies and the relatively low base linecontinued ramp up of revenue following the April 2014 start-up of this business unit and to variability in the timing of customer orders as this business unit develops.
ODS segment operating loss decreased by $0.6 million in fiscal 2018 compared to fiscal 2017, primarily due to a decrease in selling expenses.
Orion U.S. Markets Division
The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers are primarily comprised of ESCOs.
The following table summarizes our USM segment operating results (dollars in thousands):
|
| Fiscal year ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Revenues |
| $ | 10,656 |
|
| $ | 8,567 |
|
| $ | 17,852 |
|
Operating income (loss) |
| $ | 1,132 |
|
| $ | (3,123 | ) |
| $ | (1,357 | ) |
Operating margin |
|
| 10.6 | % |
|
| (36.5 | )% |
|
| (7.6 | )% |
Fiscal 2019 Compared to Fiscal 2018
USM segment revenue increased in fiscal 2019 by 38.9%24.3%, or $177,000,$2.1 million, compared to fiscal 2018, primarily due to an increase in sales volume as a result of our reengagement in the sales channel.
ODS segment operating income in fiscal 2016. The2019 was $1.1 million, an improvement of $4.3 million over the operating loss in fiscal 2018. The improvement was primarily due to the increased contribution margin dollars earned from our increasing revenue offset by our continued investment in sellingbetter operating leverage on lower allocated corporate costs, to grow this start-up business andas well as a fiscal 2016 fixednon-recurring asset impairment charge of $121,000.
Fiscal 20152018 Compared to Fiscal 2014
USM segment revenue was $978,000decreased from fiscal 2017 by 52.0%, or $9.3 million. The decrease in revenue during fiscal 2018 compared to fiscal 2017 included the continued transition to our distribution sales model through the migration of sales to our ODS segment. Sales made through independent manufacturer representative agents are reflected within our ODS segment. The decrease also reflects a $1.3 million decline in sales to select large direct customers.
The USM segment’s operating loss increased $1.8 million in fiscal 20152018 as compared to zero infiscal 2017. The segment’s operating loss was the prior year as a result of organizational changes and the creation of the new distribution markets into which our Distribution Services division sellssignificant decline in fiscal 2015.
Liquidity and Capital Resources
Overview
We had approximately $15,542,000$8.7 million in cash and cash equivalents as of March 31, 2016,2019, compared to $20,002,000$9.4 million at March 31, 2015. 2018. Our cash position decreased primarily as a result of our net loss and the timing of working capital changes, offset by net proceeds of $5.3 million from our revolving credit facility.
On October 26, 2018, we entered into a new secured revolving Business Financing Agreement with Western Alliance Bank, as lender (the “New Credit Agreement”). The New Credit Agreement replaced our existing Credit Agreement.
On June 3, 2019, we amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included in the borrowing base and provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions. The amendment provides for additional availability under the New Credit Agreement; the impact of which, as of March 31, 2019, would have been to increase availability by $4.0 million, bringing unused borrowing capacity to $5.4 million.
Additional information on our New Credit Agreement can be found in the “Indebtedness” section located below.
Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, 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. Based on our current expectations, we believe we have adequate availability to service our increasing working capital costs with regards to recently signed contracts, including with a large national account customer.
While we anticipate realizing improved operating results in the future, we also currently believe that we may experience negative working capital cash flows during some interim periods.
While we believe that we will likely have adequate available cash and equivalents and credit availability under our New Credit Agreement to satisfy our currently anticipated working capital and liquidity requirements during the next 12 months based on our current cash flow forecast, there can be no assurance to that effect. We are pursuing various alternative sources of liquidity, including exploring a sale or mortgage of our tech center office building, to help ensure that we will have the best allocation of investing capital to satisfy our working capital needs. We have also amended our New Credit Agreement to expand our borrowing base and provide more available liquidity including increasing our borrowing availability by approximately $4 million. We are also implementing certain inventory management practices that we anticipate will help to reduce our inventory levels and enhance our cash position. If we experience significant liquidity constraints, we may be required to reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash.
In February 2015, we completed an underwritten public offering of 5.46 million shares of our common stock, at an offering price to the public of $3.50 per share. Net proceeds of the offering approximated $17,465,000.
Cash Flows
The following table summarizes our cash flows for our fiscal 2016,2019, fiscal 20152018 and fiscal 2014:
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in thousands) |
| |||||||||
Operating activities |
| $ | (5,058 | ) |
| $ | (4,415 | ) |
| $ | (1,903 | ) |
Investing activities |
|
| (449 | ) |
|
| (585 | ) |
|
| 1,649 |
|
Financing activities |
|
| 4,812 |
|
|
| (2,883 | ) |
|
| 2,019 |
|
(Decrease) increase in cash and cash equivalents |
| $ | (695 | ) |
| $ | (7,883 | ) |
| $ | 1,765 |
|
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| (in thousands) | |||||||||||
| Operating activities | $ | (3,473 | ) | $ | (12,812 | ) | $ | 9,901 | |||
| Investing activities | (372 | ) | (730 | ) | (4,814 | ) | |||||
| Financing activities | (615 | ) | 15,976 | (1,895 | ) | ||||||
| (Decrease) increase in cash and cash equivalents | $ | (4,460 | ) | $ | 2,434 | $ | 3,192 | ||||
Cash Flows Related to Operating Activities.
Cash used in operating activities primarily consisted of a net loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expenses,Cash used in operating activities for fiscal 20162019 was $3,473,000$5.1 million and consisted of a net loss adjusted for non-cash expense items of $4.1 million and net cash used in changes in operating assets and liabilities of $1.0 million. Cash used by changes in operating assets and liabilities consisted of an increase of $5.8 million in Accounts receivable due to the timing of billing and customer collections on comparatively higher fourth quarter sales, an increase in Inventory of $4.7 million due to higher backlog for anticipated first quarter fiscal 2020 sales, and an increase of $1.4 million in Revenue earned but not billed due to timing on revenue recognition compared to invoicing. Cash provided by changes in operating assets and liabilities included an increase of $8.9 million in Accounts payable based on timing of payments and an increase of $2.0 million in Accrued expenses and other primarily due to increased accrued project costs on higher installation volume.
Cash used in operating activities for fiscal 2018 was $4.4 million and consisted of a net loss adjusted for non-cash expense items of $8.0 million and net cash provided by changes in operating assets and liabilities of $3.6 million. Cash used by changes in operating assets and liabilities consisted of a decrease of $1.7 million in Accrued expenses and other primarily due to the timing of payment of commissions and lower accrued bonuses in the current fiscal year, a decrease of $0.1 million in Deferred revenue, current and long term due to the timing of project completion and a decrease of $0.1 million in Deferred contract costs due to the timing of project completions. Cash provided by changes in operating assets and liabilities included a decrease of $0.4 million in Accounts receivable due to the decline in sales and the timing of customer collections, a decrease in Inventory of $4.7 million as a result of increased focus on inventory management in consideration of the lower sales volume, a decrease of $0.5 million in Prepaid and other current assets primarily due to the timing of project billings, and a negligible decrease in accounts payable.
Cash used in operating activities for fiscal 2017 was $1.9 million and consisted of net cash provided by changes in operating assets and liabilities of $3,621,000$3.7 million and a net loss adjusted for non-cash expense items of $7,094,000.$5.6 million. Cash provided by changes in operating assets and liabilities consisted of a decrease of $7,116,000$1.7 million in accountsAccounts receivable due to the increase in lighting revenue andtiming of collections from customers, a decrease in Inventory of $1.2 million due to decreasing inventory prices, a decrease in Prepaid expenses and other current assets of $2.1 million due to project billings that decreased unbilled revenue and an increase in accounts payableDeferred revenue, current and long-term of $713,000 due to the increase in inventory purchases to support our growth in lighting product revenue during fiscal 2016, an increase of $1,803,000 in accrued expenses due to a loss contingency reserve and accrued project installation costs, and a decrease in deferred contract costs of $137,000 due to the completion of solar projects.$0.3 million. Cash used by changes in operating assets and liabilities included an increase in Deferred contract costs of $3,249,000$0.9 million due to projects still in inventoryprocess, a decrease in Accounts payable of $0.1 million due to the increase in purchases to support our anticipated growth in lighting product revenue, an increase in prepaid and other assets of $2,645,000 for project billings that increased unbilled revenue, and a decrease in deferred revenue of $254,000 due to project completions.
Cash Flows Related to Investing Activities.
Cash used in investing activities wasCash used in investing activities was $0.6 million in fiscal 2018 and consisted of $401,000 for capital improvements related to LED production. purchases of property and equipment of $0.5 million and investment in patents and licenses of $0.1 million.
Cash provided by investing activities was $1.6 million in fiscal 2015 included $35,000 related to the sale2017 and consisted of property, plant, and equipment.
Cash Flows Related to Financing Activities.
Cash provided by financing activities was $4.8 million for fiscal 2019. This cash provided consisted primarily of net proceeds of $5.3 million from our revolving credit facility, offset by $0.4 million in debt issue costs due to the new revolving credit facility and $0.1 million of payment of long-term debt.Cash used in financing activities was $615,000$2.9 million for fiscal 2016.2018 and was due almost entirely to the net repayment of our revolving credit facility.
Cash provided by financing activities was $2.0 million for fiscal 2017. This included $1,901,000net proceeds from the revolving credit facility of $2.9 million, offset by $0.9 million in cash used for the repayment of long-term debt partially offset by $1,218,000 of net proceeds from our Credit Facility and $104,000 received from$11,000 for stock option exercises.
Working Capital
Our net working capital as of March 31, 20162019 was $29,239,000,$14.0 million, consisting of $48,530,000$41.4 million in current assets and $19,291,000$27.3 million in current liabilities. Our net working capital as of March 31, 20152018 was $36,726,000,$13.0 million, consisting of $55,045,000$29.4 million in current assets and $18,319,000$16.4 in current liabilities. Our current accountsAccounts receivable, net balance decreasedincreased by $7,374,000$6.1 million from the fiscal 20152018 year-end due to strengthened emphasisthe timing of billing and customer collections on collection efforts in the back half of fiscal 2016.comparatively higher fourth quarter sales. Our current inventoryRevenue earned but not billed balance increased by $3.7 million from the fiscal 20152018 year-end; the change included $2.4 million of reclassifications recorded April 1, 2018 in conjunction with the adoption of ASC 606. Our Inventories, net increased $5.6 million from the fiscal 2018 year-end by $2,741,000 due to increases in LED component inventorieshigher backlog as of March 31, 2019 on anticipated fiscal 2020 sales to support the increase in LED product orders.a large national account customer. Our prepaidPrepaid expenses and other current assets increased by $2,631,000decreased $1.8 million from the fiscal 2018 year-end primarily due to an increasethe reclassification of Revenue earned but not billed of $1.9 million to its own balance sheet line item in unbilled revenue for completed projects.conjunction with the adoption of ASC 606. Our accountsDeferred contract costs
decreased $1.0 million from the fiscal 2018 year-end due to the adoption of ASC 606 and reclassification of these costs to either equity or inventory as part of the transition adjustment on April 1, 2018. Deferred contract costs is not used subsequent to the adoption of ASC 606. Our Accounts payable increased $8.0 million due to the timing of purchases during the quarter, offset by $713,000 on the increasereclassifications of $0.9 million as of April 1, 2018 in inventory, increased sourced products and improvements in negotiated vendor payment terms as we transition our supply chain to an increasing numberconjunction with the adoption of new LED vendors.ASC 606. Our accruedAccrued expenses increased $3.2 million from our fiscal 20152018 year-end by $1,389,000 due to a loss contingency reserve recordedincreased accrued project costs on higher installation volume, and as well as reclassifications of $1.3 million as of April 1, 2018 in conjunction with the fourth quarteradoption of fiscal 2016.
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. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.
Indebtedness
Revolving Credit Agreement
On February 6, 2015,October 26, 2018, we entered into athe New Credit Agreement, with Wells Fargo Bank, National Association. which replaced our existing Credit Agreement.
The New Credit Agreement provides for a two-year revolving credit facility (the “New Credit FacilityFacility”) that matures on February 6, 2018.October 26, 2020. Borrowings under the New Credit Facility are initially limited to $15,000,000$20.15 million subject to a borrowing base requirement based on eligible receivables and inventory. Such limit may increase to $20,000,000 subject to the borrowing base requirement, after July 31, 2016, if we satisfy certain conditions. The New Credit FacilityAgreement includes a $2,000,000$2.0 million sublimit for the issuance of letters of credit.
The Credit Agreement also contains other customary covenants, including certain restrictions on our ability to incur additional indebtedness,
Borrowings under the New Credit Agreement generally bear interest at floating rates based upon the daily three-month LIBORprime rate (but not be less than 5.00% per year) plus 3.0% per annum,an applicable margin determined by reference to our quick ratio (defined as the aggregate amount of unrestricted cash, unrestricted marketable securities and, with a minimum interest charge for each year or portion of a year duringcertain adjustments, receivables convertible into cash divided by the term oftotal current liabilities, including the obligations under the New Credit Agreement of $130,000 regardless of usage.Agreement). As of March 31, 2016,2019, the interest rate was 3.63%6.0%. We mustAmong other fees, we are required to pay an unused lineannual facility fee of 0.25% per annumequal to 0.45% of the daily average unused amountcredit limit under the New Credit Agreement due on October 26, 2018 and on each anniversary thereof. With certain exceptions, if the New Credit Agreement is terminated prior to the first anniversary of the closing date of the New Credit Facility andAgreement, we are required to pay a lettertermination fee equal to 0.50% of the credit fee at the rate of 3.0% per annum on the undrawn amount of letters of credit outstanding from time to timelimit under the New Credit Facility.
The New Credit Agreement requires us to maintain nine months’ of March 31, 2016, we had no outstanding letters“RML” as of credit. Borrowingsthe end of each month. For purposes of the New Credit Agreement, RML is defined as, as of the applicable determination date, unrestricted cash on deposit with Western Alliance Bank plus availability under the New Credit Agreement divided by an amount equal to, for the applicable trailing three-month period, consolidated net profit before tax, plus depreciation expense, amortization expense and stock-based compensation, minus capital lease principal payments, tested as of the end of each month.
The New Credit Agreement also contains customary events of default and other covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem, retire or purchase shares of our stock, make investments or pledge or transfer assets. If an event of default under the New Credit Agreement occurs and is continuing, then Western Alliance Bank may cease making advances under the New Credit Agreement and declare any outstanding obligations under the New Credit Agreement to be immediately due and payable. In addition, we become the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the New Credit Agreement will automatically become immediately due and payable.
On June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the New Credit Agreement. The First Amendment amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included in the borrowing base and to provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions. The amendment provides for additional availability under the New
Credit Agreement; the impact of which, as of March 31, 2016, amounted2019, would have been to approximately $3,719,000. We estimate that,increase availability by $4.0 million, bringing unused borrowing capacity to $5.4 million.
The foregoing is a summary of the First Amendment and is qualified in its entirety by reference to the full text of the First Amendment, a copy of which is filed herewith as of March 31, 2016, we were only eligible to borrow an additional $229,000 under the Credit Facility based upon the then current levels of eligible inventoryExhibit 10.2 and accounts receivable. We were in compliance with our covenants in the Credit Agreement as of March 31, 2016.
Capital Spending
Over the past three fiscal years, we have made capital expenditures primarily for production equipment and tooling, for information technology systems, and for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems.center. Our capital expenditures totaled $401,000$0.5 million in fiscal 2016, $2,006,0002019 and fiscal 2018 and $0.7 million in fiscal 2015, and $410,000 in fiscal 2014.2017. We plan to incur approximately $1,000,000$0.6 million in capital expenditures in fiscal 2017.2020. Our capital spending plans predominantly consist of investments related to new product development tooling and investments in information technology systems. We expect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases, to the extent needed, long-term debt financing, or by using our available capacity under ourNew Credit Facility.
Contractual Obligations
Information regarding our known contractual obligations of the types described below as of March 31, 20162019 is set forth in the following table:
|
| Payments Due By Period |
| |||||||||||||||||
|
| Total |
|
| Less than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More than 5 Years |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Bank debt obligations |
| $ | 9,202 |
|
| $ | — |
|
| $ | 9,202 |
|
| $ | — |
|
| $ | — |
|
Other debt obligations |
|
| 177 |
|
|
| 96 |
|
|
| 51 |
|
|
| 30 |
|
|
| — |
|
Cash interest payments on debt |
|
| 18 |
|
|
| 9 |
|
|
| 7 |
|
|
| 2 |
|
|
| — |
|
Operating lease obligations |
|
| 829 |
|
|
| 506 |
|
|
| 323 |
|
|
| — |
|
|
| — |
|
Purchase order and capital expenditure commitments (1) |
|
| 13,592 |
|
|
| 13,592 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 23,818 |
|
| $ | 14,203 |
|
| $ | 9,583 |
|
| $ | 32 |
|
| $ | — |
|
| Payments Due By Period | |||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Bank debt obligations | $ | 4,282 | $ | 563 | $ | 3,719 | $ | — | $ | — | |||||||||
| Other debt obligations | 140 | 119 | 16 | 5 | |||||||||||||||
| Capital lease obligations | 345 | 64 | 91 | 190 | |||||||||||||||
| Cash interest payments on debt | 316 | 157 | 159 | — | — | ||||||||||||||
| Operating lease obligations | 1,647 | 512 | 1,037 | 98 | — | ||||||||||||||
| Purchase order and capital expenditure commitments(1) | 2,189 | 2,189 | — | — | — | ||||||||||||||
| Total | $ | 8,919 | $ | 3,604 | $ | 5,022 | $ | 293 | $ | — | |||||||||
(1) | |
Reflects non-cancellable purchase commitments primarily for certain inventory items entered into in order to secure better pricing and ensure materials on hand. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
Our results from operations have not been, and we do not expect them to be, materially affected 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
Revenue Recognition. We generate revenue primarily by selling commercial lighting fixtures and components and by installing these fixtures in our customer’s facilities. We recognize revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) when control of the following criteria have been met:goods or services being provided (which we refer to as a performance obligation) is transferred to a customer at an amount that reflects the consideration we expect to receive in exchange for those goods or services. Prices are generally fixed at the time of order confirmation. The amount of expected consideration includes estimated deductions and early payment discounts calculated based on historical experience, customer rebates based on agreed upon terms applied to actual and projected sales levels over the rebate period, and any amounts paid to customers in conjunction with fulfilling a performance obligation.
If there is persuasive evidence of an arrangement; delivery has occurred and title has passed toare multiple performance obligations in a single contract, the customer; thecontract’s total sales price is fixed and determinable and no further obligation exists; and collectability is reasonably assured. Virtually all of our revenue is recognized when products are shipped to a customer or when services are completed and acceptance provisions, if any, have been met. In certain of our contracts, we provide multiple deliverables. We record the revenue associated with each element of these arrangements by allocating the total contract revenueallocated to each elementindividual performance obligation based on their relative standalone selling prices. Inprice. A performance obligation’s standalone selling price is the price at which we would sell such circumstances, wepromised good or service separately to a customer. We use a hierarchyan observable price to determine the selling price to be used for allocating revenue to deliverables: (1) vendor-specific objective evidence, or “VSOE” of selling price, if available, (2) third-party evidence, or “TPE” of selling price if VSOE is not available, and (3) best estimate of the selling price if neither VSOE nor TPE is available. We determine thestand-alone selling price for our lighting and energy management system products, installation and recycling services and for solar renewable product and services using management’s best estimate ofseparate performance obligations or a cost-plus margin approach when one is not available. The cost-plus margin approach is used to determine the stand-alone selling price for the installation performance obligation and is based on average historical installation margin.
Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components is classified as VSOEProduct revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or TPE evidence does not exist. We consider externalupon delivery to the customer’s facility. This point in time is determined separately for each contract and internalrequires judgment by management of the contract terms and the specific facts and circumstances concerning the transaction.
Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which we refer to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.
Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management believes the customer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately for each customer contract based upon the terms of the contract and the nature and extent of our control of the light fixtures during the installation. Product revenue associated with turnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to shipment or delivery and upon customer payments for the light fixtures, (c) when an individual light fixture is installed and working correctly, or (d) when the customer acknowledges that the entire installation project is substantially complete. Determining the point in time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and is applied separately for each individual light fixture included in a contract. In making this judgment, management considers the timing of various factors, including, but not limited to, pricing practices, margin objectives, competition, geographiesthose detailed below:
when there is a legal transfer of ownership;
when the customer obtains physical possession of the products;
when the customer starts to receive the benefit of the products;
the amount and duration of physical control that we maintain on the products after they are shipped to, and received at, the customer’s facility;
whether we are required to maintain insurance on the lighting fixtures when they are in whichtransit and after they are delivered to the customer’s facility;
when each light fixture is physically installed and working correctly;
when the customer formally accepts the product; and
when we offer our products and services, internal costs, andreceive payment from the scope and size of projects. Our Power Purchase Agreement (“PPA”) contracts are supply side agreementscustomer for the generationlight fixtures.
Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue is recorded over-time as we fulfill our obligation to install the light fixtures. We measure our performance toward fulfilling our performance obligations for installations using an output method that calculates the number of electricity for which we recognize revenue on a monthly basis over the lifelight fixtures completely installed as of the PPA contract, typicallymeasurement date in excesscomparison to the total number of 10 years. For sales oflight fixtures to be installed under the contract.
Most products are manufactured in accordance with our solar PV systems,standard specifications. However, some products are manufactured to a customer’s specific requirements with no alternative use to us. In such cases, and when we recognizehave an enforceable right to payment, Product revenue is recorded on an over-time basis measured using an input methodology that calculates the percentage-of-completion method by measuring project progress by the percentage of costs incurred to date of theas compared to total estimated costs for each contract as materials are installed. Revenue from sales of our solar PV systems is generallyexpected costs. There was no over-time revenue related to custom products recognized overin fiscal year 2019.
We offer a period of three to 15 months. Additionally, we offer our OTA sales-type financing program, under which we finance thecalled an Orion Throughput Agreement, or OTA, for a customer’s purchaselease of our energy management systems. OurThe OTA contracts areis structured as a sales-type capital leases under GAAPlease and we recordupon successful installation of the system and customer acknowledgment that the system is operating as specified, revenue is recognized at our net investment in the lease, which typically is the net present value of the future payments atcash flows.
We also record revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs are supply-side agreements for the time customer acceptancegeneration of the installed and operating system is complete.electricity. Our OTA contracts under this sales-type financing are either structuredlast PPA expires in 2031. Revenue associated with a fixed term, typically 60 months, and a bargain purchase option at the end of term, or are one year in duration and, at the completion of the initial one-year term, provide for (i) one to four automatic one-year renewals at agreed upon pricing; (ii) an early buyout for cash; or (iii) the return of the equipment at the customer’s expense. The revenue that we are entitled to receive from the sale of our lighting fixturesenergy generated by the solar facilities under our OTA financing programthese PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to the amount billed to the customer, which is calculated by applying the fixed rate designated in the PPAs to the variable amount of electricity generated each month. This approach is in accordance with the “right to invoice” practical expedient provided for in ASC 606. We also recognize revenue upon the sale to third parties of tax credits received from operating the solar facilities and is based onfrom amortizing a grant received from the costfederal government during the period starting when the power generating facilities were constructed until the expiration of the lighting fixturesPPAs; these revenues are not derived from contracts with customers and applicable profit margin. Our revenue from agreements entered intotherefore not under this program is not dependent upon our customers’ actual energy savings. Upon completionthe scope of the installation, we may choose to sell the future cash flows and residual rights to the equipment on a non-recourse basis to an unrelated third party finance company in exchange for cash and future payments.
Inventories.
Inventories are stated at the lower of cost orAllowance for Doubtful Accounts.
We perform ongoing evaluations of our customers and continuously monitor collections and payments and estimate an allowance for doubtful accounts based upon the aging of the underlying receivables, our historical experience with write-offs and specific customer collection issues that we have identified. While such credit losses have historically been within our expectations, and we believe appropriate reserves have been established, we may not adequately predict future credit losses. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances might be required which would result in additional general and administrative expense in the period such determination is made. Our allowance for doubtful accounts wasRecoverability of Long-Lived Assets.
We evaluate long-lived assets such as property, equipment and definite lived intangible assets, such as patents, customer relationships, developed technology, and non-competition agreements, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable. Factors that we consider include whether there has been a significant decrease in the market value of an asset, a significant change in the way an asset is being utilized, or a significant change, delay or departure in our strategy for that asset, such as the loss of a customer in the case of customer relationships. Our assessment of the recoverability of long-lived assets involves significant judgment and estimation. These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, forecasted revenue, margin costs and the economic life of the asset. If impairment is indicated, we first determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.During the second quarter of fiscal 2015,2019, we recorded an impairment losslisted our corporate office building in Manitowoc, Wisconsin for sale or lease to increase liquidity through the divestiture of $1,030,000 relateda non-core asset. Because of the uncertainty of a sale of our building, management concluded that the sale is not probable within the next twelve months, therefore the building continues to development and licensing costsbe classified as held for our wireless controls inventory.
Our impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows, anddetermining asset fair values, includingand estimating asset’s useful lives of the assets.lives. To make these judgments, we may use internal discounted cash flow estimates, quoted market prices, when available, and independent appraisals, as appropriate, to determine fair value.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be required to recognize additionalfuture impairment losses which could be material to our results of operations.
Indefinite Lived Intangible Assets. We test goodwillindefinite lived intangible assets for impairment at least annually as ofon the first day of theour fiscal fourth quarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators throughout the fiscal year. We conduct impairment testing for goodwill at the reporting unit level. Reporting units, as defined by Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other, may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. For fiscal 2016 and fiscal 2015, our reporting units consisted of our segments: USM and OES. The ODS segment had no goodwill.
We performed a quantitative test on indefinite lived intangible assets related to our Harris tradename and determined that its fair value exceeded its carrying value and was not impaired. This test was performedqualitative assessment in conjunction with our annual impairment test of goodwill after determiningour indefinite lived intangible assets as of January 1, 2019. This qualitative assessment considered our operating results for the goodwillfirst nine months of fiscal 2019 in comparison to prior years as well as its anticipated fourth quarter results and fiscal 2019 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was impaired.
Stock-Based Compensation.
WeAccounting for Income Taxes.
As part of the process of preparing our consolidated financial statements, we are required to determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expenses, together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in our statements of operations.Our judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. For fiscal 2014,2019, 2018, and 2017 we reversed $2,315,000 of our valuation reserve to offset deferred tax liabilities created by the acquisition of Harris. For fiscal 2015 and fiscal 2016, we increased ourhave recorded a full valuation allowance against our net
federal and our net state deferred tax assets due to our cumulative three yearthree-year taxable losses. In making these determinations, we considered all available positive and negative evidence, including projected future taxable income, tax planning strategies, recent financial performance and ownership changes.
We believe that past issuances and transfers of our stock caused an ownership change in fiscal 2007 that affected the timing of the use of our net operating loss carryforwards,carry-forwards, but we do not believe the ownership change affects the use of the full amount of the net operating loss carryforwards.carry-forwards. As a result, our ability to use our net operating loss carryforwardscarry-forwards attributable to the period prior to such ownership change to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for us.
As of March 31, 2016,2019, we had net operating loss carryforwardscarry-forwards of approximately $55,807,000$88.1 million for federal tax purposes and $42,181,000$74.1 million for state tax purposes. Included in theseAs of the prior fiscal year, this amount is representative of the entire loss carryforwards were $3,586,000 for federal and $3,941,000 for state tax expenses that were associated withcarryforward on the exercise of non-qualified stock options. The benefit from our net operating losses created from these compensation expenses has not yet been recognized in our financial statements and will be accounted for in our shareholders’ equity as a credit to additional paid-in-capital as the deduction reduces our income taxes payable. We first recognize tax benefits from current period stock option expenses against current period income. The remaining current period income is offset by net operating losses under the tax law ordering approach. Under this approach, we will utilize the net operating losses from stock option expenses last.
We also had federal tax credit carryforwardscarry-forwards of $1,475,000$1.3 million and state tax credit carryforwardscarry-forwards of $769,000,$0.8 million, which are fully reserved for as part of our valuation allowance. BothOf these tax attributes, $7.1 million of the federal and state net operating lossesloss carry-forwards are not subject to time restrictions on use but may only be used to offset 80% of future adjusted taxable income. The $155.1 federal and state net operating loss and tax credit carryforwardscarry-forwards will begin to expire in varying amounts between 2020 and 2036. 2039.
We recognize penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest were immaterial as of the date of adoption and are included in unrecognized tax benefits. Due to the existence of net operating loss and credit carryforwards, all years since 2002 are open to examination by tax authorities.
By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under Financial Accounting Standards Board (FASB)("FASB") Accounting Standards Codification (ASC)("ASC") 740,
The Tax Cut and Jobs Act ("Act") was enacted on December 22, 2017. The Act significantly changes U.S. tax law by, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%, imposing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creating new taxes on certain foreign sourced earnings. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address accounting for income tax effects of the Tax Reform Act. As of December 31, 2018, Orion did not adjust its estimates and considers all changes due to the Act final.
Recent Accounting Pronouncements
See Note 2 —Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.
Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity pricing that may adversely impact our consolidated financial position, results of operations or cash flows.
Inflation.
Our results from operations have not historically been, and we do not expect them to be, materially affected by inflation.Foreign Exchange Risk.
We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign currency losses for all reporting periods have been nominal.Interest Rate Risk.
Our investments consist primarily of investments in money market funds. While the instruments we hold are subject to changes in the financial standing of the issuer of such securities, we do not believe that we are subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. It is our policy not to enter into interest rate derivative financial instruments. As a result, we do not currently have any significant interest rate exposure.As of March 31, 2016, $3,719,0002019, $9.1 million of our $4,767,000$9.2 million of outstanding debt was at floating interest rates. An increase of 1.0% in the prime rate would result in an increase in our interest expense of approximately $37,200 per year.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number | |
48 | |
50 | |
51 | |
52 | |
53 | |
54 |
Shareholders and Board of Directors and Stockholders
Orion Energy Systems, Inc.
Manitowoc, Wisconsin
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Orion Energy Systems, Inc. (the “Company”) as of March 31, 20162019 and 2015 and2018, the related consolidated statements of operations, and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2016. In connection with our audits of2019, and the related notes (collectively referred to as the “consolidated financial statements, we have also audited the financial statement schedule II, Valuation and Qualifying Accounts for each of the three years in the period ended March 31, 2016. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), Orion Energy Systems, Inc.’sthe Company's internal control over financial reporting as of March 31, 2016,2019, based on criteria established in
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/BDO USA, LLP
We have served as the Company's auditor since 2012.
Milwaukee, Wisconsin
June 23, 2016
Shareholders and Board of Directors and Stockholders
Orion Energy Systems, Inc.
Manitowoc, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited Orion Energy Systems, Inc.’s (the “Company’s”) internal control over financial reporting as of March 31, 2016,2019, based on criteria established in
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of March 31, 2019 and 2018, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2019, and the related notes and our report dated June 4, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “ItemItem 9A, Management’s Report on Internal Control Overover Financial Reporting”.Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/BDO USA, LLP
Milwaukee, Wisconsin
June 4, 2019
(in thousands, except share amounts)
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 8,729 |
|
| $ | 9,424 |
|
Accounts receivable, net |
|
| 14,804 |
|
|
| 8,736 |
|
Revenue earned but not billed |
|
| 3,746 |
|
|
| — |
|
Inventories, net |
|
| 13,403 |
|
|
| 7,826 |
|
Deferred contract costs |
|
| — |
|
|
| 1,000 |
|
Prepaid expenses and other current assets |
|
| 695 |
|
|
| 2,467 |
|
Total current assets |
|
| 41,377 |
|
|
| 29,453 |
|
Property and equipment, net |
|
| 12,010 |
|
|
| 12,894 |
|
Other intangible assets, net |
|
| 2,469 |
|
|
| 2,868 |
|
Other long-term assets |
|
| 165 |
|
|
| 110 |
|
Total assets |
| $ | 56,021 |
|
| $ | 45,325 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 19,706 |
|
| $ | 11,675 |
|
Accrued expenses and other |
|
| 7,410 |
|
|
| 4,171 |
|
Deferred revenue, current |
|
| 123 |
|
|
| 499 |
|
Current maturities of long-term debt |
|
| 96 |
|
|
| 79 |
|
Total current liabilities |
|
| 27,335 |
|
|
| 16,424 |
|
Revolving credit facility |
|
| 9,202 |
|
|
| 3,908 |
|
Long-term debt, less current maturities |
|
| 81 |
|
|
| 105 |
|
Deferred revenue, long-term |
|
| 791 |
|
|
| 940 |
|
Other long-term liabilities |
|
| 642 |
|
|
| 524 |
|
Total liabilities |
|
| 38,051 |
|
|
| 21,901 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2019 and 2018; no shares issued and outstanding at March 31, 2019 and 2018 |
|
| — |
|
|
| — |
|
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2019 and 2018; shares issued: 39,037,969 and 38,384,575 at March 31, 2019 and 2018; shares outstanding: 29,600,158 and 28,953,183 at March 31, 2019 and 2018 |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 155,828 |
|
|
| 155,003 |
|
Treasury stock: 9,437,811 and 9,431,392 common shares at March 31, 2019 and 2018 |
|
| (36,091 | ) |
|
| (36,085 | ) |
Retained deficit |
|
| (101,767 | ) |
|
| (95,494 | ) |
Total shareholders’ equity |
|
| 17,970 |
|
|
| 23,424 |
|
Total liabilities and shareholders’ equity |
| $ | 56,021 |
|
| $ | 45,325 |
|
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Product revenue |
| $ | 56,261 |
|
| $ | 55,595 |
|
| $ | 66,224 |
|
Service revenue |
|
| 9,493 |
|
|
| 4,705 |
|
|
| 3,987 |
|
Total revenue |
|
| 65,754 |
|
|
| 60,300 |
|
|
| 70,211 |
|
Cost of product revenue |
|
| 44,111 |
|
|
| 41,415 |
|
|
| 49,630 |
|
Cost of service revenue |
|
| 7,091 |
|
|
| 4,213 |
|
|
| 3,244 |
|
Total cost of revenue |
|
| 51,202 |
|
|
| 45,628 |
|
|
| 52,874 |
|
Gross profit |
|
| 14,552 |
|
|
| 14,672 |
|
|
| 17,337 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 10,231 |
|
|
| 13,159 |
|
|
| 14,777 |
|
Impairment of intangible assets |
|
| — |
|
|
| 710 |
|
|
| 250 |
|
Sales and marketing |
|
| 9,104 |
|
|
| 11,879 |
|
|
| 12,833 |
|
Research and development |
|
| 1,374 |
|
|
| 1,905 |
|
|
| 2,004 |
|
Total operating expenses |
|
| 20,709 |
|
|
| 27,653 |
|
|
| 29,864 |
|
Loss from operations |
|
| (6,157 | ) |
|
| (12,981 | ) |
|
| (12,527 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 80 |
|
|
| 248 |
|
|
| 215 |
|
Interest expense |
|
| (493 | ) |
|
| (333 | ) |
|
| (163 | ) |
Amortization of debt issue costs |
|
| (101 | ) |
|
| (92 | ) |
|
| (110 | ) |
Interest income |
|
| 11 |
|
|
| 15 |
|
|
| 36 |
|
Total other expense |
|
| (503 | ) |
|
| (162 | ) |
|
| (22 | ) |
Loss before income tax |
|
| (6,660 | ) |
|
| (13,143 | ) |
|
| (12,549 | ) |
Income tax expense (benefit) |
|
| 14 |
|
|
| (15 | ) |
|
| (261 | ) |
Net loss |
| $ | (6,674 | ) |
| $ | (13,128 | ) |
| $ | (12,288 | ) |
Basic net loss per share attributable to common shareholders |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
Weighted-average common shares outstanding |
|
| 29,429,540 |
|
|
| 28,783,830 |
|
|
| 28,156,382 |
|
Diluted net loss per share |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
Weighted-average common shares and share equivalents outstanding |
|
| 29,429,540 |
|
|
| 28,783,830 |
|
|
| 28,156,382 |
|
| March 31, | |||||||
| 2016 | 2015 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 15,542 | $ | 20,002 | |||
| Accounts receivable, net | 10,889 | 18,263 | |||||
| Inventories, net | 17,024 | 14,283 | |||||
| Deferred contract costs | 37 | 90 | |||||
| Prepaid expenses and other current assets | 5,038 | 2,407 | |||||
| Total current assets | 48,530 | 55,045 | |||||
| Property and equipment, net | 17,004 | 21,223 | |||||
| Goodwill | — | 4,409 | |||||
| Other intangible assets, net | 5,048 | 6,335 | |||||
| Long-term accounts receivable | 108 | 426 | |||||
| Other long-term assets | 185 | 367 | |||||
| Total assets | $ | 70,875 | $ | 87,805 | |||
| Liabilities and Shareholders’ Equity | |||||||
| Accounts payable | $ | 11,716 | $ | 11,003 | |||
| Accrued expenses and other | 6,586 | 5,197 | |||||
| Deferred revenue, current | 243 | 287 | |||||
| Current maturities of long-term debt | 746 | 1,832 | |||||
| Total current liabilities | 19,291 | 18,319 | |||||
| Revolving credit facility | 3,719 | 2,500 | |||||
| Long-term debt, less current maturities | 302 | 722 | |||||
| Deferred revenue, long-term | 1,022 | 1,231 | |||||
| Other long-term liabilities | 558 | 522 | |||||
| Total liabilities | 24,892 | 23,294 | |||||
| Commitments and contingencies | |||||||
| Shareholders’ equity: | |||||||
| Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2016 and 2015; no shares issued and outstanding at March 31, 2016 and 2015 | — | — | |||||
| Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2016 and 2015; shares issued: 37,192,559 and 36,837,864 at March 31, 2016 and 2015; shares outstanding: 27,767,138 and 27,421,533 at March 31, 2016 and 2015 | — | — | |||||
| Additional paid-in capital | 152,140 | 150,516 | |||||
| Treasury stock: 9,425,421 and 9,416,331 common shares at March 31, 2016 and 2015 | (36,075 | ) | (36,049 | ) | |||
| Shareholder notes receivable | (4 | ) | (4 | ) | |||
| Retained deficit | (70,078 | ) | (49,952 | ) | |||
| Total shareholders’ equity | 45,983 | 64,511 | |||||
| Total liabilities and shareholders’ equity | $ | 70,875 | $ | 87,805 | |||
(in thousands, except share and per share amounts)
|
| Shareholders’ Equity |
| |||||||||||||||||||||
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Shares |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Shareholder Notes Receivable |
|
| Retained Earnings (Deficit) |
|
| Total Shareholders’ Equity |
| ||||||
Balance, March 31, 2016 |
|
| 27,767,138 |
|
| $ | 152,140 |
|
| $ | (36,075 | ) |
| $ | (4 | ) |
| $ | (70,078 | ) |
| $ | 45,983 |
|
Issuance of stock for services |
|
| 110,566 |
|
|
| 156 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 5,156 |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
Stock-based compensation |
|
| 444,102 |
|
|
| 1,605 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,605 |
|
Employee tax withholdings on stock-based compensation |
|
| (9,472 | ) |
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| — |
|
|
| (14 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,288 | ) |
|
| (12,288 | ) |
Balance, March 31, 2017 |
|
| 28,317,490 |
|
|
| 153,901 |
|
|
| (36,081 | ) |
|
| (4 | ) |
|
| (82,366 | ) |
|
| 35,450 |
|
Issuance of stock for services |
|
| 24,747 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued under Employee Stock Purchase Plan |
|
| 10,057 |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Stock-based compensation |
|
| 612,601 |
|
|
| 1,102 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102 |
|
Employee tax withholdings on stock-based compensation |
|
| (10,482 | ) |
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| (11 | ) |
Collections on stockholder notes |
|
| (1,230 | ) |
|
|
|
|
|
| (4 | ) |
|
| 4 |
|
|
|
|
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,128 | ) |
|
| (13,128 | ) |
Balance, March 31, 2018 |
|
| 28,953,183 |
|
|
| 155,003 |
|
|
| (36,085 | ) |
|
| — |
|
|
| (95,494 | ) |
|
| 23,424 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 4,642 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Stock-based compensation |
|
| 653,394 |
|
|
| 825 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 825 |
|
Collections on stockholder notes |
|
| (11,061 | ) |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Cumulative effect of accounting change due to adoption of ASC 606 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 401 |
|
|
| 401 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,674 | ) |
|
| (6,674 | ) |
Balance, March 31, 2019 |
|
| 29,600,158 |
|
|
| 155,828 |
|
|
| (36,091 | ) |
|
| — |
|
|
| (101,767 | ) |
|
| 17,970 |
|
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Product revenue | $ | 64,897 | $ | 65,881 | $ | 71,954 | |||||
| Service revenue | 2,745 | 6,329 | 16,669 | ||||||||
| Total revenue | 67,642 | 72,210 | 88,623 | ||||||||
| Cost of product revenue | 49,630 | 68,388 | 54,423 | ||||||||
| Cost of service revenue | 2,015 | 4,959 | 11,220 | ||||||||
| Total cost of revenue | 51,645 | 73,347 | 65,643 | ||||||||
| Gross profit (loss) | 15,997 | (1,137 | ) | 22,980 | |||||||
| Operating expenses: | |||||||||||
| General and administrative | 16,884 | 14,908 | 14,951 | ||||||||
| Goodwill and long lived asset impairment | 6,023 | — | — | ||||||||
| Acquisition and integration related expenses | — | 47 | 819 | ||||||||
| Sales and marketing | 11,343 | 13,290 | 13,527 | ||||||||
| Research and development | 1,668 | 2,554 | 2,026 | ||||||||
| Total operating expenses | 35,918 | 30,799 | 31,323 | ||||||||
| Loss from operations | (19,921 | ) | (31,936 | ) | (8,343 | ) | |||||
| Other income (expense): | |||||||||||
| Interest expense | (297 | ) | (376 | ) | (481 | ) | |||||
| Interest income | 128 | 300 | 567 | ||||||||
| Total other income (expense) | (169 | ) | (76 | ) | 86 | ||||||
| Loss before income tax | (20,090 | ) | (32,012 | ) | (8,257 | ) | |||||
| Income tax expense (benefit) | 36 | 49 | (2,058 | ) | |||||||
| Net loss and comprehensive loss | $ | (20,126 | ) | $ | (32,061 | ) | $ | (6,199 | ) | ||
| Basic net loss per share attributable to common shareholders | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | ||
| Weighted-average common shares outstanding | 27,627,693 | 22,353,419 | 20,987,964 | ||||||||
| Diluted net loss per share | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | ||
| Weighted-average common shares and share equivalents outstanding | 27,627,693 | 22,353,419 | 20,987,964 | ||||||||
(in thousands, except share amounts)
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (6,674 | ) |
| $ | (13,128 | ) |
| $ | (12,288 | ) |
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 1,339 |
|
|
| 1,404 |
|
|
| 1,451 |
|
Amortization of intangible assets |
|
| 444 |
|
|
| 607 |
|
|
| 881 |
|
Stock-based compensation |
|
| 825 |
|
|
| 1,102 |
|
|
| 1,605 |
|
Amortization of debt issue costs |
|
| 101 |
|
|
| 92 |
|
|
| 110 |
|
Impairment of intangible assets |
|
| — |
|
|
| 710 |
|
|
| 250 |
|
Provision for inventory reserves |
|
| (202 | ) |
|
| 1,261 |
|
|
| 2,212 |
|
Provision for bad debts |
|
| 56 |
|
|
| 22 |
|
|
| 132 |
|
Other |
|
| 57 |
|
|
| (94 | ) |
|
| 178 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (5,840 | ) |
|
| 419 |
|
|
| 1,687 |
|
Revenue earned but not billed |
|
| (1,390 | ) |
|
| — |
|
|
| — |
|
Inventories |
|
| (4,689 | ) |
|
| 4,706 |
|
|
| 1,220 |
|
Deferred contract costs |
|
| — |
|
|
| (65 | ) |
|
| (899 | ) |
Prepaid expenses and other current assets |
|
| 68 |
|
|
| 391 |
|
|
| 1,974 |
|
Accounts payable |
|
| 8,916 |
|
|
| 20 |
|
|
| (81 | ) |
Accrued expenses and other |
|
| 1,975 |
|
|
| (1,736 | ) |
|
| (635 | ) |
Deferred revenue, current and long-term |
|
| (44 | ) |
|
| (126 | ) |
|
| 300 |
|
Net cash used in operating activities |
|
| (5,058 | ) |
|
| (4,415 | ) |
|
| (1,903 | ) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (381 | ) |
|
| (512 | ) |
|
| (660 | ) |
Additions to patents and licenses |
|
| (68 | ) |
|
| (73 | ) |
|
| (291 | ) |
Proceeds from sales of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| 2,600 |
|
Net cash (used in) provided by investing activities |
|
| (449 | ) |
|
| (585 | ) |
|
| 1,649 |
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
| (80 | ) |
|
| (158 | ) |
|
| (880 | ) |
Proceeds from revolving credit facility |
|
| 60,270 |
|
|
| 68,734 |
|
|
| 87,935 |
|
Payment of revolving credit facility |
|
| (54,976 | ) |
|
| (71,456 | ) |
|
| (85,025 | ) |
Payments to settle employee tax withholdings on stock-based compensation |
|
| (10 | ) |
|
| (9 | ) |
|
| (19 | ) |
Debt issue costs |
|
| (396 | ) |
|
| — |
|
|
| — |
|
Net proceeds from employee equity exercises |
|
| 4 |
|
|
| 6 |
|
|
| 8 |
|
Net cash provided by (used in) financing activities |
|
| 4,812 |
|
|
| (2,883 | ) |
|
| 2,019 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (695 | ) |
|
| (7,883 | ) |
|
| 1,765 |
|
Cash and cash equivalents at beginning of period |
|
| 9,424 |
|
|
| 17,307 |
|
|
| 15,542 |
|
Cash and cash equivalents at end of period |
| $ | 8,729 |
|
| $ | 9,424 |
|
| $ | 17,307 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | (176 | ) |
| $ | (147 | ) |
| $ | (164 | ) |
Cash received for income taxes |
| $ | 12 |
|
| $ | 17 |
|
| $ | 153 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment by issuing a debt |
| $ | 74 |
|
| $ | — |
|
| $ | 175 |
|
| Shareholders’ Equity | ||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||
| Shares | Additional Paid-in Capital | Treasury Stock | Shareholder Notes Receivable | Retained Earnings (Deficit) | Total Shareholders’ Equity | |||||||||||||||||
| Balance, March 31, 2013 | 20,162,397 | $ | 128,104 | $ | (38,378 | ) | $ | (265 | ) | $ | (11,692 | ) | $ | 77,769 | ||||||||
| Issuance of stock and warrants for services | 33,641 | 129 | — | — | — | 129 | ||||||||||||||||
| Stock activity for acquisition | 940,940 | — | 2,382 | — | — | 2,382 | ||||||||||||||||
| Exercise of stock options and warrants for cash | 446,059 | 1,152 | — | — | — | 1,152 | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan | 2,373 | (4 | ) | 10 | — | — | 6 | |||||||||||||||
| Tax benefit from exercise of stock options | — | 13 | — | — | — | 13 | ||||||||||||||||
| Collection of shareholder notes receivable | — | — | — | 215 | — | 215 | ||||||||||||||||
| Stock-based compensation | 23,084 | 1,593 | — | — | — | 1,593 | ||||||||||||||||
| Treasury stock purchase | (20,168 | ) | — | (48 | ) | — | — | (48 | ) | |||||||||||||
| Net loss | — | — | — | — | (6,199 | ) | (6,199 | ) | ||||||||||||||
| Balance, March 31, 2014 | 21,588,326 | $ | 130,987 | $ | (36,034 | ) | $ | (50 | ) | $ | (17,891 | ) | $ | 77,012 | ||||||||
| Issuance of common stock for cash, net of issuance costs | 5,462,500 | 17,465 | — | — | — | 17,465 | ||||||||||||||||
| Issuance of stock and warrants for services | 27,931 | 131 | — | — | — | 131 | ||||||||||||||||
| Exercise of stock options and warrants for cash | 178,387 | 430 | — | — | — | 430 | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan | 1,486 | 4 | 7 | — | — | 11 | ||||||||||||||||
| Collection of shareholder notes receivable | — | — | — | 46 | — | 46 | ||||||||||||||||
| Stock-based compensation | 170,055 | 1,499 | — | — | — | 1,499 | ||||||||||||||||
| Employee tax withholdings on stock-based compensation | (7,152 | ) | — | (22 | ) | — | — | (22 | ) | |||||||||||||
| Net loss | — | — | — | — | (32,061 | ) | (32,061 | ) | ||||||||||||||
| Balance, March 31, 2015 | 27,421,533 | $ | 150,516 | $ | (36,049 | ) | $ | (4 | ) | $ | (49,952 | ) | $ | 64,511 | ||||||||
| Issuance of stock and warrants for services | 35,290 | 66 | — | — | — | 66 | ||||||||||||||||
| Exercise of stock options and warrants for cash | 46,410 | 97 | — | — | — | 97 | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan | 3,925 | (1 | ) | 8 | — | — | 7 | |||||||||||||||
| Collection of shareholder notes receivable | — | — | — | — | — | — | ||||||||||||||||
| Stock-based compensation | 270,303 | 1,462 | — | — | — | 1,462 | ||||||||||||||||
| Employee tax withholdings on stock-based compensation | (10,323 | ) | — | (34 | ) | — | — | (34 | ) | |||||||||||||
| Net loss | — | — | — | — | (20,126 | ) | (20,126 | ) | ||||||||||||||
| Balance, March 31, 2016 | 27,767,138 | $ | 152,140 | $ | (36,075 | ) | $ | (4 | ) | $ | (70,078 | ) | $ | 45,983 | ||||||||
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Operating activities | |||||||||||
| Net loss | $ | (20,126 | ) | $ | (32,061 | ) | $ | (6,199 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) | |||||||||||
| operating activities: | |||||||||||
| Depreciation | 2,950 | 2,853 | 3,798 | ||||||||
| Amortization | 1,215 | 1,327 | 704 | ||||||||
| Stock-based compensation expense | 1,462 | 1,499 | 1,593 | ||||||||
| Accretion of fair value on contingent consideration | — | — | 11 | ||||||||
| Deferred income tax (benefit) expense | — | — | (2,123 | ) | |||||||
| Impairment on assets | 6,023 | 12,130 | — | ||||||||
| Loss (gain) on sale of property and equipment | 40 | (21 | ) | 1,733 | |||||||
| Provision for inventory reserves | 509 | 361 | 1,995 | ||||||||
| Provision for bad debts | 575 | 285 | 174 | ||||||||
| Other | 258 | 265 | 165 | ||||||||
| Changes in operating assets and liabilities, net of changes from acquisitions: | |||||||||||
| Accounts receivable, current and long-term | 7,116 | (1,909 | ) | 8,395 | |||||||
| Inventories, current and long-term | (3,249 | ) | (2,356 | ) | 3,962 | ||||||
| Deferred contract costs | 137 | 651 | 1,376 | ||||||||
| Prepaid expenses and other current assets | (2,645 | ) | 1,261 | (1,072 | ) | ||||||
| Accounts payable | 713 | 2,475 | (762 | ) | |||||||
| Accrued expenses and other | 1,803 | 838 | (1,575 | ) | |||||||
| Deferred revenue, current and long-term | (254 | ) | (410 | ) | (2,274 | ) | |||||
| Net cash (used in) provided by operating activities | (3,473 | ) | (12,812 | ) | 9,901 | ||||||
| Investing activities | |||||||||||
| Cash paid for acquisition, net of cash acquired | — | — | (4,992 | ) | |||||||
| Purchase of property and equipment | (401 | ) | (2,006 | ) | (410 | ) | |||||
| Purchase of short-term investments | — | (2 | ) | (4 | ) | ||||||
| Sale of short-term investments | — | 472 | 555 | ||||||||
| Additions to patents and licenses | (6 | ) | (234 | ) | (43 | ) | |||||
| Proceeds from sales of property, plant and equipment | 35 | 1,040 | 80 | ||||||||
| Net cash used in investing activities | (372 | ) | (730 | ) | (4,814 | ) | |||||
| Financing activities | |||||||||||
| Payment of long-term debt | (1,901 | ) | (4,494 | ) | (3,229 | ) | |||||
| Proceeds from revolving credit facility | 65,767 | 2,500 | — | ||||||||
| Repayments of revolving credit facility | (64,549 | ) | — | — | |||||||
| Proceeds from long-term debt | — | 446 | — | ||||||||
| Proceeds from repayment of shareholder notes | — | 46 | 215 | ||||||||
| Proceeds from issuance of common stock, net of issuance costs | (2 | ) | 17,465 | — | |||||||
| Payments to settle employee tax withholdings on stock-based compensation | (34 | ) | (22 | ) | — | ||||||
| Excess tax benefits from stock-based compensation | — | — | 13 | ||||||||
| Deferred financing costs | — | (406 | ) | (19 | ) | ||||||
| Net proceeds from employee equity exercises | 104 | 441 | 1,125 | ||||||||
| Net cash (used in) provided by financing activities | (615 | ) | 15,976 | (1,895 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | (4,460 | ) | 2,434 | 3,192 | |||||||
| Cash and cash equivalents at beginning of period | 20,002 | 17,568 | 14,376 | ||||||||
| Cash and cash equivalents at end of period | $ | 15,542 | $ | 20,002 | $ | 17,568 | |||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 191 | $ | 287 | $ | 423 | |||||
| Cash paid for income taxes | $ | 18 | $ | 42 | $ | 22 | |||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Vendor financed capital lease addition | $ | 396 | $ | — | $ | — | |||||
| Shares returned to treasury in satisfaction of receivable | $ | — | $ | — | $ | 48 | |||||
| Acquisition related contingent consideration liability | $ | — | $ | — | $ | 612 | |||||
| Acquisition financed through debt | $ | — | $ | — | $ | 3,123 | |||||
| Common stock issued for acquisition | $ | — | $ | — | $ | 2,416 | |||||
NOTE 1 — DESCRIPTION OF BUSINESS
Organization
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and seller of lighting and energy management systems to commercial and industrial businesses, and federal and local governments, predominantly in North America.
Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space in Jacksonville, Florida;Florida and warehouse space in Manitowoc, Wisconsin. During fiscal 2018 and fiscal 2017 Orion had leased warehouse space in Augusta, Georgia, but as of March 31, 2018, Orion had vacated this storage location.
In fiscal 2018, we did not renew the leases for our 5,600 square foot of office space in Houston, Texas and our 3,100 square foot of office space in Chicago, Illinois;Illinois. The leases terminated as of April 30, 2018 and Houston, Texas.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
In the warranty rollforward in Note 9 – Accrued Expenses and Other, certain reclassifications were made to prior years' financial statementsperiod balances have been reclassified to conform to current period presentation. The reclassifications were immaterial to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or 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 and bad debt reserves,allowance for doubtful accounts, accruals for warranty expenses and loss contingencies, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
Orion considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents.
Orion’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other, revolving credit facility and long-term debt. The carrying amounts of Orion’s financial instruments approximate their respective fair values due to the relatively short-term nature of these instruments, or in the case of long-term debt and revolving credit facility, because of the interest rates currently available to Orion for similar obligations. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’smanagement's best estimate of what market participants would use in valuing the asset or liability at the measurement date.
Allowance for Doubtful Accounts Receivable
Orion performs ongoing evaluations of its customers and agricultural industries, as well as wholesalers. Credit is extended based on an evaluation of a customer’s financial condition. Generally, collateral is not required for end users; however, the payment of certain trade accounts receivable from wholesalers is secured by irrevocable standby letters of credit and/or guarantees. Accounts receivable are generally due within 30-60 days. Accounts receivable are stated at the amountcontinuously monitors collections and payments. Orion expects to collect from outstanding balances. Orion provides for probable uncollectible amounts through a charge to earnings
| 2016 | 2015 | ||||||
| Accounts receivable, gross | $ | 11,394 | $ | 18,721 | |||
| Allowance for doubtful accounts | (505 | ) | (458 | ) | |||
| Accounts receivable, net | $ | 10,889 | $ | 18,263 | |||
| Not Past Due | 1-90 days past due | Greater than 90 days past due | Total past due | Total sales-type leases | |||||||||||||||
| Lease balances included in consolidated accounts receivable—current | $ | 294 | $ | 4 | $ | 10 | $ | 14 | $ | 308 | |||||||||
| Lease balances included in consolidated accounts receivable—long-term | 101 | — | — | — | 101 | ||||||||||||||
| Total gross sales-type leases | 395 | 4 | 10 | 14 | 409 | ||||||||||||||
| Allowance | — | — | (9 | ) | (9 | ) | (9 | ) | |||||||||||
| Total net sales-type leases | $ | 395 | $ | 4 | $ | 1 | $ | 5 | $ | 400 | |||||||||
| Not Past Due | 1-90 days past due | Greater than 90 days past due | Total past due | Total sales-type leases | |||||||||||||||
| Lease balances included in consolidated accounts receivable—current | $ | 1,346 | $ | 47 | $ | 186 | $ | 233 | $ | 1,579 | |||||||||
| Lease balances included in consolidated accounts receivable—long-term | 398 | — | — | — | 398 | ||||||||||||||
| Total gross sales-type leases | 1,744 | 47 | 186 | 233 | 1,977 | ||||||||||||||
| Allowance | (12 | ) | (3 | ) | (141 | ) | (144 | ) | (156 | ) | |||||||||
| Total net sales-type leases | $ | 1,732 | $ | 44 | $ | 45 | $ | 89 | $ | 1,821 | |||||||||
| Balance at beginning of period | Provisions charged to expense | Write offs and other | Balance at end of period | |||||||||||||
| March 31, | (in Thousands) | |||||||||||||||
| 2016 | Allowance for Doubtful Accounts on financing receivables | $ | 156 | $ | 30 | $ | 177 | $ | 9 | |||||||
| 2015 | Allowance for Doubtful Accounts on financing receivables | $ | 94 | $ | 62 | $ | — | $ | 156 | |||||||
| 2014 | Allowance for Doubtful Accounts on financing receivables | $ | 74 | $ | 96 | $ | 76 | $ | 94 | |||||||
| Cost | Obsolescence Reserve | Net | |||||||||
| As of March 31, 2016 | |||||||||||
| Raw materials and components | $ | 10,556 | $ | (1,052 | ) | $ | 9,504 | ||||
| Work in process | 2,045 | (119 | ) | 1,926 | |||||||
| Finished goods | 6,550 | (956 | ) | 5,594 | |||||||
| Total | $ | 19,151 | $ | (2,127 | ) | $ | 17,024 | ||||
| As of March 31, 2015 | |||||||||||
| Raw materials and components | $ | 9,150 | $ | (677 | ) | $ | 8,473 | ||||
| Work in process | 1,683 | (94 | ) | 1,589 | |||||||
| Finished goods | 5,069 | (848 | ) | 4,221 | |||||||
| Total | $ | 15,902 | $ | (1,619 | ) | $ | 14,283 | ||||
Deferred Contract Costs
Deferred contract costs consist primarily of the costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance. TheseIn the prior year, these deferred contract costs arewere expensed at the time the related revenue iswas recognized. Upon adoption of “Revenue from Contracts with Customers” (Topic 606) on April 1, 2018, this account was no longer used; there were no Deferred costs as of March 31, 2019. Deferred costs amounted to $36,691$1.0 million as of March 31, 2016 and $90,258 as of March 31, 2015.
| March 31, 2016 | March 31, 2015 | ||||||
| Unbilled accounts receivable | $ | 4,307 | $ | 1,710 | |||
| Other prepaid expenses | 731 | 697 | |||||
| Total | $ | 5,038 | $ | 2,407 | |||
| March 31, 2016 | March 31, 2015 | ||||||
| Land and land improvements | $ | 421 | $ | 1,511 | |||
| Buildings and building improvements | 11,849 | 14,441 | |||||
| Furniture, fixtures and office equipment | 7,233 | 8,600 | |||||
| Leasehold improvements | 148 | 148 | |||||
| Equipment leased to customers under Power Purchase Agreements | 4,997 | 4,997 | |||||
| Plant equipment | 10,805 | 11,084 | |||||
| Construction in progress | 128 | 379 | |||||
| 35,581 | 41,160 | ||||||
| Less: accumulated depreciation and amortization | (18,577 | ) | (19,937 | ) | |||
| Net property and equipment | $ | 17,004 | $ | 21,223 | |||
| March 31, 2016 | March 31, 2015 | ||||||
| Equipment | $ | 408 | $ | — | |||
| Less: accumulated depreciation and amortization | (65 | ) | — | ||||
| Net Equipment | $ | 343 | $ | — | |||
| Balance at March 31, 2014 | $ | 4,409 | |
| Impairments | — | ||
| Balance at March 31, 2015 | 4,409 | ||
| Impairments | (4,409 | ) | |
| Balance at March 31, 2016 | $ | — | |
| March 31, 2016 | March 31, 2015 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
| Patents | $ | 2,377 | $ | (1,053 | ) | $ | 1,324 | $ | 2,447 | $ | (906 | ) | $ | 1,541 | |||||||||
| Licenses | 58 | (58 | ) | — | 58 | (58 | ) | — | |||||||||||||||
| Trade name and trademarks | 1,956 | — | 1,956 | 1,958 | — | 1,958 | |||||||||||||||||
| Customer relationships | 3,600 | (2,512 | ) | 1,088 | 3,600 | (1,620 | ) | 1,980 | |||||||||||||||
| Developed technology | 900 | (265 | ) | 635 | 900 | (109 | ) | 791 | |||||||||||||||
| Non-competition agreements | 100 | (55 | ) | 45 | 100 | (35 | ) | 65 | |||||||||||||||
| Total | $ | 8,991 | $ | (3,943 | ) | $ | 5,048 | $ | 9,063 | $ | (2,728 | ) | $ | 6,335 | |||||||||
| Fiscal 2017 | $ | 877 | |
| Fiscal 2018 | 602 | ||
| Fiscal 2019 | 426 | ||
| Fiscal 2020 | 340 | ||
| Fiscal 2021 | 266 | ||
| Thereafter | 581 | ||
| $ | 3,092 | ||
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Amortization included in cost of sales: | |||||||||||
| Patents | $ | 139 | $ | 132 | $ | 135 | |||||
| Total | $ | 139 | $ | 132 | $ | 135 | |||||
| Amortization included in operating expenses: | |||||||||||
| Customer relationships | $ | 891 | $ | 1,085 | $ | 535 | |||||
| Developed technology | 156 | 90 | 19 | ||||||||
| Non-competition agreements | 20 | 20 | 15 | ||||||||
| Patents | 9 | — | — | ||||||||
| Total | 1,076 | 1,195 | 569 | ||||||||
| Total amortization | $ | 1,215 | $ | 1,327 | $ | 704 | |||||
| March 31, 2016 | March 31, 2015 | ||||||
| Deferred financing costs | $ | 92 | $ | 202 | |||
| Security deposits | 87 | 73 | |||||
| Deferred contract costs | — | 83 | |||||
| Other | 6 | 9 | |||||
| Total | $ | 185 | $ | 367 | |||
| March 31, 2016 | March 31, 2015 | ||||||
| Compensation and benefits | $ | 1,794 | $ | 1,314 | |||
| Sales tax | 913 | 1,168 | |||||
| Contract costs | 586 | 1,267 | |||||
| Legal and professional fees (1) | 2,348 | 479 | |||||
| Warranty | 554 | 705 | |||||
| Other accruals | 391 | 264 | |||||
| Total | $ | 6,586 | $ | 5,197 | |||
| March 31, | |||||||
| 2016 | 2015 | ||||||
| Beginning of year | $ | 1,015 | $ | 263 | |||
| Provision to product cost of revenue | 159 | 776 | |||||
| Charges | (310 | ) | (24 | ) | |||
| End of year | $ | 864 | $ | 1,015 | |||
Incentive Compensation
Orion’s compensation committee approved an Executive Fiscal Year 20162019 Annual Cash Incentive Program under its 2004 StockProgram. The program provided for performance cash bonus payments ranging from 50-100% of the fiscal 2019 base salaries of Orion’s named executive officers and other key employees. The program provided for bonuses to be paid out on the basis of achieving positive net income in fiscal 2019. Based upon the results for the year ended March 31, 2019, Orion did not accrue any expense related to this plan.
Orion’s compensation committee approved an Executive Fiscal Year 2018 Annual Cash Incentive Awards Plan.Program. The planprogram provided for performance cash bonus payments ranging from 50-100% of the fiscal 2018 base salaries of Orion’s named executive officers and other key employees. The program provided for bonuses to be paid out on the basis of achieving positive EBITDA in fiscal 2018. Based upon the results for the year ended March 31, 2018, Orion did not accrue any expense related to this plan.
Orion’s compensation committee approved an Executive Fiscal Year 2017 Annual Cash Incentive Program. The program provided for performance cash bonus payments ranging from 35-100% of the fiscal 20162017 base salaries of Orion’s named executive officers and other key employees. The planprogram provided for bonuses to be paid out on the basis of the achievement in fiscal 20162018 of at least (i) $110,000$0.5 million of profit before taxes and (ii) revenue growth of 10% more than fiscal year 2015.2016. Based upon the results for the year ended March 31, 2016,2017, Orion did not accrue any expense related to this plan.
Periods prior to April 1, 2018
Revenue was recognized in accordance with the fiscal 2015 base salaries of Orion’s named executive officers and other key employees. The plan provided for bonuses to be paid out on the basis of the achievementrevenue recognition requirements in fiscal 2015 of at least (i) $2,300,000 of profit before taxes and (ii) revenue of at least $90,400,000. Based upon the results for the year ended March 31, 2015, Orion did not accrue any expense related to this plan.
1. | persuasive evidence of an arrangement exists; |
2. | delivery has occurred and title has passed to the customer; |
3. | the sales price is fixed and determinable and no further obligation exists; and |
4. | collectability is reasonably assured. |
Revenue was recorded net of estimated provisions for returns, early payment discounts and rebates and other consideration paid to Orion’s product-only revenue upon delivery of the product and title passing to the customer. At that time, Orion provides for estimated costs that may be incurred for product warranties and sales returns.customers. Revenues arewere presented net of sales tax and other sales related taxes.
For sales of Orion’s lighting and energy management technologies consisting ofunder multiple element arrangements, such asconsisting of a combination of product sales and services, Orion determines revenue by allocating the total contract revenue to each element based on their relative selling prices in accordance with ASC 605-25,
The nature of Orion’s multiple element arrangements for the sale of its lighting and energy management technologies is similar to a construction project, with materials being delivered and contracting and project management activities occurring according to an installation schedule. The significant deliverables include the shipment of products and related transfer of title and the installation.
To determine the selling price in multiple-element arrangements, Orion establishes the selling price for its HIF lighting and energy management system products using management's best estimate of the selling price, as VSOE orand TPE doesdo not exist. Product revenue is recognized when title and risk of loss for the products are shipped.transfers. For product revenue, management's best estimate of selling price is determined using a cost plus gross profit margin method.
In addition, Orion records in service revenue the selling price for its installation and recycling services using management’s best estimate of selling price, as VSOE orand TPE doesdo not exist. Service revenue is recognized when services are completed and customer acceptance has been received. Recycling services provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. Orion’s service revenues, other than for installation and recycling that are completed prior to delivery of the product, are included in product revenue using management’s best estimate of selling price, as VSOE orand TPE doesdo not exist. These services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, and project management. For these services, along with Orion's installation and recycling services, under a multiple-element arrangement, management’s best estimate of selling price is determined by considering several external and internal factors including, but not limitedusing a cost plus gross profit margin method with consideration given to other relevant economic conditions and trends, customer demand, pricing practices, and margin objectives, competition, geographies in which Orion offers its products and services and internal costs.objectives. The determination of an estimated selling price is made through consultation with and approval by management, taking into account allthe preceding factors.
Deferred revenue relates to advance customer billings, investment tax grants received related to PPAs and long term maintenance contracts on OTAs and is classified as a liability on the consolidated balance sheet. The fair value of the preceding factors.
Period Commencing April 1, 2018
General Information
Orion generates revenues primarily by customer contracts that require Orion to deliver functioning solar power systemsselling commercial lighting fixtures and are generally completed within three to 15 months from the start of construction,components and by installing these fixtures in its customer’s facilities. Orion recognizes revenue from fixed price construction contracts using the percentage-of-completion method in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 605-35,
If there are multiple performance obligations in a single contract, the contract’s total sales price is allocated to each individual performance obligation based on their relative standalone selling price. A performance obligation’s standalone selling price is the price at which Orion would sell such promised good or service separately to a customer. Orion uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus margin approach when one is not available. The cost-plus margin approach is used to determine the stand-alone selling price for the installation performance obligation and is based on average historical installation margin.
Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components is classified as Product revenue arisingin the Consolidated Statements of Operations. The revenue for these transactions is recorded at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer’s facility. This point in time is determined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning the transaction.
Revenue from fixed price construction contractsa customer contract which includes both the sale of fixtures and the installation of such fixtures (which Orion refers to as a turnkey project) is recognized as workallocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.
Revenue from turnkey projects that is performedallocated to the sale of the lighting fixtures is recorded at the point in time when management believes the customer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately for each customer contract based upon the percentageterms of incurred coststhe contract and the nature and extent of Orion’s control of the light fixtures during the installation. Product revenue associated with turnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to estimatedshipment or delivery and upon customer payments for the light fixtures, (c) when an individual light fixture is installed and working correctly, or (d) when the customer acknowledges that the entire installation project is substantially complete. Determining the point in time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and is applied separately for each individual light fixture included in a contract. In making this judgment, management considers the timing of various factors, including, but not limited to, those detailed below:
when there is a legal transfer of ownership;
when the customer obtains physical possession of the products;
when the customer starts to receive the benefit of the products;
the amount and duration of physical control that Orion maintains on the products after they are shipped to, and received at, the customer’s facility;
whether Orion is required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered to the customer’s facility;
when each light fixture is physically installed and working correctly;
when the customer formally accepts the product; and
when Orion receives payment from the customer for the light fixtures.
Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue is recorded over-time as Orion fulfills its obligation to install the light fixtures. Orion measures its performance toward fulfilling its performance obligations for installations using an output method that calculates the number of light fixtures completely installed as of the measurement date in comparison to the total forecasted costs.number of light fixtures to be installed under the contract.
Most products are manufactured in accordance with Orion’s standard specifications. However, some products are manufactured to a customer’s specific requirements with no alternative use to Orion. In such cases, and when Orion has determinedan enforceable right to payment, Product revenue is recorded on an over-time basis measured using an input methodology that calculates the appropriate method of measuring progress on these sales is measured by the percentage of costs incurred to date of theas compared to total estimated costs for each contract as materials are installed. The percentage-of-completion method requiresexpected costs. There was no over-time revenue recognition from the delivery ofrelated to custom products to be deferred and the cost of such products to be capitalized as a deferred cost and current asset on the balance sheet. Orion performs periodic evaluations of the progress of the installation of the solar photovoltaic systems using actual costs incurred over total estimated costs to complete a project. Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable.
Orion offers a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of Orion’s energy management systems. The OTA is structured as a sales-type lease and upon successful installation of the system and customer acknowledgment that the system is operating as specified, revenue is recognized at Orion’s net investment in the lease, which typically is the net present value of the future cash flows.
Orion offers a financing program, called aalso records revenue in conjunction with several limited power purchase agreement, or PPA, for Orion’s renewable energy product offerings. A PPA is a supply side agreementagreements (“PPAs”) still outstanding. Those PPAs are supply-side agreements for the generation of electricity. Orion’s last PPA expires in 2031. Revenue associated with the sale of energy generated by the solar facilities under these PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to the amount billed to the customer, which is calculated by applying the fixed rate designated in the PPAs to the variable amount of electricity and subsequentgenerated each month. This approach is in accordance with the “right to invoice” practical expedient provided for in ASC 606. Orion also recognizes revenue upon the sale to third parties of tax credits received from operating the end user. Uponsolar facilities and from amortizing a grant received from the customer’s acknowledgment thatfederal government during the system is operatingperiod starting when the power generating facilities were constructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.
When shipping and handling activities are performed after a customer obtains control of the product, Orion has elected to treat shipping and handling costs as specified,an activity necessary to fulfill the performance obligation to transfer product revenue is recognizedto the customer and not as a separate performance obligation. Any shipping and handling costs charged to customers are recorded in Product revenue. Shipping and handling costs are accrued and included in Cost of product revenue.
See Note 9, Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for its products and services.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a monthly basis over the life of the PPA contract, which is typically in excess of 10 years.
Shipping and Handling Costs
Orion records costs incurred in connection with shipping and handling of products as cost of product revenue. Amounts billed to customers in connection with these costs are included in product revenue.
Research and Development
Orion expenses research and development costs as incurred. Amounts are included in the Statement of Operations and Comprehensive Income on the line item Research and development.
Income Taxes
Orion recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between financial reporting and income tax basis of assets and liabilities, measured using the enacted tax rates and laws expected to be in effect when the temporary differences reverse. Deferred income taxes also arise from the future tax benefits of operating loss and tax credit carryforwards.carry-forwards. A valuation allowance is established when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. For the fiscal year ended March 31, 2016,2019, Orion recorded aincreased its full valuation allowance of $5,740,000by $1.6 million against its deferred tax assets due to the increase in its deferred tax assets.
ASC 740, Income Taxes, also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination. Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) 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 immaterial and are included in the unrecognized tax benefits.
The Tax Cut and Jobs Act ("ACT") was enacted December 22, 2017. Further information on the exerciseimpacts of non-qualified stock options. These benefits willthe Act can be recognizedfound in the period in which the benefits are realized as a reduction in taxes payable and an increase in additional paid-in capital. Realized tax benefits (expense) from the exercise of stock options were $0, $0 and $13,000 for the fiscal years 2016, 2015 and 2014, respectively.
Stock Based Compensation
Orion’s share-based payments to employees are measured at fair value and are recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.
Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the exercisefair value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period. As more fully described in Note 15 - Stock Options and Restricted Shares, Orion currently awards non-vested restricted stock to employees, executive officers and directors. Orion did not issue any stock options resulting from tax benefits in excess of recognized cumulative compensation costs (excess tax benefits) are classified as financing cash flows. For the years ended March 31, 2016, 2015 and 2014, $0, $0 and $13,000, respectively, of such excess tax benefits were classified as financing cash flows.
Orion has not paid dividends in the past and does not plan to pay any dividends in the foreseeable future. Orion estimates its forfeiture rate of unvested stock awards based on historical experience.
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Numerator: | |||||||||||
| Net loss (dollars in thousands) | $ | (20,126 | ) | $ | (32,061 | ) | $ | (6,199 | ) | ||
| Denominator: | |||||||||||
| Weighted-average common shares outstanding | 27,627,693 | 22,353,419 | 20,987,964 | ||||||||
| Weighted-average effect of assumed conversion of stock options and restricted stock | — | — | — | ||||||||
| Weighted-average common shares and share equivalents outstanding | 27,627,693 | 22,353,419 | 20,987,964 | ||||||||
| Net income (loss) per common share: | |||||||||||
| Basic | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | ||
| Diluted | $ | (0.73 | ) | $ | (1.43 | ) | $ | (0.30 | ) | ||
| March 31, | ||||||||
| 2016 | 2015 | 2014 | ||||||
| Common stock options | 2,017,046 | 2,426,836 | 2,716,317 | |||||
| Restricted shares | 1,053,389 | 704,688 | 539,204 | |||||
| Common stock warrants | — | — | 38,980 | |||||
| Total | 3,070,435 | 3,131,524 | 3,294,501 | |||||
Concentration of Credit Risk and Other Risks and Uncertainties
Orion’s cash is deposited with threetwo financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk on these balances.
Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple suppliers. For fiscal 2016, 20152019, 2018 and 2014,2017, no supplier accounted for more than 10% of total cost of revenue.
In fiscal 2016,2019, one customer accounted for 20.7% of total revenue. In fiscal 2018, two customers accounted for 11.7% and 10.8% of total revenue. In fiscal 2017, no customer accounted for more than 10% of revenue. In fiscal 2015,
As of March 31, 2019, one customer accounted for 12% of revenue. In fiscal 2014, one customer accounted for 23% of revenue.
Recent Accounting Pronouncements
Issued: Not Yet Adopted
In MarchFebruary 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting StandardStandards Update (“ASU”("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures,2016-02, "Leases" (Subtopic 842). The pronouncement, and statutory tax withholding requirements, as well as the classification of related matterssubsequent amendments, is included in the statement of cash flows. The ASU is effective forAccounting Standards Codification as Subtopic 842 (“ASC 842”). For Orion, in the first quarter of Orion's fiscal 2018. Management is currently assessing theprimary impact of the adoption on its consolidated financial statements.
Orion implemented ASC 842 at the start of the first quarter of the fiscal year ending March 31, 2020 using the optional transition method under which the new standard is applied only to the most current period presented and the cumulative effect of applying the new standards to existing lease agreements is recognized at the date of initial application. Adoption of ASC 842 resulted in the recording of additional right-of-use lease assets and lease liabilities of approximately $0.2 million for operating lease agreements associated with assets used by Orion but owned by a third party. There was no adjustment to retained deficit. Orion also leases assets to third parties under capital and sales-type leases. There was no financial statement impact from the adoption of ASC 842 on the contracts where Orion leases assets to third parties.
Determining whether a contract includes a lease, and assessing whether the lease should be accounted for as a finance lease or an operating lease, is a matter of judgment based on whether the risks and rewards as well as substantive control of the associated with the assets specified in the contract have been transferred from the lessor to the lessee. Orion implemented the appropriate changes to business processes and controls to support recognition and disclosure under the new standard, including the new qualitative and quantitative disclosures that will include information about leasing arrangements. Thison the nature, amount, timing and significant judgments impacting revenue from contracts with customers.
Orion management believes that the adoption of ASC 842 will not materially impact Orion’s future consolidated results of operations and will have no impact on Orion’s future cash flows.
Recently Adopted Standards
On April 1, 2018, Orion adopted ASU also2014-09 and subsequent amendments, which is included in the Accounting Standards Codification as "Revenue from Contracts with Customers" (Topic 606) (“ASC 606”) and Sub-Topic 340-40 (“ASC 340-40”), using the modified retrospective approach. ASC 606 superseded the revenue recognition requirements in “Revenue Recognition” (Topic 605) ("ASC 605") and provides clarifications surroundingguidance on the accounting for other assets and deferred costs associated with contracts with customers. ASC 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASC 340-40 limits the circumstances that an entity can recognize an asset from the costs incurred to obtain or fulfill a contract that are not subject to the guidance in other portions in the Accounting Standards Codification, such as those related to inventory. The provisions of ASC 606 and ASC 340-40 require entities to use more judgments and estimates than under previous guidance when allocating the total consideration in a contract to the individual promises to customers (“performance obligations”) and determining when a performance obligation has been satisfied and revenue can be recognized. Orion’s adoption of ASC 606 did not have a material effect on Orion's financial statements. Orion has updated its processes and controls necessary for implementing ASC 606, including the increased footnote disclosure requirements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which provided clarification and additional guidance as to the presentation and classification of the effects of leasescertain cash receipts and cash payments in the income statement and statement of cash flows. This ASU provided guidance will beas to the classification of a number of transactions including: contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. This new ASU was effective for Orion beginning in the Companyfirst quarter of fiscal 2019 and has been applied through retrospective adjustment to all periods presented. The adoption of this ASU did not have a material impact on April 1, 2019. Management is currently assessing the impact of adoption on itsOrion’s consolidated financial statements.
In November 2015,May 2017, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification2017-09, “Compensation-Stock Compensation: Scope of Deferred Taxes,”Modification Accounting” which provides guidance about which changes to simplify the presentationterms or conditions of deferred taxes.a share-based payment award would require an entity to apply modification accounting. The amendments inprovisions of this update require that deferred tax assets and liabilities be classified as non-current on the balance sheet. This ASU iswere effective for Orion's annual reporting period, and interim periods therein,Orion beginning on April 1, 20172018. The adoption of this ASU did not have a material impact on Orion’s consolidated financial statements.
Changes in Accounting Policies
Orion adopted ASC 606 and ASC 340-40 (the “new standards”) as of April 1, 2018 for contracts with earlier adoption permitted.customers that were not fully complete as of April 1, 2018 using the modified retrospective transition method. The guidance may be adopted either prospectively or retrospectively. Management is currently assessingcumulative effect of initially applying the new standards was recorded as a $0.4 million adjustment to the opening balance of retained deficit within Orion’s Consolidated Statement of Shareholders’ Equity.
The new standards are applied separately for each contract between Orion and a customer. While the impact of this standardthe new standards vary for each contract based on its consolidated financial statements.
The adoption of the new standards also resulted in reclassifications (a) between Product revenue and Service revenue, and between Cost of service revenue and Sales and marketing expenses in Orion’s Consolidated Statements of Operations, and (b) between Accounts receivable, net, Revenue earned but not billed, Inventories, net, Deferred contract costs, Prepaid expenses and other current assets, Accounts payable, Accrued expenses and other, Deferred revenue, current, Deferred revenue, long-term, and Other long-term liabilities in Orion’s Consolidated Balance Sheets.
For all adjustments and changes as a result of adopting the new standards for the current period, refer to the section “Impacts on Financial Statements” below. In accordance with the modified retrospective transition method, the historical information within Orion’s financial statements has not been restated and continues to be reported under the accounting standard in effect for those periods. As a result, Orion has disclosed the accounting policies in effect prior to April 1, 2018, as well as the policies applied starting April 1, 2018.
Revenue Recognition
See Note 2, Summary of Significant Accounting Policies for a discussion of Orion’s accounting policies in effect prior to April 1, 2018, as well as the policies applied starting April 1, 2018 in regards to revenue recognition.
Contract Fulfillment Costs
Costs associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of product revenue at the time revenue is recorded. See Note 5, Inventories, Net. Costs associated with installation sales are expensed as incurred.
Disaggregation of Revenue
Orion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue which is accounted for under other guidance. For fiscal year 2019, Product revenue included $3.4 million derived from sales-type leases for light fixtures, $0.2 million derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $0.1 million derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606. All remaining Product revenue, and all Service revenue, are derived from contracts with customers as defined in ASC 606.
The primary end-users of Orion’s lighting products and services are (a) the federal government, and (b) commercial or marketindustrial companies.
The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select group of contractors who focus on the federal government. Revenues associated with government end-users are primarily included in the Orion Engineered Systems Division segment.
Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products either direct from Orion or through distributors or energy service companies ("ESCOs"). Revenues associated with commercial and industrial end-users are included within each of Orion’s segments, dependent on the sales channel.
See Footnote 16, Segment Data, for additional discussion concerning Orion’s reportable segments.
The following table provides detail of Orion’s total revenues for the year ended March 31, 2019 (dollars in thousands):
|
| Year Ended March 31, 2019 |
| |||||||||
|
| Product |
|
| Services |
|
| Total |
| |||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Lighting revenues, by end user |
|
|
|
|
|
|
|
|
|
|
|
|
Federal government |
| $ | 2,579 |
|
| $ | 642 |
|
| $ | 3,221 |
|
Commercial and industrial |
|
| 49,963 |
|
|
| 8,851 |
|
|
| 58,814 |
|
Total lighting |
|
| 52,542 |
|
|
| 9,493 |
|
|
| 62,035 |
|
Solar energy related revenues |
|
| 57 |
|
|
| — |
|
|
| 57 |
|
Total revenues from contracts with customers |
|
| 52,599 |
|
|
| 9,493 |
|
|
| 62,092 |
|
Revenue accounted for under other guidance |
|
| 3,662 |
|
|
| — |
|
|
| 3,662 |
|
Total revenue |
| $ | 56,261 |
|
| $ | 9,493 |
|
| $ | 65,754 |
|
Cash Flow Considerations
Customer payments for material only orders are due shortly after shipment.
Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these sales often provide for monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.
Turnkey projects where the end-user is a commercial or industrial company typically span between two weeks to three months. Customer payment requirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they are delivered, other contracts specify that the customer will pay for the project in its entirety upon completion of the installation.
Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three and nine months. The customer executes an agreement providing for monthly payments of the contract price, plus interest, over a five-year period. The total transaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects. The portion of the transaction associated with the installation is accounted for consistently with all other installation related performance obligations. The portion of the transaction associated with the sale of the multiple individual light fixtures is accounted for as sales-type leases in accordance with ASC 840, "Leases". Revenues associated with the sales-type leases are included in Product revenue and recorded for each fixture separately based on the customer’s monthly acknowledgment that specified fixtures have been installed and are operating as specified.
The payments associated with these transactions that are due during the twelve months subsequent to March 31, 2019 are included in Accounts receivable, net in Orion’s Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions are included in Other long-term assets in Orion’s Consolidated Balance Sheets.
The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable from the customer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution of the receivables purchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s Consolidated Balance Sheets until cash is received from the financial institution. The financial institution releases funds to Orion based on the customer’s monthly acknowledgment of the progress Orion has achieved in fulfilling its installation obligation. Orion provides the progress certifications to the financial institution one month in arrears.
The total amount received from the sales of these receivables during the twelve months ended March 31, 2019 was $6.9 million. Orion’s losses on these sales aggregated to $0.3 million for the twelve months ended March 31, 2019 and is included in Interest expense in the Consolidated Statements of Operations.
Practical Expedients and Exemptions
Orion expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within Sales and marketing expense. There are no other capitalizable costs associated with obtaining contracts with customers.
Orion’s performance obligations related to lighting fixtures typically do not exceed nine months in duration. As a result, Orion has elected the practical expedient that provides an exemption to the disclosure requirements regarding information about value assigned to remaining performance obligations on contracts that have original expected durations of one year or less.
Orion has also adopted the practical expedient that provides an exemption to the disclosure requirement of the value assigned to performance obligations associated with contracts that were not complete as of April 1, 2018.
Orion also elected the practical expedient that permits companies to not disclose quantitative information about the future revenue when revenue is recognized as invoices are issued to customers for services performed.
Other than the turnkey projects which result in sales-type leases discussed above, Orion generally receives full payment for satisfied performance obligations in less than one year. Accordingly, Orion does not adjust revenues for the impact of any potential significant financing component as permitted by the practical expedients provided in ASC 606.
Contract Balances
A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.
Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of March 31, 2019 and April 1, 2018 includes $0.7 million and $0.6 million, respectively, which was not derived from contracts with customers and therefore not classified as a contract asset as defined by the new standards.
Deferred revenue, current as of March 31, 2019, included $48 thousand of contract liabilities which represented consideration received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.
Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liability as defined by the new standards.
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of March 31, 2019, and April 1, 2018, after the adoption of the new standards (dollars in thousands):
|
| March 31, 2019 |
|
| April 1, 2018 |
| ||
Accounts receivable, net |
| $ | 14,804 |
|
| $ | 9,020 |
|
Contract assets |
| $ | 3,005 |
|
| $ | 1,773 |
|
Contract liabilities |
| $ | 48 |
|
| $ | 13 |
|
There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon billing. There were no significant changes to contract liabilities.
Impact on Financial Statements (in thousands)
|
| As Reported March 31, 2019 |
|
| Adjustments |
|
| Balances without application of ASC 606 As of March 31, 2019 |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 8,729 |
|
| $ | — |
|
| $ | 8,729 |
|
Accounts receivable, net |
|
| 14,804 |
|
|
| (67 | ) |
|
| 14,737 |
|
Revenue earned but not billed |
|
| 3,746 |
|
|
| (3,746 | ) |
|
| — |
|
Inventories, net |
|
| 13,403 |
|
|
| (351 | ) |
|
| 13,052 |
|
Deferred contract costs |
|
| 0 |
|
|
| 396 |
|
|
| 396 |
|
Prepaid expenses and other current assets |
|
| 695 |
|
|
| 3,419 |
|
|
| 4,114 |
|
Total current assets |
|
| 41,377 |
|
|
| (349 | ) |
|
| 41,028 |
|
Property and equipment, net |
|
| 12,010 |
|
|
| — |
|
|
| 12,010 |
|
Other intangible assets, net |
|
| 2,469 |
|
|
| — |
|
|
| 2,469 |
|
Other long-term assets |
|
| 165 |
|
|
| — |
|
|
| 165 |
|
Total assets |
| $ | 56,021 |
|
| $ | (349 | ) |
| $ | 55,672 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 19,706 |
|
| $ | 987 |
|
| $ | 20,693 |
|
Accrued expenses and other |
|
| 7,410 |
|
|
| (1,193 | ) |
|
| 6,217 |
|
Deferred revenue, current |
|
| 123 |
|
|
| 51 |
|
|
| 174 |
|
Current maturities of long-term debt |
|
| 96 |
|
|
| — |
|
|
| 96 |
|
Total current liabilities |
|
| 27,335 |
|
|
| (155 | ) |
|
| 27,180 |
|
Revolving credit facility |
|
| 9,202 |
|
|
| — |
|
|
| 9,202 |
|
Long-term debt, less current maturities |
|
| 81 |
|
|
| — |
|
|
| 81 |
|
Deferred revenue, long-term |
|
| 791 |
|
|
| 104 |
|
|
| 895 |
|
Other long-term liabilities |
|
| 642 |
|
|
| (104 | ) |
|
| 538 |
|
Total liabilities |
|
| 38,051 |
|
|
| (155 | ) |
|
| 37,896 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
Common stock |
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 155,828 |
| �� |
| — |
|
|
| 155,828 |
|
Treasury stock |
|
| (36,091 | ) |
|
| — |
|
|
| (36,091 | ) |
Retained deficit |
|
| (101,767 | ) |
|
| (194 | ) |
|
| (101,961 | ) |
Total shareholders’ equity |
|
| 17,970 |
|
|
| (194 | ) |
|
| 17,776 |
|
Total liabilities and shareholders’ equity |
| $ | 56,021 |
|
| $ | (349 | ) |
| $ | 55,672 |
|
|
| Year Ended March 31, 2019 (in thousands) |
| |||||||||
|
| As Reported |
|
| Adjustments |
|
| Balances without application of ASC 606 |
| |||
Product revenue |
| $ | 56,261 |
|
| $ | 2,191 |
|
| $ | 58,452 |
|
Service revenue |
|
| 9,493 |
|
|
| (2,143 | ) |
|
| 7,350 |
|
Total revenue |
|
| 65,754 |
|
|
| 48 |
|
|
| 65,802 |
|
Cost of product revenue |
|
| 44,111 |
|
|
| 1 |
|
|
| 44,112 |
|
Cost of service revenue |
|
| 7,091 |
|
|
| (1,472 | ) |
|
| 5,619 |
|
Total cost of revenue |
|
| 51,202 |
|
|
| (1,471 | ) |
|
| 49,731 |
|
Gross profit |
|
| 14,552 |
|
|
| 1,519 |
|
|
| 16,071 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 10,231 |
|
|
| — |
|
|
| 10,231 |
|
Sales and marketing |
|
| 9,104 |
|
|
| 1,459 |
|
|
| 10,563 |
|
Research and development |
|
| 1,374 |
|
|
| — |
|
|
| 1,374 |
|
Total operating expenses |
|
| 20,709 |
|
|
| 1,459 |
|
|
| 22,168 |
|
Loss from operations |
|
| (6,157 | ) |
|
| 60 |
|
|
| (6,097 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 80 |
|
|
| — |
|
|
| 80 |
|
Interest expense |
|
| (493 | ) |
|
| 19 |
|
|
| (474 | ) |
Amortization of debt issue costs |
|
| (101 | ) |
|
|
|
|
|
| (101 | ) |
Interest income |
|
| 11 |
|
|
| — |
|
|
| 11 |
|
Total other expense |
|
| (503 | ) |
|
| 19 |
|
|
| (484 | ) |
Loss before income tax |
|
| (6,660 | ) |
|
| 79 |
|
|
| (6,581 | ) |
Income tax expense |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
Net loss |
| $ | (6,674 | ) |
| $ | 79 |
|
| $ | (6,595 | ) |
|
| Year Ended March 31, 2019 (in thousands) |
| |||||||||
|
| As Reported |
|
| Adjustments |
|
| Balances without application of ASC 606 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (6,674 | ) |
| $ | 79 |
|
| $ | (6,595 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 1,339 |
|
|
| — |
|
|
| 1,339 |
|
Amortization of intangible assets |
|
| 444 |
|
|
| — |
|
|
| 444 |
|
Stock-based compensation |
|
| 825 |
|
|
| — |
|
|
| 825 |
|
Amortization of debt issue costs |
|
| 101 |
|
|
| — |
|
|
| 101 |
|
Provision for inventory reserves |
|
| (202 | ) |
|
| — |
|
|
| (202 | ) |
Provision for bad debts |
|
| 56 |
|
|
| — |
|
|
| 56 |
|
Other |
|
| 57 |
|
|
| — |
|
|
| 57 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (5,840 | ) |
|
| (217 | ) |
|
| (6,057 | ) |
Revenue earned but not billed |
|
| (1,390 | ) |
|
| 1,390 |
|
|
| — |
|
Inventories |
|
| (4,689 | ) |
|
| (335 | ) |
|
| (5,024 | ) |
Deferred contract costs |
|
| 0 |
|
|
| 599 |
|
|
| 599 |
|
Prepaid expenses and other assets |
|
| 68 |
|
|
| (1,512 | ) |
|
| (1,444 | ) |
Accounts payable |
|
| 8,916 |
|
|
| 102 |
|
|
| 9,018 |
|
Accrued expenses and other |
|
| 1,975 |
|
|
| 84 |
|
|
| 2,059 |
|
Deferred revenue, current and long-term |
|
| (44 | ) |
|
| (190 | ) |
|
| (234 | ) |
Net cash used in operating activities |
|
| (5,058 | ) |
|
| — |
|
|
| (5,058 | ) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (381 | ) |
|
| — |
|
|
| (381 | ) |
Additions to patents and licenses |
|
| (68 | ) |
|
| — |
|
|
| (68 | ) |
Net cash used in investing activities |
|
| (449 | ) |
|
| — |
|
|
| (449 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
| (80 | ) |
|
| — |
|
|
| (80 | ) |
Proceeds from revolving credit facility |
|
| 60,270 |
|
|
| — |
|
|
| 60,270 |
|
Payment of revolving credit facility |
|
| (54,976 | ) |
|
| — |
|
|
| (54,976 | ) |
Payments to settle employee tax withholdings on stock-based compensation |
|
| (10 | ) |
|
| — |
|
|
| (10 | ) |
Debt issue costs |
|
| (396 | ) |
|
| — |
|
|
| (396 | ) |
Net proceeds from employee equity exercises |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Net cash used in financing activities |
|
| 4,812 |
|
|
| — |
|
|
| 4,812 |
|
Net decrease in cash and cash equivalents |
|
| (695 | ) |
|
| — |
|
|
| (695 | ) |
Cash and cash equivalents at beginning of period |
|
| 9,424 |
|
|
| — |
|
|
| 9,424 |
|
Cash and cash equivalents at end of period |
| $ | 8,729 |
|
| $ | — |
|
| $ | 8,729 |
|
Orion’s accounts receivable are due from companies in the commercial, governmental, industrial and agricultural industries, as well as wholesalers. Credit is extended based on an evaluation of a customer’s financial condition. Generally, collateral is not required for end users; however, the payment of certain trade accounts receivable from wholesalers is secured by irrevocable standby letters of credit and/or guarantees. Accounts receivable are generally due within 30-60 days. Accounts receivable are stated at the amount Orion expects to collect from outstanding balances. Orion provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after Orion has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. Orion's accounts receivable and allowance for doubtful accounts balances were as follows (dollars in thousands):
|
| 2019 |
|
| 2018 |
| ||
Accounts receivable, gross |
| $ | 15,011 |
|
| $ | 8,886 |
|
Allowance for doubtful accounts |
|
| (207 | ) |
|
| (150 | ) |
Accounts receivable, net |
| $ | 14,804 |
|
| $ | 8,736 |
|
NOTE 5 — INVENTORIES
Inventories consist of raw materials and components, such as drivers, metal sheet and coil stock and molded parts; work in process inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories are stated at the lower of cost or net realizable value for entities that measure inventorywith cost determined using the first-in, first-out (FIFO) or average cost. Netmethod. Orion reduces the carrying value of its inventories for differences between the cost and estimated net realizable value, taking into consideration usage in the preceding 9 to 12 months, expected demand, and other information indicating obsolescence. Orion records, as a charge to cost of product revenue, the amount required to reduce the carrying value of inventory to net realizable value. As of March 31, 2019 and 2018, Orion's inventory balances were as follows (dollars in thousands):
|
| Cost |
|
| Excess and Obsolescence Reserve |
|
| Net |
| |||
As of March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
| $ | 9,161 |
|
| $ | (1,393 | ) |
| $ | 7,768 |
|
Work in process |
|
| 1,010 |
|
|
| (269 | ) |
|
| 741 |
|
Finished goods |
|
| 6,056 |
|
|
| (1,162 | ) |
|
| 4,894 |
|
Total |
| $ | 16,227 |
|
| $ | (2,824 | ) |
| $ | 13,403 |
|
As of March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
| $ | 6,073 |
|
| $ | (1,363 | ) |
| $ | 4,710 |
|
Work in process |
|
| 1,190 |
|
|
| (263 | ) |
|
| 927 |
|
Finished goods |
|
| 3,934 |
|
|
| (1,745 | ) |
|
| 2,189 |
|
Total |
| $ | 11,197 |
|
| $ | (3,371 | ) |
| $ | 7,826 |
|
Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and receiving costs, are also included in cost of product revenue.
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid insurance premiums, prepaid license fees, purchase deposits, advance payments to contractors, unbilled receivables, and prepaid taxes. Prepaid expenses and other current assets include the following (dollars in thousands):
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
Unbilled accounts receivable (1) |
| $ | — |
|
| $ | 1,910 |
|
Other prepaid expenses |
|
| 695 |
|
|
| 557 |
|
Total |
| $ | 695 |
|
| $ | 2,467 |
|
(1) | As of April 1, 2018, in conjunction with the adoption of ASC 606, the balance of Unbilled accounts receivable was included in Revenue earned but not billed on the Consolidated Balance Sheets. |
NOTE 7 — PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred. Properties and equipment sold, or otherwise disposed of, are removed from the property and equipment accounts, with gains or losses on disposal credited or charged to income from operations.
Orion periodically reviews the carrying values of property and equipment for impairment in accordance with ASC 360, Property, Plant and Equipment, if events or changes in circumstances indicate that the assets may be impaired. The estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition are compared to the assets' carrying amount to determine if a write down to market value is definedrequired.
As of September 30, 2018, a triggering event occurred requiring Orion to evaluate its long-lived assets for impairment. Due to the central nature of its operations, Orion’s tangible and intangible definite-lived assets support its full operations, are utilized by all three of its reportable segments, and do not generate separately identifiable cash flows. As such, these assets together represent a single asset group. In reviewing the asset group for impairment, Orion elected to bypass the qualitative impairment assessment and went directly to performing the Step 1 recoverability test. Orion performed the Step 1 recoverability test for the asset group comparing its carrying value to the group’s expected future undiscounted cash flows. Orion concluded that the undiscounted cash flows of the long lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment was recorded.
Property and equipment were comprised of the following (dollars in thousands):
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
Land and land improvements |
| $ | 433 |
|
| $ | 424 |
|
Buildings and building improvements |
|
| 9,245 |
|
|
| 9,245 |
|
Furniture, fixtures and office equipment |
|
| 7,238 |
|
|
| 7,096 |
|
Leasehold improvements |
|
| 324 |
|
|
| 324 |
|
Equipment leased to customers |
|
| 4,997 |
|
|
| 4,997 |
|
Plant equipment |
|
| 12,211 |
|
|
| 12,106 |
|
Construction in progress |
|
| 43 |
|
|
| — |
|
|
|
| 34,491 |
|
|
| 34,192 |
|
Less: accumulated depreciation and amortization |
|
| (22,481 | ) |
|
| (21,298 | ) |
Net property and equipment |
| $ | 12,010 |
|
| $ | 12,894 |
|
Equipment included above under capital leases was as follows (dollars in thousands):
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
Equipment |
| $ | 581 |
|
| $ | 581 |
|
Less: accumulated depreciation and amortization |
|
| (486 | ) |
|
| (344 | ) |
Net equipment |
| $ | 95 |
|
| $ | 237 |
|
Depreciation is recognized over the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Orion is currently assessing the impact of this standard on its consolidated financial statements.
Depreciable lives by asset category are as follows:
Land improvements | 10-15 years | |
Buildings and building improvements | 10-39 years | |
Furniture, fixtures and office equipment | 2-10 years | |
Leasehold improvements | Shorter of asset life or life of lease | |
Equipment leased to customers under Power Purchase Agreements | 20 years | |
Plant equipment | 3-10 years |
No interest was capitalized for construction in progress during fiscal 2019 or fiscal 2018.
NOTE 8 — OTHER INTANGIBLE ASSETS
The costs of specifically identifiable intangible assets that do not have an indefinite life are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized.
Amortizable intangible assets are amortized over their estimated economic useful life to reflect the pattern of economic benefits consumed based upon the following lives and methods:
Patents | 10-17 years | Straight-line | ||
Licenses | 7-13 years | Straight-line | ||
Customer relationships | 5-8 years | Accelerated based upon the pattern of economic benefits consumed | ||
Developed technology | 8 years | Accelerated based upon the pattern of economic benefits consumed | ||
Non-competition agreements | 5 years | Straight-line |
Intangible assets that have a definite life are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable based primarily upon whether expected future undiscounted cash flows are sufficient to support the asset recovery. If the actual useful life of the asset is shorter than the estimated life, the asset may be deemed to be impaired and accordingly a write-down of the value of the asset determined by a discounted cash flow analysis or shorter amortization period may be required.
Indefinite lived intangible assets are evaluated for impairment at least annually on the first day of Orion’s fiscal fourth quarter, or when indications of potential impairment exist. This annual impairment review may begin with a qualitative test to determine whether it is more likely than not that an indefinite lived intangible asset's carrying value is greater than its fair value. If the qualitative assessment reveals that asset impairment is more likely than not, a quantitative impairment test is performed comparing the fair value of the indefinite lived intangible asset to its carrying value. Alternatively, the qualitative test may be bypassed and the quantitative impairment test may be immediately performed. If the fair value of the indefinite lived intangible asset exceeds its carrying value, the indefinite lived intangible asset is not impaired and no further review is performed. If the carrying value of the indefinite lived intangible asset exceeds its fair value, an impairment loss would be recognized in an amount equal to such excess. Once an impairment loss is recognized, the adjusted carrying value becomes the new accounting basis of the indefinite lived intangible asset.
Orion performed a qualitative assessment in conjunction with its annual impairment test of its indefinite lived intangible assets as of January 1, 2019. This qualitative assessment considered Orion’s operating results for the first nine months of fiscal 2019 in comparison to prior years as well as its anticipated fourth quarter results and fiscal 2019 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.
During the second quarter of fiscal 2018, as a result of lower than anticipated operating results in the first half of fiscal 2018, Orion revised its full year fiscal 2018 forecast. As such, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate its long-lived assets for impairment. Orion performed a quantitative impairment review of its indefinite lived intangible assets related to the Harris trade name applying the royalty replacement method to determine the asset’s fair value as of September 30, 2017. Under the royalty replacement method, the fair value of the Harris tradename was determined based on a market participant’s view of the royalty that would be paid to license the right to use the tradename. This quantitative analysis incorporated several assumptions including forecasted future revenues and cash flows, estimated royalty rate, based on similar licensing transactions and market royalty rates, and discount rate, which incorporates assumptions such as weighted-average cost of capital and risk premium. As a result of this impairment test, the carrying value of the Harris trade name exceeded its estimated fair value and an impairment of $0.7 million was recorded to Impairment of intangible assets during the quarter ended September 30, 2017 to reduce the asset’s carrying value to its calculated fair value. This fair value determination was categorized as Level 3 in the fair value hierarchy.
During the fourth quarter of fiscal 2017, Orion achieved lower than anticipated operating results, made a strategic shift in its manufacturing strategy and approach to the fluorescent and LED exterior lighting market, and revised its fiscal 2018 forecast. As a result, a triggering event occurred requiring the Company to reassess its indefinite lived intangible assets for impairment. As such Orion performed a quantitative impairment review of its indefinite lived intangible assets related to the Harris trade name applying the royalty replacement method to determine the asset’s fair value as of March 31, 2017. Under the royalty replacement method, the fair value of the Harris tradename was determined based on a market participant’s view of the royalty that would be paid to license the right to use the tradename. This quantitative analysis incorporated several assumptions including forecasted future revenues and cash flows, estimated royalty rate, based on similar licensing transactions and market royalty rates, and discount rate, which incorporates assumptions such as weighted-average cost of capital and risk premium. As a result of this impairment test, the carrying value of the Harris trade name exceeded its estimated fair value and an impairment of $0.3 million was recorded to Impairment of assets during the fourth quarter of fiscal 2017 to reduce the asset’s carrying value to its calculated fair value. This fair value determination was categorized as Level 3 in the fair value hierarchy (see “Fair Value of Financial Instruments” for the definition of Level 3 inputs).
The components of, and changes in, the carrying amount of other intangible assets were as follows (dollars in thousands):
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Patents |
| $ | 2,667 |
|
| $ | (1,529 | ) |
| $ | 1,138 |
|
| $ | 2,636 |
|
| $ | (1,370 | ) |
| $ | 1,266 |
|
Licenses |
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
Trade name and trademarks |
|
| 1,007 |
|
|
| — |
|
|
| 1,007 |
|
|
| 1,005 |
|
|
| — |
|
|
| 1,005 |
|
Customer relationships |
|
| 3,600 |
|
|
| (3,459 | ) |
|
| 141 |
|
|
| 3,600 |
|
|
| (3,326 | ) |
|
| 274 |
|
Developed technology |
|
| 900 |
|
|
| (717 | ) |
|
| 183 |
|
|
| 900 |
|
|
| (582 | ) |
|
| 318 |
|
Non-competition agreements |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100 |
|
|
| (95 | ) |
|
| 5 |
|
Total |
| $ | 8,232 |
|
| $ | (5,763 | ) |
| $ | 2,469 |
|
| $ | 8,299 |
|
| $ | (5,431 | ) |
| $ | 2,868 |
|
As of March 31, 2019, the weighted average useful life of intangible assets was 5.04 years. The estimated amortization expense for each of the next five years is shown below (dollars in thousands):
Fiscal 2020 |
| $ | 363 |
|
Fiscal 2021 |
|
| 288 |
|
Fiscal 2022 |
|
| 191 |
|
Fiscal 2023 |
|
| 100 |
|
Fiscal 2024 |
|
| 96 |
|
Thereafter |
|
| 424 |
|
|
| $ | 1,462 |
|
Amortization expense is set forth in the following table (dollars in thousands):
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Amortization included in cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
| $ | 171 |
|
| $ | 159 |
|
| $ | 158 |
|
Total |
| $ | 171 |
|
| $ | 159 |
|
| $ | 158 |
|
Amortization included in operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 133 |
|
| $ | 272 |
|
| $ | 542 |
|
Developed technology |
|
| 135 |
|
|
| 156 |
|
|
| 161 |
|
Non-competition agreements |
|
| 5 |
|
|
| 20 |
|
|
| 20 |
|
Patents |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 273 |
|
|
| 448 |
|
|
| 723 |
|
Total amortization of intangible assets |
| $ | 444 |
|
| $ | 607 |
|
| $ | 881 |
|
Orion’s management periodically reviews the carrying value of patent applications and related costs. When a patent application is probable of being unsuccessful or a patent is no longer in use, Orion writes off the remaining carrying value as a charge to general and administrative expense within its Consolidated Statement of Operations. In fiscal years 2019, 2018, and 2017, write-offs were immaterial.
Included in other income are product royalties received from licensing agreements for our patents.
NOTE 9 — ACCRUED EXPENSES AND OTHER
As of March 31, 2019 and March 31, 2014, 2018, Accrued expenses and other included the following (dollars in thousands):
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
| $ | 1,212 |
|
| $ | 1,786 |
| |
Sales tax |
|
| 713 |
|
|
| 237 |
|
Contract costs |
|
| 3,293 |
|
|
| 985 |
|
Legal and professional fees |
|
| 356 |
|
|
| 400 |
|
Warranty |
|
| 282 |
|
|
| 402 |
|
Sales returns reserve (1) |
|
| 141 |
|
|
| — |
|
Credits due to customers (1) |
|
| 987 |
|
|
| — |
|
Other accruals |
|
| 426 |
|
|
| 361 |
|
Total |
| $ | 7,410 |
|
| $ | 4,171 |
|
(1) | Sales returns reserve was previously classified in Accounts receivable, net and Credits due to customers was previously classified in Accounts payable. As of April 1, 2018, in conjunction with the adoption of ASC 606, these balances are now included in Accrued expenses and other on the Consolidated Balance Sheets. |
Orion expensed $147,000generally offers a limited warranty of one to ten years on its lighting products including the pass through of standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, ballasts, LED modules, LED chips, LED drivers, control devices, and $334,000, respectively,other fixture related items, which are significant components in compensation expenseOrion's lighting products.
Changes in Orion’s warranty accrual (both current and long-term) were as contingent considerationfollows (dollars in thousands):
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Beginning of year |
| $ | 673 |
|
| $ | 759 |
|
Reclassification on adoption of ASC 606 |
|
| 73 |
|
|
| — |
|
Accruals |
|
| 158 |
|
|
| 43 |
|
Warranty claims (net of vendor reimbursements) |
|
| (247 | ) |
|
| (129 | ) |
Ending balance |
| $ | 657 |
|
| $ | 673 |
|
NOTE 10 — NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding for employee Harris shareholdersthe period and during fiscal 2014, recorded $278,000does not consider common stock equivalents.
Diluted net loss per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In the computation of additional earn-out expensediluted net loss per common share, Orion uses the treasury stock method for non-employee Harris shareholders.
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (dollars in thousands) |
| $ | (6,674 | ) |
| $ | (13,128 | ) |
| $ | (12,288 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 29,429,540 |
|
|
| 28,783,830 |
|
|
| 28,156,382 |
|
Weighted-average common shares and share equivalents outstanding |
|
| 29,429,540 |
|
|
| 28,783,830 |
|
|
| 28,156,382 |
|
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
Diluted |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
| $ | (0.44 | ) |
The following table indicates the number of potentially dilutive securities as a minority owner and chairman of the boardend of directors.each period:
|
| March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Common stock options |
|
| 467,836 |
|
|
| 629,667 |
|
|
| 1,520,953 |
|
Restricted shares |
|
| 1,312,593 |
|
|
| 1,485,799 |
|
|
| 1,704,543 |
|
Total |
|
| 1,780,429 |
|
|
| 2,115,466 |
|
|
| 3,225,496 |
|
NOTE 511 — LONG-TERM DEBT
Long-term debt as of March 31, 20162019 and 20152018 consisted of the following (dollars in thousands):
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revolving credit facility |
| $ | 9,202 |
|
| $ | 3,908 |
|
Equipment debt obligations |
|
| 177 |
|
|
| 184 |
|
Total long-term debt |
|
| 9,379 |
|
|
| 4,092 |
|
Less current maturities |
|
| (96 | ) |
|
| (79 | ) |
Long-term debt, less current maturities |
| $ | 9,283 |
|
| $ | 4,013 |
|
| March 31, | |||||||
| 2016 | 2015 | ||||||
| Revolving credit facility | $ | 3,719 | $ | 2,500 | |||
| Harris seller's note | 546 | 1,607 | |||||
| Equipment lease obligations | 345 | — | |||||
| Customer equipment finance notes payable | 90 | 827 | |||||
| Other long-term debt | 67 | 120 | |||||
| Total long-term debt | 4,767 | 5,054 | |||||
| Less current maturities | (746 | ) | (1,832 | ) | |||
| Long-term debt, less current maturities | $ | 4,021 | $ | 3,222 | |||
On February 6, 2015,October 26, 2018, Orion and its subsidiaries entered into a credit and security agreement (Credit Agreement)new secured revolving Business Financing Agreement with Wells FargoWestern Alliance Bank, National Association.as lender (the “New Credit Agreement”). The New Credit Agreement replaced Orion’s prior Credit Agreement.
The New Credit Agreement provides for a two-year revolving credit facility (Credit Facility)(the “New Credit Facility”) that matures on February 6, 2018.October 26, 2020. Borrowings under the New Credit Facility are initially limited to $15,000,000,$20.15 million, subject to a borrowing base requirement based on eligible receivables and inventory. The New Credit FacilityAgreement includes a $2,000,000$2.0 million sublimit for the issuance of letters of credit.
The New Credit Agreement will requireis secured by a security interest in substantially all of Orion's and its subsidiaries’ personal property.
Borrowings under the New Credit Agreement generally bear interest at floating rates based upon the prime rate (but not be less than 5.00% per year) plus an applicable margin determined by reference to Orion’s quick ratio (defined as the aggregate amount of unrestricted cash, unrestricted marketable securities and, with certain adjustments, receivables convertible into cash divided by total current liabilities, including the obligations under the New Credit Agreement). As of March 31, 2019, the interest rate was 6.0%. Among other fees, Orion is required to pay an annual facility fee equal to 0.45% of the credit limit under the New Credit Agreement, which was paid at commencement (October 26, 2018) and is due on each anniversary thereof. With certain exceptions, if the New Credit Agreement is terminated prior to the first anniversary of the closing date of the New Credit Agreement, Orion is required to pay a termination fee equal to 0.50% of the credit limit under the New Credit Agreement.
The New Credit Agreement requires Orion to maintain nine months’ of “RML” as of the end of each month, a minimum ratiomonth. For purposes of the New Credit Agreement, RML is defined as, as of the applicable determination date, unrestricted cash on deposit with Western Alliance Bank plus availability under the New Credit Agreement divided by an amount equal to, for the applicable trailing twelve-monththree-month period, of (i) earningsconsolidated net profit before interest, taxes,tax, plus depreciation expense, amortization expense and amortization, subject to certain adjustments, to (ii) the sum of cash interest expense, certainstock-based compensation, minus capital lease principal payments, on indebtedness and certain dividends, distributions and stock redemptions, equal to at least 1.10 to 1.00. tested as of the end of each month.
The New Credit Agreement also contains customary events of default and other covenants, including certain restrictions on Orion’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on Orion’s stock, redeem, retire or purchase shares of Orion’s stock, make investments or pledge or transfer assets. If an event of default under the New Credit Agreement occurs and is continuing, then Western Alliance Bank may cease making advances under the New Credit Agreement and declare any outstanding obligations under the New Credit Agreement to be immediately due and payable. In addition, if Orion becomes the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the New Credit Agreement will automatically become immediately due and payable. As of March 31, 2019, Orion was in compliance with all covenants under the New Credit Agreement.
The prior Credit Agreement (“Prior Credit Agreement”) with Wells Fargo Bank, NA, as lender, provided for a revolving credit facility ("Prior Credit Facility") subject to a borrowing base requirement based on eligible receivables and inventory. Subject in each case to Orion's applicable borrowing base limitations, the Prior Credit Agreement otherwise provided for a $15.0 million Prior Credit Facility.
The Prior Credit Agreement contained additional customary covenants, including certain restrictions on Orion’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on Orion’s stock, redeem or repurchase shares of Orion’s stock, or pledge or dispose of assets.
Each subsidiary of Orion iswas a joint and several co-borrower or guarantor under the Prior Credit Agreement, and the Prior Credit Agreement iswas secured by a security interest in substantially all of Orion’s and each subsidiary’s personal property (excluding various assets relating to customer OTAs)Orion Throughput Agreements ("OTAs") and a mortgage on certain real property.
Borrowings under the Prior Credit Agreement bearbore interest at the daily three-month LIBOR plus 3.0% per annum, with a minimum interest charge for each year or portion of a year during the term of the Credit Agreement of $130,000,$0.1 million, regardless of usage. As of March 31, 2016, the interest rateOrion was 3.63%. Orion mustrequired to pay an unused line fee of 0.25% per annum of the daily average unused amount of the Prior Credit Facility and a letter of credit fee at the rate of 3.0% per annum on the undrawn amount of letters of credit outstanding from time to time under the Prior Credit Facility.
Equipment Debt Obligation
In June 2015, Orion had no outstanding letters of credit. Borrowings outstanding as of March 31, 2016, amounted to approximately $3,719,000 and are included in non-current liabilities in the accompanying Consolidated Balance Sheet. Orion estimates that as of March 31, 2016, it was eligible to borrowentered into an additional $229,000 under the Credit Facility based upon current levels of eligible inventory and accounts receivable.
In June 2015 and March 2016,February 2019, Orion entered into two leaseadditional debt agreements with De Lage Landen Financial Services, Inca financing company in the principal amount of $396,000 to$44 thousand and $30 thousand fund certain equipment. The leasesdebts are secured by the related equipment. The leasesdebts bear interest at a rate of 5.94%6.43% and 3.6%8.77% respectively and both debts mature in June 2020 and February 2018. Both leases contain a one dollar buyout option.
Customer Equipment Finance Notes Payable
In December 2014, Orion entered into a secured borrowing agreement with De Lage Landen Financial Services, Inc.a financing company in the principal amount of $446,000$0.4 million to fund completed customer contracts under its OTA finance program that were previously funded under thea different OTA credit agreement with JP Morgan, which was terminated in November 2014. This note is included in the table above as customer equipment finance notes payable.agreement. The loan amount iswas secured by the OTA-related equipment and the expected future
Aggregate Maturities
As of March 31, 2016 Orion was in compliance with the debt service covenant.
Fiscal 2020 |
| $ | 96 |
|
Fiscal 2021 |
|
| 9,238 |
|
Fiscal 2022 |
|
| 15 |
|
Fiscal 2023 |
|
| 16 |
|
Fiscal 2024 |
|
| 14 |
|
|
| $ | 9,379 |
|
| Fiscal 2017 | $ | 746 | |
| Fiscal 2018 | 3,826 | ||
| Fiscal 2019 | 83 | ||
| Fiscal 2020 | 83 | ||
| Fiscal 2021 | 29 | ||
| Thereafter | — | ||
| $ | 4,767 | ||
NOTE 612 — INCOME TAXES
The total provision (benefit) for income taxes consists of the following for the fiscal years endingended (dollars in thousands):
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Current |
| $ | (5 | ) |
| $ | 4 |
|
| $ | (261 | ) |
Deferred |
|
| 19 |
|
|
| (19 | ) |
|
| — |
|
Total |
| $ | 14 |
|
| $ | (15 | ) |
| $ | (261 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Federal |
| $ | 3 |
|
| $ | (28 | ) |
| $ | (283 | ) |
State |
|
| 11 |
|
|
| 13 |
|
|
| 22 |
|
Total |
| $ | 14 |
|
| $ | (15 | ) |
| $ | (261 | ) |
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Current | $ | 36 | $ | 49 | $ | 19 | |||||
| Deferred | — | — | (2,077 | ) | |||||||
| $ | 36 | $ | 49 | $ | (2,058 | ) | |||||
| 2016 | 2015 | 2014 | |||||||||
| Federal | $ | 15 | $ | — | $ | (1,830 | ) | ||||
| State | 21 | 49 | (228 | ) | |||||||
| $ | 36 | $ | 49 | $ | (2,058 | ) | |||||
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Statutory federal tax rate |
|
| 21.0 | % |
|
| 30.8 | % |
|
| 34.0 | % |
State taxes, net |
|
| 5.6 | % |
|
| 2.2 | % |
|
| 3.5 | % |
Federal tax credit |
|
| (0.3 | )% |
|
| (0.3 | )% |
|
| — | % |
Change in valuation reserve |
|
| (23.8 | )% |
|
| 51.4 | % |
|
| (37.6 | )% |
Permanent items |
|
| (1.1 | )% |
|
| (1.4 | )% |
|
| (0.5 | )% |
Change in tax contingency reserve |
|
| — | % |
|
| (0.1 | )% |
|
| 1.0 | % |
Federal refunds |
|
| 0.3 | % |
|
| 0.3 | % |
|
| 1.4 | % |
U.S. tax reform, corporate rate reduction |
|
| — | % |
|
| (75.2 | )% |
|
| — | % |
Equity compensation cancellations |
|
| (1.0 | )% |
|
| (15.7 | )% |
|
| — | % |
Federal loss, ASU 2016-09 |
|
| — | % |
|
| 7.7 | % |
|
| — | % |
Other, net |
|
| (0.9 | )% |
|
| 0.4 | % |
|
| 0.3 | % |
Effective income tax rate |
|
| (0.2 | )% |
|
| 0.1 | % |
|
| 2.1 | % |
| Fiscal Year Ended March 31, | ||||||||
| 2016 | 2015 | 2014 | ||||||
| Statutory federal tax rate | 34.0 | % | 34.0 | % | 34.0 | % | ||
| State taxes, net | 2.8 | % | 3.6 | % | 2.8 | % | ||
| Federal tax credit | — | % | 0.2 | % | 0.9 | % | ||
| State tax credit | — | % | 0.1 | % | 0.4 | % | ||
| Change in valuation reserve | (29.1 | )% | (37.0 | )% | (10.2 | )% | ||
| Permanent items | (7.5 | )% | (0.1 | )% | (2.9 | )% | ||
| Change in tax contingency reserve | (0.1 | )% | — | % | (0.3 | )% | ||
| Other, net | (0.3 | )% | (1.0 | )% | 0.2 | % | ||
| Effective income tax rate | (0.2 | )% | (0.2 | )% | 24.9 | % | ||
The net deferred tax assets and liabilities reported in the accompanying consolidated financial statements include the following components (dollars in thousands):
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Inventory, accruals and reserves |
|
| 1,118 |
|
|
| 1,316 |
|
Interest deduction carry-forward |
|
| 127 |
|
|
| — |
|
Federal and state operating loss carry-forwards |
|
| 22,909 |
|
|
| 21,333 |
|
Tax credit carry-forwards |
|
| 1,921 |
|
|
| 1,939 |
|
Equity compensation |
|
| 288 |
|
|
| 402 |
|
Deferred revenue |
|
| (90 | ) |
|
| (81 | ) |
Fixed assets |
|
| (781 | ) |
|
| (878 | ) |
Intangible assets |
|
| (300 | ) |
|
| (363 | ) |
Other |
|
| 194 |
|
|
| 154 |
|
Valuation allowance |
|
| (25,386 | ) |
|
| (23,803 | ) |
Total net deferred tax assets |
| $ | — |
|
| $ | 19 |
|
| March 31, | |||||||
| 2016 | 2015 | ||||||
| Inventory, accruals and reserves | $ | 3,686 | $ | 5,297 | |||
| Other | 187 | 159 | |||||
| Deferred revenue | 73 | 91 | |||||
| Valuation allowance | (3,946 | ) | (5,547 | ) | |||
| Total net current deferred tax assets and liabilities | $ | — | $ | — | |||
| Federal and state operating loss carryforwards | 19,727 | 13,154 | |||||
| Tax credit carryforwards | 1,475 | 1,475 | |||||
| Non-qualified stock options | 3,125 | 2,914 | |||||
| Deferred revenue | (31 | ) | 7 | ||||
| Fixed assets | (1,493 | ) | (1,698 | ) | |||
| Intangible assets | (1,297 | ) | (1,687 | ) | |||
| Valuation allowance | (21,506 | ) | (14,165 | ) | |||
| Total net long-term deferred tax assets and liabilities | $ | — | $ | — | |||
| Total net deferred tax assets | $ | — | $ | — | |||
The Tax Cut and Jobs Act ("Act") was enacted December 22, 2017. The Act significantly changes U.S tax law by, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%, imposing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creating new taxes on certain foreign sourced earnings.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address accounting for income tax benefits associated with the excesseffects of the Tax Reform Act. At March 31, 2018, Orion had not completed its accounting for the tax deduction available for exerciseseffects of non-qualified stock options, or NQSOs, over the amount recorded at grant. The amountenactment of the benefit is based uponAct; however, as described below, Orion had made a reasonable estimate of the ultimate deduction reflected ineffects on its existing deferred tax balances and the applicable incomeone-time transition tax.
Orion remeasured its deferred tax return. Benefits of $0, $0 and $13,000 were recorded in fiscal 2016, fiscal 2015 and fiscal 2014, respectively, as a reduction in taxes payable and a credit to additional paid in capitalassets based on the amount that was utilizedrates at which they are expected to reverse in the current year.future, which is generally the 21% federal corporate tax rate. The provisional amount recorded related to the remeasurement of its deferred tax balance decreased deferred tax assets by $9.9 million in fiscal 2018. Substantially all of this decrease to deferred tax assets was offset by a corresponding decrease to the valuation allowance. There was no impact on the prior year income tax expense for the federal corporate tax rate change due to Orion's prior year taxable loss.
The Act also required companies to pay a one-time transition tax on Orion's total post-1986 earnings and profits ("E&P") of its foreign subsidiary that were previously tax deferred from US income taxes. Since Orion's foreign subsidiary had negative E&P, the company estimated there was no transition tax to be reported in income tax expense. As of December 31, 2018, Orion did not adjust its estimates and considered all changes due to the Act final.
As of March 31, 2016,2019, Orion has federal net operating loss carryforwards of approximately $55,807,000, of which $3,586,000 are associated with the exercise of NQSOs that have not yet been recognized by Orion in its financial statements. Orion also has$88.1 million, and state net operating loss carryforwardscarry-forwards of approximately $42,181,000,$74.1 million. Upon adoption of which $3,941,000 areASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, in the prior fiscal year, the federal and state loss carryforwards associated with the exercisehistoric exercises of NQSOs.NQSOs have been recorded as deferred tax assets. Orion also has federal tax credit carryforwardscarry-forwards of approximately $1,475,000$1.3 million and state tax credits of $769,000.$0.8 million. All of Orion's tax credit carry-forwards and $155.1 million of its net operating loss and tax credit carryforwardscarry-forwards will begin to expire in varying amounts between 2020 and 2036. 2039. The remaining $7.1 million of its federal and state loss carry-forwards are not subject to time restrictions but may only be used to offset 80% of adjusted taxable income. Additionally, Orion has approximately $0.5 million of interest expense carry-forward that is not subject to time restrictions but subject to a 30% adjusted taxable income limitation. All of its carry-forwards are offset by a valuation allowance
For the fiscal year ended March 31, 2016,2019, Orion has recorded a valuation allowance of $25,452,000, equaling the$25.4 million against its net deferred tax assetassets due to the uncertainty of its realization value in the future. For the fiscal yearsyear ended March 31, 2016 and March 31, 2015,2019, the valuation allowance against Orion's net federal and net state deferred tax assets increased $5,740,000 and $11,802,000, respectively.$1.6 million, primarily due to the current year loss. For the fiscal year ended March 31, 2018, the valuation allowance decreased $6.8 million, primarily because of the reduction in the corporate tax rate. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the deferred tax assets are able to be realized, an adjustment to the deferred tax asset would increase income in the period such determination is made.
Generally, a change of more than 50% in the ownership of Orion's stock, by value, over a three yearthree-year period constitutes an ownership change for federal income tax purposes as defined under Section 382 of the Internal Revenue Code. As a result, Orion's
Orion records its tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where Orion believes that a tax position is supportable for income tax purposes, the item is included in their income tax returns. Where treatment of a position is uncertain, a liability is recorded based upon the expected most likely outcome taking into consideration the technical merits of the position based on specific tax regulations and facts of each matter. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute of limitations.
Orion files income tax returns in the United States federal incomejurisdiction and in several state jurisdictions. The Company's federal tax returns for tax years 2009 to 2011 was complete. The resolutionbeginning April 1, 2015 or later are open. For states in which Orion files state income tax returns, the statute of this examination did not have a material effect on its business, financial condition, results of operations or liquidity.
State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of any federal changes remains subject to examination by various states for a period of up to two years after formal notification to the states. Orion currently has no state income tax return positions in the process of examination, administrative appeals or litigation.
Uncertain tax positions
As of March 31, 2016,2019, the balance of gross unrecognized tax benefits was approximately $227,000,$0.1 million, all of which would reduceaffect Orion’s effective tax rate if recognized.
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) 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. Orion had the following unrecognized tax benefit activity (dollars in thousands):
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Unrecognized tax benefits as of beginning of fiscal year |
| $ | 129 |
|
| $ | 113 |
|
| $ | 227 |
|
Additions based on tax positions related to the current period positions |
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
Additions/(Reductions) for tax positions of prior years |
|
| — |
|
|
| 14 |
|
|
| (116 | ) |
Unrecognized tax benefits as of end of fiscal year |
| $ | 130 |
|
| $ | 129 |
|
| $ | 113 |
|
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Unrecognized tax benefits as of beginning of fiscal year | $ | 212 | $ | 210 | $ | 188 | |||||
| Additions based on tax positions related to the current period positions | 15 | 2 | 22 | ||||||||
| Unrecognized tax benefits as of end of fiscal year | $ | 227 | $ | 212 | $ | 210 | |||||
NOTE 713 — COMMITMENTS AND CONTINGENCIES
Operating Leases
Orion leases office space and equipment under operating leases expiring at various dates through 2020.2021. Rent expense under operating leases was $502,000, $398,000$0.7, $0.9 and $1,238,000$0.9 for fiscal 2016, 20152019, 2018 and 2014,2017, respectively. Total annual commitments under non-cancelable operating leases with terms in excess of one year at March 31, 20162019 are as follows (dollars in thousand)thousands):
Fiscal 2020 |
| $ | 506 |
|
Fiscal 2021 |
|
| 323 |
|
|
| $ | 829 |
|
| Fiscal 2017 | $ | 512 | |
| Fiscal 2018 | 611 | ||
| Fiscal 2019 | 426 | ||
| Fiscal 2020 | 98 | ||
| Thereafter | — | ||
| $ | 1,647 | ||
On April 28, 2017, Orion renewed the lease for its Jacksonville, Florida office space for an additional three-year term with annual rent expense of approximately $0.1 million.
On March 1,31, 2016, Orion entered into a purchase and sale agreement ("Agreement") with third party to sell and leaseback Orion's manufacturing and distribution facility for gross cash proceeds of $2.6 million. The transaction closed on June 30, 2016. Pursuant to the Agreement, a lease agreement as a lessor for excess office space at its corporate headquarterswas entered into on June 30, 2016, in Manitowoc, WI. The initial termwhich Orion is leasing approximately 197,000 square feet of the building for not less than three years, with rent at $2.00 per square foot per annum. Orion's monthly payment under this lease is 24 months andapproximately $33,000. The lease contains options by either party to reduce the tenant has the optionamount of leased space after March 1, 2017. On March 22, 2018, both parties agreed to extend the term for up to three additional twelve months periods. The monthly rental payment Orion receiveslease until December 31, 2020. Annual rent expense is $21,000 and is included in General and administrative expenses.
Purchase Commitments
Orion enters into non-cancellable purchase commitments for certain inventory items in order to secure better pricing and ensure materials on hand and capital expenditures.hand. As of March 31, 2016,2019, Orion had entered into $2,189,000$13.6 million of purchase commitments related to fiscal 20172020 for inventory purchases.
Retirement Savings Plan
Orion sponsors a tax deferred retirement savings plan that permits eligible employees to contribute varying percentages of their compensation up to the limit allowed by the Internal Revenue Service. This plan also provides for discretionary contributions by Orion. In fiscal 2016, 20152019, 2018 and 2014,2017, Orion made matching contributions of approximately $10,000, $23,000 and $26,000, respectively.
Litigation
Orion is subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, Orion is unable to currently assess whether the final resolution of any of such claims or legal proceedings may have a material adverse effect on Orion.our future results of operations. In addition to ordinary-course litigation, Orion is a party to the proceedings described below.
On March 27, 2014, Orion was named asNovember 10, 2017, a defendant inpurported shareholder, Stephen Narten, filed a civil lawsuit filed by Neal R. Verfuerth, Orion's former chief executive officer who was terminated for cause in November 2012, in the United States DistrictCircuit Court for Manitowoc County against those individuals who served on Orion's board of directors during fiscal years 2015, 2016, and 2017 and certain current and former officers during the Eastern District of Wisconsin (Green Bay Division).same period. The plaintiff, alleges, among other things,who purported to bring the suit derivatively on behalf of Orion, alleged that the director defendants breached their fiduciary duties in connection with granting certain stock-based incentive awards under Orion's 2004 Stock and Incentive Awards Plan and that the directors and current and former officers breached their fiduciary duties by accepting those awards. During the first quarter of fiscal 2019, the parties reached a settlement of the claims and the case was dismissed. The settlement did not have a material impact on Orion's results of operations, cash flows or financial condition.
State Tax Assessment
In June 2016, Orion breached certain agreements entered intonegotiated a settlement with the plaintiff, including the plaintiff’s employment agreement, and violated certain laws. The complaint seeks, among other relief, unspecified pecuniary and compensatory damages, fees and such other relief as the court may deem just and proper. On November 4, 2014, the court granted Orion's motion to dismiss sixWisconsin Department of the plaintiff's claims. On January 9, 2015, the plaintiff filed an amended complaint re-alleging claims that were dismissed by the court, including, among other things, a retaliation claim and certain claimsRevenue with respect to prior management agreementsan assessment regarding the proper classification of its products for tax purposes under Wisconsin law for $0.5 million.
During fiscal year 2018, Orion was notified of a pending sales and certain intellectual property rights. On January 22, 2015, Orion filed a motion to dismiss and a motion to strike certainuse tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of the claims madeCompany’s sales and use tax audit is uncertain, based on current information, in the amended complaint. On May 18, 2015, the court dismissed the intellectual property claims re-alleged in the January 9, 2015 amended complaint. At the court's direction, the parties attempted to mediate the matter in May 2016, but were unsuccessful in resolving the matter. Orion intends to continue to defend against the claims vigorously. Orion believes that it has substantial legal and factual defenses to the claims and allegations remaining in the case and that Orion will prevail in this proceeding. Based upon the current statusopinion of the lawsuit, Orion doesCompany’s management, the ultimate disposition of these matters will not believe that it is reasonably possible that the lawsuit will have a material adverse impacteffect on its future continuing resultsthe Company’s consolidated balance sheet, statements of operations.
During fiscal 2019, Orion was notified of a pending sales and use tax audit by the California Department of Tax and Fee Administration for the period covering April 1, 2015 through March 31, 2018. Although the final resolution of Orion’s sales and use tax audit is uncertain, based on current information, in the opinion of Orion’s management, the ultimate disposition of these matters will not have a material adverse effect on Orion’s consolidated balance sheets, statement of operations, or liquidity.
NOTE 814 — SHAREHOLDERS’ EQUITY
Share Repurchase Program and Treasury Stock
In October 2011, Orion’s Board of Directors approved a share repurchase program authorizing Orion to repurchase in aggregate up to a maximum of $1,000,000 of Orion’s outstanding common stock. In November 2011, Orion’s Board of Directors approved an increase to the share repurchase program authorizing Orion to repurchase in aggregate up to a maximum of $2,500,000 of Orion’s outstanding common stock. In April 2012, Orion's Board approved another increase to the share repurchase program authorizing Orion to repurchase in aggregate up to a maximum of $7,500,000 of Orion's outstanding common stock. As of March 31, 2016,2019, Orion had repurchased 3,022,349 shares of common stock at a cost of $6,791,000$6.8 million under the program. Orion did not repurchase any shares in fiscal 2016,2019, fiscal 20152018 or fiscal 20142017 and does not intend to repurchase any additional common stock under this program in the near-term.
In prior years, Orion issued loans to non-executive employees to purchase shares of its stock. The loan program has been discontinued and new loans are no longer issued. As of March 31, 2017, $4 thousand of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account. During the quarter ended June 30, 2017, Orion entered into agreements with the counterparties to these loans. In exchange for the forgiveness of their outstanding loan balance, the employees returned their shares to Orion. As a result of this transaction, 1,230 shares were recorded within treasury stock and the loan balances have been eliminated.
Shareholder Rights Plan
On January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amends the Rights Agreement dated as of January 7, 2009, Orion’s Board of Directors adopted a shareholder rights plan and declared a dividend distribution of one2009. Under the amendment, each common share purchase right, (Right) for each outstanding share of Orion’s common stock. The issuance date forif exercisable, will initially represent the distribution of the Rights was February 15, 2009 to shareholders of record on February 1, 2009. Each Right entitles the registered holderright to purchase from Orion, one share of Orion’s common stock, atno par value per share, for a purchase price of $30.00$7.00 per share, subject to adjustment (Purchase Price).
The Rights will not be exercisable (and will be transferable only with Orion’s common stock) until a “Distribution Date” occurs (or the Rights are earlier redeemed or expire). A Distribution Date generally will occur on the earlier of a public announcement
intention to make, a tender offer or exchange offer that would result in any such person or group of persons acquiring such beneficial ownership.
If a person becomes an Acquiring Person, holders of Rights (except as otherwise provided in the shareholder rights plan) will have the right to receive that number of shares of Orion’s common stock having a market value of two times the then-current Purchase Price, and all Rights beneficially owned by an Acquiring Person, or by certain related parties or transferees, will be null and void. If, after a Shares Acquisition Date, Orion is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (except as otherwise provided in the shareholder rights plan) will thereafter have the right to receive that number of shares of the acquiring company’s common stock which at the time of such transaction will have a market value of two times the then-current Purchase Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Orion. At any time prior to a person becoming an Acquiring Person, the Board of Directors of Orion may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. Unless they are extended or earlier redeemed or exchanged, the Rights will expire on January 7, 2019.
Employee Stock Purchase Plan
In August 2010, Orion’s boardBoard of directorsDirectors approved a non-compensatory employee stock purchase plan, or ESPP. The ESPP authorizes 2,500,000 shares to be issued from treasury or authorized shares to satisfy employee share purchases under the ESPP. All full-time employees of Orion are eligible to be granted a non-transferable purchase right each calendar quarter to purchase directly from Orion up to $20,000 of Orion’s common stock at a purchase price equal to 100% of the closing sale price of Orion’s common stock on The NASDAQ Capital Market on the last trading day of each quarter. In prior years, Orion issued loans to non-executive employees to purchase shares of its stock. The ESPP allows for employee loans from Orion, except for Section 16 officers, limited to 20% of an individual’s annual incomeloan program has been discontinued and no more than $250,000 outstanding at any one time. Interest on the loans is charged at the 10-year loan IRS rate and is payable at the end of each calendar year or upon loan maturity. Thenew loans are secured by a pledge of any and all Orion’s shares purchased by the participant under the ESPP and Orion has full recourse against the employee, including offset against compensation payable. As of March 31, 2013, Orion had halted the loan program.no longer issued. Orion had the following shares issued from treasury during fiscal 20162019 and fiscal 2015:
|
| As of March 31, 2019 |
| ||||||||||||||||||
|
| Shares Issued Under ESPP Plan |
|
| Closing Market Price |
|
| Shares Issued Under Loan Program |
|
| Dollar Value of Loans Issued |
|
| Settlement of Loans |
| ||||||
Quarter Ended March 31, 2019 |
|
| 1,581 |
|
| $ |
| 0.89 |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
Quarter Ended December 31, 2018 |
|
| 1,708 |
|
| $ |
| 0.57 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Quarter Ended September 30, 2018 |
|
| 938 |
|
| $ |
| 0.96 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Quarter Ended June 30, 2018 |
|
| 415 |
|
| $ |
| 1.10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 4,642 |
|
| $ | 0.57 - 1.10 |
|
|
| — |
|
|
| — |
|
|
| — |
| |
|
| As of March 31, 2018 |
| ||||||||||||||||||
|
| Shares Issued Under ESPP Plan |
|
| Closing Market Price |
|
| Shares Issued Under Loan Program |
|
| Dollar Value of Loans Issued |
|
| Settlement of Loans |
| ||||||
Quarter Ended March 31, 2018 |
|
| 1,780 |
|
| $ |
| 0.85 |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
Quarter Ended December 31, 2017 |
|
| 3,446 |
|
| $ |
| 0.88 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Quarter Ended September 30, 2017 |
|
| 2,681 |
|
| $ |
| 1.12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Quarter Ended June 30, 2017 |
|
| 2,150 |
|
| $ |
| 1.28 |
|
|
| — |
|
|
| — |
|
|
| 4,000 |
|
Total |
|
| 10,057 |
|
| $ | 0.85 - 1.28 |
|
|
| — |
|
|
| — |
|
| $ | 4,000 |
| |
| As of March 31, 2016 | |||||||||||||||
| Shares Issued Under ESPP Plan | Closing Market Price | Shares Issued Under Loan Program | Dollar Value of Loans Issued | Repayment of Loans | |||||||||||
| Quarter Ended March 31, 2016 | 1,435 | $1.39 | — | $ | — | $ | — | ||||||||
| Quarter Ended December 31, 2015 | 1,170 | $2.17 | — | — | — | ||||||||||
| Quarter Ended September 30, 2015 | 779 | $1.80 | — | — | — | ||||||||||
| Quarter Ended June 30, 2015 | 541 | $2.51 | — | — | — | ||||||||||
| Total | 3,925 | $1.39 - 2.51 | — | $ | — | $ | — | ||||||||
| As of March 31, 2015 | |||||||||||||||
| Shares Issued Under ESPP Plan | Closing Market Price | Shares Issued Under Loan Program | Dollar Value of Loans Issued | Repayment of Loans | |||||||||||
| Quarter Ended March 31, 2015 | 492 | $3.14 | — | $ | — | $ | 35,400 | ||||||||
| Quarter Ended December 31, 2014 | 289 | $5.50 | — | — | — | ||||||||||
| Quarter Ended September 30, 2014 | 322 | $5.35 | — | — | 1,000 | ||||||||||
| Quarter Ended June 30, 2014 | 383 | $4.07 | — | — | 9,600 | ||||||||||
| Total | 1,486 | $3.14 - 5.50 | — | $ | — | $ | 46,000 | ||||||||
As of March 31, 2017, $4 thousand of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account.
NOTE 915 — STOCK OPTIONS AND RESTRICTED SHARES AND WARRANTS
At Orion's 2016 Annual Meeting of Shareholders held on August 3, 2016, Orion's shareholders approved the Orion has historically grantedEnergy Systems, Inc. 2016 Omnibus Incentive Plan (the "Plan"). The Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Plan may consist of stock options, andstock appreciation
rights, performance shares, performance units, shares of Orion's common stock ("Common Stock"), restricted stock, restricted stock units, incentive awards or dividend equivalent units. An aggregate of 1,750,000 shares of Common Stock are reserved for issuance under the Plan. As of March 31, 2019, the number of shares available for grant under the plans were 107,860.
Prior to shareholder approval of the Plan, the Company maintained its 2003 Stock Option and 2004 Stock and Incentive Awards Plans (Plans). UnderPlan, as amended, which authorized the termsgrant of the Plans, Orion has reserved 13,500,000 shares for issuance to key employees, consultantscash and directors. The options generally vest and become exercisable ratably between one month and five years although longer and shorter vesting periods have been used in certain circumstances. Exercisability of the options grantedequity awards to employees are generally contingent on the employees’ continued employment and non-vested options are subject to forfeiture if employment terminates
Certain non-employee directors have elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program. The PlansPlan and the Former Plan also provide to certain employeespermit accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.
Orion historically granted stock options and restricted stock under the Former Plan. Orion has not issued stock options since fiscal 2014 and instead has issued restricted stock.
Orion accounts for stock-based compensation in accordance with ASC 718, Compensation Committee- Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the Board of Directors changed Orion's long-term equity incentive grant policy so that only restricted shares are issued to all employees under the Plans instead of stock options. The restricted shares are settled in Company stock when the restriction period ends. Compensation cost for restricted shares granted to employeesaward and is recognized as expense ratably over the vesting term, which is typically between three to five years, although on occasion, the vesting term may be one year or less. Settlement of the shares is contingent on the employees’ continued employment and non-vested shares are subject to forfeiture if employment terminates for any reason. requisite service period.
In fiscal 2016,2019, an aggregate of 795,805529,000 restricted shares were granted valued at a price per share between $1.34$0.84 and $2.62,$1.00, which was the closing market price as of each grant date. In fiscal 2015,2018, an aggregate of 410,496730,410 restricted shares were granted valued at a price per share between $4.16$0.88 and $7.23,$1.95, which was the closing market price as of each grant date. In fiscal 2014,2017, an aggregate of 526,6631,132,392 restricted shares were granted valued at a price per share between $2.41$1.35 and $6.97,$2.22, which was the closing market price as of each grant date.
In fiscal 2016,2018, Orion granted 35,29024,747 shares from the 2004 Stock and Incentive Awards Plan and the 2016 Omnibus Incentive Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $0.80 to $1.28 per share, the closing market price as of the issuance dates. In fiscal 2017, Orion granted 53,501 shares from the 2004 Stock and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $1.20$1.38 to $2.62$1.85 per share, the closing market price as of the issuance dates. Additionally, during fiscal
On June 7, 2016, Orion issued 2,500and sold 57,065 shares of its common stock to a consultant as partan executive. On August 5, 2016, Orion sold an aggregate of a consulting compensation agreement.63,381 shares of its common stock, in equal amounts, to three recently retired members of Orion's board of directors. In each case above, the purchase price for the shares was calculated based on the closing price of Orion's common stock on the NASDAQ Capital Market of the date of the issuance. The shares of common stock were valued at $2.00 per share,offered and sold pursuant to an exemption from the closing market price asregistration requirements of the issuance date. In fiscal 2015, Orion granted 27,931 shares from the 2004 StockSecurities Act of 1933, as amended, pursuant to Section 4(2) and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $4.20 to $5.23 per share, the closing market price as of the issuance dates. In fiscal 2014, Orion granted 33,641 shares from the 2004 Stock and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $2.41 to $5.73 per share, the closing market price as of the issuance dates.
The following amounts of stock-based compensation expense for restricted shares and options were recorded (dollars in thousands):
|
| Fiscal Year Ended March 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Cost of product revenue |
| $ | 2 |
|
| $ | 12 |
|
| $ | 30 |
|
Cost of service revenue |
|
| 3 |
|
|
| — |
|
|
| — |
|
General and administrative |
|
| 764 |
|
|
| 929 |
|
|
| 1,337 |
|
Sales and marketing |
|
| 54 |
|
|
| 155 |
|
|
| 139 |
|
Research and development |
|
| 2 |
|
|
| 6 |
|
|
| 99 |
|
|
| $ | 825 |
|
| $ | 1,102 |
|
| $ | 1,605 |
|
| Fiscal Year Ended March 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Cost of product revenue | $ | 36 | $ | 50 | $ | 70 | |||||
| General and administrative | 1,148 | 1,056 | 1,025 | ||||||||
| Sales and marketing | 235 | 360 | 485 | ||||||||
| Research and development | 43 | 33 | 13 | ||||||||
| $ | 1,462 | $ | 1,499 | $ | 1,593 | ||||||
|
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Outstanding at March 31, 2016 |
|
| 2,017,046 |
|
| $ | 3.32 |
|
Granted |
|
| — |
|
| $ | — |
|
Exercised |
|
| (80,000 | ) |
| $ | 2.20 |
|
Forfeited |
|
| (416,093 | ) |
| $ | 3.41 |
|
Outstanding at March 31, 2017 |
|
| 1,520,953 |
|
| $ | 3.36 |
|
Granted |
|
| — |
|
| $ | — |
|
Exercised |
|
| — |
|
| $ | — |
|
Forfeited |
|
| (891,286 | ) |
| $ | 3.51 |
|
Outstanding at March 31, 2018 |
|
| 629,667 |
|
| $ | 3.14 |
|
Granted |
|
| — |
|
| $ | — |
|
Exercised |
|
| — |
|
| $ | — |
|
Forfeited |
|
| (161,831 | ) |
| $ | 3.61 |
|
Outstanding at March 31, 2019 |
|
| 467,836 |
|
| $ | 2.98 |
|
Exercisable at March 31, 2019 |
|
| 463,836 |
|
|
|
|
|
| Number of Shares | Weighted Average Exercise Price | Weighted Average Fair Value of Options Granted | Aggregate Intrinsic Value | ||||||||||
| Outstanding at March 31, 2013 | 3,312,523 | $ | 3.42 | 1.23 | |||||||||
| Granted | 305,544 | $ | 1.98 | ||||||||||
| Exercised | (446,059 | ) | $ | 2.25 | |||||||||
| Forfeited | (455,691 | ) | $ | 3.26 | |||||||||
| Outstanding at March 31, 2014 | 2,716,317 | $ | 3.43 | 1.32 | |||||||||
| Granted | — | $ | — | ||||||||||
| Exercised | (139,407 | ) | $ | 2.46 | |||||||||
| Forfeited | (150,074 | ) | $ | 3.13 | |||||||||
| Outstanding at March 31, 2015 | 2,426,836 | $ | 3.50 | — | |||||||||
| Granted | — | $ | — | ||||||||||
| Exercised | (46,410 | ) | $ | 2.09 | |||||||||
| Forfeited | (363,380 | ) | $ | 4.68 | |||||||||
| Outstanding at March 31, 2016 | 2,017,046 | $ | 3.32 | — | $ | — | |||||||
| Exercisable at March 31, 2016 | 1,811,146 | $ | — | ||||||||||
The aggregate intrinsic value represents the total pre-tax intrinsic value, which is calculated as the difference between the exercise price of the underlying stock options and the fair value of Orion’s closing common stock price of $1.39$0.89 as of March 31, 2016.
The following table summarizes the range of exercise prices on outstanding stock options at March 31, 2016:
|
| March 31, 2019 |
| |||||||||||||||||
|
| Outstanding |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Weighted Average Exercise Price |
|
| Vested |
|
| Weighted Average Exercise Price |
| |||||
$1.62 - 2.20 |
|
| 143,292 |
|
|
| 3.51 |
|
| $ | 1.90 |
|
|
| 143,292 |
|
| $ | 1.90 |
|
$2.41 - 2.75 |
|
| 100,936 |
|
|
| 3.91 |
|
|
| 2.48 |
|
|
| 100,936 |
|
|
| 2.48 |
|
$2.86 - 4.28 |
|
| 194,308 |
|
|
| 1.51 |
|
|
| 3.68 |
|
|
| 190,308 |
|
|
| 3.68 |
|
$4.49 - 4.76 |
|
| 5,000 |
|
|
| 0.84 |
|
|
| 4.70 |
|
|
| 5,000 |
|
|
| 4.70 |
|
$5.35 - 5.44 |
|
| 24,300 |
|
|
| 0.85 |
|
|
| 5.44 |
|
|
| 24,300 |
|
|
| 5.44 |
|
|
|
| 467,836 |
|
|
| 2.60 |
|
| $ | 2.98 |
|
|
| 463,836 |
|
| $ | 2.97 |
|
| March 31, 2016 | |||||||||||
| Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Vested | Weighted Average Exercise Price | |||||||
| $1.62 - 2.20 | 684,476 | 4.93 | $1.98 | 558,776 | $1.98 | ||||||
| $2.41 - 2.75 | 373,144 | 6.24 | 2.45 | 360,744 | 2.44 | ||||||
| $2.86 - 4.28 | 719,971 | 4.07 | 3.41 | 652,171 | 3.44 | ||||||
| $4.49 - 4.76 | 25,400 | 2.40 | 4.64 | 25,400 | 4.64 | ||||||
| $5.35 - 5.44 | 77,204 | 3.03 | 5.39 | 77,204 | 5.39 | ||||||
| $9.00 | 27,000 | 1.87 | 9.00 | 27,000 | 9.00 | ||||||
| $10.14 - 11.61 | 109,851 | 1.66 | 10.87 | 109,851 | 10.87 | ||||||
| 2,017,046 | 4.54 | $3.32 | 1,811,146 | $3.43 | |||||||
During fiscal 2016,2019, Orion recognized $5,365 of stock-based compensation expense related to stock options.
During fiscal 2019, Orion granted restricted shares as follows (which are included in the above stock plan activity tables):follows:
Balance at March 31, 2018 | 1,485,799 | |||
Shares issued | 529,000 | |||
Shares vested | (653,394 | ) | ||
Shares forfeited | (48,812 | ) | ||
Shares outstanding at March 31, 2019 | 1,312,593 | |||
Per share price on grant date | $0.84 - 1.00 | |||
| Balance at March 31, 2015 | 704,688 | ||
| Shares issued | 795,805 | ||
| Shares vested | (240,633 | ) | |
| Shares forfeited | (206,471 | ) | |
| Shares outstanding at March 31, 2016 | 1,053,389 | ||
| Per share price on grant date | $1.34-2.62 | ||
| Compensation expense | $ | 1,306,191 | |
During fiscal 2019, Orion recognized $0.8 million of stock-based compensation expense related to restricted shares.
As of March 31, 2016,2019, the weighted average grant-date fair value of restricted shares granted was $2.06.$0.84.
Unrecognized compensation cost related to non-vested common stock-based compensation as of March 31, 20162019 is expected to be recognized as follows (dollars in thousands):
Fiscal 2020 |
| $ | 535 |
|
Fiscal 2021 |
|
| 239 |
|
Fiscal 2022 |
|
| 40 |
|
Fiscal 2023 |
|
| 2 |
|
Fiscal 2024 |
|
| — |
|
Thereafter |
|
| — |
|
|
| $ | 816 |
|
Remaining weighted average expected term |
| 1.7 years |
| |
| Fiscal 2017 | $ | 1,113 | |
| Fiscal 2018 | 771 | ||
| Fiscal 2019 | 274 | ||
| Fiscal 2020 | 72 | ||
| Fiscal 2021 | 12 | ||
| Thereafter | — | ||
| $ | 2,242 | ||
| Remaining weighted average expected term | 2.6 years | ||
| Number of Shares | Weighted Average Exercise Price | |||||
| Outstanding at March 31, 2013 | 38,980 | $ | 2.25 | |||
| Issued | — | — | ||||
| Exercised | — | $ | — | |||
| Cancelled | — | $ | — | |||
| Outstanding at March 31, 2014 | 38,980 | $ | 2.25 | |||
| Issued | — | — | ||||
| Exercised | (38,980 | ) | 2.25 | |||
| Cancelled | — | — | ||||
| Outstanding at March 31, 2015 and March 31,2016 | — | $ | — | |||
NOTE 1016 — SEGMENT DATA
Orion reorganized its business intohas the following business segments: Orion U.S. Markets Division ("USM"), Orion Engineered Services Division ("OES"(“OES”) and, Orion Distribution Services Division ("ODS"(“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 Engineered Systems Division ("OES"(“OES”)
The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial LED and High Intensity Fluorescent ("HIF") lighting and energy management systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.
Orion Distribution Services Division ("ODS"(“ODS”)
The ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North American distributors.
Orion U.S. Markets Division (“USM”)
The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers are primarily comprised of 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 which primarily include intercompany eliminations.
|
| Revenues |
|
| Operating Loss |
| ||||||||||||||||||
|
| For the year ended March 31, |
|
| For the year ended March 31, |
| ||||||||||||||||||
(dollars in thousands) |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Systems |
| $ | 30,925 |
|
| $ | 23,827 |
|
| $ | 29,501 |
|
| $ | (1,237 | ) |
| $ | (3,792 | ) |
| $ | (3,647 | ) |
Distribution Services |
|
| 24,173 |
|
|
| 27,906 |
|
|
| 22,858 |
|
|
| (1,742 | ) |
|
| (325 | ) |
|
| (927 | ) |
U.S. Markets |
|
| 10,656 |
|
|
| 8,567 |
|
|
| 17,852 |
|
|
| 1,132 |
|
|
| (3,123 | ) |
|
| (1,357 | ) |
Corporate and Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,310 | ) |
|
| (5,741 | ) |
|
| (6,596 | ) |
|
| $ | 65,754 |
|
| $ | 60,300 |
|
| $ | 70,211 |
|
| $ | (6,157 | ) |
| $ | (12,981 | ) |
| $ | (12,527 | ) |
|
| Depreciation and Amortization For the year ended March 31, |
|
| Capital Expenditures For the year ended March 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Systems |
| $ | 774 |
|
| $ | 988 |
|
| $ | 1,249 |
|
| $ | 165 |
|
| $ | 151 |
|
| $ | 224 |
|
Distribution Services |
|
| 485 |
|
|
| 275 |
|
|
| 148 |
|
|
| 44 |
|
|
| 217 |
|
|
| 184 |
|
U.S. Markets |
|
| 233 |
|
|
| 267 |
|
| $ | 359 |
|
| $ | 31 |
|
|
| 73 |
|
|
| 150 |
|
Corporate and Other |
|
| 291 |
|
|
| 481 |
|
|
| 576 |
|
|
| 215 |
|
|
| 71 |
|
|
| 102 |
|
|
| $ | 1,783 |
|
| $ | 2,011 |
|
| $ | 2,332 |
|
| $ | 455 |
|
| $ | 512 |
|
| $ | 660 |
|
|
| Total Assets |
| |||||
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
Segments: |
|
|
|
|
|
|
|
|
Engineered Systems |
| $ | 28,486 |
|
| $ | 13,570 |
|
Distribution Services |
|
| 5,704 |
|
|
| 9,315 |
|
U.S. Markets |
|
| 4,578 |
|
|
| 3,354 |
|
Corporate and Other |
|
| 17,253 |
|
|
| 19,086 |
|
|
| $ | 56,021 |
|
| $ | 45,325 |
|
| Revenues | Operating (Loss) Profit | ||||||||||||||||||||||
| (dollars in thousands) | For the year ended March 31, | For the year ended March 31, | |||||||||||||||||||||
| 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
| Segments: | |||||||||||||||||||||||
| U.S. Markets | $ | 38,841 | $ | 37,778 | $ | 38,766 | $ | (4,958 | ) | $ | (12,542 | ) | $ | (1,012 | ) | ||||||||
| Engineered Systems | 26,325 | 33,454 | 49,857 | (6,982 | ) | (12,431 | ) | 1,260 | |||||||||||||||
| Distribution Services | 2,476 | 978 | — | (632 | ) | (455 | ) | — | |||||||||||||||
| Corporate and Other | — | — | — | (7,349 | ) | (6,508 | ) | (8,591 | ) | ||||||||||||||
| $ | 67,642 | $ | 72,210 | $ | 88,623 | $ | (19,921 | ) | $ | (31,936 | ) | $ | (8,343 | ) | |||||||||
| Depreciation and Amortization | Capital Expenditures | ||||||||||||||||||||||
| For the year ended March 31, | For the year ended March 31, | ||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
| Segments: | |||||||||||||||||||||||
| U.S. Markets | $ | 1,168 | $ | 1,711 | $ | 2,667 | $ | 72 | $ | 626 | $ | 276 | |||||||||||
| Engineered Systems | 1,987 | 1,404 | 302 | 43 | 495 | — | |||||||||||||||||
| Distribution Services | 71 | 32 | — | 10 | 40 | — | |||||||||||||||||
| Corporate and Other | 939 | 1,036 | 1,569 | 276 | 845 | 134 | |||||||||||||||||
| $ | 4,165 | $ | 4,183 | $ | 4,538 | $ | 401 | $ | 2,006 | $ | 410 | ||||||||||||
| Total Assets | Deferred Revenue | ||||||||||||||
| March 31, 2016 | March 31, 2015 | March 31, 2016 | March 31, 2015 | ||||||||||||
| Segments: | |||||||||||||||
| U.S. Markets | $ | 18,503 | $ | 27,769 | $ | 167 | $ | 157 | |||||||
| Engineered Systems | 21,885 | 27,435 | 1,098 | 1,361 | |||||||||||
| Distribution Services | 1,386 | 261 | — | — | |||||||||||
| Corporate and Other | 29,101 | 32,340 | — | — | |||||||||||
| $ | 70,875 | $ | 87,805 | $ | 1,265 | $ | 1,518 | ||||||||
Orion’s revenue outside the United States is insignificant and Orion has no long-lived assets outside the United States.
NOTE 17 — RESTRUCTURING EXPENSE
During fiscal 2018, we executed on a cost reduction plan by entering into separation agreements with multiple employees and recognized $43 thousand and $2.1 million of expense in fiscal 2019 and fiscal 2018, respectively, in employee separation related costs. Our restructuring expense for the twelve months ended March 31, 2019 and March 31, 2018 is reflected within our consolidated statements of operations as follows (dollars in thousands):
|
| Year Ended March 31, |
|
| Year Ended March 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Cost of product revenue |
| $ | — |
|
| $ | 34 |
|
General and administrative |
|
| 26 |
|
|
| 1,822 |
|
Sales and marketing |
|
| 17 |
|
|
| 211 |
|
Research and development |
|
| — |
|
|
| 79 |
|
Total |
| $ | 43 |
|
| $ | 2,146 |
|
Total restructuring expense by segment was recorded as follows (dollars in thousands):
|
| Year Ended March 31, |
|
| Year Ended March 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Orion Distribution Systems |
| $ | 12 |
|
| $ | 117 |
|
Corporate and Other |
|
| 31 |
|
|
| 2,029 |
|
Total |
| $ | 43 |
|
| $ | 2,146 |
|
We recorded no restructuring expense to the Orion U.S. Markets or Orion Engineered Systems segments.
Cash payments for employee separation costs in connection with the reorganization of business plans were $26 thousand for fiscal 2019 and $1.8 million for fiscal 2018. The remaining restructuring cost accruals as of March 31, 2019 were $0.1 million, which represents post-retirement medical benefits for one former employee which will be paid over several years.
On June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed atNew Credit Agreement. The First Amendment amended the dateNew Credit Agreement to increase the maximum borrowing base credit available for certain of the balance sheet, including the estimates inherentcustomer receivables included in the processborrowing base and provide for a borrowing base credit of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and noted no subsequent event requiring accrual or additional disclosure.
NOTE 1219 — QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly results for the years ended March 31, 20162019 and March 31, 20152018 are as follows:
|
| Three Months Ended |
|
|
|
|
| |||||||||||||
|
| Mar 31, 2019 |
|
| Dec 31, 2018 |
|
| Sep 30, 2018 |
|
| Jun 30, 2018 |
|
| Total |
| |||||
|
| (in thousands, except per share amounts) |
|
|
|
|
| |||||||||||||
Total revenue |
| $ | 22,443 |
|
| $ | 16,291 |
|
| $ | 13,198 |
|
| $ | 13,822 |
|
| $ | 65,754 |
|
Gross profit |
| $ | 4,384 |
|
| $ | 4,170 |
|
| $ | 2,542 |
|
| $ | 3,456 |
|
| $ | 14,552 |
|
Net loss |
| $ | (882 | ) |
| $ | (662 | ) |
| $ | (2,438 | ) |
| $ | (2,692 | ) |
| $ | (6,674 | ) |
Basic net loss per share |
| $ | (0.03 | ) |
| $ | (0.02 | ) |
| $ | (0.08 | ) |
| $ | (0.09 | ) |
| $ | (0.23 | ) |
Shares used in basic per share calculation |
|
| 29,590 |
|
|
| 29,569 |
|
|
| 29,488 |
|
|
| 29,070 |
|
|
| 29,430 |
|
Diluted net loss per share |
| $ | (0.03 | ) |
| $ | (0.02 | ) |
| $ | (0.08 | ) |
| $ | (0.09 | ) |
| $ | (0.23 | ) |
Shares used in diluted per share calculation |
|
| 29,590 |
|
|
| 29,569 |
|
|
| 29,488 |
|
|
| 29,070 |
|
|
| 29,430 |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
|
| Mar 31, 2018 |
|
| Dec 31, 2017 |
|
| Sep 30, 2017 |
|
| Jun 30, 2017 |
|
| Total |
| |||||
|
| (in thousands, except per share amounts) |
|
|
|
|
| |||||||||||||
Total revenue |
| $ | 15,057 |
|
| $ | 17,263 |
|
| $ | 15,422 |
|
| $ | 12,558 |
|
| $ | 60,300 |
|
Gross profit |
| $ | 3,225 |
|
| $ | 5,116 |
|
| $ | 3,620 |
|
| $ | 2,711 |
|
| $ | 14,672 |
|
Net loss (1) |
| $ | (1,462 | ) |
| $ | (1,433 | ) |
| $ | (3,669 | ) |
| $ | (6,564 | ) |
| $ | (13,128 | ) |
Basic net loss per share |
| $ | (0.05 | ) |
| $ | (0.05 | ) |
| $ | (0.13 | ) |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
Shares used in basic per share calculation |
|
| 28,935 |
|
|
| 28,910 |
|
|
| 28,835 |
|
|
| 28,455 |
|
|
| 28,784 |
|
Diluted net loss per share |
| $ | (0.05 | ) |
| $ | (0.05 | ) |
| $ | (0.13 | ) |
| $ | (0.23 | ) |
| $ | (0.46 | ) |
Shares used in diluted per share calculation |
|
| 28,935 |
|
|
| 28,910 |
|
|
| 28,835 |
|
|
| 28,455 |
|
|
| 28,784 |
|
(1) | Includes a $2.1 million restructuring charge, a $1.4 million loss contingency reversal, and an intangible impairment of $0.7 million. |
| Three Months Ended | |||||||||||||||||||
| Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | Jun 30, 2015 | Total | |||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||
| Total revenue | $ | 18,576 | $ | 16,751 | $ | 15,728 | $ | 16,587 | $ | 67,642 | |||||||||
| Gross profit | $ | 4,618 | $ | 4,708 | $ | 2,913 | $ | 3,758 | $ | 15,997 | |||||||||
| Net income (loss) | $ | (10,870 | ) | $ | (2,004 | ) | $ | (3,600 | ) | $ | (3,652 | ) | $ | (20,126 | ) | ||||
| Basic net income per share | $ | (0.39 | ) | $ | (0.07 | ) | $ | (0.13 | ) | $ | (0.13 | ) | $ | (0.73 | ) | ||||
| Shares used in basic per share calculation | 27,759 | 27,672 | 27,598 | 27,482 | 27,628 | ||||||||||||||
| Diluted net income per share | $ | (0.39 | ) | $ | (0.07 | ) | $ | (0.13 | ) | $ | (0.13 | ) | $ | (0.73 | ) | ||||
| Shares used in diluted per share calculation | 27,759 | 27,672 | 27,598 | 27,482 | 27,628 | ||||||||||||||
| Three Months Ended | |||||||||||||||||||
| Mar 31, 2015 | Dec 31, 2014 | Sep 30, 2014 | Jun 30, 2014 | Total | |||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||
| Total revenue | $ | 19,366 | $ | 26,138 | $ | 13,393 | $ | 13,313 | $ | 72,210 | |||||||||
| Gross profit | $ | 2,982 | $ | 3,824 | $ | (10,555 | ) | $ | 2,612 | $ | (1,137 | ) | |||||||
| Net income (loss) | $ | (4,693 | ) | $ | (4,663 | ) | $ | (18,346 | ) | $ | (4,359 | ) | $ | (32,061 | ) | ||||
| Basic net income per share | $ | (0.19 | ) | $ | (0.21 | ) | $ | (0.84 | ) | $ | (0.20 | ) | $ | (1.43 | ) | ||||
| Shares used in basic per share calculation | 24,071 | 21,883 | 21,820 | 21,669 | 22,353 | ||||||||||||||
| Diluted net income per share | $ | (0.19 | ) | $ | (0.21 | ) | $ | (0.84 | ) | $ | (0.20 | ) | $ | (1.43 | ) | ||||
| Shares used in diluted per share calculation | 24,071 | 21,883 | 21,820 | 21,669 | 22,353 | ||||||||||||||
The four quarters for net earnings per share may not add to the total year because of differences in the weighted average number of shares outstanding during the quarters and the year.
None
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of March 31, 2016,2019, pursuant to Exchange Act Rule 13a-15(b) and 15d-15. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have identified a material weaknesses in internal controls over financial reporting described below in Management’s Report on Internal Control and have, therefore, concluded that ourthe disclosure controls and procedures were notare effective at a level of reasonable assurance as of March 31, 2016.
Management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executivethe Chief Executive Officer and principal financial officersChief Financial Officer, or persons performing similar functions, and effected by ourthe board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,GAAP and includes those policies and procedures that:
i. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
ii. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
iii. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsAlso, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies andor procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2016 based on the frameworkcriteria set forth in
BDO USA, LLP, independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of March 31, 2016.2019. Their report is in Item 8 under the heading "Reports of Independent Registered Public Accounting Firm" of this Annual Report on Form 10-K.
In connection with the assessment of our internal control over financial reporting as of March 31, 2016,2019, management identifiedremediated the following material weaknesses that existed as of March 31, 2016:
Risk Assessment and Monitoring Activities.Information & Communication. We determined that our controls pertaining to risk assessmentinformation and monitoring activitiescommunication did not operate effectively, resulting in a material weakness pertaining to these COSO components. Specifically,
Control Activities - Revenue Recognition. Accounting Close.The operating effectiveness of our controls were inadequate related to ensure thatmanagement review controls over the review of revenue transactions involving contractsaccounting close process and the related accounting entries was performed. Revenue recognition controls ensure that the reported amount and timing of revenue recognition are accurate.
A material weakness is a control deficiency or a combination of control deficiencies that existedresults in our internal control overmore than a remote likelihood that a material misstatement of the annual or interim financial reporting as it related to contract review and revenue recognition, and our disclosure controls and procedures, as of March 31, 2016.
We have developed a remediation plan (the “Remediation Plan”) to address the material weakness for the affected areas presented above. The Remediation Plan ensures that each area affected by a material control weakness is put through a comprehensive remediation process. The Remediation Plan entails a thorough analysis which includes the following phases:
We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weakness described above and employ any additional tools and resources deemed necessary to ensure that our financial statements are fairly statedweaknesses identified in all material respects.
Changes in Internal Controls OverControl over Financial Reporting
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underduring the Exchange Act) that occurred during the
On June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the New Credit Agreement. The First Amendment amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included in the borrowing base and to provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions.
The foregoing is a summary of the First Amendment and is qualified in its entirety by reference to the full text of the First Amendment, a copy of which is filed herewith as Exhibit 10.2 and incorporated herein by reference.
The information required by this item with respect to directors, executive officers and corporate governance is incorporated by reference to Orion's Proxy Statement for its
Code of Conduct
We have adopted a Code of Conduct that applies to all of our directors, employees and officers, including our principal executive officer, our principal financial officer, our controller and persons performing similar functions. Our Code of Conduct is available on our web site at www.orionlighting.com. Future material amendments or waivers relating to the Code of Conduct will be disclosed on our web site referenced in this paragraph within four business days following the date of such amendment or waiver.
The information required by this item is incorporated by reference to Orion'sour Proxy Statement for its
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
See Item 5, Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchaser of Securities, under the heading “Equity Compensation Plan Information” for information regarding our securities authorized for issuance under equity compensation plans. The additional information required by this item is incorporated by reference to Orion's Proxy Statement for its 20162019 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2016.2019.
The information required by this item is incorporated by reference to Orion'sour Proxy Statement for its
The information required by this item is incorporated by reference to Orion'sour Proxy Statement for its
ITEM 15. |
(a) | Financial Statements |
Our financial statements are set forth in Item 8 of this Form 10-K.
Number | Exhibit Title | ||
3.1 | |||
| SCHEDULE II VALUATION and QUALIFYING ACCOUNTS | ||||||||||||||||
| Balance at beginning of period | Provisions charged to expense | Write offs and other | Balance at end of period | |||||||||||||
| March 31, | (in Thousands) | |||||||||||||||
| 2016 | Allowance for Doubtful Accounts | $ | 458 | $ | 575 | $ | 528 | $ | 505 | |||||||
| 2015 | Allowance for Doubtful Accounts | $ | 384 | $ | 285 | $ | 211 | $ | 458 | |||||||
| 2014 | Allowance for Doubtful Accounts | $ | 900 | $ | 174 | $ | 690 | $ | 384 | |||||||
| 2016 | Inventory Obsolescence Reserve | $ | 1,619 | $ | 509 | $ | 1 | $ | 2,127 | |||||||
| 2015 | Inventory Obsolescence Reserve | $ | 2,527 | $ | 10,505 | $ | 11,413 | $ | 1,619 | |||||||
| 2014 | Inventory Obsolescence Reserve | $ | 2,301 | $ | 1,995 | $ | 1,769 | $ | 2,527 | |||||||
3.2 | |||
4.1 | |||
4.2 | |||
4.3 | |||
10.1 | |||
10.2 | |||
10.3 | |||
10.4 | |||
10.5 | |||
10.5(a) | |||
10.6 | |||
10.7 | |||
10.8 | |||
10.9 | |||
10.10 | |||
10.11 | |||
10.12 | |||
10.13 | |||
10.14 | |||
10.15 | |||
10.17 | |||
10.18 | |||
10.19 | |||
10.20 | |||
10.21 | |||
10.22 | |||
10.23 | |||
10.24 | |||
21.1 | |||
23.1 | |||
31.1 | |||
31.2 | |||
32.1 | |||
101 | 101.INS XBRL Instance Document+ | ||
101.SCH Taxonomy extension schema | |||
101.CAL Taxonomy extension calculation linkbase | |||
101.DEF Taxonomy extension definition linkbase document+ | |||
101.LAB Taxonomy extension label linkbase | |||
101.PRE Taxonomy extension presentation linkbase | |||
Documents incorporated by reference by Orion Energy Systems, Inc. are filed with the Securities and Exchange Commission under File No. 001-33887.
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Management contract or compensatory plan or arrangement. | |
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Portions of this exhibit have been omitted pursuant to Rule 601(6)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. |
+ | Filed herewith |
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on June 23, 2016.
ORION ENERGY SYSTEMS, INC. | ||||
By: | /s/ MICHAEL W. ALTSCHAEFL | |||
Michael W. Altschaefl | ||||
Chief Executive Officer and Board Chair | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities indicated on June 23, 2016.
Signature | Title | |
/s/ | Chief Executive Officer and | |
Michael W. Altschaefl | Executive Officer) | |
/s/ William T. Hull | Chief Financial Officer, Chief Accounting Officer and | |
William T. Hull | Treasurer (Principal Financial Officer) | |
/s/ | Lead Independent Director | |
Anthony L. Otten | ||
/s/ | Director | |
Alan B. Howe | ||
/s/ Michael J. Potts | Director | |
Michael J. Potts | ||
/s/ | Director | |
Ellen B. Richstone | ||
/s/ Mark C. Williamson | Director | |
Mark C. Williamson | ||
/s/ | Director | |
Kenneth M. Young | ||
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