UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
December 31,OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-33887
Orion Energy Systems, Inc.
(Exact name of Registrant as specified in its charter)
Wisconsin | 39-1847269 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification number) |
2210 Woodland Drive, Manitowoc, Wisconsin | 54220 | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (920) (920) 892-9340
Securities registered pursuant to Section 12(b) of the act:
Title of Each Class | Trading Symbol (s) | Name of Each Exchange on Which Registered | ||
Common stock, no par value | OESX | The Nasdaq Stock Market LLC (NASDAQ Capital Market) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging growth company | |||
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were 28,921,170 32,292,974shares of the Registrant’s common stock outstanding on February 2, 2018.
ORION ENERGY SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31,TABLE OF CONTENTS
Page(s) | ||
ITEM 1. | ||
5 | ||
7 | ||
8 | ||
ITEM 2. | 23 | |
ITEM 3. | 34 | |
ITEM 4. | ||
35 | ||
ITEM 1. | 35 | |
ITEM 1A. | 35 | |
ITEM 2. | 35 | |
ITEM 5. | 35 | |
ITEM 6. | 36 | |
37 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, 2017 | March 31, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 10,563 | $ | 17,307 | |||
Accounts receivable, net | 8,663 | 9,171 | |||||
Inventories, net | 8,771 | 13,593 | |||||
Deferred contract costs | 1,115 | 935 | |||||
Prepaid expenses and other current assets | 1,543 | 2,877 | |||||
Total current assets | 30,655 | 43,883 | |||||
Property and equipment, net | 13,213 | 13,786 | |||||
Other intangible assets, net | 3,054 | 4,207 | |||||
Other long-term assets | 121 | 175 | |||||
Total assets | $ | 47,043 | $ | 62,051 | |||
Liabilities and Shareholders’ Equity | |||||||
Accounts payable | $ | 11,685 | $ | 11,635 | |||
Accrued expenses and other | 5,155 | 5,988 | |||||
Deferred revenue, current | 277 | 621 | |||||
Current maturities of long-term debt | 85 | 152 | |||||
Total current liabilities | 17,202 | 18,396 | |||||
Revolving credit facility | 3,622 | 6,629 | |||||
Long-term debt, less current maturities | 125 | 190 | |||||
Deferred revenue, long-term | 946 | 944 | |||||
Other long-term liabilities | 509 | 442 | |||||
Total liabilities | 22,404 | 26,601 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at December 31, 2017 and March 31, 2017; no shares issued and outstanding at December 31, 2017 and March 31, 2017 | — | — | |||||
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2017 and March 31, 2017; shares issued: 38,347,325 at December 31, 2017 and 37,747,227 at March 31, 2017; shares outstanding: 28,916,170 at December 31, 2017 and 28,317,490 at March 31, 2017 | — | — | |||||
Additional paid-in capital | 154,758 | 153,901 | |||||
Treasury stock, common shares: 9,431,155 at December 31, 2017 and 9,429,737 at March 31, 2017 | (36,085 | ) | (36,081 | ) | |||
Shareholder notes receivable | — | (4 | ) | ||||
Retained deficit | (94,034 | ) | (82,366 | ) | |||
Total shareholders’ equity | 24,639 | 35,450 | |||||
Total liabilities and shareholders’ equity | $ | 47,043 | $ | 62,051 |
|
| December 31, 2022 |
|
| March 31, 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 8,142 |
|
| $ | 14,466 |
|
Accounts receivable, net |
|
| 13,688 |
|
|
| 11,899 |
|
Revenue earned but not billed |
|
| 3,107 |
|
|
| 2,421 |
|
Inventories, net |
|
| 19,305 |
|
|
| 19,832 |
|
Prepaid expenses and other current assets |
|
| 2,347 |
|
|
| 2,631 |
|
Total current assets |
|
| 46,589 |
|
|
| 51,249 |
|
Property and equipment, net |
|
| 10,679 |
|
|
| 11,466 |
|
Goodwill |
|
| 1,425 |
|
|
| 350 |
|
Other intangible assets, net |
|
| 6,184 |
|
|
| 2,404 |
|
Deferred tax assets |
|
| — |
|
|
| 17,805 |
|
Other long-term assets |
|
| 3,450 |
|
|
| 3,543 |
|
Total assets |
| $ | 68,327 |
|
| $ | 86,817 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
| ||
Accounts payable |
| $ | 13,458 |
|
| $ | 9,855 |
|
Accrued expenses and other |
|
| 8,415 |
|
|
| 8,427 |
|
Deferred revenue, current |
|
| 174 |
|
|
| 76 |
|
Current maturities of long-term debt |
|
| 16 |
|
|
| 16 |
|
Total current liabilities |
|
| 22,063 |
|
|
| 18,374 |
|
Revolving credit facility |
|
| 5,000 |
|
|
| — |
|
Long-term debt, less current maturities |
|
| 7 |
|
|
| 19 |
|
Deferred revenue, long-term |
|
| 507 |
|
|
| 564 |
|
Other long-term liabilities |
|
| 2,597 |
|
|
| 2,760 |
|
Total liabilities |
|
| 30,174 |
|
|
| 21,717 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Shareholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at |
|
| — |
|
|
| — |
|
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2022 |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 160,696 |
|
|
| 158,419 |
|
Treasury stock, common shares: 9,472,246 at December 31, 2022 and 9,473,037 at |
|
| (36,238 | ) |
|
| (36,239 | ) |
Retained deficit |
|
| (86,305 | ) |
|
| (57,080 | ) |
Total shareholders’ equity |
|
| 38,153 |
|
|
| 65,100 |
|
Total liabilities and shareholders’ equity |
| $ | 68,327 |
|
| $ | 86,817 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
3
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Product revenue | $ | 15,993 | $ | 19,259 | $ | 41,883 | $ | 52,286 | |||||||
Service revenue | 1,270 | 1,358 | 3,360 | 2,635 | |||||||||||
Total revenue | 17,263 | 20,617 | 45,243 | 54,921 | |||||||||||
Cost of product revenue | 11,181 | 13,577 | 30,587 | 36,748 | |||||||||||
Cost of service revenue | 966 | 885 | 3,209 | 1,748 | |||||||||||
Total cost of revenue | 12,147 | 14,462 | 33,796 | 38,496 | |||||||||||
Gross profit | 5,116 | 6,155 | 11,447 | 16,425 | |||||||||||
Operating expenses: | |||||||||||||||
General and administrative | 2,878 | 3,541 | 11,370 | 11,040 | |||||||||||
Impairment of intangible assets | — | — | 710 | — | |||||||||||
Sales and marketing | 2,981 | 3,147 | 9,241 | 9,167 | |||||||||||
Research and development | 616 | 495 | 1,519 | 1,493 | |||||||||||
Total operating expenses | 6,475 | 7,183 | 22,840 | 21,700 | |||||||||||
Loss from operations | (1,359 | ) | (1,028 | ) | (11,393 | ) | (5,275 | ) | |||||||
Other income (expense): | |||||||||||||||
Other income | — | — | — | 190 | |||||||||||
Interest expense | (102 | ) | (65 | ) | (308 | ) | (203 | ) | |||||||
Interest income | 5 | 7 | 12 | 31 | |||||||||||
Total other (expense) income | (97 | ) | (58 | ) | (296 | ) | 18 | ||||||||
Loss before income tax | (1,456 | ) | (1,086 | ) | (11,689 | ) | (5,257 | ) | |||||||
Income tax benefit | (23 | ) | — | (23 | ) | (261 | ) | ||||||||
Net loss | $ | (1,433 | ) | $ | (1,086 | ) | $ | (11,666 | ) | $ | (4,996 | ) | |||
Basic net loss per share attributable to common shareholders | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Weighted-average common shares outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Diluted net loss per share | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Weighted-average common shares and share equivalents outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 |
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Product revenue |
| $ | 15,399 |
|
| $ | 22,203 |
|
| $ | 41,715 |
|
| $ | 78,260 |
|
Service revenue |
|
| 4,889 |
|
|
| 8,511 |
|
|
| 14,039 |
|
|
| 24,065 |
|
Total revenue |
|
| 20,288 |
|
|
| 30,714 |
|
|
| 55,754 |
|
|
| 102,325 |
|
Cost of product revenue |
|
| 11,480 |
|
|
| 16,427 |
|
|
| 31,152 |
|
|
| 54,724 |
|
Cost of service revenue |
|
| 4,027 |
|
|
| 6,646 |
|
|
| 11,832 |
|
|
| 18,942 |
|
Total cost of revenue |
|
| 15,507 |
|
|
| 23,073 |
|
|
| 42,984 |
|
|
| 73,666 |
|
Gross profit |
|
| 4,781 |
|
|
| 7,641 |
|
|
| 12,770 |
|
|
| 28,659 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
| 3,984 |
|
|
| 2,873 |
|
|
| 11,683 |
|
|
| 8,737 |
|
Acquisition related costs |
|
| 1,993 |
|
|
| 178 |
|
|
| 2,340 |
|
|
| 178 |
|
Sales and marketing |
|
| 2,983 |
|
|
| 2,862 |
|
|
| 8,521 |
|
|
| 8,794 |
|
Research and development |
|
| 409 |
|
|
| 396 |
|
|
| 1,374 |
|
|
| 1,169 |
|
Total operating expenses |
|
| 9,369 |
|
|
| 6,309 |
|
|
| 23,918 |
|
|
| 18,878 |
|
(Loss) income from operations |
|
| (4,588 | ) |
|
| 1,332 |
|
|
| (11,148 | ) |
|
| 9,781 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Interest expense |
|
| (64 | ) |
|
| (26 | ) |
|
| (97 | ) |
|
| (59 | ) |
Amortization of debt issue costs |
|
| (16 | ) |
|
| (15 | ) |
|
| (47 | ) |
|
| (46 | ) |
Total other expense |
|
| (80 | ) |
|
| (41 | ) |
|
| (144 | ) |
|
| (104 | ) |
(Loss) income before income tax |
|
| (4,668 | ) |
|
| 1,291 |
|
|
| (11,292 | ) |
|
| 9,677 |
|
Income tax expense |
|
| 19,391 |
|
|
| 189 |
|
|
| 17,933 |
|
|
| 2,406 |
|
Net (loss) income |
| $ | (24,059 | ) |
| $ | 1,102 |
|
| $ | (29,225 | ) |
| $ | 7,271 |
|
Basic net (loss) income per share attributable to |
| $ | (0.75 | ) |
| $ | 0.04 |
|
| $ | (0.93 | ) |
| $ | 0.23 |
|
Weighted-average common shares outstanding |
|
| 32,047,755 |
|
|
| 31,084,710 |
|
|
| 31,510,547 |
|
|
| 30,992,475 |
|
Diluted net (loss) income per share |
| $ | (0.75 | ) |
| $ | 0.04 |
|
| $ | (0.93 | ) |
| $ | 0.23 |
|
Weighted-average common shares and share |
|
| 32,047,755 |
|
|
| 31,234,925 |
|
|
| 31,510,547 |
|
|
| 31,273,703 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
4
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(in thousands)
Nine Months Ended December 31, | |||||||
2017 | 2016 | ||||||
Operating activities | |||||||
Net loss | $ | (11,666 | ) | $ | (4,996 | ) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||
Depreciation | 1,050 | 1,103 | |||||
Amortization | 486 | 721 | |||||
Stock-based compensation | 868 | 1,252 | |||||
Impairment of intangible assets | 710 | — | |||||
Loss on sale of property and equipment | — | 1 | |||||
Provision for inventory reserves | 701 | 621 | |||||
Provision for bad debts | 21 | 118 | |||||
Other | 12 | 148 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, current and long-term | 492 | (857 | ) | ||||
Inventories | 4,120 | (169 | ) | ||||
Deferred contract costs | (179 | ) | (1,296 | ) | |||
Prepaid expenses and other assets | 1,383 | 3,294 | |||||
Accounts payable | 30 | 602 | |||||
Accrued expenses and other | (767 | ) | (661 | ) | |||
Deferred revenue, current and long-term | (342 | ) | 385 | ||||
Net cash (used in) provided by operating activities | (3,081 | ) | 266 | ||||
Investing activities | |||||||
Purchases of property and equipment | (478 | ) | (376 | ) | |||
Additions to patents and licenses | (43 | ) | (252 | ) | |||
Proceeds from sales of property, plant and equipment | — | 2,600 | |||||
Net cash (used in) provided by investing activities | (521 | ) | 1,972 | ||||
Financing activities | |||||||
Payment of long-term debt and capital leases | (132 | ) | (814 | ) | |||
Proceeds from revolving credit facility | 51,926 | 63,705 | |||||
Payment of revolving credit facility | (54,933 | ) | (61,542 | ) | |||
Payments to settle employee tax withholdings on stock-based compensation | (9 | ) | (17 | ) | |||
Net proceeds from employee equity exercises | 6 | 6 | |||||
Net cash (used in) provided by financing activities | (3,142 | ) | 1,338 | ||||
Net (decrease) increase in cash and cash equivalents | (6,744 | ) | 3,576 | ||||
Cash and cash equivalents at beginning of period | 17,307 | 15,542 | |||||
Cash and cash equivalents at end of period | $ | 10,563 | $ | 19,118 |
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Additional |
|
| Treasury |
|
| Retained |
|
| Total |
| |||||
Balance, March 31, 2022 |
|
| 31,097,872 |
|
| $ | 158,419 |
|
| $ | (36,239 | ) |
| $ | (57,080 | ) |
| $ | 65,100 |
|
Exercise of stock options for cash |
|
| 26,646 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
|
| 54 |
|
Shares issued under Employee Stock Purchase |
|
| 443 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 125,744 |
|
|
| 254 |
|
|
| — |
|
|
| — |
|
|
| 254 |
|
Employee tax withholdings on stock-based |
|
| (634 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,835 | ) |
|
| (2,835 | ) |
Balance, June 30, 2022 |
|
| 31,250,071 |
|
| $ | 158,727 |
|
| $ | (36,240 | ) |
| $ | (59,915 | ) |
| $ | 62,572 |
|
Shares issued under Employee Stock Purchase |
|
| 648 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 105,192 |
|
|
| 733 |
|
|
| — |
|
|
| — |
|
|
| 733 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,331 | ) |
|
| (2,331 | ) |
Balance, September 30, 2022 |
|
| 31,355,911 |
|
| $ | 159,460 |
|
| $ | (36,239 | ) |
| $ | (62,246 | ) |
| $ | 60,975 |
|
Issuance of common stock for acquisition |
|
| 620,067 |
|
|
| 770 |
|
|
| — |
|
|
| — |
|
|
| 770 |
|
Issuance of common stock for services |
|
| 10,976 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
Shares issued under Employee Stock Purchase |
|
| 621 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 304,686 |
|
|
| 448 |
|
|
| — |
|
|
| — |
|
|
| 448 |
|
Employee tax withholdings on stock-based |
|
| (287 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24,059 | ) |
|
| (24,059 | ) |
Balance, December 31, 2022 |
|
| 32,291,974 |
|
| $ | 160,696 |
|
| $ | (36,238 | ) |
| $ | (86,305 | ) |
| $ | 38,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Additional |
|
| Treasury |
|
| Retained |
|
| Total |
| |||||
Balance, March 31, 2021 |
|
| 30,805,300 |
|
| $ | 157,485 |
|
| $ | (36,240 | ) |
| $ | (63,171 | ) |
| $ | 58,074 |
|
Exercise of stock options for cash |
|
| 24,045 |
|
|
| 101 |
|
|
| — |
|
|
| — |
|
|
| 101 |
|
Shares issued under Employee Stock Purchase |
|
| 496 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Stock-based compensation |
|
| 171,470 |
|
|
| 160 |
|
|
| — |
|
|
| — |
|
|
| 160 |
|
Employee tax withholdings on stock-based |
|
| (610 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,510 |
|
|
| 2,510 |
|
Balance, June 30, 2021 |
|
| 31,000,701 |
|
| $ | 157,746 |
|
| $ | (36,241 | ) |
| $ | (60,661 | ) |
| $ | 60,844 |
|
Exercise of stock options for cash |
|
| 7,000 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
Shares issued under Employee Stock Purchase |
|
| 327 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 55,896 |
|
|
| 211 |
|
|
| — |
|
|
| — |
|
|
| 211 |
|
Employee tax withholdings on stock-based |
|
| (294 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,659 |
|
|
| 3,659 |
|
Balance, September 30, 2021 |
|
| 31,063,630 |
|
| $ | 157,975 |
|
| $ | (36,241 | ) |
| $ | (57,002 | ) |
| $ | 64,732 |
|
Exercise of stock options for cash |
|
| 800 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Shares issued under Employee Stock Purchase |
|
| 355 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 32,648 |
|
|
| 220 |
|
|
| — |
|
|
| — |
|
|
| 220 |
|
Employee tax withholdings on stock-based |
|
| (2,745 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102 |
|
|
| 1,102 |
|
Balance, December 31, 2021 |
|
| 31,094,688 |
|
| $ | 158,197 |
|
| $ | (36,242 | ) |
| $ | (55,900 | ) |
| $ | 66,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
6
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Nine Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (29,225 | ) |
| $ | 7,271 |
|
Adjustments to reconcile net (loss) income to net cash (used in) |
|
|
|
|
|
| ||
Depreciation |
|
| 974 |
|
|
| 936 |
|
Amortization of intangible assets |
|
| 373 |
|
|
| 158 |
|
Stock-based compensation |
|
| 1,435 |
|
|
| 591 |
|
Amortization of debt issue costs |
|
| 47 |
|
|
| 46 |
|
Deferred income tax |
|
| 17,804 |
|
|
| 2,340 |
|
Gain (loss) on sale of property and equipment |
|
| 10 |
|
|
| (77 | ) |
Provision for inventory reserves |
|
| 407 |
|
|
| 426 |
|
Provision for bad debts |
|
| 25 |
|
|
| 8 |
|
Other |
|
| 150 |
|
|
| 30 |
|
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (431 | ) |
|
| 1,276 |
|
Revenue earned but not billed |
|
| (321 | ) |
|
| (930 | ) |
Inventories |
|
| 1,001 |
|
|
| 383 |
|
Prepaid expenses and other assets |
|
| 609 |
|
|
| (1,292 | ) |
Accounts payable |
|
| 2,418 |
|
|
| (5,231 | ) |
Accrued expenses and other |
|
| (566 | ) |
|
| (3,651 | ) |
Deferred revenue, current and long-term |
|
| 42 |
|
|
| 31 |
|
Net cash (used in) provided by operating activities |
|
| (5,248 | ) |
|
| 2,315 |
|
Investing activities |
|
|
|
|
|
| ||
Cash to fund acquisition, net of cash received |
|
| (5,508 | ) |
|
| (3,697 | ) |
Cash paid for investment |
|
| — |
|
|
| (500 | ) |
Purchases of property and equipment |
|
| (573 | ) |
|
| (465 | ) |
Additions to patents and licenses |
|
| (9 | ) |
|
| (8 | ) |
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| 122 |
|
Net cash used in investing activities |
|
| (6,090 | ) |
|
| (4,548 | ) |
Financing activities |
|
|
|
|
|
| ||
Payment of long-term debt |
|
| (12 | ) |
|
| (11 | ) |
Proceeds from revolving credit facility |
|
| 5,000 |
|
|
| — |
|
Payments of revolving credit facility |
|
| — |
|
|
| — |
|
Payments to settle employee tax withholdings on stock-based compensation |
|
| (2 | ) |
|
| (7 | ) |
Deferred financing costs |
|
| (29 | ) |
|
| (4 | ) |
Proceeds from employee equity exercises |
|
| 57 |
|
|
| 126 |
|
Net cash provided by financing activities |
|
| 5,014 |
|
|
| 104 |
|
Net decrease in cash and cash equivalents |
|
| (6,324 | ) |
|
| (2,129 | ) |
Cash and cash equivalents at beginning of period |
|
| 14,466 |
|
|
| 19,393 |
|
Cash and cash equivalents at end of period |
| $ | 8,142 |
|
| $ | 17,264 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
| ||
Issuance of common stock in connection with acquisition |
| $ | 770 |
|
| $ | — |
|
The accompanying notes are an integral part of these Condensed Consolidated Statements.
7
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and sellerprovider of energy-efficient LED lighting and energy management systemscontrols, maintenance services and electrical vehicle (EV) charging station solutions to commercial and industrial businesses, and federal and local governments, predominantly in North America.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission.Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentationstatement have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 20182023 or other interim periods.
The condensed consolidated balance sheet atCondensed Consolidated Balance Sheet as of March 31, 20172022 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Orion’s Annual Report on Form 10-K for the fiscal year ended March 31, 20172022 filed with the Securities and Exchange CommissionSEC on June 13, 2017.10, 2022.
Acquisition Related Costs
Acquisition related costs includes various acquisition related costs, including legal fees, consulting and success fees, earn-out expenses, and other non-recurring integration related costs.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts, accruals for warranty and loss contingencies, impairments, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.
Concentration of Credit Risk and Other Risks and Uncertainties
Orion's cash is primarily deposited with twoone financial institutions.institution. At times, deposits in these institutions exceedthis institution exceeds 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.
8
Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple suppliers. For the three months ended December 31, 2017, 2022, one supplier accounted for 13.9% of13.3% of total costscost of revenue. For the nine months ended December 31, 2017, 2022, no supplier suppliers accounted for more than 10%10.0% of total cost of revenue For the three and nine months ended December 31, 2016, no supplier accounted for more than 10% of total cost of revenue.
For the three and nine months ended December 31, 2022, one customer accounted for 18.2% and 16.1% of total revenue, respectively. For the three and nine months ended December 31, 2021, one customer accounted for 48.6% and 53.0% of total revenue, respectively.
As of December 31, 2017, three customers2022, one customer accounted for 13.5%, 12.2%, and 10.1%, respectively,12.3% of accounts receivable.receivable, respectively. As of March 31, 2017, one customer2022, two customers accounted for 11.6%11.8% and 10.4% of accounts receivable.receivable, respectively.
Recent Accounting Pronouncements
Issued: Not Yet Adopted
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which provides clarification and additional guidance as to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU provides guidance as 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. The new standard will be effective for Orion in the first quarter of fiscal 2019 and will be applied through retrospective adjustment to all periods presented. Orion does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In May 2014,October 2021, the FASB issued ASU 2014-09, "RevenueNo. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This Customers (“ASU 2021-08”), which requires an entity to use the guidance in ASC 606, Revenue from Contracts with Customers, rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. The provisions of ASU 2021-08 are effective for Orion for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022. Orion is a comprehensive newcurrently evaluating the impact of adoption of this standard on its consolidated balance sheet.
NOTE 3 — REVENUE
Orion generates revenue recognition model that requires a company to recognizeprimarily by selling manufactured or sourced commercial lighting fixtures and components, sourced electric vehicle chargers and related products, installing these products in customer’s facilities, and providing maintenance services including repairs and replacements for the lighting and related electrical components. Orion recognizes revenue asin accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) when control of the 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 itOrion expects to receive in exchange for those goods or services. In addition, this ASU requires enhanced
During the third quarter of fiscal 2023, Orion acquired Voltrek LLC ("Voltrek"), which sells and expanded financial statement disclosures. Sinceinstalls sourced electric vehicle charging stations and related software subscriptions and renewals. The results of Voltrek are included in the issuanceOrion EV segment and compliment Orion’s existing turnkey installation model.
The sale of this ASU,charging stations and related software subscriptions and renewals is presented in Product revenue. Orion is the FASBprincipal in the sales of charging stations as it has issued further updatescontrol of the physical products prior to this ASUtransfer to the customer. Accordingly, revenue is recognized on a gross basis. For certain sales, primarily software subscriptions and renewals, Orion is the sales agent providing access to the content and recognize commission revenue net of amounts due to third parties who fulfill the performance obligation. For these sales, control passes at the point in time upon providing access of the content to the customer.
9
The sale of installation and services related to the EV charging business is presented in Service revenue. Revenue from the EV segment that includes both the sale of product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Operations.
During the fourth quarter of fiscal 2022, Orion acquired Stay-Lite Lighting, Inc. ("Stay-Lite Lighting"), which provides lighting and electrical maintenance services. The results of Stay-Lite Lighting are included in the Orion Services Group segment and accelerate the growth of Orion’s maintenance services customer offering. The disaggregated revenue table provides total revenue from the maintenance services offering.
Revenue from the maintenance offering that includes both the sale of Orion manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Operations.
The following tables provide additional guidancedetail of Orion’s total revenue for the three and clarificationnine months ended December 31, 2022 and December 31, 2021 (dollars in thousands):
|
| Three Months Ended December 31, 2022 |
|
| Nine Months Ended December 31, 2022 |
| ||||||||||||||||||
|
| Product |
|
| Services |
|
| Total |
|
| Product |
|
| Services |
|
| Total |
| ||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lighting product and installation |
| $ | 11,543 |
|
| $ | 1,679 |
|
| $ | 13,222 |
|
| $ | 36,006 |
|
| $ | 5,073 |
|
| $ | 41,079 |
|
Maintenance services |
|
| 772 |
|
|
| 2,534 |
|
|
| 3,306 |
|
|
| 2,516 |
|
|
| 8,290 |
|
|
| 10,806 |
|
Electric vehicle charging |
|
| 2,154 |
|
|
| 676 |
|
|
| 2,830 |
|
|
| 2,154 |
|
|
| 676 |
|
|
| 2,830 |
|
Total revenues from contracts with customers |
|
| 14,469 |
|
|
| 4,889 |
|
|
| 19,358 |
|
|
| 40,676 |
|
|
| 14,039 |
|
|
| 54,715 |
|
Revenue accounted for under other guidance |
|
| 930 |
|
|
| — |
|
|
| 930 |
|
|
| 1,039 |
|
|
| — |
|
|
| 1,039 |
|
Total revenue |
| $ | 15,399 |
|
| $ | 4,889 |
|
| $ | 20,288 |
|
| $ | 41,715 |
|
| $ | 14,039 |
|
| $ | 55,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended December 31, 2021 |
|
| Nine Months Ended December 31, 2021 |
| ||||||||||||||||||
|
| Product |
|
| Services |
|
| Total |
|
| Product |
|
| Services |
|
| Total |
| ||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lighting product and installation |
| $ | 21,829 |
|
| $ | 7,699 |
|
| $ | 29,528 |
|
| $ | 76,704 |
|
| $ | 22,665 |
|
| $ | 99,369 |
|
Maintenance services |
|
| 200 |
|
|
| 812 |
|
|
| 1,012 |
|
|
| 268 |
|
|
| 1,400 |
|
|
| 1,668 |
|
Solar energy related revenues |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
| 36 |
|
|
| — |
|
|
| 36 |
|
Total revenues from contracts with customers |
|
| 22,037 |
|
|
| 8,511 |
|
|
| 30,548 |
|
|
| 77,008 |
|
|
| 24,065 |
|
|
| 101,073 |
|
Revenue accounted for under other guidance |
|
| 166 |
|
|
| — |
|
|
| 166 |
|
|
| 1,252 |
|
|
| — |
|
|
| 1,252 |
|
Total revenue |
| $ | 22,203 |
|
| $ | 8,511 |
|
| $ | 30,714 |
|
| $ | 78,260 |
|
| $ | 24,065 |
|
| $ | 102,325 |
|
From time to delaytime, Orion sells the original effective date. This ASU allows companiesreceivables from one customer to elect either a full retrospective or modified retrospective approachfinancing institution. The was no such activity during the three and nine months ended December 31, 2022. The total amount received from the sales of these receivables during the three and nine months ended December 31, 2021 was $0 and $2.4 million, respectively. Orion’s losses on these sales were $9 thousand and $8 thousand, for the three and nine months ended December 31, 2021, respectively, and are included in Interest expense in the Condensed Consolidated Statement of Operations.
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of December 31, 2022 and March 31, 2022 (dollars in thousands):
|
| December 31, |
|
| March 31, |
| ||
Accounts receivable, net |
| $ | 13,688 |
|
| $ | 11,899 |
|
Contract assets |
| $ | 2,187 |
|
| $ | 1,966 |
|
Contract liabilities |
| $ | 99 |
|
| $ | — |
|
There were no significant changes in the contract assets outside of standard reclassifications to adoption. Orion will adopt this ASU and the related updates (“ASC 606”) on their effective date, April 1, 2018. accounts receivable, net upon billing. There were no significant changes to contract liabilities.
10
NOTE 4 — ACCOUNTS RECEIVABLE, NET
As of December 31, 2017, Orion has identified that the main types of contracts that require evaluation as to what, if any, changes will be necessary under ASC 606 as compared to legacy accounting guidance are (a) material only sales that are shipped to customers from Orion’s plant or directly from Orion’s vendors, (b) contracts that involve a combination of material2022 and installation services, (c) contracts entered into under Orion's legacy solar business, and (d) contracts that involve a combination of material and installation services where Orion also provides a financing arrangement to the customer.
|
| December 31, |
|
| March 31, |
| ||
Accounts receivable, gross |
| $ | 13,744 |
|
| $ | 11,907 |
|
Allowance for doubtful accounts |
|
| (56 | ) |
|
| (8 | ) |
Accounts receivable, net |
| $ | 13,688 |
|
| $ | 11,899 |
|
December 31, 2017 | March 31, 2017 | ||||||
Accounts receivable, gross | $ | 8,827 | $ | 9,315 | |||
Allowance for doubtful accounts | (164 | ) | (144 | ) | |||
Accounts receivable, net | $ | 8,663 | $ | 9,171 |
NOTE 45 — INVENTORIES,
As of December 31, 20172022 and March 31, 2017,2022, Orion's inventory balances were as follows (dollars in thousands):
|
| Cost |
|
| Excess and |
|
| Net |
| |||
As of December 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Raw materials and components |
| $ | 10,456 |
|
| $ | (943 | ) |
| $ | 9,513 |
|
Work in process |
|
| 1,128 |
|
|
| (131 | ) |
|
| 997 |
|
Finished goods |
|
| 9,377 |
|
|
| (582 | ) |
|
| 8,795 |
|
Total |
| $ | 20,961 |
|
| $ | (1,656 | ) |
| $ | 19,305 |
|
|
|
|
|
|
|
|
|
|
| |||
As of March 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Raw materials and components |
| $ | 10,781 |
|
| $ | (1,140 | ) |
| $ | 9,641 |
|
Work in process |
|
| 1,529 |
|
|
| (267 | ) |
|
| 1,262 |
|
Finished goods |
|
| 9,593 |
|
|
| (664 | ) |
|
| 8,929 |
|
Total |
| $ | 21,903 |
|
| $ | (2,071 | ) |
| $ | 19,832 |
|
Cost | Reserve | Net | |||||||||
As of December 31, 2017 | |||||||||||
Raw materials and components | $ | 6,655 | $ | (1,406 | ) | $ | 5,249 | ||||
Work in process | 1,316 | (351 | ) | 965 | |||||||
Finished goods | 4,385 | (1,828 | ) | 2,557 | |||||||
Total | $ | 12,356 | $ | (3,585 | ) | $ | 8,771 | ||||
As of March 31, 2017 | |||||||||||
Raw materials and components | $ | 8,104 | $ | (1,807 | ) | $ | 6,297 | ||||
Work in process | 1,918 | (329 | ) | 1,589 | |||||||
Finished goods | 7,044 | (1,337 | ) | 5,707 | |||||||
Total | $ | 17,066 | $ | (3,473 | ) | $ | 13,593 |
NOTE 56 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, 2022 and March 31, 2022, prepaid expenses and other current assets include the following (dollars in thousands):
|
| December 31, |
|
| March 31, |
| ||
Payroll tax credit |
| $ | 1,587 |
|
| $ | 1,587 |
|
Other prepaid expenses |
|
| 760 |
|
|
| 1,044 |
|
Total |
| $ | 2,347 |
|
| $ | 2,631 |
|
11
December 31, 2017 | March 31, 2017 | ||||||
Unbilled accounts receivable | $ | 1,034 | $ | 2,226 | |||
Other prepaid expenses | 509 | 651 | |||||
Total | $ | 1,543 | $ | 2,877 |
NOTE 67 — PROPERTY AND EQUIPMENT,
As of December 31, 2022 and March 31, 2022, property and equipment, were comprised ofnet, included the following (dollars in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Land and land improvements | $ | 424 | $ | 424 | |||
Buildings and building improvements | 9,245 | 9,245 | |||||
Furniture, fixtures and office equipment | 7,083 | 7,056 | |||||
Leasehold improvements | 324 | 324 | |||||
Equipment leased to customers | 4,997 | 4,997 | |||||
Plant equipment | 11,888 | 11,627 | |||||
Construction in progress | 196 | 61 | |||||
34,157 | 33,734 | ||||||
Less: accumulated depreciation and amortization | (20,944 | ) | (19,948 | ) | |||
Property and equipment, net | $ | 13,213 | $ | 13,786 |
|
| December 31, |
|
| March 31, |
| ||
Land and land improvements |
| $ | 433 |
|
| $ | 433 |
|
Buildings and building improvements |
|
| 9,491 |
|
|
| 9,491 |
|
Furniture, fixtures and office equipment |
|
| 7,772 |
|
|
| 7,650 |
|
Leasehold improvements |
|
| 540 |
|
|
| 490 |
|
Equipment leased to customers |
|
| 4,997 |
|
|
| 4,997 |
|
Plant equipment |
|
| 11,212 |
|
|
| 11,130 |
|
Vehicles |
|
| 617 |
|
|
| 796 |
|
Construction in Progress |
|
| 2 |
|
|
| 3 |
|
Gross property and equipment |
|
| 35,064 |
|
|
| 34,990 |
|
Less: accumulated depreciation |
|
| (24,385 | ) |
|
| (23,524 | ) |
Total property and equipment, net |
| $ | 10,679 |
|
| $ | 11,466 |
|
As of fiscal 2018, asDecember 31, 2022, due to a result of lower than anticipated operating resultschange in the first half of fiscal 2018, Orion revised its full year fiscal 2018 forecast. As such,Orion's forecast, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate itsthe long-lived assets for impairment. Due to the central nature ofin 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 theenterprise asset group for impairment, Orion elected to bypassimpairment. The enterprise asset group includes the qualitative impairment assessment and went directly to performingcorporate assets that support the Step 1 recoverability test.revenue producing activities of other asset groups. Orion performed the Step 1 recoverability test for the asset group by comparing its carrying value to the group’s expected future undiscounted cash flows. Orion concluded that the undiscounted cash flows of the definite livedlong-lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment was recorded. No triggering event occurred
NOTE 8 — LEASES
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.
Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the quarter ended December 31, 2017, so no impairment review was conducted.
A summary of Orion’s assets leased from third parties follows (dollars in thousands): Balance sheet classification December 31, 2022 March 31, 2022 Assets Operating lease assets Other long-term assets $ 2,366 $ 2,440 Liabilities Current liabilities Operating lease liabilities Accrued expenses and other $ 830 $ 768 Non-current liabilities Operating lease liabilities Other long-term liabilities 2,038 2,271 Total lease liabilities $ 2,868 $ 3,039
December 31, 2017 | March 31, 2017 | ||||||
Equipment | $ | 581 | $ | 581 | |||
Less: accumulated depreciation and amortization | (308 | ) | (202 | ) | |||
Equipment, net | $ | 273 | $ | 379 |
Orion recorded depreciation expensehad operating lease costs of $0.4$0.4 million and $1.1$1.2 million for the three and nine months ended December 31, 2017, respectively,2022. Orion had operating lease costs of $0.2 million and $0.3 and $1.1$0.7 million for the three and nine months ended December 31, 2016, respectively.2021.
12
The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):
Maturity of Lease Liabilities |
| Operating Leases |
| |
Fiscal 2023 |
| $ | 255 |
|
Fiscal 2024 |
|
| 957 |
|
Fiscal 2025 |
|
| 949 |
|
Fiscal 2026 |
|
| 845 |
|
Fiscal 2027 |
|
| 142 |
|
Total lease payments |
| $ | 3,148 |
|
Less: Interest |
|
| (280 | ) |
Present value of lease liabilities |
| $ | 2,868 |
|
Assets Orion Leases to Other Parties
One of Orion’s frequent customers purchases products and installation services under agreements that provide for monthly payments, at a fixed monthly amount, of the contract price, plus interest, typically over a five-year period. While Orion retains ownership of the light fixtures during the financing period, the transaction terms and the underlying economics associated with used lighting fixtures results in Orion essentially ceding ownership of the lighting fixtures to the customer after completion of the agreement. The portions of the transaction associated with the sale of the light fixtures is accounted for as a sales-type lease under ASC 842. The total transaction price in these contracts is allocated between the lease and non-lease components in the same manner as the total transaction price of other turnkey projects containing lighting fixtures and installation services.
Revenues, and production and acquisition costs, associated with sales-type leases are included in Product revenue and Costs of product revenues in the Condensed Consolidated Statement of Operations.
The following chart shows the amount of revenue and cost of sales arising from sales-type leases during the three and nine months ended December 31, 2022 and December 31, 2021 (dollars in thousands):
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Product revenue |
| $ | 936 |
|
| $ | 342 |
|
| $ | 911 |
|
| $ | 993 |
|
Cost of product revenue |
|
| 927 |
|
| $ | 306 |
|
|
| 927 |
|
| $ | 889 |
|
NOTE 79 — GOODWILL AND OTHER INTANGIBLE ASSETS,
Orion has $0.9 million of goodwill related to its purchase of Voltrek in the third quarter of fiscal 2023, which has an indefinite life, and is assigned to the EV Charging operating segment.
Orion has $0.6 million of goodwill related to its purchase of Stay-Light Lighting during fiscal year 2022, which has an indefinite life, and is assigned to the Orion Services Group operating segment. Goodwill related to the Stay-Light Lighting acquisition increased by $0.2 million to $0.6 million as compared to March 31, 2022. This increase was due to updates to purchase accounting within the measurement period.
See Note 18 – Acquisition for further discussion of the Stay-Lite Lighting and Voltrek acquisitions.
13
As of December 31, 2022 and March 31, 2022, the components of, and changes in, the carrying amount of other intangible assets, net, were as follows (dollars in thousands):
|
| December 31, 2022 |
|
| March 31, 2022 |
| ||||||||||||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
| ||||||
Amortized Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patents |
| $ | 2,521 |
|
| $ | (1,905 | ) |
| $ | 616 |
|
| $ | 2,652 |
|
| $ | (1,932 | ) |
| $ | 720 |
|
Licenses |
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
Trade name and trademarks |
|
| 564 |
|
|
| (52 | ) |
|
| 512 |
|
|
| 118 |
|
|
| (6 | ) |
|
| 112 |
|
Customer relationships |
|
| 5,609 |
|
|
| (3,784 | ) |
|
| 1,825 |
|
|
| 4,178 |
|
|
| (3,618 | ) |
|
| 560 |
|
Vendor Relationship |
|
| 2,300 |
|
|
| (79 | ) |
|
| 2,221 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Developed technology |
|
| 900 |
|
|
| (900 | ) |
|
| — |
|
|
| 900 |
|
|
| (900 | ) |
|
| — |
|
Total Amortized Intangible Assets |
| $ | 11,952 |
|
| $ | (6,778 | ) |
| $ | 5,174 |
|
| $ | 7,906 |
|
| $ | (6,514 | ) |
| $ | 1,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Indefinite-lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade name and trademarks |
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
|
| $ | 1,012 |
|
| $ | — |
|
| $ | 1,012 |
|
Total Non-Amortized Intangible Assets |
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
|
| $ | 1,012 |
|
| $ | — |
|
| $ | 1,012 |
|
December 31, 2017 | March 31, 2017 | ||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Patents | $ | 2,702 | $ | (1,331 | ) | $ | 1,371 | $ | 2,658 | $ | (1,211 | ) | $ | 1,447 | |||||||||
Licenses | 58 | (58 | ) | — | 58 | (58 | ) | — | |||||||||||||||
Trade name and trademarks | 1,005 | — | 1,005 | 1,715 | — | 1,715 | |||||||||||||||||
Customer relationships | 3,600 | (3,286 | ) | 314 | 3,600 | (3,054 | ) | 546 | |||||||||||||||
Developed technology | 900 | (546 | ) | 354 | 900 | (426 | ) | 474 | |||||||||||||||
Non-competition agreements | 100 | (90 | ) | 10 | 100 | (75 | ) | 25 | |||||||||||||||
Total | $ | 8,365 | $ | (5,311 | ) | $ | 3,054 | $ | 9,031 | $ | (4,824 | ) | $ | 4,207 |
Amortization expense on intangible assets was $0.2$0.3 million and $0.4 million for both the three and nine months ended December 31, 2017 and 2016.
Amortization expense on intangible assets was $0.5$0.1 million and $0.7$0.2 million for the three and nine months ended December 31, 2017 and 2016,2021, respectively.
As of December 31, 2017,2022, the weighted average remaining useful life of intangible assets was 5.7 years.
The estimated amortization expense for the remainder of fiscal 2018,2023, the next five fiscal years and beyond is shown below (dollars in thousands):
Fiscal 2023 (period remaining) |
| $ | 277 |
|
Fiscal 2024 |
|
| 1,105 |
|
Fiscal 2025 |
|
| 1,096 |
|
Fiscal 2026 |
|
| 842 |
|
Fiscal 2027 |
|
| 566 |
|
Fiscal 2028 |
|
| 486 |
|
Thereafter |
|
| 802 |
|
Total |
| $ | 5,174 |
|
Fiscal 2018 (period remaining) | $ | 138 | |
Fiscal 2019 | 449 | ||
Fiscal 2020 | 363 | ||
Fiscal 2021 | 289 | ||
Fiscal 2022 | 191 | ||
Fiscal 2023 | 166 | ||
Thereafter | 453 | ||
Total | $ | 2,049 |
NOTE 810 — ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
As of December 31, 2022 and March 31, 2022, accrued expenses and other includeincluded the following (dollars in thousands):
|
| December 31, |
|
| March 31, |
| ||
Accrued earnout |
| $ | 1,750 |
|
|
| — |
|
Other accruals |
|
| 1,633 |
|
| $ | 2,221 |
|
Compensation and benefits |
|
| 1,552 |
|
|
| 1,668 |
|
Credits due to customers |
|
| 1,399 |
|
|
| 1,209 |
|
Accrued project costs |
|
| 852 |
|
|
| 2,215 |
|
Warranty |
|
| 482 |
|
|
| 728 |
|
Sales returns reserve |
|
| 400 |
|
|
| 123 |
|
Sales tax |
|
| 239 |
|
|
| 157 |
|
Legal and professional fees |
|
| 108 |
|
|
| 106 |
|
Total |
| $ | 8,415 |
|
| $ | 8,427 |
|
14
Accrued earnout is related to recent acquisitions. Refer to discussion of acquisitions at Note 18 - Acquisitions.
December 31, 2017 | March 31, 2017 | ||||||
Compensation and benefits | $ | 1,823 | $ | 2,431 | |||
Sales tax | 202 | 213 | |||||
Contract costs | 515 | 223 | |||||
Legal and professional fees | 1,955 | 2,262 | |||||
Warranty | 347 | 449 | |||||
Other accruals | 313 | 410 | |||||
Total | $ | 5,155 | $ | 5,988 |
December 31, 2017 | March 31, 2017 | ||||||
Warranty | $ | 270 | $ | 310 | |||
Medical benefits | 126 | — | |||||
Unrecognized tax benefits | 113 | 113 | |||||
Other | — | 19 | |||||
Total | $ | 509 | $ | 442 |
Orion generally offers a limited warranty of one to ten years on its lighting products, in addition to thoseincluding the pass through of standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, power supplies, LED modules, chips and drivers, control devices, and ballasts,other fixture related items, which are significant components in Orion's lighting products.
Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Beginning of period |
| $ | 698 |
|
| $ | 1,014 |
|
| $ | 860 |
|
| $ | 1,009 |
|
Accruals |
|
| 75 |
|
|
| 123 |
|
|
| 271 |
|
|
| 328 |
|
Warranty claims (net of vendor reimbursements) |
|
| (149 | ) |
|
| (186 | ) |
|
| (507 | ) |
|
| (386 | ) |
End of period |
| $ | 624 |
|
| $ | 951 |
|
| $ | 624 |
|
| $ | 951 |
|
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning of period | $ | 739 | $ | 1,114 | $ | 759 | $ | 864 | |||||||
Provision to product cost of revenue | (122 | ) | (190 | ) | (138 | ) | 61 | ||||||||
Charges | — | (2 | ) | (4 | ) | (3 | ) | ||||||||
End of period | $ | 617 | $ | 922 | $ | 617 | $ | 922 |
NOTE 911 — NET LOSS(LOSS) INCOME PER COMMON SHARE
Basic net lossincome per common share is computed by dividing net lossincome attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net income per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In the computation of diluted net income per common share, Orion uses the treasury stock method for outstanding options and restricted shares. For the three and nine months ended December 31, 2017 and 2016,2022, Orion was in a net loss position; therefore, the basicBasic and diluted weighted averageDiluted weighted-average shares outstanding are equal because any increase to the basic shares would be anti-dilutive. Net lossincome per common share is calculated based upon the following:following shares:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income (in thousands) |
| $ | (24,059 | ) |
| $ | 1,102 |
|
| $ | (29,225 | ) |
| $ | 7,271 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
|
| 32,047,755 |
|
|
| 31,084,710 |
|
|
| 31,510,547 |
|
|
| 30,992,475 |
|
Weighted-average common shares and common share |
|
| 32,047,755 |
|
|
| 31,234,925 |
|
|
| 31,510,547 |
|
|
| 31,273,703 |
|
Net (loss) income per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.75 | ) |
| $ | 0.04 |
|
| $ | (0.93 | ) |
| $ | 0.23 |
|
Diluted |
| $ | (0.75 | ) |
| $ | 0.04 |
|
| $ | (0.93 | ) |
| $ | 0.23 |
|
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator: | |||||||||||||||
Net loss (in thousands) | $ | (1,433 | ) | $ | (1,086 | ) | $ | (11,666 | ) | $ | (4,996 | ) | |||
Denominator: | |||||||||||||||
Weighted-average common shares outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Weighted-average common shares and common share equivalents outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Net loss per common share: | |||||||||||||||
Basic | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Diluted | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) |
The following table indicates the number of potentially dilutive securities excluded from the calculation of dilutedDiluted net lossincome per common share because their inclusion would have been anti-dilutive. The number of shares areis as of the end of each period:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Common stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted shares |
|
| — |
|
|
| 203,636 |
|
|
| — |
|
|
| 17,803 |
|
Total |
|
| — |
|
|
| 203,636 |
|
|
| — |
|
|
| 17,803 |
|
15
December 31, 2017 | December 31, 2016 | ||||
Common stock options | 709,667 | 1,561,953 | |||
Restricted shares | 1,545,209 | 1,661,543 | |||
Total | 2,254,876 | 3,223,496 |
NOTE 10 — RELATED PARTY TRANSACTIONS
Long-term debt consisted of the following (dollars in thousands):
|
| December 31, |
|
| March 31, |
| ||
Revolving credit facility |
| $ | 5,000 |
|
| $ | — |
|
Equipment debt obligations |
|
| 23 |
|
|
| 35 |
|
Total long-term debt |
|
| 5,023 |
|
|
| 35 |
|
Less current maturities |
|
| (16 | ) |
|
| (16 | ) |
Long-term debt, less current maturities |
| $ | 5,007 |
|
| $ | 19 |
|
December 31, 2017 | March 31, 2017 | ||||||
Revolving credit facility | $ | 3,622 | $ | 6,629 | |||
Equipment lease obligations | 204 | 321 | |||||
Customer equipment finance notes payable | 6 | 7 | |||||
Other long-term debt | — | 14 | |||||
Total long-term debt | 3,832 | 6,971 | |||||
Less current maturities | (85 | ) | (152 | ) | |||
Long-term debt, less current maturities | $ | 3,747 | $ | 6,819 |
Revolving Credit Agreement
On December 29, 2020, Orion has an amendedentered into a new $25 million Loan and Security Agreement with Bank of America, N.A., as lender (the “Credit Agreement”). The Credit Agreement replaced Orion’s prior $20.15 million secured revolving credit and security agreement ("(the “Prior Credit Agreement"Agreement”) that.
The replacement of the Prior Credit Agreement with the Credit Agreement provides Orion with increased financing capacity and liquidity to fund its operations and implement its strategic plans.
The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility")Facility are subject to a borrowing base requirement based on eligible receivables, inventory and inventory.cash. As of December 31, 2017, Orion's2022, the borrowing base was approximately $3.8 million. Thesupported $16.3 million of availability under the Credit Facility has a maturity date of February 6, 2019, and includes a $2.0 million sublimit for the issuance of letters of credit.Facility. As of December 31, 2017,2022, $5.0 million was borrowed under the Credit Facility.
Effective November 4, 2022, Orion, had no outstanding letterswith Bank of credit. Borrowings outstandingAmerica, N.A. as lender, executed Amendment No. 1 to its Credit Agreement. The primary purpose of the amendment was to include the assets of the acquired subsidiaries, Stay-Lite Lighting and Voltrek, as secured collateral under the Credit Agreement. Accordingly, eligible assets of Stay-Lite and Voltrek will be included in the borrowing base calculation for the purpose of establishing the monthly borrowing availability under the Credit Agreement. The amendment also clarifies that the earnout liabilities associated with the Stay-Lite and Voltrek transactions are permitted under the Credit Agreement and that the expenses recognized in connection with those earnouts should be added back in the computation of EBITDA, as defined, under the Credit Agreement.
As of December 31, 2017, amounted to approximately $3.6 million and are included in non-current liabilities in the accompanying condensed consolidated balance sheet. Orion estimates that as of December 31, 2017, it was eligible to borrow an additional $0.2 million under the Credit Facility based upon current levels of eligible inventory and accounts receivable.
Equipment LeaseDebt Obligations
In March 2016 and June 2015,February 2019, Orion entered into leaseadditional debt agreements with a financing company in the principal amount of nineteen$44 thousand dollars and $0.4 million, respectively,$30 thousand to fund the purchase of certain equipment. The leasesdebts are secured by the related equipment. The leasesdebts bear interest at a rate of 5.9%6.43% and 3.6%,8.77% per annum, respectively, and both debts mature in February 2018 and June 2020. Both leases contain a one dollar buyout option.
NOTE 1213 — INCOME TAXES
Orion’s income tax provision was determined by applying an estimated annual effective tax rate, based upon the facts and circumstances known, to book income (loss) before income tax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three months ended December 31, 2017 was determined by applying an estimated effective tax rate of 1.6% to loss before income tax. The estimated effective tax rate for the three month period ended December 31, 2016 was 0.1%. The estimated effective2022 and 2021, Orion recorded income tax rate was determined by applying statutory tax rates to pretax loss adjusted for certain permanent book to tax differencesexpense of $19.4 million and tax credits.
16
As of December 31, 2017,2022 and March 31, 2022, Orion had federal net operating loss carryforwards of approximately $80.6 million. Orion also had state net operating loss carryforwards of approximately $68.7 million. Orion also had federal tax credit carryforwards of approximately $1.4 million and state tax credits of $0.7 million. Orion's net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2020 and 2038. As of December 31, 2017, Orion hadhas a recorded a valuation allowance of $24.0$19.1 million equaling theand $1.2 million, respectively, against its net deferred tax asset duebalance. The accounting forecasts, as revised in the current quarter, projects losses in the near term. Orion now projects a 36-month cumulative loss starting from fiscal year 2023. As such, Orion management has concluded that it is more likely than not that the domestic deferred tax assets will not be realized and an increase to the uncertainty of its realizable valuevaluation allowance has been recorded in the future.third quarter, which increased tax expense by $17.8 million.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. 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 more or less of its deferred tax assets are able to be realized, an adjustment to the deferred tax assetvaluation allowance would increase incomebe reflected in the period such determination is made.
Uncertain Tax Positions
As of December 31, 2017, the2022, Orion’s balance of gross unrecognized tax benefits was approximately $0.1$0.2 million, all of which would reduce Orion’s effective tax rate if recognized.
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as otherOther long-term 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 (benefit) expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits.
NOTE 1314 — COMMITMENTS AND CONTINGENCIES
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 whetherdoes not believe the final resolution of any of such claims or legal proceedings maywill have a material adverse effect on ourOrion’s future results of operations. In addition to ordinary-course litigation, Orion is a party to the proceedings described below.
State Tax Assessment
During the nine months ended December 31, 2017,fiscal year 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of the Company’sThis sales and use tax audit is uncertain, based on current information, inwas settled during the opinion of the Company’s management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s condensed consolidated balance sheet, statements of operations, or liquidity.quarter ended June 30, 2022 with no tax adjustment.
Employee Stock Purchase Plan
In August 2010, Orion’s boardBoard of directorsDirectors approved a non-compensatory employee stock purchase plan, or ESPP. Orion issued“ESPP”. In the following shares from treasury during the ninethree months ended December 31, 2017:
Shares Issued Under ESPP Plan | Closing Market Price | ||||
Quarter Ended June 30, 2017 | 2,150 | $1.28 | |||
Quarter Ended September 30, 2017 | 2,681 | $1.12 | |||
Quarter Ended December 31, 2017 | 3,446 | $0.88 | |||
Total issued in fiscal 2018 | 8,277 | $0.88 - 1.28 |
|
| Shares Issued |
|
| Closing Market | |
Quarter Ended June 30, 2022 |
|
| 443 |
|
| 2.01 |
Quarter Ended September 30, 2022 |
|
| 648 |
|
| 1.56 |
Quarter Ended December 31, 2022 |
|
| 621 |
|
| 1.82 |
Total issued in fiscal 2022 |
|
| 1,712 |
|
| $ 1.56 - 2.01 |
Sale of shares
In March 2020, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, Orion currently has the flexibility to non-executive employeespublicly offer and sell from time to purchase shares time up to $100 million
17
of its stock.debt and/or equity securities. The loan program has been discontinued and new loans are no longer issued. Asfiling of the shelf registration statement may help facilitate Orion’s ability to raise public equity or debt capital to expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general corporate purposes.
In March 31, 2017, four thousand dollars of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account. During the nine months ended December 31, 2017,2021, Orion entered into agreements withan At Market Issuance Sales Agreement to undertake an “at the counterpartiesmarket” (ATM) public equity capital raising program pursuant to these loans. In exchange forwhich Orion may offer and sell shares of common stock from time to time, having an aggregate offering price of up to $50 million. No share sales have been effected pursuant to the forgiveness of their outstanding loan balance, the employees returned their shares to Orion. As a result of these transactions, 1,230 shares were recorded within treasury stock and the loan balances were eliminated.ATM program through December 31, 2022.
NOTE 1516 — STOCK OPTIONS AND RESTRICTED SHARES
At Orion's 2016 Annual MeetingOrion’s 2019 annual meeting of Shareholdersshareholders held on August 3, 2016, Orion's7, 2019, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the "Plan"“Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from 1,750,000 shares to 3,500,000 shares (an increase of 1,750,000 shares); added a minimum vesting period for all awards granted under the Amended 2016 Plan (with limited exceptions); and added a specific prohibition on the payment of dividends and dividend equivalents on unvested awards.
The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares, performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.
Prior to shareholder approval of the 2016 Omnibus Incentive Plan, the CompanyOrion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “Former“2004 Plan”). No new awards are being granted under the Former2004 Plan; however, all awards granted under the Former2004 Plan that wereare outstanding as of August 3, 2016 will continue to be governed by the Former2004 Plan.
Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.
The following amounts of stock-based compensation were recorded (dollars in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cost of product revenue |
| $ | 2 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 4 |
|
General and administrative |
|
| 444 |
|
|
| 214 |
|
|
| 1,425 |
|
|
| 574 |
|
Sales and marketing |
|
| 0 |
|
|
| 3 |
|
|
| 4 |
|
|
| 10 |
|
Research and development |
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Total |
| $ | 448 |
|
| $ | 219 |
|
| $ | 1,435 |
|
| $ | 591 |
|
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of product revenue | $ | 1 | $ | 7 | $ | 11 | $ | 30 | |||||||
General and administrative | 205 | 283 | 722 | 1,035 | |||||||||||
Sales and marketing | 34 | 64 | 113 | 116 | |||||||||||
Research and development | 10 | 30 | 22 | 71 | |||||||||||
Total | $ | 250 | $ | 384 | $ | 868 | $ | 1,252 |
During the first ninethree months of fiscal 2018,2022, Orion had the following activity related to its stock-based compensation:
|
| Restricted Shares |
|
| Stock Options |
| ||
Awards outstanding at March 31, 2022 |
|
| 450,458 |
|
|
| 142,428 |
|
Awards granted |
|
| 806,738 |
|
|
| — |
|
Awards vested or exercised |
|
| (535,622 | ) |
|
| (26,646 | ) |
Awards forfeited |
|
| (23,120 | ) |
|
| (30,646 | ) |
Awards outstanding at December 31, 2022 |
|
| 698,454 |
|
|
| 85,136 |
|
Per share weighted average price on grant date |
| $ | 2.18 |
|
|
| — |
|
Restricted Shares | Stock Options | |||
Balance at March 31, 2017 | 1,704,543 | 1,520,953 | ||
Awards granted | 730,410 | — | ||
Awards vested | (592,851 | ) | — | |
Awards forfeited | (296,893 | ) | (811,286 | ) |
Awards outstanding at December 31, 2017 | 1,545,209 | 709,667 | ||
Per share price on grant date | $0.88 - $1.95 | — |
18
As of December 31, 2017,2022, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of 2.02.9 years, was approximately $1.6$1.3 million.
NOTE 1617 — SEGMENTS
Orion has historically reported the following business segments: Orion U.S. MarketsServices Group Division ("USM"OSG"), Orion Engineered Services Division ("OES") and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). With Orion’s acquisition of Voltrek on October 5, 2022, Orion has now added a fourth reporting segment, Orion Electric Vehicle Charging Division (“EV”). The accounting policies are the same for each business segment as they are on a consolidated basis.
Orion Services Group Division
The OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for Orion's commercial lighting and energy management systems. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
Orion Distribution Services Division
The ODS segment sells lighting products through manufacturer representative agencies and a network of North American broadline electrical distributors and contractors.
Orion U.S. Markets Division ("USM")
The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of Orion’s agent distribution strategy. The migrated sales are included in Orion's ODS Division.
Orion Electric Vehicle Charging Division
The EV segment offers leading electric vehicle charging expertise and provides turnkey solutions for large national accounts, governments, municipalities and schools.
Corporate and Other
Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).
|
| Revenues |
|
| Operating Income (Loss) |
| ||||||||||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Orion Services Group |
| $ | 8,623 |
|
| $ | 20,021 |
|
| $ | (1,858 | ) |
| $ | 970 |
|
Orion Distribution Services |
|
| 3,711 |
|
|
| 4,942 |
|
|
| (77 | ) |
|
| 491 |
|
Orion U.S. Markets |
|
| 5,124 |
|
|
| 5,751 |
|
|
| 532 |
|
|
| 1,250 |
|
Orion Electric Vehicle Charging |
|
| 2,830 |
|
|
| — |
|
|
| (1,500 | ) |
|
| — |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| (1,685 | ) |
|
| (1,379 | ) |
|
| $ | 20,288 |
|
| $ | 30,714 |
|
| $ | (4,588 | ) |
| $ | 1,332 |
|
19
|
| Revenues |
|
| Operating Income (Loss) |
| ||||||||||
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Orion Services Group |
| $ | 27,405 |
|
| $ | 68,961 |
|
| $ | (5,630 | ) |
| $ | 7,115 |
|
Orion Distribution Services |
|
| 12,846 |
|
|
| 18,264 |
|
|
| 6 |
|
|
| 3,173 |
|
Orion U.S. Markets |
|
| 12,673 |
|
|
| 15,100 |
|
|
| 1,028 |
|
|
| 3,198 |
|
Orion Electric Vehicle Charging |
|
| 2,830 |
|
|
| — |
|
|
| (1,500 | ) |
|
| — |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| (5,052 | ) |
|
| (3,705 | ) |
|
| $ | 55,754 |
|
| $ | 102,325 |
|
| $ | (11,148 | ) |
| $ | 9,781 |
|
Revenues | Operating Income (Loss) | ||||||||||||||
For the Three Months Ended December 31, | For the Three Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segments: | |||||||||||||||
Orion U.S. Markets | $ | 2,168 | $ | 5,368 | $ | (520 | ) | $ | 367 | ||||||
Orion Engineered Systems | 7,316 | 8,288 | 185 | (81 | ) | ||||||||||
Orion Distribution Services | 7,779 | 6,961 | 224 | 229 | |||||||||||
Corporate and Other | — | — | (1,248 | ) | (1,543 | ) | |||||||||
$ | 17,263 | $ | 20,617 | $ | (1,359 | ) | $ | (1,028 | ) |
Revenues | Operating Income (Loss) | ||||||||||||||
For the Nine Months Ended December 31, | For the Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segments: | |||||||||||||||
Orion U.S. Markets | $ | 6,388 | $ | 16,462 | $ | (2,970 | ) | $ | 558 | ||||||
Orion Engineered Systems | 18,857 | 22,062 | (2,891 | ) | (878 | ) | |||||||||
Orion Distribution Services | 19,998 | 16,397 | (564 | ) | (132 | ) | |||||||||
Corporate and Other | — | — | (4,968 | ) | (4,823 | ) | |||||||||
$ | 45,243 | $ | 54,921 | $ | (11,393 | ) | $ | (5,275 | ) |
NOTE 18 — ACQUISITION
Acquisition of Voltrek
Effective on October 5, 2022, Orion acquired all the membership interests of Voltrek, an electric vehicle charging station solutions provider for a purchase price of $5.0 million in cash and $1.0 million of shares of common stock of Orion, subject to normal and customary closing adjustments (the “Voltrek Acquisition”). In addition, depending upon the relative EBITDA growth of Voltrek’s business in fiscal 2023, 2024 and 2025, Orion could pay up to an additional $3.0 million, $3.5 million and $7.15 million, respectively, in earnout payments. These compensatory payments do not fall within the scope of ASC 805, Business Combinations, and will be expensed over the course of the earnout periods to the extent they are earned. The Voltrek Acquisition was funded from existing cash resources and Orion shares. Voltrek will operate as Voltrek, an Orion Energy Systems business. The Voltrek Acquisition leverages Orion’s project management and maintenance expertise into a rapidly growing sector.
Orion has accounted for the Voltrek Acquisition as a business combination. Orion has preliminarily allocated the purchase price of approximately $6.7 million to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill. The purchase price was paid in cash and 620,067 shares of common stock with a total market value of $1.0 million, which is recorded in the opening balance sheet at fair value of $0.8 million, the discount on which is due to lock-up requirements on the shares.
Cash |
| $ | 416 |
|
Accounts receivable |
|
| 1,438 |
|
Revenue earned but not billed |
|
| 365 |
|
Inventory |
|
| 880 |
|
Prepaid expenses and other current assets |
|
| 39 |
|
Property and equipment |
|
| 4 |
|
Goodwill |
|
| 861 |
|
Other intangible assets |
|
| 4,200 |
|
Other long-term assets |
|
| 211 |
|
Accounts payable |
|
| (1,199 | ) |
Accrued expenses and other |
|
| (286 | ) |
Other long-term liabilities |
|
| (180 | ) |
Net purchase consideration |
| $ | 6,749 |
|
Goodwill recorded from the Voltrek Acquisition is attributable to the skillset of the acquired workforce. The goodwill resulting from the Voltrek Acquisition is expected to be deductible for tax purposes. The intangible assets include amounts recognized for the fair value of the trade name, vendor relationship and customer relationships.
The tradename intangible asset was valued using a relief from royalty method. The significant assumptions used include the estimated revenue and royalty rate, among other factors.
20
The vendor relationship intangible asset was valued using the income approach – excess earnings method. The significant assumptions include estimated revenue, cost of goods sold, and probability of renewal, among other factors.
The customer relationship intangible asset was valued using the income approach – with-and-without method. The significant assumptions include estimated cash flows (including appropriate revenue, cost of revenue and operating expenses attributable to the asset, retention rate, among other factors), and discount rate, reflecting the risks inherent in the future cash flow stream, among other factors.
The categorization of the framework used to measure fair value of the intangible assets is considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used.
The following table presents the details of the intangible assets acquired at the date of Voltrek Acquisition (dollars in thousands):
|
| Estimated |
| Estimated Useful Life (Years) |
| ||
Tradename |
| $ | 400 |
|
| 5 |
|
Vendor relationship |
|
| 2,300 |
|
| 7 |
|
Customer relationships |
|
| 1,500 |
|
| 3 |
|
Voltrek's post-acquisition results of operations since October 5, 2022 are included in Orion’s Consolidated Statements of Operations. The operating results of Voltrek are included in the EV segment. See note 17 — REORGANIZATION OF BUSINESS– Segments, for results.
Acquisition of Stay-Lite Lighting
Effective on January 1, 2022, Orion acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for $4.3 million (the “Stay-Lite Acquisition”). Stay-Lite Lighting operates as Stay-Lite Lighting, an Orion Energy Systems business. The Stay-Lite Acquisition accelerates the growth of Orion's maintenance services offerings through its Orion Services Group, which provides lighting and electrical services to customers.
Orion has accounted for this transaction as a business combination. Orion has allocated the purchase price of approximately $4.3 million, which includes an estimate of the earn-out liability of $0.2 million and $0.1 million for the working capital adjustment received in the first quarter fiscal 2023, to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill. Orion could pay up to $0.7 million in earnout related purchase price, which is based on performance during the current and following calendar years. Any accretion of the earnout liability above $0.2 million recorded as part of the opening balance sheet will be recognized as expense in the Consolidated Statement of Operations.
The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of January 1, 2022, is as follows (dollars in thousands):
Cash |
| $ | 95 |
|
Accounts receivable |
|
| 2,690 |
|
Revenue earned but not billed |
|
| 342 |
|
Inventory |
|
| 504 |
|
Prepaid expenses and other current assets |
|
| 41 |
|
Property and equipment |
|
| 725 |
|
Goodwill |
|
| 564 |
|
Other intangible assets |
|
| 673 |
|
Other long-term assets |
|
| 537 |
|
Accounts payable |
|
| (965 | ) |
Accrued expenses and other |
|
| (492 | ) |
Other long-term liabilities |
|
| (411 | ) |
Net purchase consideration |
| $ | 4,303 |
|
21
Goodwill recorded from the Stay-Lite Acquisition is attributable to the expected synergies from the business combination. The goodwill resulting from the Stay-Lite Acquisition is deductible for tax purposes. The intangible assets include amounts recognized for the fair value of the trade name and customer relationships. The fair value of the intangible assets was determined based upon the income (discounted cash flow) approach.
The following table presents the details of the intangible assets acquired at the date of Stay-Lite Acquisition (dollars in thousands):
|
| Estimated |
| Estimated Useful Life (Years) |
| ||
Tradename |
| $ | 164 |
|
| 5 |
|
Customer relationships |
|
| 509 |
|
| 8 |
|
Stay-Lite Lighting’s post-acquisition results of operations since January 1, 2022 are included in Orion’s Consolidated Statements of Operations. The operating results of Stay-Lite Lighting are included in the Orion Services Group segment.
If Voltrek was acquired on April 1, 2022, the pro forma Orion revenue for the nine-month period ended on December 31, 2022 would have been $58.2 million and proforma net loss would have been $(28.9) million. If both Stay-Lighting and Voltrek had been acquired as of April 1, 2021, Orion full year fiscal 2022 revenue would have been $134.9 million and net income would have been $5.8 million.
The pro forma information was determined based on the historical results of Orion and unaudited financial results from Stay-Lite Lighting and Voltrek. These proforma results reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible asset occurred at the beginning of the period, along with consequential tax effects. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combinations been completed at the beginning of the period or the results that may occur in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies resulting from the acquisitions.
Transaction costs related to the Stay-Lite Acquisition and the Voltrek Acquisition are recorded in acquisition costs in the Consolidated Statements of Operations. Transaction costs totaled $0.2 million in the three and nine months endedending December 31, 2017, Orion implemented a reorganization2021 and targeted cost savings plan. As a result, Orion entered into separation agreements with 20 employees. During the three months ended December 31, 2017, Orion recognized approximately nineteen thousand$0.5 million and $0.8 million in savings due to outplacement services not used. For the nine months ended December 31, 2017, Orion recognized $2.0 million of restructuring expense consisting of severance, outplacement services, and continued medical benefits for terminated employees for a limited post-employment period. The restructuring expense for the three and nine months ended December 31, 2017 is reflected within Orion’s condensed statement of operations as follows (dollars in thousands):2022, respectively.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Cost of product revenue | $ | (7 | ) | $ | 33 | |
General and administrative | (7 | ) | 1,808 | |||
Sales and marketing | (5 | ) | 178 | |||
Total | $ | (19 | ) | $ | 2,019 |
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Orion Distribution Systems | $ | (5 | ) | $ | 84 | |
Corporate and Other | (14 | ) | 1,935 | |||
Total | $ | (19 | ) | $ | 2,019 |
March 31, 2017 | Additions | Amounts Used | December 31, 2017 | |||||||||
Employee separation costs | $ | — | $ | 1,876 | $ | (1,635 | ) | $ | 241 | |||
Post-employment medical benefits (1) | — | 143 | (4 | ) | 139 | |||||||
Total | $ | — | $ | 2,019 | $ | (1,639 | ) | $ | 380 |
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited consolidated financial statementsConsolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number ofseveral risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2022. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Overview
We are a leading designer and manufacturer of high-performance,provide energy-efficient LED lighting and other lighting platforms.controls, maintenance services and electrical vehicle (EV) charging station solutions. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. 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 LED lighting systems and related services. Our products are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America.
Our lighting products consist primarily of light emitting diode ("LED")LED lighting fixtures.fixtures, many of which include IoT enabled control systems. Our principal customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs") and electrical contractors.. Currently, substantially allmost of our products are manufactured at our leased production facility locationlocated in Manitowoc, Wisconsin, although as the LED and related IoT 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 versatility in our product development.
We differentiate ourselves from our competitors through offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities. On October 5, 2022, we acquired Voltrek, which is intended to leverage our project management and maintenance expertise into the rapidly growing EV sector.
We believe the market for LED lighting products has shiftedand related controls continues to LED lighting systems, and that the customer base for our legacy high intensity fluorescent ("HIF") technology products will continue to decline. Compared to our legacy lighting systems, we believe that LED lighting technology 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
23
by fluorescent or other legacylighting technologies. Our LED lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the LED market. Although
In fiscal 2022, we continuecontinued to sell somesuccessfully capitalize on our capability of being a full service, turn-key provider of LED lighting products usingand controls systems with design, build, installation and project management services, as we continued a very large project for a major national account which was substantially complete by the end of the fiscal year. As a result of this success, we have begun to evolve our legacy HIF technology, we do not buildbusiness strategy to stock HIFfocus on further expanding the nature and scope of our products and instead buildservices offered to committed customer orders as received.our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We also plan to continuepursue the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to primarily focusour customers. We currently plan on developinginvesting significant time, resources and selling innovative LED products.
We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring revenue from period to period and weannual revenue. However, some of our maintenance services contracts consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.
We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a “retrofit.”"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, 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 15%10% to 50%. As a result, a change in the total mix of our sales towardamong higher or lower margin products can cause our profitability to fluctuate from period to period.
Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2023 and is referred to as “fiscal 2023”. We refer to our just completed fiscal year, which ended on March 31, 2022, as "fiscal 2022", and our prior fiscal year which ended on March 31, 20172021 as "fiscal 2017", and our current fiscal year, which ends on March 31, 2018, as “fiscal 2018.”2021". Our fiscal first quarter of each fiscal year ends on June 30,
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 U.S. MarketsServices Group Division ("USM"), Orion Engineered Systems Division ("OES"OSG"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).
24
Acquisitions
Acquisition of Voltrek
Effective on October 5, 2022, we acquired all the membership interests of Voltrek, an electric vehicle charging station solutions provider, for a purchase price of $5.0 million in cash and $1.0 million of shares of common stock of Orion, subject to Light Emitting Diode Products
Acquisition of Stay-Lite Lighting
Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $4.0 million. In addition, depending upon Stay-Lite Lighting's performance during the current and following calendar years, Orion could pay up to an additional $0.7 million in earn out related purchase price. The acquisition was funded from existing cash resources. Stay-Lite Lighting operates as Stay-Lite, an Orion Energy Systems business. The acquisition accelerates the growth of our maintenance services offerings through our Orion Services Group, which provides lighting industry from legacy lighting productsand electrical services to LED lighting products has caused us to adopt new strategies, approaches and processes in order to respond proactively to this industry transition. These changing underlying business fundamentals in this transition include:
Recent Developments
During the fourth quarter of fiscal 2022, we substantially completed a significant project rollout for LED lighting products compared to legacy lighting products.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Cost of product revenue | $ | (7 | ) | $ | 33 | |
General and administrative | (7 | ) | 1,808 | |||
Sales and marketing | (5 | ) | 178 | |||
Total | $ | (19 | ) | $ | 2,019 |
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Orion Distribution Systems | $ | (5 | ) | $ | 84 | |
Corporate and Other | (14 | ) | 1,935 | |||
Total | $ | (19 | ) | $ | 2,019 |
25
Results of Operations - Three Months Ended December 31, 20172022 versus Three Months Ended December 31, 2016
The following table sets forth the line items of our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
Three Months Ended December 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
Product revenue | $ | 15,993 | $ | 19,259 | (17.0 | )% | 92.6 | % | 93.4 | % | ||||||
Service revenue | 1,270 | 1,358 | (6.5 | )% | 7.4 | % | 6.6 | % | ||||||||
Total revenue | 17,263 | 20,617 | (16.3 | )% | 100.0 | % | 100.0 | % | ||||||||
Cost of product revenue | 11,181 | 13,577 | (17.6 | )% | 64.8 | % | 65.8 | % | ||||||||
Cost of service revenue | 966 | 885 | 9.2 | % | 5.6 | % | 4.3 | % | ||||||||
Total cost of revenue | 12,147 | 14,462 | (16.0 | )% | 70.4 | % | 70.1 | % | ||||||||
Gross profit | 5,116 | 6,155 | (16.9 | )% | 29.6 | % | 29.9 | % | ||||||||
General and administrative expenses | 2,878 | 3,541 | (18.7 | )% | 16.7 | % | 17.2 | % | ||||||||
Sales and marketing expenses | 2,981 | 3,147 | (5.3 | )% | 17.3 | % | 15.3 | % | ||||||||
Research and development expenses | 616 | 495 | 24.4 | % | 3.5 | % | 2.4 | % | ||||||||
Loss from operations | (1,359 | ) | (1,028 | ) | (32.2 | )% | (7.9 | )% | (5.0 | )% | ||||||
Interest expense | (102 | ) | (65 | ) | (56.9 | )% | (0.5 | )% | (0.3 | )% | ||||||
Interest income | 5 | 7 | (28.6 | )% | — | % | — | % | ||||||||
Loss before income tax | (1,456 | ) | (1,086 | ) | (34.1 | )% | (8.4 | )% | (5.3 | )% | ||||||
Income tax benefit | (23 | ) | — | NM | (0.1 | )% | — | % | ||||||||
Net loss | $ | (1,433 | ) | $ | (1,086 | ) | (32.0 | )% | (8.3 | )% | (5.3 | )% |
|
| Three Months Ended December 31, |
| |||||||||||||||||
|
| 2022 |
|
| 2021 |
|
|
|
|
| 2022 |
|
| 2021 |
| |||||
|
| Amount |
|
| Amount |
|
| % |
|
| % of |
|
| % of |
| |||||
Product revenue |
| $ | 15,399 |
|
| $ | 22,203 |
|
|
| (30.6 | )% |
|
| 75.9 | % |
|
| 72.3 | % |
Service revenue |
|
| 4,889 |
|
|
| 8,511 |
|
|
| (42.6 | )% |
|
| 24.1 | % |
|
| 27.7 | % |
Total revenue |
|
| 20,288 |
|
|
| 30,714 |
|
|
| (33.9 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 11,480 |
|
|
| 16,427 |
|
|
| (30.1 | )% |
|
| 56.6 | % |
|
| 53.5 | % |
Cost of service revenue |
|
| 4,027 |
|
|
| 6,646 |
|
|
| (39.4 | )% |
|
| 19.8 | % |
|
| 21.6 | % |
Total cost of revenue |
|
| 15,507 |
|
|
| 23,073 |
|
|
| (32.8 | )% |
|
| 76.4 | % |
|
| 75.1 | % |
Gross profit |
|
| 4,781 |
|
|
| 7,641 |
|
|
| (37.4 | )% |
|
| 23.6 | % |
|
| 24.9 | % |
General and administrative expenses |
|
| 3,984 |
|
|
| 2,873 |
|
|
| 38.7 | % |
|
| 19.6 | % |
|
| 9.4 | % |
Acquisition costs |
|
| 1,993 |
|
|
| 178 |
|
|
| 1019.7 | % |
|
| 9.8 | % |
|
| 1.1 | % |
Sales and marketing expenses |
|
| 2,983 |
|
|
| 2,862 |
|
|
| 4.2 | % |
|
| 14.7 | % |
|
| 9.3 | % |
Research and development expenses |
|
| 409 |
|
|
| 396 |
|
|
| 3.3 | % |
|
| 2.0 | % |
|
| 1.3 | % |
(Loss) income from operations |
|
| (4,588 | ) |
|
| 1,332 |
|
| NM |
|
|
| (22.6 | )% |
|
| 4.3 | % | |
Interest expense |
|
| (64 | ) |
|
| (26 | ) |
|
| 146.2 | % |
|
| (0.3 | )% |
|
| (0.1 | )% |
Amortization of debt issue costs |
|
| (16 | ) |
|
| (15 | ) |
|
| 6.7 | % |
|
| (0.1 | )% |
|
| (0.0 | )% |
(Loss) income before income tax |
|
| (4,668 | ) |
|
| 1,291 |
|
| NM |
|
|
| (23.0 | )% |
|
| 4.2 | % | |
Income tax (benefit) expense |
|
| 19,391 |
|
|
| 189 |
|
| NM |
|
|
| 95.6 | % |
|
| 0.6 | % | |
Net (loss) income |
| $ | (24,059 | ) |
| $ | 1,102 |
|
| NM |
|
|
| (118.6 | )% |
|
| 3.6 | % |
*NM - Not Meaningful
Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 17.0%30.6%, or $3.3$6.8 million, for the third quarter of fiscal 20182023 versus the third quarter of fiscal 2017.2022. Service revenue decreased 42.6%, or $3.6 million, for the third quarter of fiscal 2023 versus the third quarter of fiscal 2022. The decrease in product and service revenue was primarilydue to the resultexpected significantly lower revenues from our largest customer and comparatively lower project volume from other customers. The revenue from our existing large national retail customer represented 18.2% of total revenue in the continued declinethird quarter of fiscal 2023 compared to 48.6% in fluorescentthe third quarter of fiscal 2022. The decrease in the third quarter revenue was partially offset by revenues due to the acquisitions of Stay-Lite Lighting and Voltrek. Cost of product sales, $2.1 million quarter over quarter, and a decrease of $1.0 million in LED lighting revenue. LED lighting revenue decreased by 6.4% from $15.530.1%, or $4.9 million, in the third quarter of fiscal 2017 to $14.52023 versus the comparable period in fiscal 2022. Cost of service revenue decreased by 39.4%, or $2.6 million, in the third quarter of fiscal 20182023 versus the comparable period in fiscal 2022. The decrease in product and service costs was primarily as a result of the timing of purchases by our direct customers. Service revenue decreased 6.5%, or $0.1 million, due to the timingdecrease in revenue. Gross margin decreased from 24.9% of completion of installationsrevenue in the third quarter of fiscal 2018 when2022 to 23.6% in the third quarter of fiscal 2023, due primarily to reduced sales decreasing the absorption of fixed costs.
Operating Expenses
General and Administrative. General and administrative expenses increased 38.7%, or $1.1 million, in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2017. Total revenue decreased by 16.3%, or $3.4 million,2022. This comparative increase was primarily due to the items discussed above.
Acquisition Costs. Acquisition expenses increased $1.8 million in the third quarter of fiscal 2018 versus2023 compared to the comparable period inthird quarter of fiscal 20172022. This comparative increase was primarily due to the decline in sales, partially offset by lower overhead absorption comparedearnout expense of $1.5 million related to the prior year period. Costacquisition of service revenueVoltrek.
Sales and Marketing. Sales and marketing expenses increased 9.2%4.2%, or $0.1 million, in the third quarter of fiscal 2018 versus2023 compared to the comparable periodthird quarter of fiscal 2022, reflecting a reduction in commission expense on lower sales, partially offset by costs of the acquired businesses which were not in the prior period.
26
Research and Development. Research and development expenses were relatively flat, in the third quarter of fiscal 2017 primarily due2023 compared to costs incurredthe third quarter of fiscal 2022.
Income Taxes. Based on our recent financial results and near-term expectations, a non-cash tax charge of $17.8 million has been recorded as a result of the conclusion that it is more likely than not that the domestic deferred tax assets will not be realized.
Orion Services Group Division
Our OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for our commercial lighting and energy management systems. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large installation projectnational accounts, governments, municipalities, schools and the timing of project completions. Gross margin declined slightly from 29.9% ofother customers.
The following table summarizes our OSG segment operating results (dollars in thousands):
|
| Three Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 8,623 |
|
| $ | 20,021 |
|
|
| (56.9 | )% |
Operating (loss) income |
| $ | (1,858 | ) |
| $ | 970 |
|
| NM |
| |
Operating margin |
|
| (21.5 | )% |
|
| 4.8 | % |
|
|
|
* NM - Not Meaningful
OSG segment revenue in the third quarter of fiscal 2017 to 29.6% in the third quarter of fiscal 2018, primarily reflecting lower overhead absorption on lower revenue in the recent period.
Orion Distribution Services Division
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and salary reductions, legal expense, depreciationa network of North American broadline and amortization expense,electrical distributors and stock compensation expense.
The following table summarizes our ODS segment operating results (dollars in thousands):
|
| Three Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 3,711 |
|
| $ | 4,942 |
|
|
| (24.9 | )% |
Operating (loss) income |
| $ | (77 | ) |
| $ | 491 |
|
| NM |
| |
Operating margin |
|
| (2.1 | )% |
|
| 9.9 | % |
|
|
|
* NM - Not Meaningful
ODS segment revenue in the third quarter of fiscal 20182023 decreased by 24.9%, or $1.2 million, compared to the third quarter of fiscal 2017. The decrease quarter over quarter was2022, primarily due to reduced consulting and professional fees relateda decrease in sales to special events and field sales, partially offset by increased expenses focusing on additional sales activities.
Orion U.S. Markets Division
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of our agent distribution strategy. The migrated sales are included in our ODS segment.
27
The following table summarizes our USM segment operating results (dollars in thousands):
For the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 2,168 | $ | 5,368 | (59.6 | )% | ||||
Operating (loss) income | $ | (520 | ) | $ | 367 | NM | ||||
Operating margin | (24.0 | )% | 6.8 | % |
|
| Three Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 5,124 |
|
| $ | 5,751 |
|
|
| (10.9 | )% |
Operating income |
| $ | 532 |
|
| $ | 1,250 |
|
|
| (57.4 | )% |
Operating margin |
|
| 10.4 | % |
|
| 21.7 | % |
|
|
|
USM segment revenue decreased from the third quarter of fiscal 2017 by 59.6%, or $3.2 million. The decrease in revenue during the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017 was due to a $1.4 million decline in sales to select large direct customers. The remainder of the decline was due primarily to the migration of sales to our ODS segment.
For the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 7,316 | $ | 8,288 | (11.7 | )% | ||||
Operating income (loss) | $ | 185 | $ | (81 | ) | NM | ||||
Operating margin | 2.5 | % | (1.0 | )% |
Orion Electric Vehicle Division
With the timingacquisition of delivery ofVoltrek on October 5, 2022, our new EV segment offers leading electric vehicle charging expertise and provides turnkey projects and reduced fluorescent purchasessolutions with ongoing support to all commercial verticals.
The following table summarizes our EV segment operations results (dollars in thousands):
|
| Three Months Ended December 31, | ||||||||
|
| 2022 |
|
| 2021 |
|
| % | ||
Revenues |
| $ | 2,830 |
|
| $ | — |
|
| NM |
Operating income |
| $ | (1,500 | ) |
| $ | — |
|
| NM |
Operating margin |
|
| (53.0 | )% |
|
| — | % |
|
|
* NM - Not Meaningful
EV segment revenue generated by a large retail customer.
For the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 7,779 | $ | 6,961 | 11.8 | % | ||||
Operating income | 224 | 229 | (2.2 | )% | ||||||
Operating margin | 2.9 | % | 3.3 | % |
Results of Operations - Nine Months Ended December 31, 20172022 versus Nine Months Ended December 31, 2016
The following table sets forth the line items of our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations 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(dollars in thousands, except percentages):
Nine Months Ended December 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
Product revenue | $ | 41,883 | $ | 52,286 | (19.9 | )% | 92.6 | % | 95.2 | % | ||||||
Service revenue | 3,360 | 2,635 | 27.5 | % | 7.4 | % | 4.8 | % | ||||||||
Total revenue | 45,243 | 54,921 | (17.6 | )% | 100.0 | % | 100.0 | % | ||||||||
Cost of product revenue | 30,587 | 36,748 | (16.8 | )% | 67.6 | % | 66.9 | % | ||||||||
Cost of service revenue | 3,209 | 1,748 | 83.6 | % | 7.1 | % | 3.2 | % | ||||||||
Total cost of revenue | 33,796 | 38,496 | (12.2 | )% | 74.7 | % | 70.1 | % | ||||||||
Gross profit | 11,447 | 16,425 | (30.3 | )% | 25.3 | % | 29.9 | % | ||||||||
General and administrative expenses | 11,370 | 11,040 | 3.0 | % | 25.1 | % | 20.1 | % | ||||||||
Impairment of intangible assets | 710 | — | NM | 1.6 | % | — | % | |||||||||
Sales and marketing expenses | 9,241 | 9,167 | 0.8 | % | 20.4 | % | 16.7 | % | ||||||||
Research and development expenses | 1,519 | 1,493 | 1.7 | % | 3.4 | % | 2.7 | % | ||||||||
Loss from operations | (11,393 | ) | (5,275 | ) | (116.0 | )% | (25.2 | )% | (9.6 | )% | ||||||
Other income | — | 190 | NM | — | % | 0.3 | % | |||||||||
Interest expense | (308 | ) | (203 | ) | (51.7 | )% | (0.7 | )% | (0.4 | )% | ||||||
Interest income | 12 | 31 | (61.3 | )% | — | % | 0.1 | % | ||||||||
Loss before income tax | (11,689 | ) | (5,257 | ) | (122.4 | )% | (25.9 | )% | (9.6 | )% | ||||||
Income tax (benefit) expense | (23 | ) | (261 | ) | NM | (0.1 | )% | (0.5 | )% | |||||||
Net loss | $ | (11,666 | ) | $ | (4,996 | ) | (133.5 | )% | (25.8 | )% | (9.1 | )% |
28
|
| Nine Months Ended December 31, |
| |||||||||||||||||
|
| 2022 |
|
| 2021 |
|
|
|
|
| 2022 |
|
| 2021 |
| |||||
|
| Amount |
|
| Amount |
|
| % |
|
| % of |
|
| % of |
| |||||
Product revenue |
| $ | 41,715 |
|
| $ | 78,260 |
|
|
| (46.7 | )% |
|
| 74.8 | % |
|
| 76.5 | % |
Service revenue |
|
| 14,039 |
|
|
| 24,065 |
|
|
| (41.7 | )% |
|
| 25.2 | % |
|
| 23.5 | % |
Total revenue |
|
| 55,754 |
|
|
| 102,325 |
|
|
| (45.5 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 31,152 |
|
|
| 54,724 |
|
|
| (43.1 | )% |
|
| 55.9 | % |
|
| 53.5 | % |
Cost of service revenue |
|
| 11,832 |
|
|
| 18,942 |
|
|
| (37.5 | )% |
|
| 21.2 | % |
|
| 18.5 | % |
Total cost of revenue |
|
| 42,984 |
|
|
| 73,666 |
|
|
| (41.7 | )% |
|
| 77.1 | % |
|
| 72.0 | % |
Gross profit |
|
| 12,770 |
|
|
| 28,659 |
|
|
| (55.4 | )% |
|
| 22.9 | % |
|
| 28.0 | % |
General and administrative expenses |
|
| 11,683 |
|
|
| 8,737 |
|
|
| 33.7 | % |
|
| 21.0 | % |
|
| 8.5 | % |
Acquisition costs |
|
| 2,340 |
|
|
| 178 |
|
|
| 1214.6 | % |
|
| 4.2 | % |
|
| 0.3 | % |
Sales and marketing expenses |
|
| 8,521 |
|
|
| 8,794 |
|
|
| (3.1 | )% |
|
| 15.3 | % |
|
| 8.6 | % |
Research and development expenses |
|
| 1,374 |
|
|
| 1,169 |
|
|
| 17.5 | % |
|
| 2.5 | % |
|
| 1.1 | % |
(Loss) income from operations |
|
| (11,148 | ) |
|
| 9,781 |
|
|
| (214.0 | )% |
|
| (20.0 | )% |
|
| 9.6 | % |
Other income |
|
| — |
|
|
| 1 |
|
| NM |
|
|
| — |
|
|
| 0.0 | % | |
Interest expense |
|
| (97 | ) |
|
| (59 | ) |
|
| 64.4 | % |
|
| (0.2 | )% |
|
| (0.1 | )% |
Amortization of debt issue costs |
|
| (47 | ) |
|
| (46 | ) |
|
| 2.2 | % |
|
| (0.1 | )% |
|
| (0.0 | )% |
(Loss) income before income tax |
|
| (11,292 | ) |
|
| 9,677 |
|
| NM |
|
|
| (20.3 | )% |
|
| 9.5 | % | |
Income tax (benefit) expense |
|
| 17,933 |
|
|
| 2,406 |
|
| NM |
|
|
| 32.2 | % |
|
| 2.4 | % | |
Net (loss) income |
| $ | (29,225 | ) |
| $ | 7,271 |
|
| NM |
|
|
| (52.4 | )% |
|
| 7.1 | % |
*NM - Not Meaningful
Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 19.9%46.7%, or $10.4$36.5 million, for the first nine months of fiscal 20182023 versus the first nine months of fiscal 2017.2022. Service revenue decreased 41.7%, or $10.0 million, for the first nine months of fiscal 2023 versus the first nine months of fiscal 2022. The decrease in product and service revenue was due to the expected significantly lower project revenues from our largest customer and comparatively lower project volume from other customers, primarily a resultcaused by the response of customers to supply chain disruptions and other delays. The revenue from our existing large national retail customer represented 16.1% of total revenue in the continued declinefirst nine months of fiscal 2023 compared to 53.0% in fluorescentthe first nine months of fiscal 2022. This decrease in revenue was partially offset by revenues due to the acquisitions of Stay-Lite Lighting and Voltrek. Cost of product sales, $6.4 million year over year, and a decrease of $3.6 million in LED lighting revenue. LED lighting revenue decreased 8.7% from $41.2by 43.1%, or $23.6 million, in the first nine months of fiscal 2017 to $37.62023 versus the comparable period in fiscal 2022. Cost of service revenue decreased by 37.5%, or $7.1 million, in the first nine months of fiscal 2018 primarily as a result of2023 versus the timing of purchases by our direct customers. Service revenue increased 27.5%, or $0.7 million,comparable period in fiscal 2022. The decrease in product and service costs was primarily due to the timing of installation projectsdecrease in revenue. Gross margin decreased from 28.0% in the first nine months of fiscal 2018 when2022 to 22.9% in the first nine months of fiscal 2023, due primarily to reduced sales decreasing the absorption of fixed costs.
Operating Expenses
General and Administrative. General and administrative expenses increased 33.7%, or $2.9 million, in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2017. Total revenue decreased by 17.6%, or $9.7 million,2022. This comparative increase was primarily due to the items discussed above.
Acquisition Costs. Acquisition expenses increased $2.2 million in the first nine monthsthird quarter of fiscal 2018 versus2023 compared to the comparable period inthird quarter of fiscal 20172022. This comparative increase was primarily due to the decline in sales and the resulting lower overhead absorption comparedearnout expense of $1.5 million, related to the prior year period. Costacquisition of service revenue increased 83.6%, or $1.5 million, in the first nine months of fiscal 2018 versus the comparable period in fiscal 2017 primarily due to the timing of completionVoltrek.
Sales and costs on large projects. Gross marginMarketing. Sales and marketing expenses decreased from 29.9% of revenue in the first nine months of fiscal 2017 to 25.3% in the first nine months of fiscal 2018. Our product gross margin decreased as a result of under-absorption within our manufacturing facility and an increase in sales of products sourced from third party manufacturers.
Research and headcount reductions, legal, depreciationDevelopment. Research and amortization and stock compensation expenses. Excluding the employee separation costs, general and administrative expenses decreased $1.7 million, or 15.1%.
29
Income Taxes. Based on our recent financial results and near-term expectations, a non-cash tax charge of $17.8 million has been recorded as a result of the conclusion that it is more likely than not that the domestic deferred tax assets will not be realized.
Orion Services Group Division
Our OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for our commercial lighting and energy management systems. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
The increase was primarily due to employee separation costs of $0.2 million and increased commissions related tofollowing table summarizes our agency channel, offset by reduced consulting and professional fees related to special events and field sales, partially offset by increased expenses focusing on additional sales activities.
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 27,405 |
|
| $ | 68,961 |
|
|
| (60.3 | )% |
Operating (loss) income |
| $ | (5,630 | ) |
| $ | 7,115 |
|
| NM |
| |
Operating margin |
|
| (20.5 | )% |
|
| 10.3 | % |
|
|
|
* NM - Not Meaningful
OSG segment revenue in the first nine months of fiscal 20182023 decreased by 60.3%, or $41.6 million, compared to the first nine months of fiscal 2017 primarily2022. The decrease in revenue was due to an increase in wages,a significant reduction of project volume from our largest customer and comparatively lower project volume from other customers, primarily caused by the response of customers to supply chain disruptions and other delays. This revenue decrease is partially offset by the added revenue from Stay-Lite Lighting. This decrease led to a corresponding operating loss in this segment, as a result of revenue decreased testingabsorption of fixed costs.
Orion Distribution Services Division
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and supply costs.
The following table summarizes our ODS segment operating results (dollars in thousands):
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 12,846 |
|
| $ | 18,264 |
|
|
| (29.7 | )% |
Operating income |
|
| 6 |
|
|
| 3,173 |
|
|
| (99.8 | )% |
Operating margin |
|
| 0.0 | % |
|
| 17.4 | % |
|
|
|
ODS segment revenue in the first nine months of fiscal 2017 represented product royalties received from licensing agreements for our patents.
Orion U.S. Markets Division
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of our agent distribution strategy. The migrated sales are included in our ODS segment.
The following table summarizes our USM segment operating results (dollars in thousands):
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 6,388 | $ | 16,462 | (61.2 | )% | ||||
Operating (loss) income | $ | (2,970 | ) | $ | 558 | NM | ||||
Operating margin | (46.5 | )% | 3.4 | % |
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % |
| |||
Revenues |
| $ | 12,673 |
|
| $ | 15,100 |
|
|
| (16.1 | )% |
Operating income |
|
| 1,028 |
|
|
| 3,198 |
|
|
| (67.9 | )% |
Operating margin |
|
| 8.1 | % |
|
| 21.2 | % |
|
|
|
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USM segment revenue decreased from the first nine months of fiscal 2017 by 61.2%, or $10.1 million. The decrease in revenue during the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017 included the continued transition to our distribution sales model through the migration of sales to our ODS segment. Previously direct sales that are now sold through independent manufacturer representative agents are reflected within our ODS segment. The decrease also reflects a $2.4 million decline in sales to select large direct customers.
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 18,857 | $ | 22,062 | (14.5 | )% | ||||
Operating income (loss) | $ | (2,891 | ) | $ | (878 | ) | (229.3 | )% | ||
Operating margin | (15.3 | )% | (4.0 | )% |
Orion Electric Vehicle Division
Our EV segment offers leading electric vehicle charging expertise and provides turnkey solutions with ongoing support to all commercial verticals.
The following table summarizes our turnkey projects and reduced florescent purchases by a large retail customer.
|
| Nine Months Ended December 31, | ||||||||
|
| 2022 |
|
| 2021 |
|
| % | ||
Revenues |
| $ | 2,830 |
|
| $ | — |
|
| NM |
Operating income |
|
| (1,500 | ) |
|
| — |
|
| NM |
Operating margin |
|
| (53.0 | )% |
|
| — | % |
|
|
* NM - Not Meaningful
With our acquisition of Voltrek on October 5, 2022, EV segment revenue in the first nine months of fiscal 2018 increased by $2.0 million from the first nine months of fiscal 2017. The segment's operating2023 was $2.8 million. Operating loss in this segment was the result of the decline in sales resulting in lost operating leverage and an intangible asset impairment in the second quarter of fiscal 2018 of $0.5 million .
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 19,998 | $ | 16,397 | 22.0 | % | ||||
Operating loss | (564 | ) | (132 | ) | NM | |||||
Operating margin | (2.8 | )% | (0.8 | )% |
Liquidity and Capital Resources
Overview
We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted capital expenditures, acquisitions and working capital for at least one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.
We had approximately $10.6$8.1 million in cash and cash equivalents as of December 31, 2017,2022, compared to $17.3$14.5 million at March 31, 2017.2022. Our cash position decreased primarily as a result of our netan operating loss separation payments to terminated employees in conjunction with our management reorganization and cost reduction initiatives, andan overall use of working capital during the net repaymentfirst nine months of $3.0 million on our revolving credit facility.
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,containment, working capital management, capital expenditures, pending or future litigation resultsexpenditures. While we believe that we will likely have adequate available cash and cost containment measures. In addition, we tendequivalents and credit availability under our Credit Agreement to experience highsatisfy our currently anticipated working capital costs when we increase sales from existing levels. Basedand liquidity requirements for at least the next 12 months based on our current expectations, whilecash flow forecast. If we anticipate realizing improved operating results in the future, we also currently believe thatexperience significant liquidity constraints, we may experience negative working capital cash flows during some interim periods.
Cash Flows
The following table summarizes our cash flows for the nine months ended December 31, 20172022 and 20162021 (in thousands):
Nine Months Ended December 31, | |||||||
2017 | 2016 | ||||||
Operating activities | $ | (3,081 | ) | $ | 266 | ||
Investing activities | (521 | ) | 1,972 | ||||
Financing activities | (3,142 | ) | 1,338 | ||||
Increase (decrease) in cash and cash equivalents | $ | (6,744 | ) | $ | 3,576 |
|
| Nine Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating activities |
| $ | (5,248 | ) |
| $ | 2,315 |
|
Investing activities |
|
| (6,090 | ) |
|
| (4,548 | ) |
Financing activities |
|
| 5,014 |
|
|
| 104 |
|
Decrease in cash and cash equivalents |
| $ | (6,324 | ) |
| $ | (2,129 | ) |
Cash Flows Related to Operating Activities.
Cash31
Cash used in operating activities for the first nine months of fiscal 20182023 was $3.1$5.2 million and consisted of aour net loss of $29.2 million adjusted for non-cash expense items of $7.8 million and net cash provided byused in changes in operating assets and liabilities of $4.7 million.
Cash provided by operating activities for the first nine months of fiscal 20172022 was $0.3$2.3 million and consisted of our net cash provided by changes in operating assets and liabilitiesincome of $1.3$7.3 million and a net loss adjusted for non-cash expense items of $1.0 million. Cash used$4.4 million offset by changes in operating assets and liabilities consistedworking capital uses of an increase$9.4 million, the largest of $0.8which was a $5.2 million decrease in accounts receivable due to the increase in lighting revenue and the timing of collections from customers at period end, an increase of inventory by $0.2 million due to the timing of product shipments at quarter end, a decrease of $0.7 million in accrued expenses due to the payment of a state tax liability and an increase in deferred contract costs of $1.3 million due to the timing of project completions. Cash provided by changes in operating assets and liabilities included an increase of $0.6 million in accounts payable due to the timing of payments on balances at quarter end, a decrease in prepaid and other assets of $3.3 million primarily due to the timing of project billings, and an increase in deferred revenue of $0.4 million due to the timing of project completions.
Cash Flows Related to Investing Activities.
Cash provided byused in investing activities was $2.0of $4.5 million in the first nine months of fiscal 2017 which2022 consisted of $2.6primarily $3.7 million of proceeds fromcash funded for the saleacquisition of the Manitowoc manufacturing facility. Stay-Lite Lighting, and an investment of a non-controlling equity stake in ndustrial, Inc. of $0.5 million and purchases of property and equipment.
Cash usedFlows Related to Financing Activities. Cash provided by investingfinancing activities forof $5.0 million in the first nine months of fiscal 20172023 consisted primarily of proceeds from our Credit Agreement, which was $0.4 million for capital improvements relateddrawn down to production enhancements and technology purchases and $0.2 million of additionspay the cash purchase price to patents.
Cash Flows Related to Financing Activities.
Working Capital
Our net working capital as of December 31, 20172022 was $13.4$24.5 million, consisting of $30.6$46.6 million in current assets and $17.2$22.1 million in current liabilities. Our net working capital as of March 31, 20172022 was $25.5$32.9 million, consisting of $43.9$51.2 million in current assets and $18.4 million in current liabilities. Our current accounts receivable balance decreased by $0.5 million from the fiscal 2017 year end due to the decline in sales and the timing of customer collections. Our inventory decreased from the fiscal 2017 year end by $4.8 million due to continued management of purchasing activities and inventory management initiatives. Our prepaid and other current assets decreased by $1.3 million due to a decrease in unbilled revenue as a result of the timing of customer billings. Our accounts payable remained relatively flat compared to fiscal 2017 year end. Our accrued expenses decreased from our fiscal 2017 year end by $0.8 million due to the payment of commissions and a decrease in accrued bonuses in the current fiscal year.
We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.
Indebtedness
Revolving Credit Agreement
On December 29, 2020, we entered into a new $25 million Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our prior $20.15 million secured revolving credit and security agreement ("(the “Prior Credit Agreement"Agreement”) that.
The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.
The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility")Facility are subject to a borrowing base requirement based on eligible receivables, inventory and inventory.cash. As of December 31, 2017 our2022, the borrowing base was approximately $3.8 million. Thesupports $16.3 million availability of the Credit Facility has a maturity date of February 6, 2019 and includes a $2.0 million sublimit for the issuance of letters of credit.Facility. As of December 31, 2017, we had no outstanding letters of credit. Borrowings outstanding as of December 31, 2017, amounted to approximately $3.62022, $5.0 million and are included in non-current liabilities in the accompanying condensed consolidated balance sheet. We estimate that as of December 31, 2017, we were eligible to borrow an additional $0.2 millionwas borrowed under the Credit Facility based upon current levels of eligible inventory and accounts receivable.
The Credit Agreement contains additional 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 or pay any dividend or distribution on our stock, redeem or repurchase shares of our stock, or pledge or dispose of assets. We were in compliance with our covenants in the Credit Agreement as of December 31, 2017.
Effective November 4, 2022, we, along with the Lender, executed Amendment No. 1 to the Credit Agreement. The primary purpose of the amendment was to include the assets of our acquired subsidiaries, Stay-Lite Lighting and each subsidiary’s personal property (excluding variousVoltrek as secured collateral under the Credit Agreement. Accordingly, eligible assets relating to customer OTAs)of Stay-Lite and a mortgage on certain real property.
32
base calculation for the purpose of establishing the monthly borrowing availability under the Credit Agreement. The amendment also clarifies that the earnout liabilities associated with the Stay-Lite and Voltrek transactions are permitted under the Credit Agreement bear interest atand that the daily three-month LIBOR plus 3.0% per annum,expenses recognized in connection with a minimum interest charge for each year or portionthose earnouts should be added back in the computation of a year during the term of the Credit Agreement of $0.1 million, regardless of usage. As of September 30, 2017, the interest rate was 4.69%. We must pay an unused line fee of 0.25% per annum of the daily average unused amount of the 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 timeEBITDA, as defined, under the Credit Facility.
Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $6.8$19.5 million and $7.3$10.1 million as of December 31, 20172022 and March 31, 2017,2022, respectively. We generally expect our backlog to be recognized as revenue within one year.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
We have experienced increases in various input costs including labor, components and transportation in the past year. In response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that our results from operations have not been and we do not expect them to be, materially affected to date by inflation.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. The estimates of forecasted cash flows are used in the assessment for impairment of long-lived assets and the realizability of deferred tax assets. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2017.2022. For the threenine months ended December 31, 2017,2022, there were no material changes in our accounting policies.
Recent Accounting Pronouncements
For a complete discussion of recent accounting pronouncements, refer to Note 23 in the condensed consolidated financial statementsCondensed Consolidated Financial Statements included elsewhere in this report.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in our Annual Report on Form 10-K for the year ended March 31, 2017.2022. There have been no material changes to such exposures since March 31, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishingdisclosure controls and maintaining adequate internal control over financial reporting (as definedprocedures are designed to ensure that information required to be disclosed by us in Rules 13a-15(f) and 15d-15(f)the reports that we file or submit under the Exchange Act). Internal control over financial reportingAct is a process designed by, or under the supervision of,accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the boardas appropriate, to allow timely decisions regarding required disclosure.
As 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 GAAP and includes those policies and procedures that:
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) for the quarter ended December 31, 2017,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than with respect to the implementation of our Remediation Plans, as described above.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 whetherdo not believe that the final resolution of any of such claims or legal proceedings maywill have a material adverse effect on Orion’sour future results of operations.
See Note 14, "Commitments15 – Commitments and Contingencies, - Litigation", to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2022, which we filed with the SEC on June 13, 201710, 2022 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 5, 2022, in connection with the Voltrek Acquisition, we issued an aggregate of 620,067 shares of our Common Stock at a price of $1.61 per share. The shares issued in the Voltrek Acquisition were sold without registration under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws in a transaction not involving a public offering and the sellers in the Voltrek Acquisition represented they are accredited investors. We relied on the exemption from the registration requirements of the Securities Act of 1933 afforded by Section 4(a)(2).
ITEM 5. OTHER INFORMATION
None
35
ITEM 6. EXHIBITS
3.1 |
10.1 | |
10.2 | |
10.3 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance |
101.SCH | Inline XBRL Taxonomy extension schema |
101.CAL | Inline XBRL Taxonomy extension calculation linkbase |
101.DEF | Inline XBRL Taxonomy extension definition linkbase document+ |
101.LAB | Inline XBRL Taxonomy extension label linkbase |
101.PRE | Inline XBRL Taxonomy extension presentation linkbase |
document+ | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, has been formatted in Inline XBRL. |
+ Filed herewith
* Management contract or compensatory plan or arrangement
^ The schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request; provided, however, that the Registrant may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act, as amended, for any schedule so furnished.
36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 2018.
ORION ENERGY SYSTEMS, INC. | ||
By | /s/ | |
J. Per Brodin | ||
Chief Financial Officer | ||
(Principal Financial Officer and Authorized Signatory) |
37