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, 20172020
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) 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) | ||
Common stock purchase rights | 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 ☒x No ☐¨
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 ☒x No ☐¨
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 ☐¨ No ☒x
There were 28,921,17030,759,953 shares of the Registrant’s common stock outstanding on February 2, 2018.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31,TABLE OF CONTENTS
Page(s) | |||
ITEM 1. | |||
5 | |||
7 | |||
8 | |||
ITEM 2. | 24 | ||
ITEM 3. | 35 | ||
ITEM 4. | 35 | ||
ITEM 1. | |||
ITEM 1A. | |||
ITEM 2. | |||
ITEM 5. | |||
ITEM 6. | |||
(in thousands, except share amounts)
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 12,279 |
|
| $ | 28,751 |
|
Accounts receivable, net |
|
| 23,744 |
|
|
| 10,427 |
|
Revenue earned but not billed |
|
| 1,519 |
|
|
| 560 |
|
Inventories, net |
|
| 18,518 |
|
|
| 14,507 |
|
Prepaid expenses and other current assets |
|
| 607 |
|
|
| 723 |
|
Total current assets |
|
| 56,667 |
|
|
| 54,968 |
|
Property and equipment, net |
|
| 11,410 |
|
|
| 11,817 |
|
Other intangible assets, net |
|
| 2,033 |
|
|
| 2,216 |
|
Long-term accounts receivable |
|
| 652 |
|
|
| 760 |
|
Other long-term assets |
|
| 2,906 |
|
|
| 2,802 |
|
Total assets |
| $ | 73,668 |
|
| $ | 72,563 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 19,360 |
|
| $ | 19,834 |
|
Accrued expenses and other |
|
| 13,916 |
|
|
| 7,228 |
|
Deferred revenue, current |
|
| 126 |
|
|
| 107 |
|
Current maturities of long-term debt |
|
| 14 |
|
|
| 35 |
|
Total current liabilities |
|
| 33,416 |
|
|
| 27,204 |
|
Revolving credit facility |
|
| — |
|
|
| 10,013 |
|
Long-term debt, less current maturities |
|
| 39 |
|
|
| 50 |
|
Deferred revenue, long-term |
|
| 659 |
|
|
| 715 |
|
Other long-term liabilities |
|
| 3,768 |
|
|
| 3,546 |
|
Total liabilities |
|
| 37,882 |
|
|
| 41,528 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at December 31, 2020 and March 31, 2020; no shares issued and outstanding at December 31, 2020 and March 31, 2020 |
|
| — |
|
|
| — |
|
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2020 and March 31, 2020; shares issued: 40,227,900 at December 31, 2020 and 39,729,569 at March 31, 2020; shares outstanding: 30,759,953 at December 31, 2020 and 30,265,997 at March 31, 2020 |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 157,262 |
|
|
| 156,503 |
|
Treasury stock, common shares: 9,467,947 at December 31, 2020 and 9,463,572 at March 31, 2020 |
|
| (36,181 | ) |
|
| (36,163 | ) |
Retained deficit |
|
| (85,295 | ) |
|
| (89,305 | ) |
Total shareholders’ equity |
|
| 35,786 |
|
|
| 31,035 |
|
Total liabilities and shareholders’ equity |
| $ | 73,668 |
|
| $ | 72,563 |
|
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 |
The accompanying notes are an integral part of these condensed consolidated statements.
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(in thousands, except share and per share amounts)
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Product revenue |
| $ | 31,929 |
|
| $ | 25,867 |
|
| $ | 61,890 |
|
| $ | 93,778 |
|
Service revenue |
|
| 12,322 |
|
|
| 8,382 |
|
|
| 19,453 |
|
|
| 31,171 |
|
Total revenue |
|
| 44,251 |
|
|
| 34,249 |
|
|
| 81,343 |
|
|
| 124,949 |
|
Cost of product revenue |
|
| 23,203 |
|
|
| 19,075 |
|
|
| 44,834 |
|
|
| 68,778 |
|
Cost of service revenue |
|
| 10,042 |
|
|
| 6,900 |
|
|
| 15,605 |
|
|
| 24,823 |
|
Total cost of revenue |
|
| 33,245 |
|
|
| 25,975 |
|
|
| 60,439 |
|
|
| 93,601 |
|
Gross profit |
|
| 11,006 |
|
|
| 8,274 |
|
|
| 20,904 |
|
|
| 31,348 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 3,030 |
|
|
| 2,662 |
|
|
| 8,079 |
|
|
| 8,274 |
|
Sales and marketing |
|
| 3,120 |
|
|
| 2,735 |
|
|
| 7,306 |
|
|
| 8,359 |
|
Research and development |
|
| 391 |
|
|
| 439 |
|
|
| 1,230 |
|
|
| 1,240 |
|
Total operating expenses |
|
| 6,541 |
|
|
| 5,836 |
|
|
| 16,615 |
|
|
| 17,873 |
|
Income from operations |
|
| 4,465 |
|
|
| 2,438 |
|
|
| 4,289 |
|
|
| 13,475 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 12 |
|
|
| 2 |
|
|
| 56 |
|
|
| 22 |
|
Interest expense |
|
| (1 | ) |
|
| (38 | ) |
|
| (51 | ) |
|
| (261 | ) |
Amortization of debt issue costs |
|
| (20 | ) |
|
| (61 | ) |
|
| (142 | ) |
|
| (182 | ) |
Loss on debt extinguishment |
|
| (90 | ) |
|
| — |
|
|
| (90 | ) |
|
| — |
|
Interest income |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 5 |
|
Total other expense |
|
| (99 | ) |
|
| (95 | ) |
|
| (227 | ) |
|
| (416 | ) |
Income before income tax |
|
| 4,366 |
|
|
| 2,343 |
|
|
| 4,062 |
|
|
| 13,059 |
|
Income tax expense |
|
| 51 |
|
|
| 39 |
|
|
| 52 |
|
|
| 66 |
|
Net income |
| $ | 4,315 |
|
| $ | 2,304 |
|
| $ | 4,010 |
|
| $ | 12,993 |
|
Basic net income per share attributable to common shareholders |
| $ | 0.14 |
|
| $ | 0.08 |
|
| $ | 0.13 |
|
| $ | 0.43 |
|
Weighted-average common shares outstanding |
|
| 30,735,722 |
|
|
| 30,243,865 |
|
|
| 30,586,196 |
|
|
| 30,053,330 |
|
Diluted net income per share |
| $ | 0.14 |
|
| $ | 0.07 |
|
| $ | 0.13 |
|
| $ | 0.42 |
|
Weighted-average common shares and share equivalents outstanding |
|
| 31,320,427 |
|
|
| 30,824,078 |
|
|
| 31,289,359 |
|
|
| 30,862,088 |
|
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 |
The accompanying notes are an integral part of these condensed consolidated statements.
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Retained Deficit |
|
| Total Shareholders’ Equity |
| |||||
Balance, March 31, 2020 |
|
| 30,265,997 |
|
| $ | 156,503 |
|
| $ | (36,163 | ) |
| $ | (89,305 | ) |
| $ | 31,035 |
|
Exercise of stock options for cash |
|
| 20,000 |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 458 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Stock-based compensation |
|
| 342,780 |
|
|
| 208 |
|
|
| — |
|
|
| — |
|
|
| 208 |
|
Employee tax withholdings on stock-based compensation |
|
| (4,346 | ) |
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,219 | ) |
|
| (2,219 | ) |
Balance, June 30, 2020 |
|
| 30,624,889 |
|
| $ | 156,752 |
|
| $ | (36,179 | ) |
| $ | (91,524 | ) |
| $ | 29,049 |
|
Exercise of stock options for cash |
|
| 9,000 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 28 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 151 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 76,351 |
|
|
| 251 |
|
|
| — |
|
|
| — |
|
|
| 251 |
|
Employee tax withholdings on stock-based compensation |
|
| (581 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,914 |
|
|
| 1,914 |
|
Balance, September 30, 2020 |
|
| 30,709,810 |
|
| $ | 157,031 |
|
| $ | (36,181 | ) |
| $ | (89,610 | ) |
| $ | 31,240 |
|
Exercise of stock options for cash |
|
| 38,000 |
|
|
| 79 |
|
|
| — |
|
|
| — |
|
|
| 79 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 178 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Stock-based compensation |
|
| 12,200 |
|
|
| 152 |
|
|
| — |
|
|
| — |
|
|
| 152 |
|
Employee tax withholdings on stock-based compensation |
|
| (235 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,315 |
|
|
| 4,315 |
|
Balance, December 31, 2020 |
|
| 30,759,953 |
|
| $ | 157,262 |
|
| $ | (36,181 | ) |
| $ | (85,295 | ) |
| $ | 35,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)thousands, except share amounts)
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Retained Deficit |
|
| Total Shareholders’ Equity |
| |||||
Balance, March 31, 2019 |
|
| 29,600,158 |
|
| $ | 155,828 |
|
| $ | (36,091 | ) |
| $ | (101,767 | ) |
| $ | 17,970 |
|
Exercise of stock options for cash |
|
| 10,000 |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 613 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Stock-based compensation |
|
| 535,344 |
|
|
| 171 |
|
|
| — |
|
|
| — |
|
|
| 171 |
|
Employee tax withholdings on stock-based compensation |
|
| (24,628 | ) |
|
| — |
|
|
| (64 | ) |
|
| — |
|
|
| (64 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,968 |
|
|
| 3,968 |
|
Balance, June 30, 2019 |
|
| 30,121,487 |
|
| $ | 156,015 |
|
| $ | (36,153 | ) |
| $ | (97,799 | ) |
| $ | 22,063 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 570 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Stock-based compensation |
|
| 111,848 |
|
|
| 159 |
|
|
| — |
|
|
| — |
|
|
| 159 |
|
Employee tax withholdings on stock-based compensation |
|
| (2,828 | ) |
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| (13 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,721 |
|
|
| 6,721 |
|
Balance, September 30, 2019 |
|
| 30,231,077 |
|
| $ | 156,174 |
|
| $ | (36,164 | ) |
| $ | (91,078 | ) |
| $ | 28,932 |
|
Shares issued under Employee Stock Purchase Plan |
|
| 605 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Stock-based compensation |
|
| 22,046 |
|
|
| 185 |
|
|
| — |
|
|
| — |
|
|
| 185 |
|
Employee tax withholdings on stock-based compensation |
|
| (666 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,304 |
|
|
| 2,304 |
|
Balance, December 31, 2019 |
|
| 30,253,062 |
|
| $ | 156,359 |
|
| $ | (36,164 | ) |
| $ | (88,774 | ) |
| $ | 31,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
The accompanying notes are an integral part of these condensed consolidated statements.
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Nine Months Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 4,010 |
|
| $ | 12,993 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 889 |
|
|
| 910 |
|
Amortization of intangible assets |
|
| 225 |
|
|
| 282 |
|
Stock-based compensation |
|
| 611 |
|
|
| 515 |
|
Amortization of debt issue costs |
|
| 142 |
|
|
| 182 |
|
Loss on debt extinguishment |
|
| 90 |
|
|
| — |
|
Impairment of intangible assets |
|
| — |
|
|
| 3 |
|
Loss on sale of property and equipment |
|
| 6 |
|
|
| — |
|
Provision for inventory reserves |
|
| 185 |
|
|
| 192 |
|
Other |
|
| 9 |
|
|
| 28 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, current and long-term |
|
| (13,208 | ) |
|
| (420 | ) |
Revenue earned but not billed |
|
| (959 | ) |
|
| 2,957 |
|
Inventories |
|
| (4,196 | ) |
|
| 970 |
|
Prepaid expenses and other assets |
|
| 339 |
|
|
| 44 |
|
Accounts payable |
|
| (304 | ) |
|
| (2,990 | ) |
Accrued expenses and other |
|
| 6,555 |
|
|
| (1,296 | ) |
Deferred revenue, current and long-term |
|
| (38 | ) |
|
| (95 | ) |
Net cash (used in) provided by operating activities |
|
| (5,644 | ) |
|
| 14,275 |
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (658 | ) |
|
| (582 | ) |
Additions to patents and licenses |
|
| (43 | ) |
|
| (73 | ) |
Net cash used in investing activities |
|
| (701 | ) |
|
| (655 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
| (32 | ) |
|
| (68 | ) |
Proceeds from revolving credit facility |
|
| 8,000 |
|
|
| 63,200 |
|
Payments of revolving credit facility |
|
| (18,013 | ) |
|
| (71,572 | ) |
Payments to settle employee tax withholdings on stock-based compensation |
|
| (22 | ) |
|
| (76 | ) |
Deferred financing costs |
|
| (212 | ) |
|
| (91 | ) |
Net proceeds from employee equity exercises |
|
| 152 |
|
|
| 20 |
|
Net cash used in financing activities |
|
| (10,127 | ) |
|
| (8,587 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (16,472 | ) |
|
| 5,033 |
|
Cash and cash equivalents at beginning of period |
|
| 28,751 |
|
|
| 8,729 |
|
Cash and cash equivalents at end of period |
| $ | 12,279 |
|
| $ | 13,762 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Operating lease assets obtained in exchange for new operating lease liabilities |
| $ | 355 |
|
| $ | — |
|
The accompanying notes are an integral part of these Condensed Consolidated Statements.
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Organization
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturerprovides innovative light emitting diode ("LED") lighting systems and sellerturnkey project implementation including installation and commissioning of lightingfixtures, controls and energy managementInternet of Things (“IoT”) systems, as well as ongoing system maintenance and program management. Orion’s products enable customers to commercialreduce their carbon footprint and industrial businesses, and federal and local governments, predominantly in North America.
Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space in Jacksonville, Florida; Chicago, Illinois;Florida.
NOTE 2 — IMPACT OF COVID-19
The COVID-19 pandemic has disrupted business, trade, commerce, and Houston, Texas.financial and credit markets in the U.S. and globally. Orion’s business has been adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last month of its fiscal 2020 year, and continuing most significantly into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, Orion also leases warehouse spaceexperienced a rebound in business, with a full quarter of project installations for its largest customer, as well installations for a new large specialty retail customer, and no significant COVID-19 impacts. However, some customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic.
As a deemed essential business, Orion provides products and services to ensure energy and lighting infrastructure and Orion therefore continues to operate throughout the pandemic. Orion has implemented a number of safety protocols, including limiting travel, restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures, and requiring face coverings.
As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020, Orion implemented a number of cost reduction and cash conservation measures, including reducing headcount. Orion recognized $0.4 million in restructuring expense during the fourth quarter of fiscal 2020. As of December 31, 2020, all of the restructuring costs had been paid.
While certain restrictions have begun to initially lessen in certain jurisdictions during fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees asked to work remotely if possible. Certain areas of the country have seen spikes of COVID-19 cases (including in Manitowoc, Wisconsin and Augusta, Georgia.Jacksonville, Florida), which could result in renewed restrictions and lockdown orders. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of multiple projects have been extended. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources or financial results. However, the economic and regulatory impacts of COVID-19 will materially and adversely impact revenue and profitability in fiscal 2021. If there is prolonged adverse impact, Orion’s business, liquidity, capital resources, financial results, and the carrying values of Orion’s property, plant and equipment and intangible assets may be impacted negatively. Orion will continue to actively monitor the situation and may take further actions that alter business operations.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses. Orion is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was the period ended March 31, 2020. For the fiscal year ended March 31, 2020, and three and nine months ended December 31, 2020, the CARES Act did not have a material impact on Orion’s consolidated financial statements. See Note 14 – Income Taxes.
Principles of Consolidation
The condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of Orion Energy Systems, Inc. and its wholly-ownedwholly 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 presentation have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 20182021 or other interim periods.
The condensed consolidated balance sheetCondensed Consolidated Balance Sheet at March 31, 20172020 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, 20172020 filed with the Securities and Exchange CommissionSEC on June 13, 2017.
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 and 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 deposited with two financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk on these balances.
Orion purchases components necessary for its lighting products, including ballasts,power supplies, lamps and LED components, from multiplenumerous suppliers. For the three months ended December 31, 2017, one supplier accounted for 13.9% of of total costs of revenue. For the nine months ended December 31, 2017, no supplier accounted for more than 10% of total cost of revenue For the three and nine months ended December 31, 2016,2020, no suppliersuppliers accounted for more than 10% of total cost of revenue.
For the three months ended December 31, 2017, one customer2020, two customers accounted for 13.4%65.1% and 11.1% of total revenue.revenue, respectively. For the nine months ended December 31, 2017,2020, one customer accounted for 11.1%55.7% of total revenue. For the three and nine months ended December 31, 2016, no2019, one customer accounted for more than 10%72.3 % and 77.3%, respectively, of total revenue.
As of December 31, 2017, three2020, two customers accounted for 13.5%, 12.2%,59.3% and 10.1%, respectively,18.0% of accounts receivable.receivable, respectively. As of March 31, 2017, one customer2020, two customers accounted for 11.6%37.3% and 13.0% 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,December 2019, the FASB issued ASU 2014-09, "Revenue from ContractsNo. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general rules of Topic 740. The provisions of ASU 2019-12 are effective for Orion for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Orion is currently evaluating the impact of adoption on this standard on its consolidated statements of operations, cash flows, and the related footnote disclosures.
General Information
Orion generates revenues primarily by selling commercial LED lighting fixtures and components, including controls and integrated IoT capabilities, and by installing these fixtures in its customer’s facilities on a turnkey basis via a dedicated installation and support team. Orion recognizes revenue in accordance with Customers." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue asthe guidance in ASC 606 when control of the goods or services being provided (which Orion refers to as a performance obligation) is transferred to a customer at an amount that reflects the consideration itthat management expects to receive in exchange for those goods or services. In addition, this ASU requires enhancedIf there are multiple performance obligations in a contract, the contract’s total sales price is allocated to each individual performance obligation based on their relative standalone selling price.
Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and expanded financial statement disclosures. Sincecomponents is classified as Product revenue in the issuanceCondensed Consolidated Statements of this ASU,Operations.
Revenue from a customer contract which includes both the FASB has issued further updates to this ASU to provide additional guidance and clarification and to delay the original effective date. This ASU allows companies to elect either a full retrospective or modified retrospective approach to adoption. Orion will adopt this ASUsale of fixtures and the installation of such fixtures (which Orion refers to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices. Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue.
Orion also records revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. These PPAs are supply-side agreements for the generation of electricity. Orion’s last PPA expires in 2031. Revenue associated with the sale of energy generated by the solar facilities under these PPAs is within the scope of ASC 606. Orion also recognizes revenue upon the sale to third parties of tax credits received from operating the solar facilities and from amortizing a grant received from the federal government during the period starting when the power generating facilities were constructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.
When shipping and handling activities are performed after a customer obtains control of the product, Orion has elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. Any shipping and handling costs charged to customers are recorded in Product revenue. Shipping and handling costs are accrued and included in Cost of product revenue.
See Note 11 – Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for its products and services.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.
Contract Fulfillment Costs
Costs associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of product revenue at the time revenue is recorded. See Note 6 – Inventories, Net. Costs associated with installation sales are expensed as incurred.
Disaggregation of Revenue
Orion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue which is accounted for under other guidance. For the three and nine months ended December 31, 2020, Product revenue included $0.7 million and $2.1 million, respectively, derived from sales-type leases for light fixtures, no revenue and $0.1 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy,and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606.
For the three and nine months ended December 31, 2019, Product revenue included $0.2 million and $1.2 million, respectively, derived from sales-type leases for light fixtures, $0.1 million and $0.2 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606. All remaining Product revenue, and all Service revenue, are derived from contracts with customers as defined in ASC 606.
The primary end-users of Orion’s lighting products and services are (a) commercial or industrial companies and (b) the federal government.
Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products either direct from Orion or through distributors or energy service companies ("ESCOs"). Revenues associated with commercial and industrial end-users are included within each of Orion’s segments, dependent on the sales channel.
The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select group of contractors who focus on the federal government. Revenues associated with government end-users are primarily included in the Orion Engineered Systems Division segment.
See Note 18 – Segments, for additional discussion concerning Orion’s reportable segments.
The following tables provide detail of Orion’s total revenues for the three and nine months ended December 31, 2020 and December 31, 2019 (dollars in thousands):
|
| Three Months Ended December 31, 2020 |
|
| Nine Months Ended December 31, 2020 |
| ||||||||||||||||||
|
| Product |
|
| Services |
|
| Total |
|
| Product |
|
| Services |
|
| Total |
| ||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting revenues, by end user |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government |
| $ | 177 |
|
| $ | 323 |
|
| $ | 500 |
|
| $ | 312 |
|
| $ | 349 |
|
| $ | 661 |
|
Commercial and industrial |
|
| 31,006 |
|
|
| 11,999 |
|
|
| 43,005 |
|
|
| 59,257 |
|
|
| 19,104 |
|
|
| 78,361 |
|
Total lighting |
|
| 31,183 |
|
|
| 12,322 |
|
|
| 43,505 |
|
|
| 59,569 |
|
|
| 19,453 |
|
|
| 79,022 |
|
Solar energy related revenues |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| 49 |
|
|
| — |
|
|
| 49 |
|
Total revenues from contracts with customers |
|
| 31,190 |
|
|
| 12,322 |
|
|
| 43,512 |
|
|
| 59,618 |
|
|
| 19,453 |
|
|
| 79,071 |
|
Revenue accounted for under other guidance |
|
| 739 |
|
|
| — |
|
|
| 739 |
|
|
| 2,272 |
|
|
| — |
|
|
| 2,272 |
|
Total revenue |
| $ | 31,929 |
|
| $ | 12,322 |
|
| $ | 44,251 |
|
| $ | 61,890 |
|
| $ | 19,453 |
|
| $ | 81,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended December 31, 2019 |
|
| Nine Months Ended December 31, 2019 |
| ||||||||||||||||||
|
| Product |
|
| Services |
|
| Total |
|
| Product |
|
| Services |
|
| Total |
| ||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting revenues, by end user |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government |
| $ | 78 |
|
| $ | 68 |
|
| $ | 146 |
|
| $ | 902 |
|
| $ | 366 |
|
| $ | 1,268 |
|
Commercial and industrial |
|
| 25,467 |
|
|
| 8,314 |
|
|
| 33,781 |
|
|
| 91,411 |
|
|
| 30,805 |
|
|
| 122,216 |
|
Total lighting |
|
| 25,545 |
|
|
| 8,382 |
|
|
| 33,927 |
|
|
| 92,313 |
|
|
| 31,171 |
|
|
| 123,484 |
|
Solar energy related revenues |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| 50 |
|
|
| — |
|
|
| 50 |
|
Total revenues from contracts with customers |
|
| 25,555 |
|
|
| 8,382 |
|
|
| 33,937 |
|
|
| 92,363 |
|
|
| 31,171 |
|
|
| 123,534 |
|
Revenue accounted for under other guidance |
|
| 312 |
|
|
| — |
|
|
| 312 |
|
|
| 1,415 |
|
|
| — |
|
|
| 1,415 |
|
Total revenue |
| $ | 25,867 |
|
| $ | 8,382 |
|
| $ | 34,249 |
|
| $ | 93,778 |
|
| $ | 31,171 |
|
| $ | 124,949 |
|
Cash Flow Considerations
Customer payments for material-only orders are due shortly after shipment.
Turnkey projects where the end-user is a commercial or industrial company typically span between one week to three months. Customer payment requirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they are delivered, other contracts specify that the customer will pay for the project in its entirety upon completion of the installation.
Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these sales often provide for monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.
Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three and nine months. The customer executes an agreement providing for monthly payments of the contract price, plus interest, typically over a five-year period. The total transaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects. The portion of the transaction associated with the installation is accounted for consistently with all other installation related updates (“performance obligations. The portion of the transaction associated with the sale of the multiple individual light fixtures is accounted for as sales-type leases in accordance with the guidance for leases. Revenues associated with the sales-type leases are included in Product revenue and recorded for each fixture separately based on the customer’s monthly acknowledgment that specified fixtures have been installed and are operating as specified.
The payments associated with these transactions that are due during the twelve months subsequent to December 31, 2020 are included in Accounts receivable, net in Orion’s Condensed Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions are included in Other long-term assets in Orion’s Condensed Consolidated Balance Sheets.
The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable from the customer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution of the receivables purchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s Condensed Consolidated Balance Sheets until cash is received from the financial institution. The financial institution releases funds to Orion based on the customer’s monthly acknowledgment of the progress Orion has achieved in fulfilling its installation obligation. Orion provides the progress certifications to the financial institution one month in arrears.
The total amount received from the sales of these receivables during the three and nine months ended December 31, 2020, was $0 and $2.3 million, respectively. Orion’s losses on these sales were $0 and $9 thousand, respectively, for the three and nine months ended December 31, 2020 and are included in Interest expense in the Condensed Consolidated Statements of Operations.
The total amount received from the sales of these receivables during the three months ended three and nine months ended December 31, 2019 was $0.7 million and $4.4 million, respectively. Orion’s losses on these sales were $39 thousand and $0.1 million for the three and nine months ended December 31, 2019, respectively and are included in Interest expense in the Condensed Consolidated Statement of Operations.
Contract Balances
A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.
Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of December 31, 2020, and March 31, 2020, includes $0.3 million and $39 thousand, respectively, which was not derived from contracts with customers and therefore not classified as a contract asset as defined by ASC 606”) on their effective date, April 1, 2018. 606.
Deferred revenue, current as of December 31, 2020, and March 31, 2020, includes $0.1 million and $31 thousand, respectively, of contract liabilities which represent consideration received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.
Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liability as defined by ASC 606.
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of December 31, 2020 and March 31, 2020 (dollars in thousands):
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Accounts receivable, net |
| $ | 23,744 |
|
| $ | 10,427 |
|
Contract assets |
| $ | 1,510 |
|
| $ | 1,082 |
|
Contract liabilities |
| $ | 50 |
|
| $ | 31 |
|
There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon billing. There were no significant changes to contract liabilities.
NOTE 5 — 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 material2020, and installation services, (c) contracts entered into underMarch 31, 2020, 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, 2020 |
|
| March 31, 2020 |
| ||
Accounts receivable, gross |
| $ | 23,772 |
|
| $ | 10,455 |
|
Allowance for doubtful accounts |
|
| (28 | ) |
|
| (28 | ) |
Accounts receivable, net |
| $ | 23,744 |
|
| $ | 10,427 |
|
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 |
As of December 31, 20172020, and March 31, 2017,2020, Orion's inventoryInventory balances were as follows (dollars in thousands):
|
| Cost |
|
| Excess and Obsolescence Reserve |
|
| Net |
| |||
As of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
| $ | 12,074 |
|
| $ | (1,132 | ) |
| $ | 10,942 |
|
Work in process |
|
| 714 |
|
|
| (435 | ) |
|
| 279 |
|
Finished goods |
|
| 7,907 |
|
|
| (610 | ) |
|
| 7,297 |
|
Total |
| $ | 20,695 |
|
| $ | (2,177 | ) |
| $ | 18,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components |
| $ | 9,639 |
|
| $ | (1,244 | ) |
| $ | 8,395 |
|
Work in process |
|
| 699 |
|
|
| (305 | ) |
|
| 394 |
|
Finished goods |
|
| 6,598 |
|
|
| (880 | ) |
|
| 5,718 |
|
Total |
| $ | 16,936 |
|
| $ | (2,429 | ) |
| $ | 14,507 |
|
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 57 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets includeconsist primarily of prepaid insurance premiums, debt issue costs, and sales tax receivable.
NOTE 8 — PROPERTY AND EQUIPMENT, NET
As of December 31, 2020, and March 31, 2020, Property and equipment, net, included the following (dollars in thousands):
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Land and land improvements |
| $ | 433 |
|
| $ | 433 |
|
Buildings and building improvements |
|
| 9,474 |
|
|
| 9,470 |
|
Furniture, fixtures and office equipment |
|
| 7,348 |
|
|
| 7,270 |
|
Leasehold improvements |
|
| 340 |
|
|
| 324 |
|
Equipment leased to customers |
|
| 4,997 |
|
|
| 4,997 |
|
Plant equipment |
|
| 12,270 |
|
|
| 12,021 |
|
Construction in Progress |
|
| 81 |
|
|
| 15 |
|
Gross property and equipment |
|
| 34,943 |
|
|
| 34,530 |
|
Less: accumulated depreciation |
|
| (23,533 | ) |
|
| (22,713 | ) |
Total property and equipment, net |
| $ | 11,410 |
|
| $ | 11,817 |
|
December 31, 2017 | March 31, 2017 | ||||||
Unbilled accounts receivable | $ | 1,034 | $ | 2,226 | |||
Other prepaid expenses | 509 | 651 | |||||
Total | $ | 1,543 | $ | 2,877 |
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, 2017 | March 31, 2017 | ||||||
Equipment | $ | 581 | $ | 581 | |||
Less: accumulated depreciation and amortization | (308 | ) | (202 | ) | |||
Equipment, net | $ | 273 | $ | 379 |
Orion recorded depreciation expense of $0.4$0.3 million and $1.1$0.9 million for the three and nine months ended December 31, 2017, respectively,2020 and $0.32019, respectively.
NOTE 9 — LEASES
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.
Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and $1.1operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments over the lease term. Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-line basis over the lease term.
Assets Orion Leases from Other Parties
On January 31, 2020, Orion entered into the current lease for its approximately 266,000 square foot primary manufacturing and distribution facility in Manitowoc, WI. The lease has a 10-year term, with the option to terminate after six years. Orion is responsible for the costs of insurance and utilities for the facility. These costs are considered variable lease costs. The agreement is classified as an operating lease.
The prior lease agreement for this facility provided the lessor the right to terminate the lease agreement at any time with 12 months’ notice to Orion. As a result, the agreement was previously classified as a short-term lease.
In February 2014, Orion entered into a multi-year lease agreement for use of approximately 10,500 square feet of office space in a multi-use office building in Jacksonville Florida. The lease has since been extended, most recently during the first quarter of fiscal 2021, and presently terminates on June 30, 2023. The agreement is classified as an operating lease.
Orion has leased other assets from third parties, principally office and production equipment. The terms of our other leases vary from contract to contract.
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
|
| Balance sheet classification |
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Other long-term assets |
| $ | 2,716 |
|
| $ | 2,745 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
| Accrued expenses and other |
| $ | 637 |
|
| $ | 691 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
| Other long-term liabilities |
|
| 2,806 |
|
|
| 2,830 |
|
Total lease liabilities |
|
|
| $ | 3,443 |
|
| $ | 3,521 |
|
Orion had operating lease costs of $0.2 million and $0.6 million for the three and nine months ended December 31, 2016, respectively.2020. Orion had operating lease costs of $0.1 million and $0.4 million for the three and nine months ended December 31, 2019.
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 2021 (period remaining) |
| $ | 203 |
|
Fiscal 2022 |
|
| 810 |
|
Fiscal 2023 |
|
| 820 |
|
Fiscal 2024 |
|
| 746 |
|
Fiscal 2025 |
|
| 735 |
|
Thereafter |
|
| 628 |
|
Total lease payments |
| $ | 3,942 |
|
Less: Interest |
|
| (499 | ) |
Present value of lease liabilities |
| $ | 3,443 |
|
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, 2020 and December 31, 2019 (dollars in thousands):
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Product revenue |
| $ | 721 |
|
| $ | 163 |
|
| $ | 2,097 |
|
| $ | 1,165 |
|
Cost of product revenue |
| $ | 662 |
|
| $ | 142 |
|
| $ | 1,913 |
|
| $ | 1,044 |
|
The Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 includes an immaterial amount related to the net investment in sales-type leases as amounts due from the customer associated with lighting fixtures that were acknowledged to be installed and working correctly prior to period end were not transferred to the financing institution prior to the respective balance sheet dates.
Other Agreements where Orion is the Lessor
Orion has leased unused portions of its corporate headquarters to third parties. The length and payment terms of the leases vary from contract to contract and, in some cases, include options for the tenants to extend the lease terms. Annual lease payments are recorded as a reduction in administrative operating expenses and were not material in the three and nine months ended December 31, 2020 or December 31, 2019. Orion accounts for these transactions as operating leases.
As of December 31, 2020, and March 31, 2020, the components of, and changes in, the carrying amount of otherOther intangible assets, net, were as follows (dollars in thousands):
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Patents |
| $ | 2,805 |
|
| $ | (1,831 | ) |
| $ | 974 |
|
| $ | 2,766 |
|
| $ | (1,700 | ) |
| $ | 1,066 |
|
Licenses |
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
Trade name and trademarks (indefinite lived) |
|
| 1,018 |
|
|
| — |
|
|
| 1,018 |
|
|
| 1,014 |
|
|
| — |
|
|
| 1,014 |
|
Customer relationships |
|
| 3,600 |
|
|
| (3,583 | ) |
|
| 17 |
|
|
| 3,600 |
|
|
| (3,545 | ) |
|
| 55 |
|
Developed technology |
|
| 900 |
|
|
| (876 | ) |
|
| 24 |
|
|
| 900 |
|
|
| (819 | ) |
|
| 81 |
|
Total |
| $ | 8,381 |
|
| $ | (6,348 | ) |
| $ | 2,033 |
|
| $ | 8,338 |
|
| $ | (6,122 | ) |
| $ | 2,216 |
|
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 $0.1 million and $0.2 million for both the three and nine months ended December 31, 2017 and 2016.2020, respectively.
Amortization expense on intangible assets was $0.5$0.1 million and $0.7$0.3 million for the three and nine months ended December 31, 2017 and 2016,2019, respectively.
As of December 31, 2017,2020, the weighted average remaining useful life of intangible assets was 5.73.8 years.
The estimated amortization expense for the remainder of fiscal 2018,2021, the next five fiscal years and beyond is shown below (dollars in thousands):
Fiscal 2021 (period remaining) |
| $ | 67 |
|
Fiscal 2022 |
|
| 202 |
|
Fiscal 2023 |
|
| 111 |
|
Fiscal 2024 |
|
| 107 |
|
Fiscal 2025 |
|
| 96 |
|
Fiscal 2026 |
|
| 87 |
|
Thereafter |
|
| 345 |
|
Total |
| $ | 1,015 |
|
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 |
As of December 31, 2020, and March 31, 2020, Accrued expenses and other includeincluded the following (dollars in thousands):
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Compensation and benefits |
| $ | 2,191 |
|
| $ | 2,594 |
|
Sales tax |
|
| 888 |
|
|
| 513 |
|
Accrued project costs |
|
| 7,500 |
|
|
| 1,173 |
|
Legal and professional fees |
|
| 158 |
|
|
| 312 |
|
Warranty |
|
| 734 |
|
|
| 708 |
|
Sales returns reserve |
|
| 181 |
|
|
| 98 |
|
Credits due to customers |
|
| 836 |
|
|
| 932 |
|
Other accruals |
|
| 1,428 |
|
|
| 898 |
|
Total |
| $ | 13,916 |
|
| $ | 7,228 |
|
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 December 31, |
|
| For the Nine Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Beginning of period |
| $ | 885 |
|
| $ | 803 |
|
| $ | 1,069 |
|
| $ | 657 |
|
Accruals |
|
| 370 |
|
|
| 157 |
|
|
| 531 |
|
|
| 503 |
|
Warranty claims (net of vendor reimbursements) |
|
| (219 | ) |
|
| (51 | ) |
|
| (564 | ) |
|
| (251 | ) |
End of period |
| $ | 1,036 |
|
| $ | 909 |
|
| $ | 1,036 |
|
| $ | 909 |
|
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 912 — NET LOSSINCOME PER COMMON SHARE
Basic and Diluted net lossincome per common share is computed by dividing net losswas calculated based upon the following:
|
| For the Three Months Ended December 31, |
|
| For the Nine Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (in thousands) |
| $ | 4,315 |
|
| $ | 2,304 |
|
| $ | 4,010 |
|
| $ | 12,993 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 30,735,722 |
|
|
| 30,243,865 |
|
|
| 30,586,196 |
|
|
| 30,053,330 |
|
Weighted-average common shares and common share equivalents outstanding |
|
| 31,320,427 |
|
|
| 30,824,078 |
|
|
| 31,289,359 |
|
|
| 30,862,088 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.14 |
|
| $ | 0.08 |
|
| $ | 0.13 |
|
| $ | 0.43 |
|
Diluted |
| $ | 0.14 |
|
| $ | 0.07 |
|
| $ | 0.13 |
|
| $ | 0.42 |
|
Orion uses the treasury stock method to calculate the effect of outstanding dilutive equity incentive instruments, which requires Orion to compute total proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned stock-based compensation costs attributable to future services. Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on net income per common shareholders byshare during periods with net income, and accordingly, Orion excludes them from the weighted-average numbercalculation. There were no anti-dilutive equity instruments excluded from the computation of diluted net income per common shares outstandingshare for the period and does not consider common stock equivalents.
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 | ) |
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 |
Long-term debt consisted of the following (dollars in thousands):
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
Revolving credit facility |
| $ | — |
|
| $ | 10,013 |
|
Equipment debt obligations |
|
| 53 |
|
|
| 85 |
|
Total long-term debt |
|
| 53 |
|
|
| 10,098 |
|
Less current maturities |
|
| (14 | ) |
|
| (35 | ) |
Long-term debt, less current maturities |
| $ | 39 |
|
| $ | 10,063 |
|
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 anentered into a new 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 dated as of October 26, 2018, as amended, credit agreement ("by and among Orion and Western Alliance Bank, National Association, as lender (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's2020, the borrowing base was approximately $3.8 million. Thesupports the full 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, Orion had2020, no outstanding lettersamounts were borrowed under the Credit Facility.
The Credit Agreement is secured by a first lien security interest in substantially all of credit. Orion’s assets.
Borrowings outstanding as of December 31, 2017, amounted to approximately $3.6 million andunder the Credit Agreement are included in non-current liabilitiespermitted in the accompanying condensed consolidated balance sheet.form of LIBOR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to Orion’s availability under the Credit Agreement. Among other fees, Orion estimates that asis required to pay an annual facility fee of December 31, 2017, it was eligible$15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.
The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to borrow an additional $0.2 million1.0 when excess availability under the Credit Facility based upon current levelsfalls below the greater of eligible inventory and accounts receivable.
The Credit Agreement also contains additional customary events of default and other covenants, including certain restrictions on Orion’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on Orion’s stock, redeem, retire or repurchasepurchase shares of Orion’s stock, make investments or pledge or disposetransfer assets. If an event of assets. Orion was in compliance with its covenants indefault under the Credit Agreement asoccurs and is continuing, then Bank of December 31, 2017.
Orion did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million regardlesson the write-off of usage. As of December 31, 2017,unamortized debt issue costs related to the interest rate was 4.69%. Orion must pay an unused line fee of 0.25% per annumPrior Credit Agreement. Also, due to the timing of the daily average unused amountbanking transition, Orion had $0.3 million of thecash which was restricted for covering obligations on Orion’s outstanding credit card balances. The Prior Credit Facility and a letter of credit fee at the rate of 3.0% per annumAgreement was scheduled to mature on the undrawn amount of letters of credit outstanding from time to time under the Credit Facility.
Equipment LeaseDebt Obligations
In March 2016 and June 2015, Orion entered into lease agreements with a financing company in the principal amount of nineteen thousand dollars and $0.4 million, respectively, to fund certain equipment. The leases are secured by the related equipment. The leases bear interest at a rate of 5.9% and 3.6%, respectively, and mature in February 2018 and June 2020. Both leases contain a one dollar buyout option.
In June 2011,February 2019, Orion entered into a note agreementadditional debt agreements with a financial institution that provided Orion with $2.8 millionfinancing company in the principal amount of $44 thousand and $30 thousand to fund completed customer contracts under Orion’s OTA finance program.the purchase of certain equipment. The note bore interest at 7.85%. The note matured in April 2016 and was paid in full upon maturity.
Orion’s income tax provision for the three months ended December 31, 2017 was determined by applying an estimated annual effective tax rate of 1.6%based upon the facts and circumstances known to lossbook income (loss) before income tax. The estimatedtax, 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 month period ended December 31, 2016 was 0.1%. The estimated effective2020 and 2019, Orion recorded income tax rate was determined by applying statutory tax rates to pretax loss adjusted for certain permanent book to tax differencesexpense of $0.1 million and tax credits.
As of December 31, 2017,2020 and March 31, 2020, 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 had recorded a full valuation allowance of $24.0 million equaling the netrecorded against its deferred tax asset due to the uncertainty of its realizable value in the future.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 thatintends to continue maintaining a full valuation allowance on the deferred tax assets are ableuntil there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given current earnings and potential future earnings, Orion believes that there is a reasonable possibility that within the next 12 months sufficient positive evidence may become available to allow Orion to reach a conclusion that all or some portion of the valuation allowance will no longer be realized, an adjustment toneeded. Release of the deferred tax assetvaluation allowance would increase incomeresult in the period such determination is made.
The CARES Act includes significant business tax provisions that, among other things, temporarily eliminate the taxable income limit for certain net operating losses (NOLs), allow businesses to carry back tax year 2018-2020 NOLs to the five prior tax years, accelerate refunds of corporate alternative minimum tax rate change due to Orion's current year taxable loss.
Uncertain Tax Positions
As of December 31, 2017, the2020, Orion’s balance of gross unrecognized tax benefits was approximately $0.1$0.3 million, all$0.2 million 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 incomeIncome tax expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits.
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 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’sOrion's sales and use tax audit is uncertain, based on current information, in the opinion of the Company’s management, the ultimate disposition of these matters willthis matter is not expected to have a material adverse effect on the Company’s condensed consolidated balance sheet, statementsOrion's future results of operations or liquidity.
Shareholder Rights Plan
On January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amended the Rights Agreement dated as of January 7, 2009 and extended its terms by three years to January 7, 2022. Under the amendment, each common share purchase right (a “Right”), if exercisable, will initially represent the right to purchase from Orion, one share of Orion’s common stock, no par value per share, for a purchase price of $7.00 per share.
The Rights will not be exercisable (and will be transferable only with Orion’s common stock) until a “Distribution Date” occurs (or the Rights are earlier redeemed or expire). A Distribution Date generally will occur on the earlier of a public announcement that a person or group of affiliated or associated persons (“Acquiring Person”) has acquired beneficial ownership of 20% or more of Orion’s outstanding common stock (“Shares Acquisition Date”) or 10 business days after the commencement of, or the announcement of an intention to make, a tender offer or exchange offer that would result in any such person or group of persons acquiring such beneficial ownership.
If a person becomes an Acquiring Person, holders of Rights (except as otherwise provided in the Rights Agreement) will have the right to receive upon exercise that number of shares of Orion’s common stock having a market value of two times the then-current purchase price, and all Rights beneficially owned by an Acquiring Person, or by certain related parties or transferees, will be null and void. If, after a Shares Acquisition Date, Orion is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (except as otherwise provided in the Rights Agreement) will thereafter have the right to receive upon exercise that number of shares of the acquiring company’s common stock which at the time of such transaction will have a market value of two times the then-current purchase price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Orion. At any time prior to a person becoming an Acquiring Person, the Board of Directors of Orion may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. Unless they are extended or earlier redeemed or exchanged, the Rights will expire on January 7, 2022.
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 Under ESPP Plan |
|
| Closing Market Price | |
Quarter Ended June 30, 2020 |
|
| 458 |
|
| 3.46 |
Quarter Ended September 30, 2020 |
|
| 151 |
|
| 7.57 |
Quarter Ended December 31, 2020 |
|
| 178 |
|
| 9.87 |
Total issued in fiscal 2021 |
|
| 787 |
|
| $ 3.46 - 9.87 |
NOTE 1517 — 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 December 31, |
|
| For the Nine Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Cost of product revenue |
| $ | 1 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 2 |
|
Cost of service revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
General and administrative |
|
| 143 |
|
|
| 172 |
|
|
| 581 |
|
|
| 482 |
|
Sales and marketing |
|
| 7 |
|
|
| 1 |
|
|
| 24 |
|
|
| 1 |
|
Research and development |
|
| 1 |
|
|
| 11 |
|
|
| 3 |
|
|
| 31 |
|
Total |
| $ | 152 |
|
| $ | 185 |
|
| $ | 611 |
|
| $ | 515 |
|
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 nine months of fiscal 2018,2021, Orion had the following activity related to its stock-based compensation:
|
| Restricted Shares |
|
| Stock Options |
| ||
Awards outstanding at March 31, 2020 |
|
| 772,720 |
|
|
| 396,300 |
|
Awards granted |
|
| 287,998 |
|
|
| — |
|
Awards vested or exercised |
|
| (431,331 | ) |
|
| (67,000 | ) |
Awards forfeited |
|
| (140,598 | ) |
|
| (100,982 | ) |
Awards outstanding at December 31, 2020 |
|
| 488,789 |
|
|
| 228,318 |
|
Per share price on grant date |
| $ | 4.27 |
|
|
| — |
|
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 | — |
As of December 31, 2017,2020, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of 2.02.3 years, was approximately $1.6$1.5 million.
NOTE 1618 — SEGMENTS
Orion has the following business segments: Orion U.S. Markets Division ("USM"), Orion Engineered Services Division ("OES") and, Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). The accounting policies are the same for each business segment as they are on a consolidated basis.
Orion Engineered Systems Division ("OES")
The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and schools.
Orion Distribution Services Division ("ODS")
The ODS segment focuses on sellingsells lighting products through manufacturer representative agencies and a network of broadline North American distributors. Thisbroadline electrical distributors and contractors.
Orion U.S. Markets Division
The USM segment is expanding as a result of increased sales through distributors as Orion continuessells commercial lighting systems and energy management systems to develop its agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM division.
Corporate and Other
Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).
|
| Revenues |
|
| Operating Income (Loss) |
| ||||||||||
|
| For the Three Months Ended December 31, |
|
| For the Three Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion Engineered Systems |
| $ | 36,669 |
|
| $ | 27,275 |
|
| $ | 4,820 |
|
| $ | 3,174 |
|
Orion Distribution Services |
|
| 3,934 |
|
|
| 3,634 |
|
|
| 193 |
|
|
| (206 | ) |
Orion U.S. Markets |
|
| 3,648 |
|
|
| 3,340 |
|
|
| 731 |
|
|
| 578 |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| (1,279 | ) |
|
| (1,108 | ) |
|
| $ | 44,251 |
|
| $ | 34,249 |
|
| $ | 4,465 |
|
| $ | 2,438 |
|
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, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orion Engineered Systems |
| $ | 57,395 |
|
| $ | 104,369 |
|
| $ | 4,634 |
|
| $ | 15,861 |
|
Orion Distribution Services |
|
| 16,063 |
|
|
| 11,191 |
|
|
| 1,957 |
|
|
| (691 | ) |
Orion U.S. Markets |
|
| 7,885 |
|
|
| 9,389 |
|
|
| 1,128 |
|
|
| 1,750 |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| (3,430 | ) |
|
| (3,445 | ) |
|
| $ | 81,343 |
|
| $ | 124,949 |
|
| $ | 4,289 |
|
| $ | 13,475 |
|
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 17 — REORGANIZATION OF BUSINESS
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 |
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and noted no subsequent event requiring accrual or disclosure. See discussion related to litigation matters in Note 13 and new reorganization and cost cutting measures in Note 17 and the MD&A.
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 March 31, 2017.
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2020. 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.
We are a leading designerprovide state-of-the-art light emitting diode ("LED") lighting, wireless Internet of Things (“IoT”) enabled control solutions, and manufacturer of high-performance, energy-efficient LED and other lighting platforms.energy project management. We research, design, develop, design, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior lighting systems and related services. Our products are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all of our sales occur within North America.
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 believe the market for lighting products has shifted to LED lighting systems, and that the customer base forhave experienced recent success offering 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. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by fluorescent or other legacy technologies. Our 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 we continue to sell some lighting products using our legacy HIF technology, we do not build to stock HIF products and instead build to committed customer orders as received. We plan to continue to primarily focus on developing and selling innovative LED products.
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 marginsprofits 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. We refer to our just completed fiscal year, which ended on March 31, 2020, as "fiscal 2020", and our prior fiscal year which ended on March 31, 20172019 as "fiscal 2017", and our current fiscal year, which ends on March 31, 2018, as “fiscal 2018.”2019". 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. Markets Division ("USM"), Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).
Impact of COVID-19 and Fiscal 2021 Outlook
The rapid market shiftCOVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the lighting industry from legacy lighting productsU.S. and globally. Our business has been adversely impacted by measures taken by government entities and others to LED lighting products has caused us to adoptcontrol the spread of the virus beginning in March 2020, the last few weeks of our prior fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, we experienced a rebound in business, with a full quarter of project installations for our largest customer, as well installations for a new strategies, approacheslarge specialty retail customer, and processes in order to respond proactively to this industry transition. These changing underlying business fundamentals in this transition include:
As a deemed essential business, we provide products and services to ensure energy and lighting infrastructure and we therefore have continued to operate throughout the lighting industry, we face intense competition from an increased number of other LED product companies,pandemic. We have implemented a number of which have substantially greater resourcessafety protocols, including limiting travel and more experiencerestricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and history with LED lighting products than we do.
As part of this restructuring, our Chief Executive Officer, John Scribante, left our Company and Mike Altschaefl, our current Board Chair, assumedresponse to the role of Chief Executive Officer. In addition, Scott Green, our Executive Vice President, became our new Chief Operating Officer, with ongoing primary responsibility for improving our revenue generation. Mike Potts and Marc Meade, our then current Executive Vice Presidents, remained in their positions and were assigned primary responsibility for substantially reducing our cost structure and for streamlining operations. Bill Hull remained in his position as Chief Financial Officer.
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 |
In addition to managing the adverse financial impact of the COVID-19 pandemic, our ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively execute on the following key strategic initiatives:
Executing and marketing our turnkey LED retrofit capabilities to large national account customers.
Continue our product innovation.
Leverage our smart lighting systems to support internet of things applications.
Develop our maintenance service offerings.
Support the success of our ESCO and distribution sales channels.
We also may identify and pursue strategic acquisition candidates that would help support these initiatives.
Managing Impacts of Tariffs and Trade Policies
The United States government has been implementing various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs imposed on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these assessments, we determined that the carrying valuetariffs and other trade policies, our results of our indefinite lived intangible asset related to the Harris trade name exceeded the asset’s fair value. As a result, we recorded an impairment charge of $0.7 million. No impairment was recorded in the three months ended December 31, 2017. A change in these assumptions or a change in circumstances could result in an impairment charge in a future period.
Major Developments in Fiscal 2021
During fiscal 2021, we executed multiple contract extensions for a major national account customer purchases ofwith our state-of-the-art LED lighting systems and wireless IoT enabled control solutions at locations nationwide. This single national account customer represented 74.1% of our total revenue in fiscal 2020 and was the primary driver for our growth over the prior year period. During March 2020, this customer suspended our installations at a significant number of locations that were scheduled for installation during our fiscal 2020 fourth quarter and our fiscal 2021 first quarter. These installations resumed during the second quarter of fiscal 2021 and continued through the third quarter of fiscal 2021.
We also completed several initial retrofit projects at facilities for a major global logistics company. This customer is expected to be a significant source of revenue as we move forward, although these installations are likely to occur more slowly than we had originally anticipated. We expect to work with the customer on a project-by-project basis, versus larger-scale multi-site commitments, which limits visibility on the timing of future revenue contributions. We also have been selected to work with another major logistics company that is also expected to be a significant source of revenue in the future.
Additionally, we added a large specialty retail customer and are providing turnkey LED lighting retrofit solutions for a number of its stores. This project is expected to generate product and service revenue of at least $8 million during the second half fiscal 2021. We expect to retrofit additional stores for this customer in fiscal 2022.
As of December 31, 2020 and March 31, 2020, Orion had a full valuation allowance recorded against its deferred tax assets. We will continue to increaseevaluate the valuation allowance by considering changing facts and circumstances and may adjust our valuation allowance accordingly. Given our current earnings and potential future earnings, it is reasonably possible we will reverse a portion of our existing valuation allowance in the near-term as expected improvements in LED performance and expected decreases in LED product costs make our LED products even more economically compelling to our customers.
Results of Operations - Three Months Ended December 31, 20172020 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, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| Amount |
|
| Amount |
|
| % Change |
|
| % of Revenue |
|
| % of Revenue |
| |||||
Product revenue |
| $ | 31,929 |
|
| $ | 25,867 |
|
|
| 23.4 | % |
|
| 72.2 | % |
|
| 75.5 | % |
Service revenue |
|
| 12,322 |
|
|
| 8,382 |
|
|
| 47.0 | % |
|
| 27.8 | % |
|
| 24.5 | % |
Total revenue |
|
| 44,251 |
|
|
| 34,249 |
|
|
| 29.2 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 23,203 |
|
|
| 19,075 |
|
|
| 21.6 | % |
|
| 52.4 | % |
|
| 55.7 | % |
Cost of service revenue |
|
| 10,042 |
|
|
| 6,900 |
|
|
| 45.5 | % |
|
| 22.7 | % |
|
| 20.1 | % |
Total cost of revenue |
|
| 33,245 |
|
|
| 25,975 |
|
|
| 28.0 | % |
|
| 75.1 | % |
|
| 75.8 | % |
Gross profit |
|
| 11,006 |
|
|
| 8,274 |
|
|
| 33.0 | % |
|
| 24.9 | % |
|
| 24.2 | % |
General and administrative expenses |
|
| 3,030 |
|
|
| 2,662 |
|
|
| 13.8 | % |
|
| 6.8 | % |
|
| 7.8 | % |
Sales and marketing expenses |
|
| 3,120 |
|
|
| 2,735 |
|
|
| 14.1 | % |
|
| 7.1 | % |
|
| 8.0 | % |
Research and development expenses |
|
| 391 |
|
|
| 439 |
|
|
| (10.9 | )% |
|
| 0.9 | % |
|
| 1.3 | % |
Income from operations |
|
| 4,465 |
|
|
| 2,438 |
|
|
| 83.1 | % |
|
| 10.1 | % |
|
| 7.1 | % |
Other income |
|
| 12 |
|
|
| 2 |
|
|
| 500.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Interest expense |
|
| (1 | ) |
|
| (38 | ) |
|
| (97.4 | )% |
|
| (0.0 | )% |
|
| (0.1 | )% |
Amortization of debt issue costs |
|
| (20 | ) |
|
| (61 | ) |
|
| (67.2 | )% |
|
| (0.0 | )% |
|
| (0.2 | )% |
Loss on debt extinguishment |
|
| (90 | ) |
|
| — |
|
|
| 100.0 | % |
|
| (0.4 | )% |
|
| — |
|
Interest income |
|
| — |
|
|
| 2 |
|
|
| (100.0 | )% |
|
| 0.0 | % |
|
| 0.0 | % |
Income before income tax |
|
| 4,366 |
|
|
| 2,343 |
|
|
| 86.3 | % |
|
| 9.9 | % |
|
| 6.8 | % |
Income tax expense |
|
| 51 |
|
|
| 39 |
|
|
| 30.8 | % |
|
| 0.1 | % |
|
| 0.1 | % |
Net income |
| $ | 4,315 |
|
| $ | 2,304 |
|
|
| 87.3 | % |
|
| 9.8 | % |
|
| 6.7 | % |
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 | )% |
Revenue.
Product revenueCost of Revenue and Gross Profit. Cost of product revenue decreased by 6.4% from $15.5increased 21.6%, or $4.1 million, in the third quarter of fiscal 20172021 versus the third quarter of fiscal 2020 due to $14.5the increase in our sales. Cost of service revenue increased 45.5%, or $3.1 million, in the third quarter of fiscal 2018 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 timing of completion of installations in2021 versus the third quarter of fiscal 2018 when compared to the third quarter of fiscal 2017. Total revenue decreased by 16.3%, or $3.4 million, primarily2020 due to the items discussed above.
Operating Expenses
General and Administrative.
General and administrative expensesSales and Marketing.
Sales and marketing expensesResearch and Development.
Research and development expensesInterest Expense. Interest expense in the third quarter of fiscal 2018 increased2021 decreased by 56.9%97.4%, or thirty-seven$37 thousand, dollars, from the third quarter of fiscal 2017.2020. The increasedecrease in interest expense was primarily due to increased third party financing costs.comparatively lower sales of receivables than in the prior year period.
Loss on Debt ExtinguishmentInterest Income. Interest income. Loss on debt extinguishment in the third quarter of fiscal 2018 decreased by 28.6%, or two thousand dollars, from2021 related to the third quarterwrite-off of fiscal 2017. Our interest income decreased as a result of the continued run-off of legacy customer financed projects.
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 | % |
Our OES segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and schools.
The following table summarizes our OES segment operating results (dollars in thousands):
|
| Three Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 36,669 |
|
| $ | 27,275 |
|
|
| 34.4 | % |
Operating income |
| $ | 4,820 |
|
| $ | 3,174 |
|
|
| 51.9 | % |
Operating margin |
|
| 13.1 | % |
|
| 11.6 | % |
|
|
|
|
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 | )% |
OES segment revenue decreased in the third quarter of fiscal 2018 by 11.7%, or $1.02021 increased $9.4 million compared tofrom the third quarter of fiscal 20172020 due primarily asto a result of the timing of delivery ofcomparative increase in installations for our turnkey projectsexisting large national retail customer and reduced fluorescent purchases byinstallations for a new large specialty retail customer.
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North American distributors. This segment is expanding as a result of increased sales throughbroadline and electrical distributors as we continue to develop our agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM segment.
The following table summarizes our ODS segment operating results (dollars in thousands):
|
| Three Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 3,934 |
|
| $ | 3,634 |
|
|
| 8.3 | % |
Operating income (loss) |
| $ | 193 |
|
| $ | (206 | ) |
| NM* |
| |
Operating margin |
|
| 4.9 | % |
|
| (5.7 | )% |
|
|
|
|
* | NM - Not Meaningful |
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 | % |
ODS segment revenue increased in the third quarter of fiscal 2018 by 11.8%2021 increased 8.3%, or $0.8$0.3 million, compared to the third quarter of fiscal 2017, primarily2020, due to an increase in select distributor sales.
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.
The following table summarizes our USM segment operating results remained relatively flat as(dollars in thousands):
|
| Three Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 3,648 |
|
| $ | 3,340 |
|
|
| 9.2 | % |
Operating income |
| $ | 731 |
|
| $ | 578 |
|
|
| 26.5 | % |
Operating margin |
|
| 20.0 | % |
|
| 17.3 | % |
|
|
|
|
USM segment revenue in the third quarter of fiscal 2021 increased 9.2%, or $0.3 million, compared to the third quarter of fiscal 20172020, primarily due to animproved engagement in this channel, resulting in a corresponding increase in selling expenses.
Results of Operations - Nine Monthsmonths Ended December 31, 20172020 versus Nine Monthsmonths 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, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| Amount |
|
| Amount |
|
| % Change |
|
| % of Revenue |
|
| % of Revenue |
| |||||
Product revenue |
| $ | 61,890 |
|
| $ | 93,778 |
|
|
| (34.0 | )% |
|
| 76.1 | % |
|
| 75.1 | % |
Service revenue |
|
| 19,453 |
|
|
| 31,171 |
|
|
| (37.6 | )% |
|
| 23.9 | % |
|
| 24.9 | % |
Total revenue |
|
| 81,343 |
|
|
| 124,949 |
|
|
| (34.9 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 44,834 |
|
|
| 68,778 |
|
|
| (34.8 | )% |
|
| 55.1 | % |
|
| 55.0 | % |
Cost of service revenue |
|
| 15,605 |
|
|
| 24,823 |
|
|
| (37.1 | )% |
|
| 19.2 | % |
|
| 19.9 | % |
Total cost of revenue |
|
| 60,439 |
|
|
| 93,601 |
|
|
| (35.4 | )% |
|
| 74.3 | % |
|
| 74.9 | % |
Gross profit |
|
| 20,904 |
|
|
| 31,348 |
|
|
| (33.3 | )% |
|
| 25.7 | % |
|
| 25.1 | % |
General and administrative expenses |
|
| 8,079 |
|
|
| 8,274 |
|
|
| (2.4 | )% |
|
| 9.9 | % |
|
| 6.6 | % |
Sales and marketing expenses |
|
| 7,306 |
|
|
| 8,359 |
|
|
| (12.6 | )% |
|
| 9.0 | % |
|
| 6.7 | % |
Research and development expenses |
|
| 1,230 |
|
|
| 1,240 |
|
|
| (0.8 | )% |
|
| 1.5 | % |
|
| 1.0 | % |
Income from operations |
|
| 4,289 |
|
|
| 13,475 |
|
|
| (68.2 | )% |
|
| 5.3 | % |
|
| 10.8 | % |
Other income |
|
| 56 |
|
|
| 22 |
|
|
| 154.5 | % |
|
| 0.1 | % |
|
| 0.0 | % |
Interest expense |
|
| (51 | ) |
|
| (261 | ) |
|
| (80.5 | )% |
|
| (0.1 | )% |
|
| (0.2 | )% |
Amortization of debt issue costs |
|
| (142 | ) |
|
| (182 | ) |
|
| (22.0 | )% |
|
| (0.2 | )% |
|
| (0.1 | )% |
Loss on debt extinguishment |
|
| (90 | ) |
|
| — |
|
|
| 100.0 | % |
|
| (0.2 | )% |
|
| — |
|
Interest income |
|
| — |
|
|
| 5 |
|
|
| (100.0 | )% |
|
| 0.0 | % |
|
| 0.0 | % |
Income before income tax |
|
| 4,062 |
|
|
| 13,059 |
|
|
| (68.9 | )% |
|
| 5.0 | % |
|
| 10.5 | % |
Income tax expense |
|
| 52 |
|
|
| 66 |
|
|
| (21.2 | )% |
|
| 0.1 | % |
|
| 0.1 | % |
Net Income |
| $ | 4,010 |
|
| $ | 12,993 |
|
|
| (69.1 | )% |
|
| 4.9 | % |
|
| 10.4 | % |
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 | )% |
Revenue.
Product revenue decreasedCost of Revenue and Gross Profit. Cost of product gross marginrevenue decreased as a result of under-absorption within our manufacturing facility and an increase in sales of products sourced from third party manufacturers.
Operating Expenses
General and Administrative. General and administrative expenses decreased 2.4%, or $0.2 million, in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2017. The increase was2020, primarily due to employee separationlower employment and travel costs of $0.2 millionin response to the COVID-19 pandemic.
Sales and increased commissions related to our agency channel, offset by reduced consultingMarketing. Sales and professional fees related to special events and field sales, partially offset by increasedmarketing expenses focusing on additional sales activities.
Research and supply costs.
Interest Expense.
Interest expense in the first nine months of fiscalLoss on debt extinguishment. Loss on debt extinguishment in the historic salesfirst nine months of this division have migratedfiscal 2021 related to distribution channel salesthe write-off of fees incurred with respect to our prior credit facility, upon execution of our new credit facility.
Orion Engineered Systems Division
The following table summarizes our OES segment operating results (dollars in thousands):
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 57,395 |
|
| $ | 104,369 |
|
|
| (45.0 | )% |
Operating income |
| $ | 4,634 |
|
| $ | 15,861 |
|
|
| (70.8 | )% |
Operating margin |
|
| 8.1 | % |
|
| 15.2 | % |
|
|
|
|
OES segment revenue in the first nine months of fiscal 2021 decreased $47.0 million from the first nine months of fiscal 2020 due to multiple projects put on hold as a result of COVID-19, including the implementationprojects for one large national account customer that represented 77.3% of our agent distribution strategy.total revenue in the first nine months fiscal 2020, and 55.7% of revenue in the first nine months of fiscal 2021. The migratedproject installations for this customer resumed during the second quarter of fiscal 2021. This sales are includeddecrease led to a corresponding decrease in operating income in this segment.
Orion Distribution Services Division
The following table summarizes our ODS segment.segment operating results (dollars in thousands):
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 16,063 |
|
| $ | 11,191 |
|
|
| 43.5 | % |
Operating income (loss) |
|
| 1,957 |
|
|
| (691 | ) |
| NM* |
| |
Operating margin |
|
| 12.2 | % |
|
| (6.2 | )% |
|
|
|
|
* | NM - Not Meaningful |
ODS segment revenue in the first nine months of fiscal 2021 increased 43.5%, or $4.9 million, compared to the first nine months of fiscal 2020, primarily due to sales to one customer who represented 6.8% of first nine months fiscal 2021 total revenue. This sales increase led to a corresponding increase in operating income in this segment based on operating leverage.
Orion U.S. Markets Division
The following table summarizes our USM segment operating results (dollars in thousands):
|
| Nine Months Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
| |||
Revenues |
| $ | 7,885 |
|
| $ | 9,389 |
|
|
| (16.0 | )% |
Operating income |
| $ | 1,128 |
|
| $ | 1,750 |
|
|
| (35.5 | )% |
Operating margin |
|
| 14.3 | % |
|
| 18.6 | % |
|
|
|
|
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 | % |
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 | )% |
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 | )% |
Overview
We had approximately $10.6$12.3 million in cash and cash equivalents as of December 31, 2017,2020, compared to $17.3$28.8 million at March 31, 2017.2020. Our cash position decreased primarily as a result of net payments of $10.1 million to reduce the principal balance of our net loss, separation payments to terminated employees in conjunction with our management reorganization and cost reduction initiatives,prior credit agreement and the net repaymentuse 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,profits, cash management practices, cost reduction initiatives, working capital management, capital expenditures, pending or future litigation results and cost containment measures. In addition, we tend to experience highhigher working capital costs when we increase sales from existing levels. Based on our current expectations, while we anticipate realizing improved operating results in the future, we also currently believe that we may experience negative working capital cash flows during some interim periods.
Cash Flows
The following table summarizes our cash flows for the nine months ended December 31, 20172020 and 20162019 (in thousands):
|
| Nine Months Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating activities |
| $ | (5,644 | ) |
| $ | 14,275 |
|
Investing activities |
|
| (701 | ) |
|
| (655 | ) |
Financing activities |
|
| (10,127 | ) |
|
| (8,587 | ) |
(Decrease) increase in cash and cash equivalents |
| $ | (16,472 | ) |
| $ | 5,033 |
|
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 |
Cash Flows Related to Operating Activities.
Cash (used in) provided byCash used in operating activities for the first nine months of fiscal 20182021 was $3.1$5.6 million and consisted of aour net lossincome adjusted for non-cash expense items of $7.8$6.2 million and net cash provided byused in changes in operating assets and liabilities of $4.7$11.8 million.
Cash provided by operating activities for the first nine months of fiscal 20172020 was $0.3$14.3 million and consisted of our net income adjusted for non-cash expense items of $15.1 million and net cash providedused by changes in operating assets and liabilities of $1.3 million and a net loss adjusted for non-cash expense items of $1.0$0.8 million. Cash used by changes in operating assets and liabilities consisted primarily of an increasea decrease of $0.8$2.9 million in accounts receivable due to the increase in lighting revenuepayable, 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 costsother of $1.3 million due to the timing of project completions.payments. Cash provided by changes in operating assets and liabilities included an increaseconsisted primarily of $0.6a decrease of $2.9 million in accounts payable due to the timing of payments on balances at quarter end,revenue earned but not billed and a decrease in prepaid and other assetsinventories 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.$1.0 million.
Cash Flows Related to Investing Activities.Activities. Cash used byin investing activities was $0.5of $0.7 million in the first nine months of fiscal 2018 which2021 consisted primarily of purchases of propertytooling and equipment and additions to patents and licenses.equipment.
Cash provided byused in investing activities was $2.0of $0.7 million in the first nine months of fiscal 2017 which2020 consisted of $2.6 millionpurchases of proceeds from the sale of the Manitowoc manufacturing facility.tooling and equipment.
Cash Flows Related to Financing Activities. Cash used by investingin financing activities forof $10.1 million in the first nine months of fiscal 2017 was $0.42021 consisted primarily of net repayments of $10.0 million for capital improvements related to production enhancements and technology purchases and $0.2 million of additions to patents.
Cash used in financing activities was $3.1$8.6 million for the first nine months of fiscal 2018 and was due almost entirely to the net repayment of our revolving credit facility.
Working Capital
Our net working capital as of December 31, 20172020 was $13.423.3 million, consisting of $30.6$56.7 million in current assets and $17.2$33.4 million in current liabilities. Our net working capital as of March 31, 20172020 was $25.5$27.8 million, consisting of $43.9$55.0 million in current assets and $18.4$27.2 in current liabilities. Our current accounts receivable, net balance decreasedincreased by $0.5$13.3 million from the fiscal 2017 year end2020 year-end primarily due to the decline inhigher sales and the timing of customer collections. Our inventory decreasedinventories, net increased from the fiscal 2017 year end2020 year-end by $4.8$4.0 million due primarily to continued management of purchasing activitiesanticipated project installations for a large national account customer 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.new large specialty retail customer. Our accrued expenses decreasedincreased from our fiscal 2017 year end2020 year-end by $0.8$6.7 million due primarily to the payment of commissions and a decreasean increase 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. Our accounts receivables,receivable, 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 Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our existing $20.15 million secured revolving credit and security agreement dated as of October 26, 2018, as amended, credit agreement ("with Western Alliance Bank, National Association, as lender (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 our2020, the borrowing base was approximately $3.8 million. Thesupports the full 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 had2020, no outstanding lettersamounts were borrowed under the Credit Facility.
The Credit Agreement is secured by a first lien security interest in substantially all of credit. our assets.
Borrowings outstanding as of December 31, 2017, amounted to approximately $3.6 million andunder the Credit Agreement are included in non-current liabilitiespermitted in the accompanying condensed consolidated balance sheet. We estimate that asform of December 31, 2017,LIBOR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees, we were eligibleare required to borrowpay an additional $0.2 millionannual facility fee of $15,000 and fee of 25 basis points on the unused portion of the Credit Facility.
The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility based upon current levelsfalls below the greater of eligible inventory and accounts receivable.
The Credit Agreement also contains additional customary events of default and other 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, retire or repurchasepurchase shares of our stock, make investments or pledge or disposetransfer assets. If an event of assets. We were in compliance with our covenants indefault under the Credit Agreement as of December 31, 2017.
We did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million regardlesson the write-off of usage. As of September 30, 2017,unamortized debt issue costs related to the interest rate was 4.69%. We must pay an unused line fee of 0.25% per annumPrior Credit Agreement. Also, due to the timing of the daily average unused amountbanking transition, we had $0.3 million of thecash which was restricted for covering obligations on our outstanding credit card balances. The Prior Credit Facility and a letter of credit fee at the rate of 3.0% per annumAgreement was scheduled to mature on the undrawn amount of letters of credit outstanding from time to time under the Credit Facility.
Our capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems. Our capital expenditures totaled $0.5$0.7 million and $0.4$0.6 million for the nine-monthnine month periods ended December 31, 20172020, and 2016,2019, respectively. WeDue to the uncertainty of the COVID-19 impact on our business, we do not have a committed capital expenditure plan to incur approximately $0.6 million in capital expenditures infor fiscal 2018. We2021; however, we expect to finance thesecurrent year capital expenditures primarily through our existing cash, equipment securedequipment-secured loans and leases, to the extent needed, long-term debt financing, or by using our available capacity under our 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$21.8 million and $7.3$19.2 million as of December 31, 20172020 and March 31, 2017,2020, respectively. We generally expect our backlog to be recognized as revenue within one year.
We have no off-balance sheet arrangements.
Our results from operations have not been, and we do not expect them to be, materially affected by inflation.
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2017.2020. For the three months ended December 31, 2017,2020, there were no material changes in our accounting policies.
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.
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, 2017.2020. There have been no material changes to such exposures since March 31, 2017.
ITEM 4. |
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 quarterExchange Act) for the three months ended December 31, 2017,2020, 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.
ITEM 1. |
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 maywould 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. |
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, 2017,2020, which we filed with the SEC on June 13, 20175, 2020 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. |
None
ITEM 5. |
None
ITEM 6. |
(a) | Exhibits |
10.1 | |
10.2 | |
10.3 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance |
101.SCH | Taxonomy extension schema |
101.CAL | Taxonomy extension calculation linkbase |
101.DEF | Taxonomy extension definition linkbase document+ |
101.LAB | Taxonomy extension label linkbase |
101.PRE | Taxonomy extension presentation linkbase |
+ | |
Filed herewith |
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. Registrant | ||
By | /s/ | |
J. Per Brodin | ||
Chief Financial Officer | ||
(Principal Financial Officer and Authorized Signatory) |
38