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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit such files). Yes ☒ 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.

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 ☒

There were ~~31,072,532~~31,092,433 shares of the Registrant’s common stock outstanding on ~~October 29, 2021.~~February 7, 2022.

	September 30, 2021			March 31, 2021			December 31, 2021			March 31, 2021
Assets
Cash and cash equivalents	$	14,740		$	19,393		$	17,264		$	19,393
Accounts receivable, net		23,536			13,572			12,287			13,572
Revenue earned but not billed		2,208			2,930			3,859			2,930
Inventories, net		19,714			19,554			18,722			19,554
Prepaid expenses and other current assets		2,359			1,082			2,308			1,082
Total current assets		62,557			56,531			54,440			56,531
Property and equipment, net		11,085			11,369			10,832			11,369
Other intangible assets, net		1,846			1,952			1,774			1,952
Deferred tax assets		17,710			19,785			17,445			19,785
Other long-term assets		3,395			3,184			7,407			3,184
Total assets	$	96,593		$	92,821		$	91,898		$	92,821
Liabilities and Shareholders’ Equity
Accounts payable	$	16,417		$	17,045		$	11,771		$	17,045
Accrued expenses and other		11,306			13,226			10,502			13,226
Deferred revenue, current		81			87			175			87
Current maturities of long-term debt		15			14			15			14
Total current liabilities		27,819			30,372			22,463			30,372
Revolving credit facility		0			—			0			—
Long-term debt, less current maturities		27			35			23			35
Deferred revenue, long-term		602			640			583			640
Other long-term liabilities		3,413			3,700			2,774			3,700
Total liabilities		31,861			34,747			25,843			34,747
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at September 30, 2021 and March 31, 2021; 0 shares issued and outstanding at September 30, 2021 and March 31, 2021		0			0
Common stock, no par value: Shares authorized: 200,000,000 at September 30, 2021 and March 31, 2021; shares issued: 40,537,461 at September 30, 2021 and 40,279,050 at March 31, 2021; shares outstanding: 31,063,630 at September 30, 2021 and 30,805,300 at March 31, 2021		0			0
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at December 31, 2021 and March 31, 2021; 0 shares issued and outstanding at December 31, 2021 and March 31, 2021								0			0
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2021 and March 31, 2021; shares issued: 40,573,654 at December 31, 2021 and 40,279,050 at March 31, 2021; shares outstanding: 31,097,433 at December 31, 2021 and 30,805,300 at March 31, 2021								0			0
Additional paid-in capital		157,975			157,485			158,197			157,485
Treasury stock, common shares: 9,473,831 at September 30, 2021 and 9,473,750 at March 31, 2021		(36,241	)		(36,240	)
Treasury stock, common shares: 9,476,221 at December 31, 2021 and 9,473,750 at March 31, 2021								(36,242	)		(36,240	)
Retained deficit		(57,002	)		(63,171	)		(55,900	)		(63,171	)
Total shareholders’ equity		64,732			58,074			66,055			58,074
Total liabilities and shareholders’ equity	$	96,593		$	92,821		$	91,898		$	92,821

The accompanying notes are an integral part of these Condensed Consolidated Statements.

	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2021			2020			2021			2020			2021			2020			2021			2020
Product revenue	$	27,811		$	20,260		$	56,057		$	29,961		$	22,203		$	31,929		$	78,260		$	61,890
Service revenue		8,699			6,021			15,554			7,131			8,511			12,322			24,065			19,453
Total revenue		36,510			26,281			71,611			37,092			30,714			44,251			102,325			81,343
Cost of product revenue		18,864			14,402			38,297			21,631			16,427			23,203			54,724			44,834
Cost of service revenue		6,858			4,616			12,296			5,563			6,646			10,042			18,942			15,605
Total cost of revenue		25,722			19,018			50,593			27,194			23,073			33,245			73,666			60,439
Gross profit		10,788			7,263			21,018			9,898			7,641			11,006			28,659			20,904
Operating expenses:
General and administrative		2,753			2,638			5,864			5,049			2,873			3,030			8,737			8,079
Acquisition costs														178			—			178			—
Sales and marketing		2,687			2,332			5,932			4,186			2,862			3,120			8,794			7,306
Research and development		317			424			773			839			396			391			1,169			1,230
Total operating expenses		5,757			5,394			12,569			10,074			6,309			6,541			18,878			16,615
Income (loss) from operations		5,031			1,869			8,449			(176	)
Income from operations														1,332			4,465			9,781			4,289
Other income (expense):
Other income		—			35			1			44			—			12			1			56
Interest expense		(14	)		(1	)		(33	)		(50	)		(26	)		(1	)		(59	)		(51	)
Amortization of debt issue costs		(15	)		(61	)		(31	)		(122	)		(15	)		(20	)		(46	)		(142	)
Loss on debt extinguishment														—			(90	)		—			(90	)
Total other expense		(29	)		(27	)		(63	)		(128	)		(41	)		(99	)		(104	)		(227	)
Income (loss) before income tax		5,002			1,842			8,386			(304	)
Income tax expense (benefit)		1,343			(72	)		2,217			1
Net income (loss)	$	3,659		$	1,914		$	6,169		$	(305	)
Basic net income (loss) per share attributable to common shareholders	$	0.12		$	0.06		$	0.20		$	(0.01	)
Income before income tax														1,291			4,366			9,677			4,062
Income tax expense														189			51			2,406			52
Net income													$	1,102		$	4,315		$	7,271		$	4,010
Basic net income per share attributable to common shareholders													$	0.04		$	0.14		$	0.23		$	0.13
Weighted-average common shares outstanding		31,031,098			30,669,272			30,946,105			30,511,611			31,084,710			30,735,722			30,992,475			30,586,196
Diluted net income (loss) per share	$	0.12		$	0.06		$	0.20		$	(0.01	)
Diluted net income per share													$	0.04		$	0.14		$	0.23		$	0.13
Weighted-average common shares and share equivalents outstanding		31,287,826			31,170,139			31,310,965			30,511,611			31,234,925			31,320,427			31,273,703			31,289,359

The accompanying notes are an integral part of these Condensed Consolidated Statements.

	Shareholders’ Equity														Shareholders’ Equity
	Common Stock														Common Stock
	Shares			Additional Paid-in Capital		Treasury Stock			Retained Deficit			Total Shareholders’ Equity			Shares			Additional Paid-in Capital		Treasury Stock			Retained Deficit			Total Shareholders’ Equity
Balance, March 31, 2021		30,805,300		$	157,485	$	(36,240	)	$	(63,171	)	$	58,074			30,805,300		$	157,485	$	(36,240	)	$	(63,171	)	$	58,074
Exercise of stock options for cash		24,045			101		—			—			101			24,045			101		—			—			101
Shares issued under Employee Stock Purchase Plan		496			—		3			—			3			496			—		3			—			3
Stock-based compensation		171,470			160		—			—			160			171,470			160		—			—			160
Employee tax withholdings on stock-based compensation		(610	)		—		(4	)		—			(4	)		(610	)		—		(4	)		—			(4	)
Net income		—			—		—			2,510			2,510			—			—		—			2,510			2,510
Balance, June 30, 2021		31,000,701		$	157,746	$	(36,241	)	$	(60,661	)	$	60,844			31,000,701		$	157,746	$	(36,241	)	$	(60,661	)	$	60,844
Exercise of stock options for cash		7,000			18		—			—			18			7,000			18		—			—			18
Shares issued under Employee Stock Purchase Plan		327			—		1			—			1			327			—		1			—			1
Stock-based compensation		55,896			211		—			—			211			55,896			211		—			—			211
Employee tax withholdings on stock-based compensation		(294	)		—		(1	)		—			(1	)		(294	)		—		(1	)		—			(1	)
Net income		—			—		—			3,659			3,659			—			—		—			3,659			3,659
Balance, September 30, 2021		31,063,630		$	157,975	$	(36,241	)	$	(57,002	)	$	64,732			31,063,630		$	157,975	$	(36,241	)	$	(57,002	)	$	64,732
Exercise of stock options for cash																800			2		—			—			2
Shares issued under Employee Stock Purchase Plan																355			—		1			—			1
Stock-based compensation																32,648			220		—			—			220
Employee tax withholdings on stock-based compensation																(2,745	)		—		(2	)		—			(2	)
Net income																—			—		—			1,102			1,102
Balance, December 31, 2021																31,094,688		$	158,197	$	(36,242	)	$	(55,900	)	$	66,055

	Shareholders’ Equity														Shareholders’ Equity
	Common Stock														Common Stock
	Shares			Additional Paid-in Capital		Treasury Stock			Retained Deficit			Total Shareholders’ Equity			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			30,265,997		$	156,503	$	(36,163	)	$	(89,305	)	$	31,035
Exercise of stock options for cash		20,000			41		—			—			41			20,000			41		—			—			41
Shares issued under Employee Stock Purchase Plan		458			—		2			—			2			458			—		2			—			2
Stock-based compensation		342,780			208		—			��			208			342,780			208		—			—			208
Employee tax withholdings on stock-based compensation		(4,346	)		—		(18	)		—			(18	)		(4,346	)		—		(18	)		—			(18	)
Net loss		—			—		—			(2,219	)		(2,219	)		—			—		—			(2,219	)		(2,219	)
Balance, June 30, 2020		30,624,889		$	156,752	$	(36,179	)	$	(91,524	)	$	29,049			30,624,889		$	156,752	$	(36,179	)	$	(91,524	)	$	29,049
Exercise of stock options for cash		9,000			28		—			—			28			9,000			28		—			—			28
Shares issued under Employee Stock Purchase Plan		151			—		1			—			1			151			—		1			—			1
Stock-based compensation		76,351			251		—			—			251			76,351			251		—			—			251
Employee tax withholdings on stock-based compensation		(581	)		—		(3	)		—			(3	)		(581	)		—		(3	)		—			(3	)
Net income		—			—		—			1,914			1,914			—			—		—			1,914			1,914
Balance, September 30, 2020		30,709,810		$	157,031	$	(36,181	)	$	(89,610	)	$	31,240			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

The accompanying notes are an integral part of these Condensed Consolidated Statements.

	Six Months Ended September 30,						Nine Months Ended December 31,
	2021			2020			2021			2020
Operating activities
Net income (loss)	$	6,169		$	(305	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net income							$	7,271		$	4,010
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		622			587			936			889
Amortization of intangible assets		113			152			158			225
Stock-based compensation		372			459			591			611
Amortization of debt issue costs		31			122			46			142
Loss on debt extinguishment								—			90
Deferred income tax		2,075			—			2,340			—
(Gain) loss on sale of property and equipment		(15	)		6			(77	)		6
Provision for inventory reserves		313			112			426			185
Provision for bad debts		8			—			8			—
Other		—			4			30			9
Changes in operating assets and liabilities:
Accounts receivable		(9,972	)		(5,909	)		1,276			(13,208	)
Revenue earned but not billed		722			(2,674	)		(930	)		(959	)
Inventories		(495	)		(3,723	)		383			(4,196	)
Prepaid expenses and other assets		(1,015	)		206			(1,292	)		339
Accounts payable		(633	)		(6,305	)		(5,231	)		(304	)
Accrued expenses and other		(2,208	)		3,058			(3,651	)		6,555
Deferred revenue, current and long-term		(43	)		72			31			(38	)
Net cash used in operating activities		(3,956	)		(14,138	)
Net cash provided by (used in) operating activities								2,315			(5,644	)
Investing activities
Cash to fund acquisition								(3,697	)		—
Cash paid for investment		(500	)		—			(500	)		—
Purchases of property and equipment		(312	)		(397	)		(465	)		(658	)
Additions to patents and licenses		(7	)		(30	)		(8	)		(43	)
Proceeds from sale of property, plant and equipment		17			—			122			—
Net cash used in investing activities		(802	)		(427	)		(4,548	)		(701	)
Financing activities
Payment of long-term debt		(7	)		(28	)		(11	)		(32	)
Proceeds from revolving credit facility		—			8,000			—			8,000
Payments of revolving credit facility		—			(10,085	)		—			(18,013	)
Payments to settle employee tax withholdings on stock-based compensation		(6	)		(20	)		(7	)		(22	)
Deferred financing costs		(5	)		—			(4	)		(212	)
Net proceeds from employee equity exercises		123			71			126			152
Net cash provided by (used in) financing activities		105			(2,062	)		104			(10,127	)
Net decrease in cash and cash equivalents		(4,653	)		(16,627	)		(2,129	)		(16,472	)
Cash and cash equivalents at beginning of period		19,393			28,751			19,393			28,751
Cash and cash equivalents at end of period	$	14,740		$	12,124		$	17,264		$	12,279
Supplemental disclosure of non-cash investing and financing activities:
Operating lease assets obtained in exchange for new operating lease liabilities	$	—		$	355		$	—		$	355

The accompanying notes are an integral part of these Condensed Consolidated Statements.

Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and provider of energy-efficient LED lighting, controls and Internet of Things (“IoT”) systems, including turnkey project implementation, program management and system maintenance to commercial and industrial businesses, and federal and local governments, predominantly in North America.

The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Orion’s business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last ~~month~~few weeks of ~~Orion’s~~our 2020 fiscal ~~2020~~ year, and continuing most significantly into the second quarter of fiscal 2021. During the second half of fiscal 2021, Orion experienced a rebound in business. Project installations ~~resumed~~ for ~~Orion’s~~their largest customer ~~and~~recommenced, as well installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, ~~some~~during fiscal 2022, there have been customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers ~~continue~~ to ~~refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic. In addition, the COVID-19 pandemic has led to various~~ongoing supply chain ~~challenges, especially~~disruptions and renewed COVID-19 related impacts to ~~shipping and logistics issues, component availability, rising input costs and a tight labor market.~~their businesses.

As an essential business, Orion provides products and services to ensure energy and lighting infrastructure and ~~Orion~~we therefore have continued to operate throughout the pandemic. Orion has implemented a number of safety protocols, including limiting travel and restricting access to their facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and requiring face coverings.

As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 they implemented a number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions have lessened in certain jurisdictions, some restrictions continue. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed, extended or terminated. These modifications to Orion business practices, including any future actions they take, may cause them to experience reductions in productivity and disruptions to their business routines. In addition, Orion is required to make substantial working capital expenditures and advance inventory purchases that they may not be able to recoup if our customer agreements or a substantial volume of purchase orders under their customer agreements are delayed or terminated as a result of COVID-19. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced their revenue and profitability in the first half of fiscal 2021. If ~~there is a~~the resurgence of the COVID-19 pandemic continues, or a future resurgence occurs, Orion’s markets and operations could be impacted and there could be a further material adverse financial ~~impact, including supply chain disruption for certain components.~~impact.

The consolidated financial statements include the accounts of Orion ~~Energy Systems, Inc.~~ and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited Condensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and

footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2022 or other interim periods.

The Condensed Consolidated Balance Sheet March 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Orion’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on June 1, 2021.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the

date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts, accruals for warranty and loss contingencies, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.

Orion's cash is primarily deposited with 21 financial ~~institutions.~~institution. At times, deposits in ~~these institutions exceed~~this institution exceeds the amount of insurance provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk on these balances.

Orion purchases components necessary for its lighting products, including lamps and LED components, from multiple suppliers. For the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021, 0 suppliers accounted for more than 10.0% of total cost of revenue. For the three and nine months ended ~~September 30, 2020, 1 supplier accounted for 10.3%, of total cost of revenue. For the six months ended September 30,~~December 31, 2020, 0 ~~supplier~~suppliers accounted for more than ~~10%~~10.0% of total cost of revenue.

For the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021, 1 customer accounted for ~~58.9%~~48.6% and ~~55.0%~~53.0% of total revenue, respectively. For the three months ended ~~September 30,~~December 31, 2020, 2 customers accounted for 65.1 % and 11.1% of total revenue, respectively. For the nine months ended December 31, 2020, 1 customer accounted for ~~60.7 %~~55.7% of total revenue. ~~For the six months ended September 30, 2020, 2 customers accounted for 44.4% and 14.9% of total revenue, respectively.~~

As of ~~September 30,~~December 31, 2021, 1 customer accounted for ~~66.7%~~44.4% of accounts receivable. As of March 31, 2021, 3 customers accounted for 33.9%, 16.4% and 10.1% of accounts receivable, respectively.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. The provisions of ASU 2016-13 and the related amendments are effective for Orion for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Orion is currently evaluating the impact of adoption of this standard on its consolidated statements of operations, cash flows and the related footnote disclosures.

The following tables provide detail of Orion’s total ~~revenues~~revenue for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020 (dollars in thousands):

	Three Months Ended September 30, 2021						Six Months Ended September 30, 2021						Three Months Ended December 31, 2021						Nine Months Ended December 31, 2021
	Product		Services		Total		Product		Services		Total		Product		Services		Total		Product		Services		Total
Revenue from contracts with customers:
Lighting revenues, by end user
Federal government	$	106	$	138	$	244	$	599	$	408	$	1,007	$	104	$	197	$	301	$	703	$	605	$	1,308
Commercial and industrial		27,574		8,561		36,135		54,538		15,146		69,684		21,730		8,314		30,044		76,269		23,460		99,729
Total lighting		27,680		8,699		36,379		55,137		15,554		70,691		21,834		8,511		30,345		76,972		24,065		101,037
Solar energy related revenues		12		0		12		28		0		28		8		0		8		36		0		36
Total revenues from contracts with customers		27,692		8,699		36,391		55,165		15,554		70,719		21,842		8,511		30,353		77,008		24,065		101,073
Revenue accounted for under other guidance		119		0		119		892		0		892		361		0		361		1,252		0		1,252
Total revenue	$	27,811	$	8,699	$	36,510	$	56,057	$	15,554	$	71,611	$	22,203	$	8,511	$	30,714	$	78,260	$	24,065	$	102,325

	Three Months Ended September 30, 2020						Six Months Ended September 30, 2020						Three Months Ended December 31, 2020						Nine Months Ended December 31, 2020
	Product		Services		Total		Product		Services		Total		Product		Services		Total		Product		Services		Total
Revenue from contracts with customers:
Lighting revenues, by end user
Federal government	$	85	$	26	$	111	$	135	$	26	$	161	$	177	$	323	$	500	$	312	$	349	$	661
Commercial and industrial		18,816		5,995		24,811		27,525		7,105		34,630		31,006		11,999		43,005		59,257		19,104		78,361
Total lighting		18,901		6,021		24,922		27,660		7,131		34,791		31,183		12,322		43,505		59,569		19,453		79,022
Solar energy related revenues		20		0		20		42		0		42		7		0		7		49		0		49
Total revenues from contracts with customers		18,921		6,021		24,942		27,702		7,131		34,833		31,190		12,322		43,512		59,618		19,453		79,071
Revenue accounted for under other guidance		1,339		0		1,339		2,259		0		2,259		739		0		739		2,272		0		2,272
Total revenue	$	20,260	$	6,021	$	26,281	$	29,961	$	7,131	$	37,092	$	31,929	$	12,322	$	44,251	$	61,890	$	19,453	$	81,343

From time to time, Orion sells the receivables from one customer to a financing institution. The total amount received from the sales of these receivables during the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021, was $0 and $2.4 million, respectively. Orion’s losses on these sales were $1$9 thousand and $3$8 thousand, for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021, respectively 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 and ~~six~~nine months ended ~~September 30,~~December 31, 2020 was ~~$2.1 million~~$0 and $2.3 million, respectively. Orion’s losses on these sales were $0 and $9 thousand, respectively, for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2020 and are included in Interest expense in the Condensed Consolidated Statement of Operations.

The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of ~~September 30,~~December 31, 2021 and March 31, 2021 (dollars in thousands):

	September 30, 2021		March 31, 2021		December 31, 2021		March 31, 2021
Accounts receivable, net	$	23,536	$	13,572	$	12,287	$	13,572
Contract assets	$	2,102	$	2,367	$	3,414	$	2,367
Contract liabilities	$	6	$	11	$	99	$	11

There were 0 significant changes in the contract assets outside of standard reclassifications to accounts receivable, net upon billing. There were 0 significant changes to contract liabilities.

As of ~~September 30,~~December 31, 2021, and March 31, 2021, Orion's accounts receivable and allowance for doubtful accounts balances were as follows (dollars in thousands):

	September 30, 2021			March 31, 2021			December 31, 2021			March 31, 2021
Accounts receivable, gross	$	23,552		$	13,583		$	12,292		$	13,583
Allowance for doubtful accounts		(16	)		(11	)		(5	)		(11	)
Accounts receivable, net	$	23,536		$	13,572		$	12,287		$	13,572

As of ~~September 30,~~December 31, 2021, and March 31, 2021, Orion's inventory balances were as follows (dollars in thousands):

	Cost		Excess and Obsolescence Reserve			Net		Cost		Excess and Obsolescence Reserve			Net
As of September 30, 2021
As of December 31, 2021
Raw materials and components	$	11,162	$	(1,079	)	$	10,083	$	10,367	$	(1,130	)	$	9,237
Work in process		959		(342	)		617		1,167		(309	)		858
Finished goods		9,751		(737	)		9,014		9,309		(682	)		8,627
Total	$	21,872	$	(2,158	)	$	19,714	$	20,843	$	(2,121	)	$	18,722

As of March 31, 2021
Raw materials and components	$	12,410	$	(967	)	$	11,443	$	12,410	$	(967	)	$	11,443
Work in process		758		(356	)		402		758		(356	)		402
Finished goods		8,295		(586	)		7,709		8,295		(586	)		7,709
Total	$	21,463	$	(1,909	)	$	19,554	$	21,463	$	(1,909	)	$	19,554

As of ~~September 30,~~December 31, 2021, and March 31, 2021, prepaid expenses and other current assets include the following (dollars in thousands):

	September 30, 2021		March 31, 2021		December 31, 2021		March 31, 2021
Payroll tax credit	$	1,587	$	—	$	1,587	$	—
Other prepaid expenses		772		1,082		721		1,082
Total	$	2,359	$	1,082	$	2,308	$	1,082

During the three months ended September 30, 2021, Orion recorded a $1.6 million current asset for the anticipated employee retention payroll tax credit (“payroll tax credit”), as expanded and extended by the American Rescue Plan Act of 2021. The credit was recorded as an offset to payroll expense, in accordance with IAS 20, in the following income statement categories: $0.7 million in cost of product revenue, $0.1 million in cost of service revenue, $0.3 million in general and administrative, $0.4 million in sales and marketing, and $0.1 million in research and development expenses. The timing of the refundable portion of the payroll tax credit is subject to Internal Revenue Service processing times.

As of ~~September 30,~~December 31, 2021, and March 31, 2021, property and equipment, net, included the following (dollars in thousands):

	September 30, 2021			March 31, 2021			December 31, 2021			March 31, 2021
Land and land improvements	$	433		$	433		$	433		$	433
Buildings and building improvements		9,491			9,477			9,491			9,477
Furniture, fixtures and office equipment		7,526			7,372			7,582			7,372
Leasehold improvements		429			340			434			340
Equipment leased to customers		4,997			4,997			4,997			4,997
Plant equipment		12,205			12,451			10,994			12,451
Construction in Progress		45			135			46			135
Gross property and equipment		35,126			35,205			33,977			35,205
Less: accumulated depreciation		(24,041	)		(23,836	)		(23,145	)		(23,836	)
Total property and equipment, net	$	11,085		$	11,369		$	10,832		$	11,369

From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.

Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments over the lease term. Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-line basis over the lease term.

A summary of Orion’s assets leased from third parties follows (dollars in thousands):

	Balance sheet classification	September 30, 2021		March 31, 2021		Balance sheet classification	December 31, 2021		March 31, 2021
Assets
Operating lease assets	Other long-term assets	$	2,315	$	2,585	Other long-term assets	$	2,183	$	2,585
Liabilities
Current liabilities
Operating lease liabilities	Accrued expenses and other	$	667	$	647	Accrued expenses and other	$	682	$	647
Non-current liabilities
Operating lease liabilities	Other long-term liabilities		2,302		2,642	Other long-term liabilities		2,128		2,642
Total lease liabilities		$	2,969	$	3,289		$	2,810	$	3,289

Orion had operating lease costs of $0.2 million and ~~$0.4~~$0.7 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021. Orion had operating lease costs of $0.2 million and ~~$0.4~~$0.6 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2020.

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			Operating Leases
Fiscal 2022 (period remaining)	$	394		$	202
Fiscal 2023		819			820
Fiscal 2024		756			746
Fiscal 2025		735			735
Fiscal 2026		628			628
Total lease payments	$	3,332		$	3,131
Less: Interest		(363	)		(321	)
Present value of lease liabilities	$	2,969		$	2,810

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 ~~six~~nine months ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020 (dollars in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020		2021		2020		2021		2020
Product revenue	$	100	$	938	$	651	$	1,382	$	342	$	721	$	993	$	2,097
Cost of product revenue	$	104	$	813	$	583	$	1,251	$	306	$	662	$	889	$	1,913

As of ~~September 30,~~December 31, 2021, and March 31, 2021, the components of, and changes in, the carrying amount of other intangible assets, net, were as follows (dollars in thousands):

	September 30, 2021							March 31, 2021							December 31, 2021							March 31, 2021
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,801	$	(1,967	)	$	834	$	2,796	$	(1,875	)	$	921	$	2,650	$	(1,888	)	$	762	$	2,796	$	(1,875	)	$	921
Licenses		58		(58	)		0		58		(58	)		0		58		(58	)		0		58		(58	)		0
Trade name and trademarks (indefinite lived)		1,012		0			1,012		1,011		0			1,011		1,012		0			1,012		1,011		0			1,011
Customer relationships		3,600		(3,600	)		0		3,600		(3,591	)		9		3,600		(3,600	)		0		3,600		(3,591	)		9
Developed technology		900		(900	)		0		900		(889	)		11		900		(900	)		0		900		(889	)		11
Total	$	8,371	$	(6,525	)	$	1,846	$	8,365	$	(6,413	)	$	1,952	$	8,220	$	(6,446	)	$	1,774	$	8,365	$	(6,413	)	$	1,952

Amortization expense on intangible assets was ~~$46~~$45 thousand and ~~$0.1~~$0.2 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021, respectively.

Amortization expense on intangible assets was $0.1 million and $0.2 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2020, respectively.

As of ~~September 30,~~December 31, 2021, the weighted average remaining useful life of intangible assets was ~~8.8~~8.6 years.

The estimated amortization expense for the remainder of fiscal 2022, the next five fiscal years and beyond is shown below (dollars in thousands):

Fiscal 2022 (period remaining)	$	93	$	45
Fiscal 2023		115		109
Fiscal 2024		111		105
Fiscal 2025		101		96
Fiscal 2026		90		86
Fiscal 2027		75		73
Thereafter		249		248
Total	$	834	$	762

As of ~~September 30,~~December 31, 2021, and March 31, 2021, accrued expenses and other included the following (dollars in thousands):

	September 30, 2021		March 31, 2021		December 31, 2021		March 31, 2021
Accrued project costs	$	3,858	$	5,010	$	3,102	$	5,010
Compensation and benefits		2,176		2,851		2,089		2,851
Other accruals		2,158		1,730		2,034		1,730
Sales tax						1,141		1,318
Credits due to customers		1,149		1,009		987		1,009
Sales tax		1,047		1,318
Warranty		727		705		822		705
Sales returns reserve						166		106
Legal and professional fees		99		497		161		497
Sales returns reserve		92		106
Total	$	11,306	$	13,226	$	10,502	$	13,226

Orion generally offers a limited warranty of one to ten years on its lighting products, including the pass through of standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, power supplies, LED modules, chips and drivers, control devices, and 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):

Basic net income ~~(loss)~~ per common share is computed by dividing net income ~~(loss)~~ attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.

Diluted net income ~~(loss)~~ per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In the computation of diluted net income ~~(loss)~~ per common share, Orion uses the treasury stock method for outstanding options and restricted shares. Due to the net loss incurred during the six months ended September 30, 2020, the assumed exercise of all equity incentive instruments was anti-dilutive and, therefore, was not included in the diluted loss per common share calculation for those periods.Net income ~~(loss)~~ per common share is calculated based upon the following shares:

	For the Three Months Ended September 30,				For the Six Months Ended September 30,					For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2021		2020		2021		2020			2021		2020		2021		2020
Numerator:
Net income (loss) (in thousands)	$	3,659	$	1,914	$	6,169	$	(305	)
Net income (in thousands)										$	1,102	$	4,315	$	7,271	$	4,010
Denominator:
Weighted-average common shares outstanding		31,031,098		30,669,272		30,946,105		30,511,611			31,084,710		30,735,722		30,992,475		30,586,196
Weighted-average common shares and common share equivalents outstanding		31,287,826		31,170,139		31,310,965		30,511,611			31,234,925		31,320,427		31,273,703		31,289,359
Net income (loss) per common share:
Net income per common share:
Basic	$	0.12	$	0.06	$	0.20	$	(0.01	)	$	0.04	$	0.14	$	0.23	$	0.13
Diluted	$	0.12	$	0.06	$	0.20	$	(0.01	)	$	0.04	$	0.14	$	0.23	$	0.13

The following table indicates the number of potentially dilutive securities excluded from the calculation of Diluted net income ~~(loss)~~ per common share because their inclusion would have been anti-dilutive. The number of shares is as of the end of each period:

	For the Three Months Ended September 30,				For the Six Months Ended September 30,				For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2021		2020		2021		2020		2021		2020		2021		2020
Common stock options		—		—		—		71,817		—		—		—		—
Restricted shares		26,205		—		26,205		125,880		203,636		—		17,803		—
Total		26,205		—		26,205		197,697		203,636		—		17,803		—

	September 30, 2021			March 31, 2021			December 31, 2021			March 31, 2021
Revolving credit facility	$	—		$	—		$	—		$	—
Equipment debt obligations		42			49			38			49
Total long-term debt		42			49			38			49
Less current maturities		(15	)		(14	)		(15	)		(14	)
Long-term debt, less current maturities	$	27		$	35		$	23		$	35

On December 29, 2020, Orion entered into a new $25 million Loan and Security Agreement with Bank of America, N.A., as lender (the “Credit Agreement”). The Credit Agreement replaced Orion’s prior $20.15 million secured revolving credit and security agreement (the “Prior Credit Agreement”).

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 are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of ~~September 30,~~December 31, 2021, the borrowing base supports ~~the full~~$24.2 million availability of the Credit Facility. As of ~~September 30,~~December 31, 2021, 0 amounts were borrowed under the Credit Facility.

As of ~~September 30,~~December 31, 2021, Orion iswas in compliance with all debt covenants.

In February 2019, Orion entered into additional debt agreements with a financing company in the principal amount of $44 thousand and $30 thousand to fund the purchase of certain equipment. The debts are secured by the related equipment. The debts bear interest at a rate of 6.43% and 8.77% per annum, respectively, and both debts mature in January 2024.

Orion’s income tax provision was determined by applying an estimated annual effective tax rate, based upon the facts and circumstances known, to book income (loss) before income tax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three months ended ~~September 30, 2021 and 2020, Orion recorded income tax expense (benefit) of $1.3 million and $(0.1) million, respectively, using this methodology. For the six months ended September 30,~~December 31, 2021 and 2020, Orion recorded income tax expense of ~~$2.2~~$0.2 million and ~~$1 thousand,~~$0.1 million, respectively, using this methodology. For the nine months ended December 31, 2021 and 2020, Orion recorded income tax expense of $2.4 million and $0.1 million, respectively, using this methodology.

As of ~~September 30,~~December 31, 2021 and March 31, 2021, Orion recorded a valuation allowance of $1.3 million against its net deferred tax asset balance. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the more or less of its deferred tax assets are able to be realized, an adjustment to the valuation allowance would be reflected in the company’s provision for income taxes.

As of ~~September 30,~~December 31, 2021, Orion’s balance of gross unrecognized tax benefits was approximately $0.4 million, all of which would reduce Orion’s effective tax rate if recognized.

Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as Other long-term liabilities to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in Income tax expense. Penalties and interest are included in the unrecognized tax benefits.

Orion is subject to various claims and legal proceedings arising in the ordinary course of business. Orion does not believe the final resolution of any of such claims or legal proceedings will have a material adverse effect on Orion’s future results of operations or financial condition.

During fiscal 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of Orion's sales and use tax audit is uncertain, the ultimate disposition of this matter is not expected to have a material adverse effect on Orion's future results of operations or financial conditions.

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, 1 share of~~In December 2021, 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~~announced that it had decided to allow 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~~Agreement to terminate and expire by its terms on January 7, 2022.

In August 2010, Orion’s Board of Directors approved a non-compensatory employee stock purchase plan, or “ESPP”. In the three months ended ~~September 30,~~December 31, 2021, Orion issued ~~327~~355 shares under the ESPP plan at a closing market price of ~~$3.89.~~$3.62.

	Shares Issued Under ESPP Plan		Closing Market Price	Shares Issued Under ESPP Plan		Closing Market Price
Quarter Ended June 30, 2021		496	5.73		496	5.73
Quarter Ended September 30, 2021		327	3.89		327	3.89
Quarter Ended December 31, 2021					355	3.62
Total issued in fiscal 2022		823	$ 3.89 - 5.73		1,178	$ 3.62 - 5.73

In March 2020, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, Orion currently has the flexibility to publicly offer and sell from time to time up to $100.0 million of debt and/or equity securities. The filing of the shelf registration statement may help facilitate Orion’s ability to raise public equity or debt capital to expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general corporate purposes.

In March 2021, Orion entered into an At Market Issuance Sales Agreement to undertake an “at the market” (ATM) public equity capital raising program pursuant to which Orion may offer and sell shares of common stock from time to time, having an aggregate offering price of up to $50 million. NaN share sales were effected pursuant to the ATM program through ~~September 30,~~December 31, 2021.

At Orion’s 2019 annual meeting of shareholders held on August 7, 2019, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the “Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from 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 the 2016 Omnibus Incentive Plan, Orion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “2004 Plan”). No new awards are being granted under the 2004 Plan; however, all awards granted under the 2004 Plan that are outstanding will continue to be governed by the 2004 Plan. Forfeited awards originally issued under the 2004 Plan are canceled and are not available for subsequent issuance under the 2004 Plan or under the Amended 2016 Plan. The Amended 2016 Plan and the 2004 Plan also permit accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.

Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.

The following amounts of stock-based compensation were recorded (dollars in thousands):

	For the Three Months Ended September 30,				For the Six Months Ended September 30,				For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2021		2020		2021		2020		2021		2020		2021		2020
Cost of product revenue	$	1	$	1	$	3	$	2	$	1	$	1	$	4	$	3
General and administrative		205		241		360		439		214		143		574		581
Sales and marketing		4		1		7		2		3		7		10		24
Research and development		1		8		2		16		1		1		3		3
Total	$	211	$	251	$	372	$	459	$	219	$	152	$	591	$	611

During the first ~~six~~nine months of fiscal 2022, Orion had the following activity related to its stock-based compensation:

	Restricted Shares			Stock Options			Restricted Shares			Stock Options
Awards outstanding at March 31, 2021		469,639			196,318			469,639			196,318
Awards granted		185,833			0			235,833			0
Awards vested or exercised		(227,366	)		(31,045	)		(260,014	)		(31,845	)
Awards forfeited		—			(22,045	)		—			(22,045	)
Awards outstanding at September 30, 2021		428,106			143,228
Per share price on grant date	$	5.98			0
Awards outstanding at December 31, 2021								445,458			142,428
Per share weighted average price on grant date							$	5.59			0

As of ~~September 30,~~December 31, 2021, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of ~~2.8~~3.0 years, was approximately ~~$1.7~~$3.3 million.

Orion has the following business segments: Orion ~~Engineered~~ Services Group Division ("~~OES"~~OSG"), Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). The accounting policies are the same for each business segment as they are on a consolidated basis.

The ~~OES~~OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for Orion's commercial lighting and energy management systems. ~~OES~~OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.

The ODS segment sells lighting products through manufacturer representative agencies and a network of North American broadline electrical distributors and contractors.

The USM segment sells commercial lighting systems and energy management systems to contractors and ESCOs.

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)						Revenues				Operating Income (Loss)
	For the Three Months Ended September 30,				For the Three Months Ended September 30,						For the Three Months Ended December 31,				For the Three Months Ended December 31,
	2021		2020		2021			2020			2021		2020		2021			2020
Segments:
Orion Engineered Systems	$	26,952	$	18,470	$	4,281		$	1,764
Orion Services Group											$	20,021	$	36,669	$	970		$	4,820
Orion Distribution Services		4,036		5,500		560			926			4,942		3,934		491			193
Orion U.S. Markets		5,522		2,311		1,297			304			5,751		3,648		1,250			731
Corporate and Other		—		—		(1,107	)		(1,125	)		—		—		(1,379	)		(1,279	)
	$	36,510	$	26,281	$	5,031		$	1,869		$	30,714	$	44,251	$	1,332		$	4,465

	Revenues				Operating Income (Loss)						Revenues				Operating Income (Loss)
	For the Six Months Ended September 30,				For the Six Months Ended September 30,						For the Nine Months Ended December 31,				For the Nine Months Ended December 31,
	2021		2020		2021			2020			2021		2020		2021			2020
Segments:
Orion Engineered Systems	$	48,940	$	20,726	$	6,145		$	(86	)
Orion Services Group											$	68,961	$	57,395	$	7,115		$	4,634
Orion Distribution Services		13,322		12,129		2,682			1,678			18,264		16,063		3,173			1,957
Orion U.S. Markets		9,349		4,237		1,948			385			15,100		7,885		3,198			1,128
Corporate and Other		—		—		(2,326	)		(2,153	)		—		—		(3,705	)		(3,430	)
	$	71,611	$	37,092	$	8,449		$	(176	)	$	102,325	$	81,343	$	9,781		$	4,289

Operating Income above includes a payroll tax credit, in accordance with IAS 20, for the ~~three and six~~nine months ended ~~September 30,~~December 31, 2021.

Effective on January 1, 2022, Orion acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc. (“Stay-Lite Lighting”), a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $3.7 million, subject to normal and customary closing adjustments (the “Stay-Lite Acquisition”). Orion funded the cash purchase price of $3.7 million in advance on December 31, 2021 and is recorded in Other long-term assets in Orion’s balance sheet. In addition, depending upon the relative gross profit growth of Stay-Lite Lighting’s legacy business over the next two calendar years, Orion could pay up to an additional $0.7 million in earn-out related purchase price. The acquisition was funded from existing cash resources. Stay-Lite Lighting will operate as Stay-Lite Lighting, an Orion Energy Systems business. The acquisition accelerates the growth of the Orion Maintenance Services business, a part of Orion Services Group, which provides lighting and electrical services to customers.

The initial preliminary estimated fair values of the assets and liabilities acquired are as follows (dollars in thousands):

None of these amounts are recognized in the accompanying financial statements because the acquisition date occurred subsequent to December 31, 2021. The accounting for the acquisition and the purchase price allocation is preliminary and incomplete as the Company is still in the process of estimating the fair value of identifiable intangibles and contingent consideration associated with this acquisition.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.

We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control solutions, project engineering, design energy project management and maintenance services. We help our customers achieve energy savings with healthy, safe and sustainable solutions that enable them to reduce their carbon footprint and digitize their business. We research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all of our sales occur within North America.

Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems. Our principal customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs"). Currently, most of our products are manufactured at our production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development.

We have experienced recent success offering our comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration.

InBeginning in fiscal 2021, we have successfully capitalized on our capability of being a full service, turnkey provider of LED lighting and controls systems with design, build, installation and project management services, as we continued a very large project for a major national account. As a result of this success, we have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and services offered to our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We also plan to pursue the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to our customers.

investing significant time, resources and capital into expanding our offerings in these areas with no expectation that they will result in us realizing material revenue in the near term and without any assurance they will succeed or be profitable. In fact, it is likely that these efforts will reduce our profitability, at least in the near term as we invest resources and incur expenses to develop these offerings. While we intend to pursue these expansion strategies organically, we also are actively exploring potential business acquisitions which would more quickly add these types of expanded and different capabilities to our product and services offerings. These efforts resulted in our acquisition of Stay-Lite Lighting on January 1, 2022. It is possible that one or more of such potential acquisitions, if successfully completed, could significantly change, and potentially transform, the nature and extent of our business.

We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period and we typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.

We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.

The gross profits of our products and services can vary significantly depending upon the types of products and services we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products and services can cause our profitability to fluctuate from period to period.

Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2022 and is referred to as “fiscal 2022”. We refer to our just completed fiscal year, which ended on March 31, 2021, as "fiscal 2021", and our prior fiscal year which ended on March 31, 2020 as "fiscal 2020". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.

Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Orion has three reportable segments: Orion ~~Engineered Systems~~Services Group Division ("~~OES"~~OSG"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).

The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Our business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our 2020 fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During the second half of fiscal 2021, we experienced a rebound in business. Project installations for our largest customer recommenced, as well installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, ~~some~~during fiscal 2022, there have been customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers ~~continue~~ to ~~refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic. In addition, the COVID-19 pandemic has led to various~~ongoing supply chain ~~challenges, especially~~disruptions and renewed COVID-19 related impacts to ~~shipping and logistics issues, component availability, rising input costs and a tight labor market.~~their businesses.

As ~~a deemed~~an essential business, we provide products and services to ensure energy and lighting infrastructure and we therefore have continued to operate throughout the pandemic. We have implemented a number of safety protocols, including limiting travel and restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and requiring face coverings.

As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 we implemented a number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions have lessened in certain jurisdictions, some restrictions continue. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed, extended or terminated. These modifications to our business practices, including any future actions we take, may cause us to experience reductions in productivity and disruptions to our business routines. In addition, we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if our customer agreements or a substantial volume of purchase orders under our customer agreements are delayed or terminated as a result of COVID-19. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on our business, liquidity, capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal 2021. If ~~there is a~~the resurgence of the COVID-19 pandemic continues, or a future resurgence occurs, our markets and operations could be impacted and there could be a further material adverse financial impact.

Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $3.7 million, subject to normal and customary closing adjustments. In addition, depending upon the relative gross profit growth of Stay-Lite Lighting’s legacy business over the next two calendar years, Orion could pay up to an additional $0.7 million in earn out related purchase price. The acquisition was funded from existing cash resources. Stay-Lite Lighting will operate as Stay-Lite, an Orion Energy Systems business. The acquisition accelerates the growth of the Orion Maintenance Services business, a part of Orion Services Group, which provides lighting and electrical services to customers.

Results of Operations - Three Months Ended ~~September 30,~~December 31, 2021 versus Three Months Ended ~~September 30,~~December 31, 2020

The following table sets forth the line items of our Condensed Consolidated Statements of Operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):

	Three Months Ended September 30,															Three Months Ended December 31,
	2021			2020						2021			2020			2021			2020						2021			2020
	Amount			Amount			% Change			% of Revenue			% of Revenue			Amount			Amount			% Change			% of Revenue			% of Revenue
Product revenue	$	27,811		$	20,260			37.3	%		76.2	%		77.1	%	$	22,203		$	31,929			(30.5	)%		72.3	%		72.2	%
Service revenue		8,699			6,021			44.5	%		23.8	%		22.9	%		8,511			12,322			(30.9	)%		27.7	%		27.8	%
Total revenue		36,510			26,281			38.9	%		100.0	%		100.0	%		30,714			44,251			(30.6	)%		100.0	%		100.0	%
Cost of product revenue		18,864			14,402			31.0	%		51.7	%		54.8	%		16,427			23,203			(29.2	)%		53.5	%		52.4	%
Cost of service revenue		6,858			4,616			48.6	%		18.8	%		17.6	%		6,646			10,042			(33.8	)%		21.6	%		22.7	%
Total cost of revenue		25,722			19,018			35.3	%		70.5	%		72.4	%		23,073			33,245			(30.6	)%		75.1	%		75.1	%
Gross profit		10,788			7,263			48.5	%		29.5	%		27.6	%		7,641			11,006			(30.6	)%		24.9	%		24.9	%
General and administrative expenses		2,753			2,638			4.4	%		7.5	%		10.0	%		2,873			3,030			(5.2	)%		9.4	%		6.8	%
Acquisition costs																	178			—		NM				1.1	%		—
Sales and marketing expenses		2,687			2,332			15.2	%		7.4	%		8.9	%		2,862			3,120			(8.3	)%		9.3	%		7.1	%
Research and development expenses		317			424			(25.2	)%		0.9	%		1.6	%		396			391			1.3	%		1.3	%		0.9	%
Income from operations		5,031			1,869			169.2	%		13.8	%		7.1	%		1,332			4,465			(70.2	)%		4.3	%		10.1	%
Other income		—			35			(100.0	)%		—			0.1	%		—			12			(100.0	)%		—			0.0	%
Interest expense		(14	)		(1	)		1300.0	%		(0.0	)%		(0.0	)%		(26	)		(1	)		2500.0	%		(0.1	)%		(0.0	)%
Amortization of debt issue costs		(15	)		(61	)		(75.4	)%		(0.0	)%		(0.2	)%		(15	)		(20	)		(25.0	)%		(0.0	)%		(0.0	)%
Loss on debt extinguishment																	—			(90	)		100.0	%		—			(0.4	)%
Income before income tax		5,002			1,842			171.6	%		13.7	%		7.0	%		1,291			4,366			(70.4	)%		4.2	%		9.9	%
Income tax expense		1,343			(72	)	NM				3.7	%		(0.3	)%		189			51			270.6	%		0.6	%		0.1	%
Net income	$	3,659		$	1,914			91.2	%		10.0	%		7.3	%	$	1,102		$	4,315			(74.5	)%		3.6	%		9.8	%

Revenue. Product revenue ~~increased 37.3%~~decreased 30.5%, or ~~$7.6~~$9.7 million, for the ~~second~~third quarter of fiscal 2022 versus the ~~second~~third quarter of fiscal 2021. Service revenue ~~increased 44.5%~~decreased 30.9%, or ~~$2.7~~$3.8 million, for the ~~second~~third quarter of fiscal 2022 versus the ~~second~~third quarter of fiscal 2021. The ~~increase~~decrease in product and service revenue was ~~primarily~~ due to ~~an increase~~lower project revenues from our largest customer and other customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to supply chain disruptions and COVID-19 related impacts to our businesses. This includes installations from our existing large national retail customer, which represented ~~58.9%~~48.6% of total revenue in the ~~second~~third quarter of fiscal 2022.

Cost of Revenue and Gross Profit. Gross profit percentage ~~increased to 29.5%~~remained flat at 24.9% of revenue in the ~~second~~third quarter of fiscal 2022 ~~from 27.6% in~~and the ~~second~~third quarter of fiscal ~~2021, due primarily to an improvement in product margin on the coverage of fixed costs with significantly higher sales volume, as well as a portion of a payroll tax credit.~~2021. Cost of product revenue ~~increased 31.0%~~decreased 29.2%, or ~~$4.5~~$6.8 million, in the ~~second~~third quarter of fiscal 2022 versus the ~~second~~third quarter of fiscal 2021 due to the ~~increase~~decrease in our sales. Cost of service revenue ~~increased 48.6%~~decreased 33.8%, or ~~$2.2~~$3.4 million, in the ~~second~~third quarter of fiscal 2022 versus the ~~second~~third quarter of fiscal 2021 also due to the ~~increase~~decrease in sales.

General and Administrative. General and administrative expenses ~~increased 4.4%~~decreased 5.2%, or ~~$0.1~~$0.2 million, in the ~~second~~third quarter of fiscal 2022 compared to the ~~second~~third quarter of fiscal 2021. This comparative ~~increase~~decrease was primarily due to lower ~~employment~~compensation costs in fiscal 2021 as a result of ~~COVID-19 related actions, partially offset by~~ the ~~payroll tax credit.~~reduction in revenue forecast.

Sales and Marketing. Sales and marketing expenses ~~increased 15.2%~~decreased 8.3%, or ~~$0.4~~$0.3 million, in the ~~second~~third quarter of fiscal 2022 compared to the ~~second~~third quarter of fiscal 2021. This comparative ~~increase~~decrease was primarily due to ~~an increase~~a reduction in commission expense on ~~higher~~lower sales and ~~increased travel, partially offset by the payroll tax credit.~~decreased travel.

Research and Development. Research and development expenses ~~decreased 25.2%, or $0.1 million,~~is relatively flat, in the ~~second~~third quarter of fiscal 2022 compared to the ~~second~~third quarter of fiscal ~~2021, primarily due to the payroll tax credit.~~2021.

Interest Expense. Interest expense in the ~~second~~third quarter of fiscal 2022 increased ~~$14~~$25 thousand compared to the ~~second~~third quarter of fiscal 2021. The increase in interest expense was primarily due to ~~comparatively higher sales of receivables than in the prior year period.~~unused borrowing fees.

Our ~~OES~~OSG segment develops and sells lighting products and provides construction, engineering along with installation and maintenance services for our commercial lighting and energy management systems. ~~OES~~OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.

The following table summarizes our ~~OES~~OSG segment operating results (dollars in thousands):

	Three Months Ended September 30,									Three Months Ended December 31,
	2021			2020			% Change			2021			2020			% Change
Revenues	$	26,952		$	18,470			45.9	%	$	20,021		$	36,669			(45.4	)%
Operating income	$	4,281		$	1,764			142.7	%	$	970		$	4,820			(79.9	)%
Operating margin		15.9	%		9.6	%					4.8	%		13.1	%

~~OES~~OSG segment revenue in the ~~second~~third quarter of fiscal 2022 ~~increased $8.5~~decreased $16.6 million from the second quarter of fiscal 2021 due to multiple projects put on hold in the prior year period as a result of COVID-19, including the projects with one large national account customer that represented 58.9% of total revenue in the second quarter of fiscal 2022. The project installations for this customer resumed during the secondthird quarter of fiscal 2021. The decrease in revenue was due to a reduction of project volume from our largest customer and other customer delays on several larger LED lighting and controls projects, primarily caused by the response of customers to supply chain disruptions and COVID-19 related impacts to our businesses. This sales ~~increase~~decrease led to a corresponding ~~increase~~decrease in operating income in this segment.

Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.

The following table summarizes our ODS segment operating results (dollars in thousands):

	Three Months Ended September 30,									Three Months Ended December 31,
	2021			2020			% Change			2021			2020			% Change
Revenues	$	4,036		$	5,500			(26.6	)%	$	4,942		$	3,934			25.6	%
Operating income	$	560		$	926			(39.5	)%	$	491		$	193			154.4	%
Operating margin		13.9	%		16.8	%					9.9	%		4.9	%

ODS segment revenue in the ~~second~~third quarter of fiscal 2022 ~~decreased $1.5~~increased $1.0 million, compared to the ~~second~~third quarter of fiscal 2021, primarily due to ~~a decrease in sales to one customer who represented 7.5%~~growth of ~~total revenue~~two customers in the ~~second~~third quarter of fiscal ~~2021.~~2022. The ~~decrease~~increase in sales resulted in a corresponding ~~decrease~~increase in operating income in this segment based on operating leverage.

Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.

The following table summarizes our USM segment operating results (dollars in thousands):

	Three Months Ended September 30,									Three Months Ended December 31,
	2021			2020			% Change			2021			2020			% Change
Revenues	$	5,522		$	2,311			138.9	%	$	5,751		$	3,648			57.6	%
Operating income	$	1,297		$	304			326.6	%	$	1,250		$	731			71.0	%
Operating margin		23.5	%		13.2	%					21.7	%		20.0	%

USM segment revenue in the ~~second~~third quarter of fiscal 2022 increased ~~$3.2~~$2.1 million, compared to the ~~second~~third quarter of fiscal 2021, primarily due to a reduction in the impact of ~~COVID-19~~Covid-19 on customers in this segment in the fiscal ~~2021~~2022 period ~~and~~compared to fiscal 2021. The increase in sales resulted in a corresponding increase in operating income in this segment based on operating leverage.

Results of Operations - ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2021 versus ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2020

Six Months Ended September 30,

2021

2020

2021

2020

Amount

Amount

%
Change

% of
Revenue

% of
Revenue

Product revenue

$
56,057

$
29,961

87.1
%

78.3
%

80.8
%
Service revenue

15,554

7,131

118.1
%

21.7
%

19.2
%
Total revenue

71,611

37,092

93.1
%

100.0
%

100.0
%
Cost of product revenue

38,297

21,631

77.0
%

53.5
%

58.3
%
Cost of service revenue

12,296

5,563

121.0
%

17.2
%

15.0
%
Total cost of revenue

50,593

27,194

86.0
%

70.6
%

73.3
%
Gross profit

21,018

9,898

112.3
%

29.4
%

26.7
%
General and administrative expenses

5,864

5,049

16.1
%

8.2
%

13.6
%
Sales and marketing expenses

5,932

4,186

41.7
%

8.3
%

11.3
%
Research and development expenses

773

839

(7.9
)%

1.1
%

2.3
%
Income (loss) from operations

8,449

(176
)

NM

11.8
%

(0.5
)%
Other income

1

44

(97.7
)%

0.0
%

0.1
%
Interest expense

(33
)

(50
)

(34.0
)%

(0.0
)%

(0.1
)%
Amortization of debt issue costs

(31
)

(122
)

(74.6
)%

(0.0
)%

(0.3
)%
Income (loss) before income tax

8,386

(304
)

NM

11.7
%

(0.8
)%
Income tax expense

2,217

1

NM

3.1
%

0.0
%
Net Income (loss)

$
6,169

$
(305
)

NM

8.6
%

(0.8
)%

*	~~NM - Not Meaningful~~

	Nine Months Ended December 31,
	2021			2020						2021			2020
	Amount			Amount			% Change			% of Revenue			% of Revenue
Product revenue	$	78,260		$	61,890			26.5	%		76.5	%		76.1	%
Service revenue		24,065			19,453			23.7	%		23.5	%		23.9	%
Total revenue		102,325			81,343			25.8	%		100.0	%		100.0	%
Cost of product revenue		54,724			44,834			22.1	%		53.5	%		55.1	%
Cost of service revenue		18,942			15,605			21.4	%		18.5	%		19.2	%
Total cost of revenue		73,666			60,439			21.9	%		72.0	%		74.3	%
Gross profit		28,659			20,904			37.1	%		28.0	%		25.7	%
General and administrative expenses		8,737			8,079			8.1	%		8.5	%		9.9	%
Acquisition costs		178			—		NM				0.3	%		—
Sales and marketing expenses		8,794			7,306			20.4	%		8.6	%		9.0	%
Research and development expenses		1,169			1,230			(5.0	)%		1.1	%		1.5	%
Income from operations		9,781			4,289			128.0	%		9.6	%		5.3	%
Other income		1			56			(98.2	)%		0.0	%		0.1	%
Interest expense		(59	)		(51	)		15.7	%		(0.1	)%		(0.1	)%
Amortization of debt issue costs		(46	)		(142	)		(67.6	)%		(0.0	)%		(0.2	)%
Loss on debt extinguishment		—			(90	)		100.0	%		—			(0.2	)%
Income before income tax		9,677			4,062			138.2	%		9.5	%		5.0	%
Income tax expense		2,406			52			4526.9	%		2.4	%		0.1	%
Net Income	$	7,271		$	4,010			81.3	%		7.1	%		4.9	%

Revenue. Product revenue increased ~~87.1%~~26.5%, or ~~$26.1~~$16.4 million, for the first ~~six~~nine months of fiscal 2022 versus the first ~~six~~nine months of fiscal 2021. Service revenue increased ~~118.1%~~23.7%, or ~~$8.4~~$4.6 million, for the first ~~six~~nine months of fiscal 2022 versus the first ~~six~~nine months of fiscal 2021. The increase in product and service revenue was primarily due to multiple projects put on hold in the prior year period as a result of COVID-19 concerns, including the projects for one large national account customer which ~~represented 55.0% of total revenue~~increased 19.9% in the first ~~six~~nine months of fiscal 2022 ~~but only 44.4% of total revenue in~~versus the first ~~six~~nine months of fiscal 2021.

Cost of Revenue and Gross Profit. Gross profit percentage increased to ~~29.4%~~28.0% of revenue in the first ~~six~~nine months of fiscal 2022 from ~~26.7%~~25.7% in the first ~~six~~nine months of fiscal 2021, due primarily to an improvement in product margin on the coverage of fixed costs with significantly higher sales volume, as well as ~~the~~a payroll tax credit. Cost of product revenue increased ~~77.0%~~22.1%, or ~~$16.7~~$9.9 million, in the first ~~six~~nine months of fiscal 2022 versus the first ~~six~~nine months of fiscal 2021 due to the increase in our sales. Cost of service revenue increased ~~121.0%~~21.4%, or ~~$6.7~~$3.3 million, in the first ~~six~~nine months of fiscal 2022 versus the first ~~six~~nine months of fiscal 2021 due to the increase in sales.

General and Administrative. General and administrative expenses increased ~~16.1%~~8.1%, or ~~$0.8~~$0.7 million, in the first ~~six~~nine months of fiscal 2022 compared to the first ~~six~~nine months of fiscal 2021. This comparative increase was primarily due to lower employment costs in fiscal 2021 as a result of COVID-19 related actions and partially offset by the payroll tax credit.

Sales and Marketing. Sales and marketing expenses increased ~~41.7%~~20.4%, or ~~$1.7~~$1.5 million, in the first ~~six~~nine months of fiscal 2022 compared to the first ~~six~~nine months of fiscal 2021. This comparative increase was primarily due to an increase in commission expense on higher sales, partially offset by the payroll tax credit.

Research and Development. Research and development expenses decreased ~~7.9%~~5.0%, or $0.1 million, in the first ~~six~~nine months of fiscal 2022 compared to the first ~~six~~nine months of fiscal 2021. This comparative decrease was primarily due to the payroll tax credit.

~~Interest Expense.~~ Interest expense in the first six months of fiscal 2022 decreased by 34.0%, or $17 thousand, from the first six months of fiscal 2021. The decrease in interest expense was primarily due to comparatively lower sales of receivables than in the prior year period.

The following table summarizes our ~~OES~~OSG segment operating results (dollars in thousands):

~~OES~~OSG segment revenue in the first ~~six~~nine months of fiscal 2022 increased ~~$28.2~~$11.6 million from the first ~~six~~nine months of fiscal 2021 due to multiple projects put on hold in the prior year period as a result of COVID-19, including the projects with one large national account customer that ~~represented 55.0% of total revenue~~increased 19.9% in the first ~~six~~nine months of fiscal 2022 ~~but only 44.4% of total revenue in~~versus the first ~~six~~nine months ~~fiscal 2021. The project installations for this customer resumed during the first six months of~~ fiscal 2021. This sales increase led to a corresponding increase in operating income in this segment.

The following table summarizes our ODS segment operating results (dollars in thousands):

	Six Months Ended September 30,									Nine Months Ended December 31,
	2021			2020			% Change			2021			2020			% Change
Revenues	$	13,322		$	12,129			9.8	%	$	18,264		$	16,063			13.7	%
Operating income		2,682			1,678			59.8	%		3,173			1,957			62.1	%
Operating margin		20.1	%		13.8	%					17.4	%		12.2	%

ODS segment revenue in the first ~~six~~nine months of fiscal 2022 increased ~~$1.2~~$2.2 million, compared to the first ~~six~~nine months of fiscal 2021, primarily due to the increase of sales to one customer in the fiscal 2022 period and overall increased engagement in the segment. The increase in revenue resulted in a corresponding increase in operating income in this segment based on operating leverage.

The following table summarizes our USM segment operating results (dollars in thousands):

	Six Months Ended September 30,									Nine Months Ended December 31,
	2021			2020			% Change			2021			2020			% Change
Revenues	$	9,349		$	4,237			120.7	%	$	15,100		$	7,885			91.5	%
Operating income	$	1,948		$	385			406.0	%	$	3,198		$	1,128			183.5	%
Operating margin		20.8	%		9.1	%					21.2	%		14.3	%

USM segment revenue in the first ~~six~~nine months of fiscal 2022 increased ~~$5.1~~$7.2 million, compared to the first ~~six~~nine months of fiscal 2021, primarily due to the impact of COVID-19 in the fiscal 2021 period, and resulted in a corresponding increase in operating income in this segment based on operating leverage.

We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted capital expenditures, acquisitions and working capital for one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.

We had approximately ~~$14.7~~$17.3 million in cash and cash equivalents as of ~~September 30,~~December 31, 2021, compared to $19.4 million at March 31, 2021. Our cash position decreased as a result of ~~an increase in accounts receivable~~cash funding for the Stay-Lite acquisition of ~~$10.0 million, a decrease in accrued expenses of $1.9~~$3.7 million and a non-controlling equity investment of $0.5 million, partially offset by ~~net income of $6.2 million, and a decrease~~changes in ~~revenue earned not billed of $0.7 million.~~working capital.

Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross profits, cash management practices, cost reduction initiatives, working capital management, capital expenditures, pending or future litigation results and cost containment measures. In addition, we tend to experience higher working capital costs when we increase sales from existing levels.

The following table summarizes our cash flows for the ~~six~~nine months ended ~~September 30,~~December 31, 2021 and 2020 (in thousands):

	Six Months Ended September 30,						Nine Months Ended December 31,
	2021			2020			2021			2020
Operating activities	$	(3,956	)	$	(14,138	)	$	2,315		$	(5,644	)
Investing activities		(802	)		(427	)		(4,548	)		(701	)
Financing activities		105			(2,062	)		104			(10,127	)
Decrease in cash and cash equivalents	$	(4,653	)	$	(16,627	)	$	(2,129	)	$	(16,472	)

Cash Flows Related to Operating Activities. Cash ~~used in~~provided by operating activities primarily consists of net income ~~(loss)~~ adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.

Cash ~~used in~~provided by operating activities for the first ~~six~~nine months of fiscal 2022 was ~~$4.0~~$2.3 million and consisted of our net income of ~~$6.2~~$7.3 million adjusted for non-cash expense items of ~~$3.5~~$4.4 million offset by working capital uses of ~~$13.7~~$9.4 million, the largest of which was a ~~$10.0~~$5.2 million ~~increase~~decrease in accounts ~~receivable.~~payable.

Cash used in operating activities for the first ~~six~~nine months of fiscal 2021 was ~~$14.1~~$5.6 million and consisted of our net ~~loss~~income adjusted for non-cash expense items of ~~$1.0~~$6.2 million and net cash used in changes in operating assets and liabilities of ~~$15.2~~$11.8 million. Cash used by operating assets and liabilities consisted primarily of ~~a decrease in accounts payable of $6.3 million and~~ an increase in accounts receivable of ~~$5.9~~$13.2 million due to higher sales and the timing of collections, and an increase in inventory of ~~$3.7~~$4.2 million ~~based~~ on ~~increased second quarter and~~ anticipated ~~third~~fourth quarter sales. Cash provided by changes in operating assets and liabilities consisted primarily of an increase in accrued expenses and other of $6.6 million due to timing of billing for completed projects.

Cash Flows Related to Investing Activities. Cash used in investing activities of ~~$0.8~~$4.5 million in the first ~~six~~nine months of fiscal 2022 consisted primarily $3.7 million of cash ~~paid~~funded for the acquisition of Stay-Lite Lighting, and an investment of a non-controlling equity stake in ndustrial, Inc. of $0.5 million and purchases of property and equipment.

Cash used in investing activities of ~~$0.3~~$0.7 million in the first ~~six~~nine months of fiscal 2021 consisted primarily of purchases of ~~property~~tooling and equipment.

Cash Flows Related to Financing Activities. Cash provided by financing activities of $0.1 million in the first ~~six~~nine months of fiscal 2022 consisted primarily of proceeds from employee equity exercises.

Cash used in financing activities of ~~$2.1~~$10.1 million in the first ~~six~~nine months of fiscal 2021 consisted primarily of net repayments of ~~$(2.1)~~$10.0 million on our Prior Credit ~~Facility.~~Agreement.

Our net working capital as of ~~September 30,~~December 31, 2021 was ~~$34.7~~$32.0 million, consisting of ~~$62.6~~$54.4 million in current assets and ~~$27.8~~$22.5 million in current liabilities. Our net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million in current liabilities. Our current accounts ~~receivable, net~~payable balance ~~increased~~decreased by ~~$10.0~~$5.3 million from the fiscal 2021 year-end primarily due to the reduction in third quarter revenue and timing of invoicing and customer collections. Our accrued expenses decreased from our fiscal 2021 year-end by ~~$1.9~~$2.7 million due primarily to a decrease in accrued project costs.

We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases, including purchases to support the provision of products and services to our largest customer.

On December 29, 2020, we entered into a new $25 million Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our prior $20.15 million secured revolving credit and security agreement (the “Prior Credit Agreement”).

The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.

The Credit Agreement is secured by a first lien security interest in substantially all of our assets.

Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled ~~$15.5~~$16.2 million and $19.2 million as of ~~September 30,~~December 31, 2021 and March 31, 2021, respectively. We generally expect our backlog to be recognized as revenue within one year, although the COVID-19 pandemic may extend this time period.

Our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot currently predict the future impact to our operations by inflation.

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, 2021. For the ~~six~~nine months ended ~~September 30,~~December 31, 2021, there were no material changes in our accounting policies.

For a complete discussion of recent accounting pronouncements, refer to Note 3 in the Condensed 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, 2021. There have been no material changes to such exposures since March 31, 2021.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of ~~September 30,~~December 31, 2021, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this evaluation, such officers have concluded that our disclosure controls and procedures were effective as of ~~September 30,~~December 31, 2021.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) for the ~~six months~~quarter ended ~~September 30,~~December 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, we do not believe that the final resolution of any of such claims or legal proceedings will have a material adverse effect on our future results of operations.

See Note 15 – Commitments and Contingencies, to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which we filed with the SEC on June 1, 2021 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.

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 ~~November~~February 9, ~~2021.~~2022.

2210 Woodland Drive, Manitowoc, Wisconsin		54220
(Address of principal executive offices)		(Zip code)

		Page(s)
PART I FINANCIAL INFORMATION		3
ITEM 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~September 30,~~December 31, 2021 and March 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020	4
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020	5
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020	67
	Notes to the Condensed Consolidated Financial Statements	78
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2830
ITEM 4.	Controls and Procedures	2830
PART II OTHER INFORMATION		2931
ITEM 1.	Legal Proceedings	2931
ITEM 1A.	Risk Factors	2931
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2931
ITEM 5.	Other Information	2931
ITEM 6.	Exhibits	3032
SIGNATURE		3133

	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2021			2020			2021			2020
Beginning of period	$	1,038		$	865		$	1,009		$	1,069
Accruals		89			178			205			147
Warranty claims (net of vendor reimbursements)		(113	)		(158	)		(200	)		(331	)
End of period	$	1,014		$	885		$	1,014		$	885

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2021			2020			2021			2020
Beginning of period	$	1,014		$	885		$	1,009		$	1,069
Accruals		123			370			328			531
Warranty claims (net of vendor reimbursements)		(186	)		(219	)		(386	)		(564	)
End of period	$	951		$	1,036		$	951		$	1,036

Cash	$	150
Accounts Receivable		3,267
Inventory		250
Other Current Assets		172
Fixed Assets		650
Accounts Payable		(992	)
Accrued Payroll and Other Liabilities		(385	)

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐

10.1	Executive Employment and Severance Agreement, effective as of November 11, 2021, between Orion Energy Systems, Inc. and Michael H. Jenkins, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on November 4, 2021, is hereby incorporated by reference.*

31.1	Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.+

31.2	Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.+

32.1	Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

32.2	Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

101.INS	Inline XBRL Instance Document+

101.SCH	Inline XBRL Taxonomy extension schema document+

101.CAL	Inline XBRL Taxonomy extension calculation linkbase document+

101.DEF	Inline XBRL Taxonomy extension definition linkbase document+

101.LAB	Inline XBRL Taxonomy extension label linkbase document+

101.PRE	Inline XBRL Taxonomy extension presentation linkbase document+

104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30,~~December 31, 2021, has been formatted in Inline XBRL.

ORION ENERGY SYSTEMS, INC.

By		/s/ J. Per Brodin
		J. Per Brodin
		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)