Orion Energy Systems, Inc 10-Q for FY2024 Q3
Orion Energy Systems, Inc. (OESX)
About this 10-Q
Orion Energy Systems, Inc filed this 10-Q on February 7, 2024, covering the quarter ended December 31, 2023 (FY2024 Q3).
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $25.97M
- up 28.0% from $20.29M a year earlier
- Net loss
- $2.26M
- compared with a net loss of $24.06M a year earlier
- Diluted EPS
- -$0.07
- compared with -$0.75 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
OR
Commission file number
(Exact name of Registrant as specified in its charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the act:
Title of Each Class |
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(NASDAQ Capital Market) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
ORION ENERGY SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
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Page(s) |
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ITEM 1. |
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Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023 |
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4 |
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7 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 5. |
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ITEM 6. |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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December 31, 2023 |
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March 31, 2023 |
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Assets |
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Cash and cash equivalents |
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$ |
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Accounts receivable, net |
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Revenue earned but not billed |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Accounts payable |
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$ |
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Accrued expenses and other |
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Deferred revenue, current |
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Current maturities of long-term debt |
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Total current liabilities |
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Revolving credit facility |
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Long-term debt, less current maturities |
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Deferred revenue, long-term |
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Other long-term liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, $ |
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Common stock, |
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Additional paid-in capital |
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Treasury stock, common shares: |
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Retained deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
3
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
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Three Months Ended December 31, |
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Nine Months Ended December 31, |
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2023 |
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2022 |
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2023 |
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2022 |
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Product revenue |
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Service revenue |
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Total revenue |
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Cost of product revenue |
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Cost of service revenue |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Acquisition related costs |
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Sales and marketing |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Other income |
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Interest expense |
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Amortization of debt issue costs |
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Interest income |
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Total other expense |
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( |
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( |
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Loss before income tax |
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( |
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( |
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Income tax expense |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Basic net loss per share attributable to |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares outstanding |
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Diluted net loss per share |
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$ |
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$ |
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$ |
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Weighted-average common shares and share |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
4
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(in thousands, except share amounts)
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Shareholders’ Equity |
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Common Stock |
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Shares |
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Additional |
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Treasury |
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Retained |
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Total |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Shares issued under Employee Stock Purchase |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2023 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Shares issued under Employee Stock Purchase |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, September 30, 2023 |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock for services |
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— |
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— |
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Shares issued under Employee Stock Purchase |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based |
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( |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, December 31, 2023 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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5
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
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Shareholders’ Equity |
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Common Stock |
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Shares |
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Additional |
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Treasury |
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Retained |
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Total |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options for cash |
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— |
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— |
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Shares issued under Employee Stock Purchase |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based |
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( |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2022 |
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$ |
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$ |
( |
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$ |
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$ |
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Shares issued under Employee Stock Purchase |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balance, September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock for acquisition |
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— |
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— |
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Issuance of common stock for services |
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— |
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— |
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Shares issued under Employee Stock Purchase |
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— |
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Stock-based compensation |
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— |
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— |
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Employee tax withholdings on stock-based |
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( |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
6
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Nine Months Ended December 31, |
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2023 |
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2022 |
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Operating activities |
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Net loss |
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$ |
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Adjustments to reconcile net loss to net cash used in |
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Depreciation |
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Amortization of intangible assets |
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Stock-based compensation |
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Amortization of debt issue costs |
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Deferred income tax |
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Loss on sale of property and equipment |
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Provision for inventory reserves |
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Provision for credit losses |
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Other |
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Changes in operating assets and liabilities, net of acquisition: |
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Accounts receivable |
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Revenue earned but not billed |
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( |
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( |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other |
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Deferred revenue, current and long-term |
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Net cash used in operating activities |
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Investing activities |
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Cash to fund acquisition, net of cash received |
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Purchases of property and equipment |
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( |
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Additions to patents and licenses |
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Proceeds from sale of property, plant and equipment |
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Net cash used in investing activities |
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Financing activities |
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Payment of long-term debt |
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Proceeds from revolving credit facility |
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Payments of revolving credit facility |
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Payments to settle employee tax withholdings on stock-based compensation |
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( |
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Deferred financing costs |
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Proceeds from employee equity exercises |
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Net cash (used in) provided by financing activities |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Operating lease assets obtained in exchange for new operating lease liabilities |
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$ |
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$ |
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Issuance of common stock in connection with acquisition |
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$ |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
7
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion provides light emitting diode lighting systems, wireless Internet of Things enabled control solutions, project engineering, energy project management design, maintenance services and turnkey electric vehicle charging station installation services to commercial and industrial businesses, and federal and local governments, predominantly in North America.
Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space in Jacksonville, Florida, Lawrence, Massachusetts and Pewaukee, Wisconsin.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Orion and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and 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, 2024 or other interim periods.
The Condensed Consolidated Balance Sheet as of March 31, 2023 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, 2023 filed with the SEC on June 12, 2023. Certain reclassifications were made to prior year amounts to conform to the current year presentation.
Allowance for Credit Losses
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for credit losses, accruals for warranty and loss contingencies, earn-out, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.
8
Concentration of Credit Risk and Other Risks and Uncertainties
Orion's cash is primarily deposited with
Orion purchases components necessary for its lighting products, including lamps and LED components, from multiple suppliers. For the three months ended December 31, 2023,
For the three and nine months ended December 31, 2023,
As of December 31, 2023,
Compliance with the Continued Listing Standards of the Nasdaq Capital Market (“Nasdaq”)
On December 21, 2023, Orion received a deficiency notice from Nasdaq that Orion was not in compliance with Rule 5450(a)(1) of the listing requirements (the “Minimum Bid Price Requirement”) because the per share closing bid price had been below $
Recent Accounting Pronouncements
Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). Orion considers the applicability and impact of all ASUs.
Recently Adopted Standards
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 were 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 adopted ASU 2016-13 effective April 1, 2023. The effect of adoption was immaterial.
Issued: Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, Early adoption
9
is permitted. Orion is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2025. Orion is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.
NOTE 3 — REVENUE
Orion generates revenue primarily by selling manufactured or sourced commercial lighting fixtures and components, sourced electric vehicle chargers and related products, installing these products in customer’s facilities, and providing maintenance services including repairs and replacements for the lighting and related electrical components. Orion recognizes revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) when control of the goods or services being provided (which we refer to as a performance obligation) is transferred to a customer at an amount that reflects the consideration Orion expects to receive in exchange for those goods or services.
During the third quarter of fiscal 2023, Orion acquired Voltrek LLC ("Voltrek"), which sells and installs sourced electric vehicle charging stations and related software subscriptions and renewals. The results of Voltrek are included in the Orion Electric Vehicle Charging segment ("EV") and complement Orion’s existing turnkey installation model.
The sale of charging stations and related software subscriptions and renewals is presented in Product revenue. Orion is the principal in the sales of charging stations as it has control of the physical products prior to transfer to the customer. Accordingly, revenue is recognized on a gross basis. For certain sales, primarily software subscriptions and renewals, Orion is the sales agent providing access to the content and recognize commission revenue net of amounts due to third parties who fulfill the performance obligation. For these sales, control passes at the point in time upon providing access of the content to the customer.
The sale of installation and services related to the EV charging business is presented in Service revenue. Revenue from the EV segment that includes both the sale of product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Operations.
Revenue from the lighting and maintenance offering that includes both the sale of Orion manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Operations.
10
The following tables provide detail of Orion’s total revenue for the three and nine months ended December 31, 2023 and December 31, 2022 (dollars in thousands):
|
|
Three Months Ended December 31, 2023 |
|
|
Nine Months Ended December 31, 2023 |
|
||||||||||||||||||
|
|
Product |
|
|
Services |
|
|
Total |
|
|
Product |
|
|
Services |
|
|
Total |
|
||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Lighting product and installation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Electric vehicle charging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Solar energy related revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenue accounted for under other guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Three Months Ended December 31, 2022 |
|
|
Nine Months Ended December 31, 2022 |
|
||||||||||||||||||
|
|
Product |
|
|
Services |
|
|
Total |
|
|
Product |
|
|
Services |
|
|
Total |
|
||||||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Lighting product and installation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Maintenance services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Electric vehicle charging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenue accounted for under other guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of December 31, 2023 and March 31, 2023 (dollars in thousands):
|
|
December 31, |
|
|
March 31, |
|
||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Contract assets |
|
$ |
|
|
$ |
|
||
Contract liabilities |
|
$ |
|
|
$ |
|
||
There were
NOTE 4 — ACCOUNTS RECEIVABLE, NET
As of December 31, 2023 and March 31, 2023, Orion's accounts receivable and allowance for credit losses balances were as follows (dollars in thousands):
|
|
December 31, |
|
|
March 31, |
|
||
Accounts receivable, gross |
|
$ |
|
|
$ |
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
11
Changes in Orion’s allowance for credit losses were as follows (dollars in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Reserve adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit loss expense |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Write-off |
|
|
|
|
|
|
|
|
|
|
|
|
||||
End of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 5 — INVENTORIES, NET
As of December 31, 2023 and March 31, 2023, Orion's inventory balances were as follows (dollars in thousands):
|
|
Cost |
|
|
Excess and |
|
|
Net |
|
|||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Raw materials and components |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Work in process |
|
|
|
|
|
( |
) |
|
|
|
||
Finished goods |
|
|
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
As of March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Raw materials and components |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Work in process |
|
|
|
|
|
( |
) |
|
|
|
||
Finished goods |
|
|
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses consists primarily of prepaid insurance premiums, debt issue costs, prepaid subscription fees and sales tax receivable.
Other current assets as of December 31, 2023 and March 31, 2023 consists primarily of $
NOTE 7 — PROPERTY AND EQUIPMENT, NET
As of December 31, 2023 and March 31, 2023, property and equipment, net, included the following (dollars in thousands):
|
|
December 31, |
|
|
March 31, |
|
||
Land and land improvements |
|
$ |
|
|
$ |
|
||
Buildings and building improvements |
|
|
|
|
|
|
||
Furniture, fixtures and office equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment leased to customers |
|
|
|
|
|
|
||
Plant equipment |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Construction in Progress |
|
|
|
|
|
|
||
Gross property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
12
NOTE 8 — LEASES
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.
Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments over the lease term. Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-line basis over the lease term.
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
|
|
Balance sheet classification |
|
December 31, 2023 |
|
|
March 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
|
|
||
|
Other long-term assets |
|
$ |
|
|
$ |
|
|||
Liabilities |
|
|
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
|
|
||
|
Accrued expenses and other |
|
$ |
|
|
$ |
|
|||
Non-current liabilities |
|
|
|
|
|
|
|
|
||
|
Other long-term liabilities |
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
||
Orion had operating lease costs of $
The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):
Maturity of Lease Liabilities |
|
Operating Leases |
|
|
Fiscal 2024 (period remaining) |
|
$ |
|
|
Fiscal 2025 |
|
|
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
$ |
|
|
Less: Interest |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Orion had $
Orion had $
See Note 18 – Acquisition for further discussion of the Voltrek acquisition.
13
As of December 31, 2023 and March 31, 2023, the components of, and changes in, the carrying amount of other intangible assets, net, were as follows (dollars in thousands):
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
||||||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|||||||
Amortized Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Patents |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Licenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Trade name and trademarks |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Customer relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Vendor relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Developed technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total Amortized Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Indefinite-lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Trade name and trademarks |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Total Non-Amortized Intangible Assets |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Amortization expense on intangible assets was $
Amortization expense on intangible assets was $
The estimated amortization expense for the remainder of fiscal 2024, the next five fiscal years and beyond is shown below (dollars in thousands):
Fiscal 2024 (period remaining) |
|
$ |
|
|
Fiscal 2025 |
|
|
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Fiscal 2028 |
|
|
|
|
Fiscal 2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
NOTE 10 — ACCRUED EXPENSES AND OTHER
As of December 31, 2023 and March 31, 2023, accrued expenses and other included the following (dollars in thousands):
|
|
December 31, |
|
|
March 31, |
|
||
Accrued acquisition earn-out |
|
$ |
|
|
$ |
|
||
Accrued project costs |
|
|
|
|
|
|
||
Other accruals |
|
|
|
|
|
|
||
Compensation and benefits |
|
|
|
|
|
|
||
Credits due to customers |
|
|
|
|
|
|
||
Warranty |
|
|
|
|
|
|
||
Sales tax |
|
|
|
|
|
|
||
Sales returns reserve |
|
|
|
|
|
|
||
Legal and professional fees |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Orion generally offers a limited warranty of to
14
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):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accruals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warranty claims (net of vendor reimbursements) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
End of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 11 — NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net 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 per common share, Orion uses the treasury stock method for outstanding options and restricted shares. For the three and nine months ended December 31, 2023 and 2022, Orion was in a net loss position; therefore, the Basic and Diluted weighted-average shares outstanding are equal because any increase to the basic shares would be anti-dilutive.
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss (in thousands) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares and common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following table indicates the number of potentially dilutive securities excluded from the calculation of Diluted net income per common share because their inclusion would have been anti-dilutive. The number of shares is as of the end of each period:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Time-Based Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance-Based Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
15
NOTE 12 — LONG-TERM DEBT
Long-term debt consisted of the following (dollars in thousands):
|
|
December 31, |
|
|
March 31, |
|
||
Revolving credit facility |
|
$ |
|
|
$ |
|
||
Equipment debt obligations |
|
|
|
|
|
|
||
Total long-term debt |
|
|
|
|
|
|
||
Less current maturities |
|
|
( |
) |
|
|
( |
) |
Long-term debt, less current maturities |
|
$ |
|
|
$ |
|
||
Revolving Credit Agreement
On December 29, 2020, Orion entered into a $
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
Effective November 4, 2022, Orion, with Bank of America, N.A. as lender, executed Amendment No. 1 to its Credit Agreement. The primary purpose of the amendment was to include the assets of the acquired subsidiaries, Stay-Lite Lighting, Inc. ("Stay-Lite Lighting") and Voltrek, as secured collateral under the Credit Agreement. Accordingly, eligible assets of Stay-Lite and Voltrek are now included in the borrowing base calculation for the purpose of establishing the monthly borrowing availability under the Credit Agreement. The amendment also clarified that the earn-out liabilities associated with the Stay-Lite and Voltrek transactions are permitted under the Credit Agreement and that the expenses recognized in connection with those earn-outs should be added back in the computation of EBITDA, as defined, under the Credit Agreement.
As of December 31, 2023, Orion was in compliance with all debt covenants.
Equipment Debt Obligations
In February 2019, Orion entered into additional debt agreements with a financing company in the principal amount of $
NOTE 13 — INCOME TAXES
Orion’s income tax provision was determined by applying an estimated annual effective tax rate, based upon the facts and circumstances known, to book income (loss) before income tax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three months ended December 31, 2023 and 2022, Orion recorded income tax expense of $
16
As of December 31, 2023 and March 31, 2023, Orion had a full valuation allowance against its net deferred tax asset balance. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the deferred tax assets are able to be realized, an adjustment to the deferred tax asset would increase income in the period such determination is made.
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 Orion’s provision for income taxes.
Uncertain Tax Positions
As of December 31, 2023, Orion’s balance of gross unrecognized tax benefits was approximately $
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as Other long-term liabilities to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax (benefit) expense. Penalties and interest are included in the unrecognized tax benefits.
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Litigation
Orion is subject to various claims and legal proceedings arising in the ordinary course of business. Orion does not believe the final resolution of any of such claims or legal proceedings will have a material adverse effect on Orion’s future results of operations or financial condition.
Employee Stock Purchase Plan
In August 2010, Orion’s Board of Directors approved a non-compensatory employee stock purchase plan, or “ESPP”. In the three months ended December 31, 2023, Orion issued
Sale of shares
In March 2023, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, Orion currently has the flexibility to publicly offer and sell from time to time up to $
In March 2021, Orion entered into an At Market Issuance Sales Agreement to undertake an “at the market” (ATM) public equity capital raising program pursuant to which Orion may offer and sell shares of common stock from time to time, having an aggregate offering price of up to $
NOTE 16 — STOCK OPTIONS AND RESTRICTED SHARES
At Orion's 2023 annual meeting of shareholders (the “2023 Annual Meeting”) held on August 10, 2023, Orion's shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the "Amended 2016 Plan").
17
The Amended 2016 Plan increased the number of shares of Orion's common stock available for issuance under the Amended 2016 Plan from
The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares, performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.
Prior to the 2016 Omnibus Incentive Plan, Orion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “2004 Plan”). No new awards are being granted under the 2004 Plan; however, all awards granted under the 2004 Plan that are outstanding will continue to be governed by the 2004 Plan. Forfeited awards originally issued under the 2004 Plan are canceled and are not available for subsequent issuance under the 2004 Plan or under the Amended 2016 Plan. The Amended 2016 Plan and the 2004 Plan also permit accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.
Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.
During the three and nine months ended December 31, 2023 and 2022, the following amounts of stock-based compensation were recorded in Orion’s Condensed Consolidated Statements of Operations (dollars in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Cost of product revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the three and nine months ended December 31, 2023, Orion had the following activity related to its stock-based compensation.
|
|
Time-Based |
|
|
Performance-Based |
|
|
Stock Options |
|
|||
Awards outstanding at March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Awards granted |
|
|
|
|
|
|
|
|
|
|||
Awards vested or exercised |
|
|
( |
) |
|
|
|
|
|
|
||
Awards forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Awards outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Per share weighted average price on grant date |
|
$ |
|
|
$ |
|
|
|
|
|||
As of December 31, 2023, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of
NOTE 17 — SEGMENTS
Reportable segments are components of an entity that have separate financial data that the CODM regularly reviews when allocating resources and assessing performance. Orion's CODM is the chief executive officer. Previously, Orion had four reportable segments: Orion Services Group Division, Orion Distribution Services Division, Orion U.S. Markets Division and Orion Electric Vehicle Charging Division (the “EV Segment”). Effective during the first quarter of fiscal 2024, Orion began to evaluate and report its business using three segments: Orion Lighting Division, Orion Maintenance Division and Orion Electric Vehicle Charging Division. Orion configured its fiscal 2024 budget in order to compare actual performance to plan performance
18
for these segments. Due to the change in composition of reportable segments in the first quarter of fiscal 2024, the corresponding segment information for fiscal year 2023 has been restated for presentation on a comparable basis.
Lighting Segment
The Lighting Segment develops and sells lighting products and provides construction and engineering services for Orion's commercial lighting and energy management systems. The Lighting Segment provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers. The Lighting Segment sells mostly through direct sales, but it also sells lighting products though manufacturer representative agencies and to the wholesale contractor markets through energy service companies and contractors.
Maintenance Segment
The Maintenance Segment provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.
Electric Vehicle Charging Segment
The EV Segment offers leading electric vehicle charging expertise, sells and installs sourced electric vehicle charging stations with related software subscriptions and renewals and provides EV turnkey installation solutions with ongoing support to all commercial verticals.
Corporate and Other
Corporate and Other is comprised of operating expenses not allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).
|
|
Revenues |
|
|
Operating Income (Loss) |
|
|
Total Assets |
|
|||||||||||||||
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
|
|||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
||||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Lighting Segment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Maintenance Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
EV Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
|
|
Revenues |
|
|
Operating Loss |
|
||||||||||
|
|
For the Nine Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Lighting Segment |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Maintenance Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
EV Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Corporate and Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
19
NOTE 18 — ACQUISITION
Acquisition of Voltrek
Effective on October 5, 2022, Orion acquired all the membership interests of Voltrek, an electric vehicle charging station solutions provider for a purchase price of $
Orion has accounted for the Voltrek Acquisition as a business combination. Orion has allocated a purchase price of approximately $
The following table summarizes the purchase price allocation for Voltrek:
(in thousands) |
|
Opening Balance Sheet |
|
|
Cash |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Revenue earned but not billed |
|
|
|
|
Inventory |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Goodwill |
|
|
|
|
Other intangible assets |
|
|
|
|
Other long-term assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
Net purchase consideration |
|
$ |
|
|
Goodwill recorded from the Voltrek Acquisition is attributable to the skillset of the acquired workforce. The goodwill resulting from the Voltrek Acquisition is expected to be deductible for tax purposes. The intangible assets include amounts recognized for the fair value of the trade name, vendor relationship and customer relationships.
The tradename intangible asset was valued using a relief from royalty method. The significant assumptions used include the estimated revenue and royalty rate, among other factors.
The vendor relationship intangible asset was valued using the income approach – excess earnings method. The significant assumptions include estimated revenue, cost of goods sold and probability of renewal, among other factors.
20
The customer relationship intangible asset was valued using the income approach – with-and-without method. The significant assumptions include estimated cash flows (including appropriate revenue, cost of revenue and operating expenses attributable to the asset and retention rate, among other factors), and discount rate, reflecting the risks inherent in the future cash flow stream, among other factors.
The categorization of the framework used to measure fair value of the intangible assets is considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used.
The following table presents the details of the intangible assets acquired at the date of Voltrek Acquisition (dollars in thousands):
|
|
Estimated |
|
Estimated Useful Life (Years) |
|
||
Tradename |
|
$ |
|
|
|
||
Vendor relationship |
|
|
|
|
|
||
Customer relationships |
|
|
|
|
|
||
Voltrek's post-acquisition results of operations since October 5, 2022 are included in Orion’s Condensed Consolidated Statements of Operations. The operating results of Voltrek are included in the EV Segment. See note 17 – Segments, for results.
Transaction costs related to the Voltrek Acquisition are recorded in acquisition costs in the Condensed Consolidated Statements of Operations. Transaction costs totaled $
If Voltrek had been acquired on April 1, 2022, the pro forma Orion revenue for the three and nine months ended December 31, 2022 would have been $
The pro forma information was determined based on the historical results of Orion and unaudited financial results from Voltrek. These proforma results reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible asset occurred at the beginning of the period, along with consequential tax effects. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or the results that may occur in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies resulting from the acquisition.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to several 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, 2023. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Overview
We provide state-of-the-art light emitting diode (“LED”) lighting systems, sourced wireless Internet of Things (“IoT”) enabled control solutions, commercial and industrial electric vehicle (“EV”) charging infrastructure solutions and maintenance services. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We sell our products and services into many vertical markets within the broader commercial and industrial market segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and municipal government, healthcare and schools. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America.
Our lighting products consist primarily of LED lighting fixtures, many of which include sourced IoT enabled control systems. Our principal lighting 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 lighting products are manufactured at our leased 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 differentiate ourselves from our competitors through offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”). We completed the Stay-Lite Lighting acquisition on January 1, 2022, which has allowed us to further expand our maintenance services capabilities. We completed the acquisition of Voltrek on October 5, 2022, which has allowed us to further expand our turnkey services capabilities as well as capitalize on the rapidly growing market for EV charging solutions.
We believe the market for LED lighting products and related controls continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied
22
by other lighting technologies. Our LED lighting technologies have been the primary component of our revenue as we continue to strive to be a leader in the LED market.
In fiscal 2022, we continued to successfully capitalize on our capability of being a full service, turn-key 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 evolved 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 are pursuing 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. While we currently intend to primarily pursue these expansion strategies organically, we also may explore potential additional business acquisitions, like our acquisition of Stay-Lite Lighting and Voltrek, which have more quickly added these types of expanded and different capabilities to our product and services offerings.
We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.
We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.
The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period.
Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2024 and is referred to as “fiscal 2024”. We refer to our just completed fiscal year, which ended on March 31, 2023, as "fiscal 2023", and our prior fiscal year which ended on March 31, 2022 as "fiscal 2022". 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 CODM regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Previously, we had four reportable segments: Orion Services Group Division, Orion Distribution Services Division, Orion U.S. Markets Division and Orion Electric Vehicle Charging Division (the “EV Segment”). Effective during the first quarter of fiscal 2024, we began to evaluate and report the business using three segments: Orion Lighting Division, Orion Maintenance Division and Orion Electric Vehicle Charging Division.
23
Acquisition
Acquisition of Voltrek
Effective on October 5, 2022, we acquired all of the outstanding membership interests of Voltrek LLC, a leading electric vehicle charging company that provides turnkey installation solutions with ongoing support to all commercial verticals. The initial purchase price consisted of $5.0 million cash and $1.0 million of stock. We also paid an additional $3.0 million based on Voltrek's performance in fiscal 2023 and could pay up to an additional $3.5 million and $7.15 million in compensatory consideration if Voltrek exceeds certain earnings targets in fiscal 2024 and 2025, respectively. The acquisition was funded from existing cash and credit resources and has been operating as Voltrek, a division of Orion Energy Systems.
Results of Operations - Three Months Ended December 31, 2023 versus Three Months Ended December 31, 2022
The following table sets forth the line items of our Condensed Consolidated Statements of Operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
|
|
Three Months Ended December 31, |
|
|||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
|
2023 |
|
|
2022 |
|
|||||
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
% of |
|
|
% of |
|
|||||
Product revenue |
|
$ |
17,007 |
|
|
$ |
15,399 |
|
|
|
10.4 |
% |
|
|
65.5 |
% |
|
|
75.9 |
% |
Service revenue |
|
|
8,964 |
|
|
|
4,889 |
|
|
|
83.4 |
% |
|
|
34.5 |
% |
|
|
24.1 |
% |
Total revenue |
|
|
25,971 |
|
|
|
20,288 |
|
|
|
28.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of product revenue |
|
|
12,302 |
|
|
|
11,480 |
|
|
|
7.2 |
% |
|
|
47.4 |
% |
|
|
56.6 |
% |
Cost of service revenue |
|
|
7,302 |
|
|
|
4,027 |
|
|
|
81.3 |
% |
|
|
28.1 |
% |
|
|
19.8 |
% |
Total cost of revenue |
|
|
19,604 |
|
|
|
15,507 |
|
|
|
26.4 |
% |
|
|
75.5 |
% |
|
|
76.4 |
% |
Gross profit |
|
|
6,367 |
|
|
|
4,781 |
|
|
|
33.2 |
% |
|
|
24.5 |
% |
|
|
23.6 |
% |
General and administrative expenses |
|
|
4,910 |
|
|
|
5,484 |
|
|
|
(10.5 |
)% |
|
|
18.9 |
% |
|
|
27.0 |
% |
Acquisition related costs |
|
|
— |
|
|
|
493 |
|
|
NM |
|
|
|
— |
|
|
|
2.4 |
% |
|
Sales and marketing expenses |
|
|
3,170 |
|
|
|
2,983 |
|
|
|
6.3 |
% |
|
|
12.2 |
% |
|
|
14.7 |
% |
Research and development expenses |
|
|
349 |
|
|
|
409 |
|
|
|
(14.7 |
)% |
|
|
1.3 |
% |
|
|
2.0 |
% |
Loss from operations |
|
|
(2,062 |
) |
|
|
(4,588 |
) |
|
|
55.1 |
% |
|
|
(7.9 |
)% |
|
|
(22.6 |
)% |
Other income |
|
|
25 |
|
|
|
— |
|
|
NM |
|
|
|
0.1 |
% |
|
|
— |
|
|
Interest expense |
|
|
(193 |
) |
|
|
(64 |
) |
|
|
201.6 |
% |
|
|
(0.7 |
)% |
|
|
(0.3 |
)% |
Amortization of debt issue costs |
|
|
(25 |
) |
|
|
(16 |
) |
|
|
56.3 |
% |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
Loss before income tax |
|
|
(2,255 |
) |
|
|
(4,668 |
) |
|
|
51.7 |
% |
|
|
(8.7 |
)% |
|
|
(23.0 |
)% |
Income tax expense |
|
|
1 |
|
|
|
19,391 |
|
|
|
100.0 |
% |
|
|
0.0 |
% |
|
|
95.6 |
% |
Net loss |
|
$ |
(2,256 |
) |
|
$ |
(24,059 |
) |
|
|
90.6 |
% |
|
|
(8.7 |
)% |
|
|
(118.6 |
)% |
* NM - Not Meaningful
Revenue, Cost of Revenue and Gross Margin. Product revenue increased 10.4%, or $1.6 million, for the third quarter of fiscal 2024 versus the third quarter of fiscal 2023. Service revenue increased 83.4%, or $4.1 million, for the third quarter of fiscal 2024 versus the third quarter of fiscal 2023. The increase in total revenue was due to anticipated growth in contract activity for larger customers and a new three-year preventive maintenance contract. Cost of product revenue increased by 7.2%, or $0.8 million, in the third quarter of fiscal 2024 versus the comparable period in fiscal 2023. Cost of service revenue increased by 81.3%, or $3.3 million, in the third quarter of fiscal 2024 versus the comparable period in fiscal 2023. Gross margin increased to 24.5% of revenue in the third quarter of fiscal 2024 from 23.6% in the third quarter of fiscal 2024 due primarily to increased sales covering fixed costs and increased volume on higher margin service projects, partially offset by inflationary cost pressures related to subcontractor costs and maintenance technician costs on fixed price contracts.
24
Operating Expenses
General and Administrative. General and administrative expenses decreased 10.5%, or $0.6 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative decrease was primarily due to the decrease in the expected Voltrek earn-out payment and prior year acceleration of stock-based compensation expense due to retirement-related modifications of existing restricted stock awards, partially offset by increased employee compensation costs.
Sales and Marketing. Sales and marketing expenses increased 6.3%, or $0.2 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative increase was primarily due to increased employee compensation costs.
Research and Development. Research and development expenses decreased 14.7% or $0.1 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative decrease was primarily due to the reduction of product certification testing costs.
Interest Expense. Interest expenses increased 201.6% or $0.1 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative increase was primarily due to the interest on increased outstanding borrowings and a higher incremental interest rate on existing borrowings.
Lighting Division
Our lighting division develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting division provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers. Our lighting division sells mostly through direct sales and also through manufacturer representative agencies and to the wholesale contractor markets through ESCOs and contractors.
The following table summarizes our lighting division operating results (dollars in thousands):
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
18,545 |
|
|
$ |
14,151 |
|
|
|
31.1 |
% |
Operating income (loss) |
|
$ |
951 |
|
|
$ |
(632 |
) |
|
NM |
|
|
Operating margin |
|
|
5.1 |
% |
|
|
(4.5 |
)% |
|
|
|
|
* NM - Not Meaningful
Lighting division revenue in the third quarter of fiscal 2024 increased by 31.1%, or $4.4 million, compared to the third quarter of fiscal 2023. The increase in lighting division revenue was due to growth in contract activity for larger customers. The increase in corresponding operating income in this segment is a result of increased sales covering fixed costs.
Maintenance Division
Our maintenance division provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.
The following table summarizes our maintenance division operating results (dollars in thousands):
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
4,608 |
|
|
$ |
3,307 |
|
|
|
39.3 |
% |
Operating loss |
|
$ |
(1,060 |
) |
|
$ |
(722 |
) |
|
|
(46.8 |
)% |
Operating margin |
|
|
(23.0 |
)% |
|
|
(21.8 |
)% |
|
|
|
|
25
Maintenance division revenue in the third quarter of fiscal 2024 increased by 39.3%, or $1.3 million, compared to the third quarter of fiscal 2023, primarily due to a new three-year preventive maintenance contract for a large customer. Operating loss in this segment increased as a result of a decrease in gross margin primarily due to inflationary cost pressures related to subcontractor costs and maintenance technician costs on fixed price contracts.
Electric Vehicle Charging Division
Our EV division offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.
The following table summarizes our EV segment operations results (dollars in thousands):
|
|
Three Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
2,818 |
|
|
$ |
2,830 |
|
|
|
(0.4 |
)% |
Operating loss |
|
$ |
(1,454 |
) |
|
$ |
(1,669 |
) |
|
|
12.9 |
% |
Operating margin |
|
|
(51.6 |
)% |
|
|
(59.0 |
)% |
|
|
|
|
EV segment revenue in the third quarter of fiscal 2024 was relatively flat compared to the third quarter of fiscal 2023. Operating loss in this segment was primarily a result of the allocation of corporate expenses and the earn-out expense included in general and administrative costs. The improvement in operating loss in fiscal 2024 was primarily due to increased margin.
Results of Operations - Nine Months Ended December 31, 2023 versus Nine Months Ended December 31, 2022
The following table sets forth the line items of our Condensed Consolidated Statements of Operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
|
|
Nine Months Ended December 31, |
|
|||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
|
2023 |
|
|
2022 |
|
|||||
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
% of |
|
|
% of |
|
|||||
Product revenue |
|
$ |
46,266 |
|
|
$ |
41,715 |
|
|
|
10.9 |
% |
|
|
72.1 |
% |
|
|
74.8 |
% |
Service revenue |
|
|
17,904 |
|
|
|
14,039 |
|
|
|
27.5 |
% |
|
|
27.9 |
% |
|
|
25.2 |
% |
Total revenue |
|
|
64,170 |
|
|
|
55,754 |
|
|
|
15.1 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of product revenue |
|
|
33,258 |
|
|
|
31,152 |
|
|
|
6.8 |
% |
|
|
51.8 |
% |
|
|
55.9 |
% |
Cost of service revenue |
|
|
16,805 |
|
|
|
11,832 |
|
|
|
42.0 |
% |
|
|
26.2 |
% |
|
|
21.2 |
% |
Total cost of revenue |
|
|
50,063 |
|
|
|
42,984 |
|
|
|
16.5 |
% |
|
|
78.0 |
% |
|
|
77.1 |
% |
Gross profit |
|
|
14,107 |
|
|
|
12,770 |
|
|
|
10.5 |
% |
|
|
22.0 |
% |
|
|
22.9 |
% |
General and administrative expenses |
|
|
15,689 |
|
|
|
13,183 |
|
|
|
19.0 |
% |
|
|
24.4 |
% |
|
|
23.6 |
% |
Acquisition related costs |
|
|
56 |
|
|
|
840 |
|
|
|
(93.3 |
)% |
|
|
0.1 |
% |
|
|
1.5 |
% |
Sales and marketing expenses |
|
|
9,778 |
|
|
|
8,521 |
|
|
|
14.8 |
% |
|
|
15.2 |
% |
|
|
15.3 |
% |
Research and development expenses |
|
|
1,211 |
|
|
|
1,374 |
|
|
|
(11.9 |
)% |
|
|
1.9 |
% |
|
|
2.5 |
% |
Loss from operations |
|
|
(12,627 |
) |
|
|
(11,148 |
) |
|
|
(13.3 |
)% |
|
|
(19.7 |
)% |
|
|
(20.0 |
)% |
Other income |
|
|
37 |
|
|
|
— |
|
|
NM |
|
|
|
0.1 |
% |
|
|
— |
|
|
Interest expense |
|
|
(561 |
) |
|
|
(97 |
) |
|
|
478.4 |
% |
|
|
(0.9 |
)% |
|
|
(0.2 |
)% |
Amortization of debt issue costs |
|
|
(74 |
) |
|
|
(47 |
) |
|
|
57.4 |
% |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
Interest income |
|
|
2 |
|
|
|
— |
|
|
NM |
|
|
|
0.0 |
% |
|
|
— |
|
|
Loss before income tax |
|
|
(13,223 |
) |
|
|
(11,292 |
) |
|
|
(17.1 |
)% |
|
|
(20.6 |
)% |
|
|
(20.3 |
)% |
Income tax expense |
|
|
58 |
|
|
|
17,933 |
|
|
|
99.7 |
% |
|
|
0.1 |
% |
|
|
32.2 |
% |
Net loss |
|
$ |
(13,281 |
) |
|
$ |
(29,225 |
) |
|
|
54.6 |
% |
|
|
(20.7 |
)% |
|
|
(52.4 |
)% |
26
Revenue, Cost of Revenue and Gross Margin. Product revenue increased 10.9%, or $4.6 million, for the first nine months of fiscal 2024 versus the first nine months of fiscal 2023. Service revenue increased 27.5%, or $3.9 million, for the first nine months of fiscal 2024 versus the first nine months of fiscal 2023. Total revenue increased due to growth in contract activity for larger customers, a new three-year preventive maintenance contract and a full nine months of revenue from Voltrek versus three months in the prior year. Cost of product revenue increased by 6.8%, or $2.1 million, in the first nine months of fiscal 2024 versus the comparable period in fiscal 2023. Cost of service revenue increased by 42.0%, or $5.0 million, in the first nine months of fiscal 2024 versus the comparable period in fiscal 2023. Gross margin decreased from 22.9% of revenue in the first nine months of fiscal 2023 to 22.0% in the first nine months of fiscal 2024, due primarily to inflationary cost pressures related to subcontractor costs and maintenance technician costs on fixed price contracts, partially offset by increased sales covering fixed costs and increased volume on higher margin service projects.
Operating Expenses
General and Administrative. General and administrative expenses increased 19.0%, or $2.5 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. This comparative increase was primarily due to the increased accrual of the expected Voltrek earn-out payment, partially offset by prior year acceleration of stock-based compensation expense due to retirement-related modifications of existing restricted stock awards.
Acquisition Related Costs. Acquisition related costs decreased 93.3%, or $0.8 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 due to reduced acquisition activity.
Sales and Marketing. Sales and marketing expenses increased 14.8%, or $1.3 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. This comparative increase was primarily due to increased employee compensation costs.
Research and Development. Research and development expenses decreased 11.9%, or $0.2 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. This comparative decrease was primarily due to the reduction of employee compensation costs.
Interest Expense. Interest expenses increased 478.4% or $0.5 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. This comparative increase was primarily due to the interest on outstanding borrowings and a higher incremental borrowing rate.
Lighting Division
The following table summarizes our lighting division operating results (dollars in thousands):
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
44,739 |
|
|
$ |
42,118 |
|
|
|
6.2 |
% |
Operating loss |
|
$ |
(1,777 |
) |
|
$ |
(3,932 |
) |
|
|
54.8 |
% |
Operating margin |
|
|
(4.0 |
)% |
|
|
(9.3 |
)% |
|
|
|
|
Lighting division revenue in the first nine months of fiscal 2024 increased by 6.2%, or $2.6 million compared to the first nine months of fiscal 2023. The increase in lighting division revenue was due to growth in contract activity for larger customers. The improvement in corresponding operating loss in this segment was a result of a decrease in under absorption of fixed costs.
27
Maintenance Division
The following table summarizes our maintenance division operating results (dollars in thousands):
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
11,996 |
|
|
$ |
10,806 |
|
|
|
11.0 |
% |
Operating loss |
|
|
(4,660 |
) |
|
|
(1,807 |
) |
|
|
(157.9 |
)% |
Operating margin |
|
|
(38.8 |
)% |
|
|
(16.7 |
)% |
|
|
|
|
Maintenance division revenue in the first nine months of fiscal 2024 increased by 11.0%, or $1.2 million, compared to the first nine months of fiscal 2023, primarily due to a new three-year preventive maintenance contract with a large customer. Operating loss in this segment increased as a result of a decrease in gross margin primarily due to inflationary cost pressures related to subcontractor costs and maintenance technician costs on fixed price contracts.
Electric Vehicle Charging Division
The following table summarizes our EV segment operations results (dollars in thousands):
|
|
Nine Months Ended December 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Revenues |
|
$ |
7,435 |
|
|
$ |
2,830 |
|
|
|
162.7 |
% |
Operating loss |
|
|
(4,417 |
) |
|
|
(1,669 |
) |
|
|
(164.6 |
)% |
Operating margin |
|
|
(59.4 |
)% |
|
|
(59.0 |
)% |
|
|
|
|
EV segment revenue in the first nine months of fiscal 2024 increased by 162.7%, or $4.6 million, compared to the first nine months of fiscal 2023. Operating loss in this segment was primarily a result of the earn-out expense included in general and administrative costs and the allocation of corporate expenses. The increase in revenue and corresponding operating loss was due to nine months of activity in fiscal 2024 compared to three months in fiscal 2023.
Liquidity and Capital Resources
Overview
We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, based on our current cash flow forecast, including to fund our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our currently anticipated longer-term capital requirements for periods beyond at least one year from the date of this report.
We had approximately $5.0 million in cash and cash equivalents as of December 31, 2023, compared to $16.0 million at March 31, 2023. Our cash position decreased as a result of an operating loss and an overall use of working capital during the first nine months of fiscal 2024.
Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, working capital management and capital expenditures. While we believe that we will likely have adequate available cash and equivalents and credit availability under our Credit Agreement to satisfy our currently anticipated working capital and liquidity requirements for at least the next 12 months based on our current cash flow forecast, if we experience significant liquidity constraints, we may be required to issue equity or debt securities, reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash. We are also currently pursuing other potential supplemental liquidity sources.
28
Cash Flows
The following table summarizes our cash flows for the nine months ended December 31, 2023 and 2022 (in thousands):
|
|
Nine Months Ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating activities |
|
$ |
(10,267 |
) |
|
$ |
(5,248 |
) |
Investing activities |
|
|
(750 |
) |
|
|
(6,090 |
) |
Financing activities |
|
|
(8 |
) |
|
|
5,014 |
|
Decrease in cash and cash equivalents |
|
$ |
(11,025 |
) |
|
$ |
(6,324 |
) |
Cash Flows Related to Operating Activities. Cash used in operating activities primarily consisted of net 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 operating activities for the first nine months of fiscal 2024 was $10.3 million and consisted of our net loss of $13.3 million adjusted for non-cash expense items and net cash used in changes in operating assets of $3.0 million, the largest of which was a benefit from a $5.5 million accounts payable.
Cash used in operating activities for the first nine months of fiscal 2023 was $5.2 million and consisted of our net loss of $29.2 million adjusted for non-cash expense items and net cash used in changes in operating assets of $24.0 million, the largest of which was a $17.9 million decrease in deferred income tax assets as a result of the valuation allowance.
Cash Flows Related to Investing Activities. Cash used in investing activities of $0.8 million in the first nine months of fiscal 2024 consisted primarily of purchases of property and equipment, partially offset by proceeds from the sale of property and equipment.
Cash used in investing activities of $6.1 million in the first nine months of fiscal 2023 consisted primarily of cash paid for the acquisition of Voltrek and purchases of property and equipment.
Cash Flows Related to Financing Activities. Cash used in financing activities of $8 thousand in the first nine months of fiscal 2024 consisted primarily of payment of long-term debt.
Cash provided by financing activities of $5.0 million in the first nine months of fiscal 2023 consisted primarily of proceeds from our Credit Agreement, which was drawn down to pay the cash purchase price to acquire Voltrek.
Working Capital
Our net working capital as of December 31, 2023 was $15.0 million, consisting of $45.7 million in current assets and $30.7 million in current liabilities. Our net working capital as of March 31, 2023 was $25.9 million, consisting of $50.4 million in current assets and $24.5 million in current liabilities.
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 and supply chain interruptions.
Indebtedness
Revolving Credit Agreement
On December 29, 2020, we entered into a new $25 million Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our prior $20.15 million secured revolving credit and security agreement (the “Prior Credit Agreement”).
The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.
29
The Credit Agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of December 31, 2023, the borrowing base of the Credit Facility supported $22.5 million of availability, with $12.5 million of remaining availability net of $10.0 million borrowed.
The Credit Agreement is secured by a first lien security interest in substantially all of our assets.
Effective November 4, 2022, we, along with the Lender, executed Amendment No. 1 to the Credit Agreement. The primary purpose of the amendment was to include the assets of our acquired subsidiaries, Stay-Lite Lighting and Voltrek as secured collateral under the Credit Agreement. Accordingly, eligible assets of Stay-Lite and Voltrek are now included in our borrowing base calculation for the purpose of establishing our monthly borrowing availability under the Credit Agreement. The amendment also clarified that the earn-out liabilities associated with the Stay-Lite and Voltrek transactions are permitted under the Credit Agreement and that the expenses recognized in connection with those earn-outs should be added back in the computation of EBITDA, as defined, under the Credit Agreement.
Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $20.6 million and $17.2 million as of December 31, 2023 and March 31, 2023, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services.
Inflation
We have experienced increases in various input costs including labor, components and transportation in the past two years. In response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that our results from operations have not been materially affected to date by inflation.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, stock-based compensation and income taxes. The estimates of forecasted cash flows are used in the assessment for impairment of long-lived assets and the realizability of deferred tax assets. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2023. For the quarter ended December 31, 2023, there were no material changes in our accounting policies.
Recent Accounting Pronouncements
For a complete discussion of recent accounting pronouncements, refer to Note 2 in the Condensed Consolidated Financial Statements included elsewhere in this report.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in our Annual Report on Form 10-K for the year ended March 31, 2023. There have been no material changes to such exposures since March 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2023, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this evaluation, such officers have concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) for the quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date 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 14 – Commitments and Contingencies, to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, which we filed with the SEC on June 12, 2023 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
None
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended December 31, 2023, no director or officer of Orion
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ITEM 6. EXHIBITS
31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
Inline XBRL Instance Document+ |
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101.SCH |
Inline XBRL Taxonomy extension schema document+ |
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101.CAL |
Inline XBRL Taxonomy extension calculation linkbase document+ |
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101.DEF |
Inline XBRL Taxonomy extension definition linkbase document+ |
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101.LAB |
Inline XBRL Taxonomy extension label linkbase document+ |
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101.PRE |
Inline XBRL Taxonomy extension presentation linkbase document+ |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
+ Filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 2024.
ORION ENERGY SYSTEMS, INC. |
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By |
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/s/ J. Per Brodin |
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J. Per Brodin |
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Chief Financial Officer |
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(Principal Financial Officer and Authorized Signatory) |
34
Exhibit 31.1
Certification
I, Michael H. Jenkins, certify that:
Date: February 7, 2024
/s/ Michael H. Jenkins |
Michael H. Jenkins |
Chief Executive Officer |
Exhibit 31.2
Certification
I, J. Per Brodin, certify that:
Date: February 7, 2024
/s/ J. Per Brodin |
J. Per Brodin |
Chief Financial Officer |
Exhibit 32.1
Certification of CEO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002
In connection with the Quarterly Report of Orion Energy Systems, Inc., a Wisconsin corporation (the “Company”), on Form 10-Q for the period ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael H. Jenkins, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
Date: |
February 7, 2024 |
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/s/ Michael H. Jenkins |
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Michael H. Jenkins |
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Chief Executive Officer |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of CFO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002
In connection with the Quarterly Report of Orion Energy Systems, Inc., a Wisconsin corporation (the “Company”), on Form 10-Q for the period ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Per Brodin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
Date: |
February 7, 2024 |
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/s/ J. Per Brodin |
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J. Per Brodin |
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Chief Financial Officer |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.