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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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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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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Name of Each Exchange on Which Registered |
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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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Smaller reporting company |
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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 ☐ No
There were
ORION ENERGY SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
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 June 30, 2024 and March 31, 2024 |
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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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June 30, 2024 |
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March 31, 2024 |
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Assets |
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Cash and cash equivalents |
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$ |
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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 |
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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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$ |
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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 June 30, |
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2024 |
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2023 |
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Product revenue |
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$ |
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$ |
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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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— |
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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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Interest expense |
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Amortization of debt issue costs |
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Royalty income |
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— |
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Interest income |
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— |
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2 |
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Total other expense |
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( |
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Loss before income tax |
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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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Basic net loss per share attributable to |
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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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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, 2024 |
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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, June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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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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Balance, June 30, 2023 |
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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.
5
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended June 30, |
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2024 |
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2023 |
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Operating activities |
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Net loss |
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$ |
( |
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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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Loss (gain) 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: |
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Accounts receivable |
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Revenue earned but not billed |
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Inventories |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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( |
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( |
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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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Purchases of property and equipment |
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Proceeds from sale of property, plant and equipment |
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— |
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Net cash used in investing activities |
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( |
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Financing activities |
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Payment of long-term debt |
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( |
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Proceeds from long-term debt |
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— |
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Proceeds from employee equity exercises |
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Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash and cash equivalents |
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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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The accompanying notes are an integral part of these Condensed Consolidated Statements.
6
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 and Germany.
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 Energy Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial 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, 2025 or other interim periods.
The Condensed Consolidated Balance Sheet as of March 31, 2024 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, 2024 filed with the SEC on June 12, 2024.
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, net realizable value of inventory, 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.
7
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 June 30, 2024, one supplier accounted for
For the three months ended June 30, 2024, one customer accounted for
As of June 30, 2024,
Recent Accounting Pronouncements
Recently Adopted Standards
In June 2016, the Financial Accounting Standards Board ("FASB:) issued accounting standards updates ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. The provisions of ASU 2016-13 and the related amendments are effective for Orion for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Orion 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 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.
8
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 Orion refers 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.
The sale of charging stations and related software subscriptions, renewals and extended warranty 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, renewals and extended warranty, 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 maintenance offering that includes both the sale of Orion manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Operations.
The following tables provide detail of Orion’s total revenue for the three months ended June 30, 2024 and June 30, 2023 (dollars in thousands):
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Three Months Ended June 30, 2024 |
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Product |
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Services |
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Total |
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Revenue from contracts with customers: |
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Lighting product and installation |
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$ |
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$ |
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$ |
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Maintenance services |
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Electric vehicle charging |
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Solar energy related revenues |
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Total revenues from contracts with customers |
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Revenue accounted for under other guidance |
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Total revenue |
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$ |
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$ |
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$ |
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Three Months Ended June 30, 2023 |
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Product |
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Services |
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Total |
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Revenue from contracts with customers: |
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Lighting product and installation |
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$ |
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$ |
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$ |
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Maintenance services |
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Electric vehicle charging |
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Total revenues from contracts with customers |
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Revenue accounted for under other guidance |
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Total revenue |
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$ |
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$ |
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$ |
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9
From time to time, Orion sells the receivables from one customer to a financing institution. The was
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of June 30, 2024 and March 31, 2024 (dollars in thousands):
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June 30, |
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March 31, |
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Accounts receivable, net |
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$ |
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$ |
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Revenue earned but not billed |
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$ |
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$ |
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Deferred revenue (1) |
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$ |
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$ |
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(1)
There were
NOTE 4 — ACCOUNTS RECEIVABLE
As of June 30, 2024 and March 31, 2024, Orion's accounts receivable and allowance for credit losses balances were as follows (dollars in thousands):
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June 30, |
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March 31, |
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Accounts receivable, gross |
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$ |
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$ |
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Allowance for credit losses |
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( |
) |
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( |
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Accounts receivable, net |
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$ |
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$ |
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Changes in Orion’s allowance for credit losses were as follows (dollars in thousands):
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For the Three Months Ended |
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2024 |
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2023 |
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Beginning of period |
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$ |
( |
) |
|
$ |
( |
) |
Credit loss expense |
|
|
( |
) |
|
|
( |
) |
Write-off |
|
|
|
|
|
|
||
End of period |
|
$ |
( |
) |
|
$ |
( |
) |
10
NOTE 5 — INVENTORIES
As of June 30, 2024 and March 31, 2024, Orion's inventory balances were as follows (dollars in thousands):
|
|
Inventories |
|
|
As of June 30, 2024 |
|
|
|
|
Raw materials and components |
|
$ |
|
|
Work in process |
|
|
|
|
Finished goods |
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
|
As of March 31, 2024 |
|
|
|
|
Raw materials and components |
|
$ |
|
|
Work in process |
|
|
|
|
Finished goods |
|
|
|
|
Total |
|
$ |
|
|
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid insurance premiums, debt issue costs, prepaid subscription fees and sales tax receivable. Prepaid expenses totaled $
Other current assets as of June 30, 2024 and March 31, 2024 consists primarily of $
NOTE 7 — PROPERTY AND EQUIPMENT
As of June 30, 2024 and March 31, 2024, property and equipment, net, included the following (dollars in thousands):
|
|
June 30, |
|
|
March 31, |
|
||
Land and land improvements |
|
$ |
|
|
$ |
|
||
Buildings and building improvements |
|
|
|
|
|
|
||
Furniture, fixtures and office equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment leased to customers |
|
|
|
|
|
|
||
Plant equipment |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Gross property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
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 Accounting Standards Codification ("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.
11
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
|
|
Balance sheet classification |
|
June 30, 2024 |
|
|
March 31, 2024 |
|
||
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 remaining years is shown below (dollars in thousands):
Maturity of Lease Liabilities |
|
Operating Leases |
|
|
Fiscal 2025 (period remaining) |
|
$ |
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
$ |
|
|
Less: Interest |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS
Orion has $
Orion has $
As of June 30, 2024 and March 31, 2024, the components of, and changes in, the carrying amount of other intangible assets, net, were as follows (dollars in thousands):
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
||||||||||||||||||||||
|
|
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 $
12
The estimated amortization expense for the remainder of fiscal 2024, the next five fiscal years and beyond is shown below (dollars in thousands):
Fiscal 2025 (period remaining) |
|
$ |
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Fiscal 2028 |
|
|
|
|
Fiscal 2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
NOTE 10 — ACCRUED EXPENSES AND OTHER
As of June 30, 2024 and March 31, 2024, accrued expenses and other included the following (dollars in thousands):
|
|
June 30, |
|
|
March 31, |
|
||
Accrued acquisition earn-out |
|
$ |
|
|
$ |
|
||
Other accruals |
|
|
|
|
|
|
||
Compensation and benefits |
|
|
|
|
|
|
||
Credits due to customers |
|
|
|
|
|
|
||
Accrued project costs |
|
|
|
|
|
|
||
Warranty |
|
|
|
|
|
|
||
Sales returns reserve |
|
|
|
|
|
|
||
Sales tax |
|
|
|
|
|
|
||
Legal and professional fees |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Orion generally offers a limited warranty of to
Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Beginning of period |
|
$ |
|
|
$ |
|
||
Accruals |
|
|
|
|
|
|
||
Warranty claims (net of vendor reimbursements) |
|
|
( |
) |
|
|
( |
) |
End of period |
|
$ |
|
|
$ |
|
||
Effective on October 5, 2022, Orion acquired all the membership interests of Voltrek, an electric vehicle charging station solutions provider (the “Voltrek Acquisition”). The Voltrek Acquisition agreement includes, depending upon the relative EBITDA growth of Voltrek’s business in fiscal 2023, 2024 and 2025, Orion could pay up to an additional $
13
NOTE 11 — NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net loss per common share reflects the dilution that would occur if restricted shares were vested. In the computation of diluted net loss per common share, Orion uses the treasury stock method for outstanding options and restricted shares. For the three months ended June 30, 2024 and 2023, 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 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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 loss per common share because their inclusion would have been anti-dilutive. The number of shares is as of the end of each period:
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Restricted shares |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
NOTE 12 — LONG-TERM DEBT
Long-term debt consisted of the following (dollars in thousands):
|
|
June 30, |
|
|
March 31, |
|
||
Revolving credit facility |
|
$ |
|
|
$ |
|
||
Term Loan |
|
|
|
|
|
|
||
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 Credit Agreement provides for a
14
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 will be 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.
Effective April 22, 2024, the Company, with Bank of America, N.A. as lender, executed Amendment No. 2 to its Credit Agreement (“Amendment No. 2”). The primary purpose of Amendment No. 2 was to add a $
Remaining principal payments on long-term debt are $
As of June 30, 2024, Orion was in compliance with all debt covenants.
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 June 30, 2024 and 2023, Orion recorded income tax expense of $
As of June 30, 2024 and March 31, 2024, 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 the company’s provision for income taxes.
Uncertain Tax Positions
As of June 30, 2024, 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.
15
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Litigation
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 June 30, 2024, 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 — RESTRICTED SHARES
At Orion’s 2023 annual meeting of shareholders, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the “Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from
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.
16
The following amounts of stock-based compensation were recorded (dollars in thousands):
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of product revenue |
|
$ |
|
|
$ |
|
||
General and administrative |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following table summarizes information with respect to performance-vesting restricted stock and time vesting-restricted stock activity:
|
|
Time-Based |
|
|
Performance-Based |
|
||||||||||
|
|
Shares |
|
|
Weighted |
|
|
Shares |
|
|
Weighted |
|
||||
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Shares issued |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Shares vested |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Shares outstanding at June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Per share price on grant date |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
As of June 30, 2024, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of
NOTE 17 — SEGMENT DATA
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Orion's CODM is the chief executive officer. Orion evaluates and reports on the business using three segments: Lighting Segment, Maintenance Segment and Electric Vehicle Charging Segment (“EV Segment”).
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 mostly through direct sales and 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 Electric Vehicle Charging 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.
17
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 Loss |
|
|
Total Assets |
|
|||||||||||||||
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
||||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Lighting Segment |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Maintenance Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
Electric Vehicle Charging Segment |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
NOTE 18 — RESTRUCTURING EXPENSE
As part of Orion's response to declining financial results, Orion entered into separation agreements with multiple employees during the fourth quarter of fiscal 2024. In addition, an inventory write-off was recognized in the first quarter of fiscal 2025 for inventory related to a customer Orion no longer does business with.
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of service revenue |
|
$ |
197 |
|
|
$ |
— |
|
General and administrative |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Total restructuring expense by segment was recorded as follows (dollars in thousands):
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Segments: |
|
|
|
|
|
|
||
Maintenance |
|
$ |
|
|
$ |
— |
|
|
Corporate and Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
18
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, 2024.
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, 2024. 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, wireless Internet of Things (“IoT”) enabled control solutions, commercial and industrial electric vehicle (“EV”) charging infrastructure solutions, and lighting and electrical 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 (lighting and EV) and system maintenance. Virtually all of our sales occur within North America or for the US Department of Defense's military bases operating in foreign countries.
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 and offerings.
We differentiate ourselves from our competitors by offering very efficient light fixtures (measured in lumens per watt) coupled with our 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 and commissioning. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021. We believe that providing these services enables us to support a long-term business relationship with our customers and results in an increase in our recurring revenue. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities. On October 5, 2022, we acquired Voltrek, which was intended to leverage our project management and maintenance expertise into the rapidly growing EV sector.
19
Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems provided by third parties. We believe the market for LED lighting products 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 by other lighting technologies.
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 lighting revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on a purchase order basis. 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 lighting fixtures. We call this replacement process a "retrofit". We frequently sell our products and services directly to our customers and in many cases we provide design and installation services as well as project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors, electrical contractors and ESCOs which then resell to their own customers.
The gross margins of our products can vary significantly depending upon the types of products we sell, with gross margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period.
Our fiscal year ends on March 31. We refer to our current fiscal year which ends on March 31, 2025 as "fiscal 2025". We refer to our most recently completed fiscal year, which ended on March 31, 2024, as “fiscal 2024”, and our prior fiscal year which ended on March 31, 2023 as "fiscal 2023". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31, and our fiscal fourth quarter ends on March 31.
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Orion's CODM is the chief executive officer. Orion evaluates and reports on the business using three segments: Lighting Segment, Maintenance Segment and Electric Vehicle Charging Segment (“EV Segment”).
20
Results of Operations - Three Months Ended June 30, 2024 versus Three Months Ended June 30, 2023
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 June 30, |
|
|||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|||||
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
% of |
|
|
% of |
|
|||||
Product revenue |
|
$ |
12,767 |
|
|
$ |
13,671 |
|
|
|
(6.6 |
)% |
|
|
64.1 |
% |
|
|
77.6 |
% |
Service revenue |
|
|
7,139 |
|
|
|
3,942 |
|
|
|
81.1 |
% |
|
|
35.9 |
% |
|
|
22.4 |
% |
Total revenue |
|
|
19,906 |
|
|
|
17,613 |
|
|
|
13.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of product revenue |
|
|
8,541 |
|
|
|
10,059 |
|
|
|
(15.1 |
)% |
|
|
42.9 |
% |
|
|
57.1 |
% |
Cost of service revenue |
|
|
7,066 |
|
|
|
4,383 |
|
|
|
61.2 |
% |
|
|
35.5 |
% |
|
|
24.9 |
% |
Total cost of revenue |
|
|
15,607 |
|
|
|
14,442 |
|
|
|
8.1 |
% |
|
|
78.4 |
% |
|
|
82.0 |
% |
Gross profit |
|
|
4,299 |
|
|
|
3,171 |
|
|
|
35.6 |
% |
|
|
21.6 |
% |
|
|
18.0 |
% |
General and administrative expenses |
|
|
4,530 |
|
|
|
5,739 |
|
|
|
(21.1 |
)% |
|
|
22.8 |
% |
|
|
32.6 |
% |
Acquisition related costs |
|
|
— |
|
|
|
53 |
|
|
|
(100.0 |
)% |
|
|
0.0 |
% |
|
|
0.3 |
% |
Sales and marketing expenses |
|
|
2,937 |
|
|
|
3,296 |
|
|
|
(10.9 |
)% |
|
|
14.8 |
% |
|
|
18.7 |
% |
Research and development expenses |
|
|
264 |
|
|
|
480 |
|
|
|
(45.0 |
)% |
|
|
1.3 |
% |
|
|
2.7 |
% |
Loss from operations |
|
|
(3,432 |
) |
|
|
(6,397 |
) |
|
|
(46.3 |
)% |
|
|
(17.2 |
)% |
|
|
(36.3 |
)% |
Interest expense |
|
|
(262 |
) |
|
|
(176 |
) |
|
|
48.9 |
% |
|
|
(1.3 |
)% |
|
|
(1.0 |
)% |
Amortization of debt issue costs |
|
|
(58 |
) |
|
|
(24 |
) |
|
|
141.7 |
% |
|
|
(0.3 |
)% |
|
|
(0.1 |
)% |
Royalty income |
|
|
15 |
|
|
|
— |
|
|
NM |
|
|
|
0.2 |
% |
|
|
0.0 |
% |
|
Interest income |
|
|
— |
|
|
|
2 |
|
|
|
(100.0 |
)% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Loss before income tax |
|
|
(3,737 |
) |
|
|
(6,595 |
) |
|
|
(43.3 |
)% |
|
|
(18.8 |
)% |
|
|
(37.4 |
)% |
Income tax expense (benefit) |
|
|
21 |
|
|
|
42 |
|
|
|
(50.0 |
)% |
|
|
0.1 |
% |
|
|
0.2 |
% |
Net loss |
|
$ |
(3,758 |
) |
|
$ |
(6,637 |
) |
|
|
(43.4 |
)% |
|
|
(18.9 |
)% |
|
|
(37.7 |
)% |
* NM - Not Meaningful
Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 6.6%, or $0.9 million, for the first quarter of fiscal 2025 versus the first quarter of fiscal 2024. Service revenue increased 81.1%, or $3.2 million, for the first quarter of fiscal 2025 versus the first quarter of fiscal 2024. The resulting increase in total revenue was due to increased revenues in the EV segment, partially offset by decreased revenue in the Maintenance segment. Cost of product revenue decreased by 15.1%, or $1.5 million, in the first quarter of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue increased by 61.2%, or $2.7 million, in the first quarter of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 18.0% of revenue in the first quarter of fiscal 2024 to 21.6% in the first quarter of fiscal 2025, due primarily to project mix and increased sales which assisted in the absorption of fixed costs.
Operating Expenses
General and Administrative. General and administrative expenses decreased 21.1%, or $1.2 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. This comparative decrease was primarily due to a decrease in Voltrek earn out expense to $0.3 million in the first quarter of fiscal 2025 compared to $1.1 million in the first quarter of fiscal 2024.
Sales and Marketing. Sales and marketing expenses decreased 10.9%, or $0.4 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. This comparative decrease was primarily due to the lower volume of product sales resulting in lower commissions expense.
Research and Development. Research and development expenses decreased 45.0%, or $0.2 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.
21
Lighting Segment
Our lighting segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting segment provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers mostly through direct sales and also sells lighting products though manufacturer representative agencies and to the wholesale contractor markets through ESCOs and contractors.
The following table summarizes our lighting segment operating results (dollars in thousands):
|
|
Three Months Ended June 30, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
% |
|
|||
Revenues |
|
$ |
12,751 |
|
|
$ |
12,621 |
|
|
|
1.0 |
% |
Operating loss |
|
$ |
(1,206 |
) |
|
$ |
(766 |
) |
|
|
(57.4 |
)% |
Operating margin |
|
|
(9.5 |
)% |
|
|
(6.1 |
)% |
|
|
|
|
Lighting segment revenue in the first quarter of fiscal 2025 increased by 1.0%, or $0.1 million compared to the first quarter of fiscal 2024. The increase in lighting segment revenue was due to variability in the timing of larger lighting projects. The increase in operating loss in this segment is a result of an increased percentage of service revenue, which has a lower gross margin than product revenue.
Maintenance Segment
Our 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.
The following table summarizes our maintenance segment operating results (dollars in thousands):
|
|
Three Months Ended June 30, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
% |
|
|||
Revenues |
|
$ |
3,324 |
|
|
$ |
3,754 |
|
|
|
(11.5 |
)% |
Operating loss |
|
$ |
(976 |
) |
|
$ |
(1,840 |
) |
|
|
47.0 |
% |
Operating margin |
|
|
(29.4 |
)% |
|
|
(49.0 |
)% |
|
|
|
|
Maintenance segment revenue in the first quarter of fiscal 2025 decreased by 11.5%, or $0.4 million, compared to the first quarter of fiscal 2024 primarily due to the winddown of several customer contracts. Operating loss in this segment decreased as a result of an increase in gross margins driven by a more favorable revenue mix.
Electric Vehicle Charging Segment
Our EV segment 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 June 30, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
% |
|
|||
Revenues |
|
$ |
3,831 |
|
|
$ |
1,238 |
|
|
|
209.5 |
% |
Operating loss |
|
$ |
(231 |
) |
|
$ |
(1,934 |
) |
|
|
(88.1 |
)% |
Operating margin |
|
|
(6.0 |
)% |
|
|
(156.2 |
)% |
|
|
|
|
EV segment revenue increased $2.6 million to $3.8 million in the first quarter of fiscal 2025. The increase in revenue over the first quarter of fiscal 2024 is due to a higher revenue volume to municipalities. Operating loss decreased $1.7 million in the
22
first quarter of fiscal 2025 due to a $0.8 million decrease of earn-out expense included in general and administrative costs along with improved gross margins.
Liquidity and Capital Resources
Overview
We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.
We had approximately $5.7 million in cash and cash equivalents as of June 30, 2024, compared to $5.2 million at March 31, 2024. Our cash position increased as a result of the mortgage loan largely offset by an operating loss and a net use of working capital during the first quarter of fiscal 2025.
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.
Cash Flows
The following table summarizes our cash flows for the three months ended June 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating activities |
|
$ |
(2,962 |
) |
|
$ |
(7,327 |
) |
Investing activities |
|
|
(24 |
) |
|
|
(413 |
) |
Financing activities |
|
|
3,523 |
|
|
|
(3 |
) |
Increase (decrease) in cash and cash equivalents |
|
$ |
537 |
|
|
$ |
(7,743 |
) |
Cash Flows Related to Operating Activities. Cash used in operating activities primarily consists 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 quarter of fiscal 2025 was $3.0 million and consisted of our net loss of $3.8 million adjusted for non-cash expense items and net cash provided in changes in operating assets of $0.6 million, the largest of which was a $3.9 million decrease in accounts payable, which was mostly offset by increases in accounts receivable and inventories.
Cash used in operating activities for the first quarter of fiscal 2024 was $7.3 million and consisted of our net loss of $6.6 million adjusted for non-cash expense items and net cash used in changes in operating assets of $0.8 million, the largest of which was a $1.9 million decrease in accounts payable.
Cash Flows Related to Investing Activities. Cash used in investing activities of $24 thousand in the first quarter of fiscal 2025 consisted primarily of purchases of property and equipment, net of proceeds.
Cash used in investing activities of $0.4 million in the first quarter of fiscal 2024 consisted primarily of purchases of property and equipment.
23
Cash Flows Related to Financing Activities. Cash provided by financing activities of $3.5 million in the first quarter of fiscal 2025 was primarily due to the term loan discussed in Note 12 above, which was partially offset by payments on long-term debt.
Cash used by financing activities of $3 thousand in the first quarter of fiscal 2024 consisted primarily of payment of long-term debt.
Working Capital
Our net working capital as of June 30, 2024 was $17.4 million, consisting of $42.1 million in current assets and $24.8 million in current liabilities. Our net working capital as of March 31, 2024 was $16.7 million, consisting of $44.8 million in current assets and $28.1 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 or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.
Indebtedness
Revolving Credit Agreement
Our 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 June 30, 2024, the borrowing base supported approximately $18.3 million of availability under the Credit Facility with $10.0 million drawn against that availability. As of June 30, 2023, the borrowing base supported approximately $18.6 million of availability under the Credit Facility with $10.0 million drawn against that availability.
The credit agreement is secured by a first lien security interest in substantially all of our assets.
Borrowings under the credit agreement are permitted in the form of SOFR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees, we are required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.
The credit agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility falls below the greater of $3.0 million or 15% of the committed facility. Currently, the required springing minimum fixed cost coverage ratio is not required.
The credit agreement also contains customary events of default and other covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem, retire or purchase shares of our stock, make investments or pledge or transfer assets. If an event of default under the credit agreement occurs and is continuing, then the lender may cease making advances under the credit agreement and declare any outstanding obligations under the credit agreement to be immediately due and payable. In addition, if we become the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the credit agreement will automatically become immediately due and payable.
Effective April 22, 2024, we, along with the lender, executed Amendment No. 2 (“Amendment No. 2”) to the Credit Agreement. The primary purpose of Amendment No. 2 was to add a $3.525 million mortgage loan facility to the Credit Agreement secured by our office headquarters property in Manitowoc, Wisconsin. Amendment No. 2 also broadened the definition of receivables to encompass government receivables as being eligible to be included in our borrowing base calculation for the
24
purpose of establishing our monthly borrowing availability under the Credit Agreement. Quarterly installments of $88,125 will be due on the first day of each fiscal quarter beginning October 1, 2024.
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 $14.1 million and $22.0 million as of June 30, 2024 and March 31, 2024, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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, 2024. For the quarter ended June 30, 2024, there were no material changes in our accounting policies.
Recent Accounting Pronouncements
For a complete discussion of recent accounting pronouncements, refer to Note 3 in the Condensed Consolidated Financial Statements included elsewhere in this report.
25
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, 2024. There have been no material changes to such exposures since March 31, 2024.
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 the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of June 30, 2024, 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 June 30, 2024.
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 June 30, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
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, 2024, which we filed with the SEC on June 12, 2024 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended June 30, 2024, no director or officer of Orion
27
ITEM 6. EXHIBITS
10.1 |
|
31.1 |
|
|
|
31.2 |
|
|
|
32.1 |
|
|
|
32.2 |
|
|
|
101.INS |
Inline XBRL Instance Document+ |
|
|
101.SCH |
Inline XBRL Taxonomy extension schema document+ |
|
|
101.CAL |
Inline XBRL Taxonomy extension calculation linkbase document+ |
|
|
101.DEF |
Inline XBRL Taxonomy extension definition linkbase document+ |
|
|
101.LAB |
Inline XBRL Taxonomy extension label linkbase document+ |
|
|
101.PRE |
Inline XBRL Taxonomy extension presentation linkbase document+ |
|
|
104 |
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, has been formatted in Inline XBRL and is contained in Exhibit 101. |
+ Filed herewith
28
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 August 7, 2024.
ORION ENERGY SYSTEMS, INC. |
||
|
|
|
By |
|
/s/ J. Per Brodin |
|
|
J. Per Brodin |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer and Authorized Signatory) |
29