Strong Rebound in Turnkey LED Lighting Retrofit Activity from National Accounts Improves Orion Energy’s Outlook; Orion Reports Q2 Net Income of $1.9M, or $0.06 Per Share, on Revenue of $26.3M; Investor Call Today at 10am ET
- Q2’21 revenue grew sequentially to
$26.3Mfrom $10.8Min Q1’21, reflecting substantial major account activity, and was below Q2’20 record revenue of $48.3M. The variance with last year relates principally to the impact of COVID-19. Starting in March 2020, customers had suspended existing projects and delayed new projects, however activity began to reinvigorate in August 2020.
- Previously delayed turnkey installations for a major national account resumed in early August. Based on approximately
$41Min recent contract extensions, Orion now expects this customer to contribute at least $56Min product and service revenue in FY 2021.
- Q2’21 gross profit percentage improved to 27.6% versus 24.4% in Q1’21, driven by higher sequential revenue, and 26.5% in Q2’20 despite significantly lower revenue, primarily due to new product introductions, product mix, proactive sourcing and cost management efforts.
- Q2’21 operating expenses increased 15.3% to
$5.4Mversus $4.7Min Q1’21and decreased 8.8% versus $5.9Min Q2’20, reflecting sales commissions on relative revenue and the benefit of cost reductions at the outset of the pandemic, partially offset by initial investments to support the rebound in customer activity and improved business outlook.
- Orion ended the quarter with
$27.4Min working capital, including cash of $12.1M, and had $7.9Moutstanding on its revolving credit facility.
- Reflecting a ramp-up in project activity from new and existing customers and barring any significant COVID-19 business impacts, Orion now anticipates both Q3’21 and Q4’21revenue of at least
$40Min each quarter and expects to achieve financial results in FY 2022 that should at least match those delivered in FY 2020.
|Q2 Financial Highlights||Prior Three Quarters|
|$ in millions except
per share figures
|Gross Profit %||27.6%||26.5%||n/a||24.4%||22.3%||24.2%|
|Net Income (Loss)||$1.9||(
|Cash & Equivalents||$12.1|
|*EBITDA reconciliation table below.|
“As anticipated, Q2’21 had a slow start but picked up pace in August, as we recommenced work for a major customer, and that pace is continuing in Q3’21. Importantly, we continue to focus on launching higher margin products, manufacturing cost reductions and efficiencies and proactively managing our supply chain, which enabled us to achieve a Q2’21 gross profit percentage of 27.6%. Proactive operating cost management efforts also contributed to our return to profitability in Q2’21, with net income of
“As always, we could not have continued to meet the needs of our customers during COVID-19 or scaled the business back up so quickly without the hard work and dedication of the Orion team managing through a challenging period. Now, we are rapidly pivoting our efforts back to growth, with a range of initiatives to support current and anticipated projects.
“We have a growing base of national account opportunities, as these large customers are ideally suited to appreciate the value of our customized, turnkey solutions. We are seeing very healthy demand from such businesses as many are now looking to utilize previously frozen budgets to invest in new lighting and controls systems that deliver improved illumination and safety with energy efficiency that also benefits their bottom line. We are gaining traction with customers who are looking for ways to reduce costs during a challenging environment with an expanded sales effort and our growing base of large customer references.
“Reflecting these and other factors, I am pleased to say that we are even more confident in our business outlook for the balance of FY 2021 and for FY 2022. Of course, our increasing optimism must be tempered somewhat by the potential for possible COVID-19 impacts to general economic activity and our business. We believe we have put in place stringent safety protocols and procedures to mitigate the risk of COVID-19 to our business and, so far, we haven’t seen any material disruption at customer sites or at our plant.”
Given improved visibility on the timing of major customer projects, Orion believes it is on track to achieve both Q3’21 and Q4’21 revenue of at least
- In October Orion secured new contract extensions from an existing large national retail customer, representing approximately
$41Mof expected product and service revenue for the second half of FY 2021. This retailer also named Orion as the lighting and controls partner for new construction projects.
- In Q2, Orion completed several initial facilities for a new national customer, a major global logistics company, and several more projects are in process. This customer is expected to be a significant source of revenue as we move forward. Orion expects to work with the customer on a project-by-project basis, versus larger-scale multi-site commitments, which limits visibility on the timing of future revenue contributions.
- Also in Q2, Orion added a new large specialty retail customer and is providing turnkey LED lighting retrofit solutions for its nationwide chain of stores. The initial phase of the project is expected to generate product and service revenue of at least
$8Mduring the third and fourth quarters of FY 2021. Orion expects to retrofit the customer’s remaining stores in late FY 2021 and FY 2022.
- Collaborating with a long-standing electrical contractor partner, Orion is providing custom-designed luminaires and lighting controls in new facilities for a global online retailer. To date in FY 2020 and FY 2021 this customer has generated approximately
$6Min product revenue. Orion sees a growing relationship with a greater potential revenue impact from future phases of the customer’s new facilities, beginning in late FY 2021 into FY 2022.
- Orion is experiencing a stronger than expected rebound in activity across a range of markets, including the public sector, medical, logistics and retail, as well as in its
Energy Service Company(ESCO), electrical contractor and distribution channels, as more and more businesses are able to proceed with retrofit and new construction projects. Management teams seem more engaged in pursuing cost saving projects with strong ROI and relatively short payback periods, many of which were placed on hold due to COVID-19.
- Orion also anticipates continued demand from long-standing public sector customers, including the
U.S.Military, the Veterans Administrationand the U.S. Postal Service.
- Orion has recently launched several new products that were designed to deliver superior quality and energy efficiency at very attractive pricing. These new products are being well received by customers and look to offer solid revenue opportunities going forward.
Based on a growing base of customer engagements and project opportunities, Orion believes it is well positioned and expects to achieve financial results in FY 2022 that should at least match those delivered in FY 2020. In FY 2020, Orion achieved record revenue of
Orion’s Q2’21 revenue improved sequentially to
Gross profit percentage improved to 27.6% in Q2’21 compared to 24.4% in Q1’21, driven by higher sequential revenue, and 26.5% in Q2’20, primarily due to proactive cost mitigation efforts in manufacturing, procurement and plant costs, as well as to manufacturing and component efficiencies in the design of new products that have been introduced.
Total operating expenses increased 15.3% to
Orion reported Q2’21 net income of
Cash Flow & Balance Sheet
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Orion is a provider of LED lighting systems and turnkey project implementation, including installation and commissioning of fixtures, controls and IoT solutions, as well as ongoing system maintenance and program management, helping customers to enhance the efficiency of their business while reducing their carbon footprint. Orion systems utilize patented design elements to deliver industry-leading energy efficiency, enhanced optical and thermal performance and ease of installation, providing long-term financial, environmental, and work-space benefits to a diverse customer base, including nearly 40% of the Fortune 500.
In addition to the GAAP results included in this presentation, Orion has also included the non-GAAP measures, EBITDA (earnings before interest, taxes, depreciation and amortization), and EBITDA margin (EBITDA divided by total revenue) as a measure of its quarterly performance. The Company has provided these non-GAAP measures to help investors better understand its core operating performance, enhance comparisons of core operating performance from period to period and allow better comparisons of operating performance to its competitors. Among other things, management uses EBITDA and EBITDA margin to evaluate performance of the business and believes these measurements enable it to make better period-to-period evaluations of the financial performance of core business operations. The non-GAAP measurements are intended only as a supplement to the comparable GAAP measurements and Orion compensates for the limitations inherent in the use of non-GAAP measurements by using GAAP measures in conjunction with the non-GAAP measurement. As a result, investors should consider these non-GAAP measurements in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with generally accepted accounting principles.
Consistent with Regulation G under the
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the
Safe Harbor Statement
Certain matters discussed in this press release, including under the headings “Highlights,” “CEO Commentary”, "FY 2021 Outlook" are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements will include words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause results to differ materially from those expected, including, but not limited to, the following: (i) our ability to achieve our expected revenue and other financial objectives in FY 2021 and beyond, particularly as a result of the COVID-19 pandemic; (ii) our recent and expected continued reliance on revenue generated from the retrofit of a single or few national account projects; (iii) our ability to achieve profitability and positive cash flows; (iv) our levels of cash and our limited borrowing capacity under our revolving line of credit; (v) the availability of additional debt financing and/or equity capital; (vi) our lack of major sources of recurring revenue, our dependence on a limited number of key customers, and the potential consequences of the loss of one or more key customers or suppliers, including key contacts at such customers; (vii) our risk of potential loss related to single or focused exposure within the current customer base and product offerings; (viii) our ability to manage the ongoing decreases in the average selling prices of our products as a result of competitive pressures in the evolving light emitting diode ("LED") market; (ix) our ability to differentiate our products in a highly competitive market, expand our customer base and gain market share; (x) our ability to manage our inventory and avoid inventory obsolescence in a rapidly evolving LED market; (xi) our ability to adapt to increasing convergence in the LED market; (xii) the reduction or elimination of investments in, or incentives to adopt, LED lighting technologies; (xiii) our increasing emphasis on selling more of our products through third party distributors and sales agents, including our ability to attract and retain effective third party distributors and sales agents to execute our sales model; (xiv) our ability to develop and participate in new product and technology offerings or applications in a cost effective and timely manner; (xv) the potential deterioration of market conditions, including our dependence on customers' capital budgets for sales of products and services, and adverse impacts on costs and the demand for our products as a result of the implementation of tariffs; (xvi) our increasing reliance on third parties for the manufacture and development of products and product components; (xvii) our ability to maintain safe and secure information technology systems; (xviii) our failure to comply with the covenants in our revolving credit agreement; (xix) our fluctuating quarterly results of operations as we continue to implement cost reductions, and continue to focus investing in our third party distribution sales channel; (xx) our ability to recruit, hire and retain talented individuals in all disciplines of our company; (xxi) our ability to balance customer demand and production capacity; (xxii) our ability to maintain an effective system of internal control over financial reporting; (xxiii) price fluctuations (including as a result of tariffs), shortages or interruptions of component supplies and raw materials used to manufacture our products; (xxiv) our ability to defend our patent portfolio; (xxv) a reduction in the price of electricity; (xxvi) the cost to comply with, and the effects of, any current and future industry and government regulations, laws and policies; (xxvii) the sale of our corporate office building which will likely result in a non-cash impairment charge; and (xxviii) potential warranty claims in excess of our reserve estimates and (xxviii) the other risks described in our filings with the
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|Cash and cash equivalents||$||12,124||$||28,751|
|Accounts receivable, net||17,019||10,427|
|Revenue earned but not billed||3,234||560|
|Prepaid expenses and other current assets||659||723|
|Total current assets||51,155||54,968|
|Property and equipment, net||11,472||11,817|
|Other intangible assets, net||2,094||2,216|
|Long-term accounts receivable||78||760|
|Other long-term assets||2,885||2,802|
|Liabilities and Shareholders’ Equity|
|Accrued expenses and other||10,194||7,228|
|Deferred revenue, current||216||107|
|Current maturities of long-term debt||14||35|
|Total current liabilities||23,803||27,204|
|Revolving credit facility||7,928||10,013|
|Long-term debt, less current maturities||43||50|
|Deferred revenue, long-term||677||715|
|Other long-term liabilities||3,993||3,546|
|Commitments and contingencies|
September 30, 2020 and
September 30, 2020 and
|Common stock, no par value: Shares authorized: 200,000,000 at
September 30, 2020 and 30,265,997 at
|Additional paid-in capital||157,031||156,503|
March 31, 2020
|Total shareholders’ equity||31,240||31,035|
|Total liabilities and shareholders’ equity||$||67,684||$||72,563|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|Three Months Ended
||Six Months Ended
|Cost of product revenue||14,402||25,878||21,631||49,703|
|Cost of service revenue||4,616||9,653||5,563||17,923|
|Total cost of revenue||19,018||35,531||27,194||67,626|
|General and administrative||2,638||2,605||5,049||5,612|
|Sales and marketing||2,332||2,918||4,186||5,624|
|Research and development||424||390||839||801|
|Total operating expenses||5,394||5,913||10,074||12,037|
|Income (loss) from operations||1,869||6,878||(176||)||11,037|
|Other income (expense):|
|Amortization of debt issue costs||(61||)||(60||)||(122||)||(121||)|
|Total other expense||(27||)||(138||)||(128||)||(321||)|
|Income (loss) before income tax||1,842||6,740||(304||)||10,716|
|Income tax expense||(72||)||19||1||27|
|Net income (loss)||$||1,914||$||6,721||$||(305||)||$||10,689|
|Basic net income (loss) per share attributable to
|Weighted-average common shares outstanding||30,669,272||30,189,067||30,511,611||29,957,541|
|Diluted net income (loss) per share||$||0.06||$||0.22||$||(0.01||)||$||0.35|
|Weighted-average common shares and share
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|Six Months Ended
|Net income (loss)||$||(305||)||$||10,689|
|Adjustments to reconcile net (loss) income to net cash (used in) provided by
|Amortization of intangible assets||152||188|
|Amortization of debt issue costs||122||121|
|Impairment of intangible assets||—||3|
|Loss on sale of property and equipment||6||—|
|Provision for inventory reserves||112||119|
|Changes in operating assets and liabilities:|
|Accounts receivable, current and long-term||(5,909||)||(12,192||)|
|Revenue earned but not billed||(2,674||)||(454||)|
|Prepaid expenses and other assets||206||10|
|Accrued expenses and other||3,058||749|
|Deferred revenue, current and long-term||72||(47||)|
|Net cash (used in) provided by operating activities||(14,138||)||8,449|
|Purchases of property and equipment||(397||)||(461||)|
|Additions to patents and licenses||(30||)||(73||)|
|Net cash used in investing activities||(427||)||(534||)|
|Payment of long-term debt||(28||)||(44||)|
|Proceeds from revolving credit facility||8,000||62,200|
|Payments of revolving credit facility||(10,085||)||(67,646||)|
|Payments to settle employee tax withholdings on stock-based compensation||(20||)||(72||)|
|Net proceeds from employee equity exercises||71||16|
|Net cash used in financing activities||(2,062||)||(5,546||)|
|Net (decrease) increase in cash and cash equivalents||(16,627||)||2,369|
|Cash and cash equivalents at beginning of period||28,751||8,729|
|Cash and cash equivalents at end of period||$||12,124||$||11,098|
UNAUDITED EBITDA RECONCILIATION
|Three Months Ended
||Six Months Ended
|Net income (loss)||$||1,914||$||6,721||$||(305||)||$||10,689|
|Amortization of intangible assets||74||94||152||188|
|Amortization of debt issue costs||61||60||122||121|
Source: Orion Energy Systems, Inc.