oesx-10q_20191231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-33887

 

Orion Energy Systems, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Wisconsin

 

39-1847269

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification number)

 

2210 Woodland Drive, Manitowoc, Wisconsin

 

54220

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (920) 892-9340

 

Securities registered pursuant to Section 12(b) of the act:

 

Title of Each Class

 

Trading Symbol (s)

 

Name of Each Exchange on Which Registered

Common stock, no par value

 

OESX

 

The Nasdaq Stock Market LLC

(NASDAQ Capital Market)

Common stock purchase rights

 

 

 

The Nasdaq Stock Market LLC

(NASDAQ Capital Market)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

There were 30,255,062 shares of the Registrant’s common stock outstanding on January 31, 2020.

 

 

 


ORION ENERGY SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

 

 

 

Page(s)

PART I FINANCIAL INFORMATION

3

ITEM 1.

Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2019 and December 31, 2018

4

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended December 31, 2019 and December 31, 2018

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and December 31, 2018

7

 

Notes to the Condensed Consolidated Financial Statements

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

36

ITEM 4.

Controls and Procedures

36

PART II OTHER INFORMATION

37

ITEM 1.

Legal Proceedings

37

ITEM 1A.

Risk Factors

37

ITEM 2.

Unregistered Sale of Equity Securities and Use of Proceeds

37

ITEM 5.

Other Information

37

ITEM 6.

Exhibits

38

SIGNATURE

39

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

December 31, 2019

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,762

 

 

$

8,729

 

Accounts receivable, net

 

 

15,224

 

 

 

14,804

 

Revenue earned but not billed

 

 

789

 

 

 

3,746

 

Inventories, net

 

 

12,235

 

 

 

13,403

 

Prepaid expenses and other current assets

 

 

714

 

 

 

695

 

Total current assets

 

 

42,724

 

 

 

41,377

 

Property and equipment, net

 

 

11,920

 

 

 

12,010

 

Other intangible assets, net

 

 

2,257

 

 

 

2,469

 

Other long-term assets

 

 

139

 

 

 

165

 

Total assets

 

$

57,040

 

 

$

56,021

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,950

 

 

$

19,706

 

Accrued expenses and other

 

 

6,241

 

 

 

7,410

 

Deferred revenue, current

 

 

85

 

 

 

123

 

Current maturities of long-term debt

 

 

56

 

 

 

96

 

Total current liabilities

 

 

23,332

 

 

 

27,335

 

Revolving credit facility

 

 

829

 

 

 

9,202

 

Long-term debt, less current maturities

 

 

53

 

 

 

81

 

Deferred revenue, long-term

 

 

734

 

 

 

791

 

Other long-term liabilities

 

 

671

 

 

 

642

 

Total liabilities

 

 

25,619

 

 

 

38,051

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at

   December 31, 2019 and March 31, 2019; no shares issued and outstanding at

   December 31, 2019 and March 31, 2019

 

 

 

 

 

 

Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2019

   and March 31, 2019; shares issued: 39,717,207 at December 31, 2019 and

   39,037,969 at March 31, 2019; shares outstanding: 30,253,062 at

   December 31, 2019 and 29,600,158 at March 31, 2019

 

 

 

 

 

 

Additional paid-in capital

 

 

156,359

 

 

 

155,828

 

Treasury stock, common shares: 9,464,145 at December 31, 2019 and 9,437,811 at

   March 31, 2019

 

 

(36,164

)

 

 

(36,091

)

Retained deficit

 

 

(88,774

)

 

 

(101,767

)

Total shareholders’ equity

 

 

31,421

 

 

 

17,970

 

Total liabilities and shareholders’ equity

 

$

57,040

 

 

$

56,021

 

 

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)

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Product revenue

 

$

25,867

 

 

$

13,952

 

 

$

93,778

 

 

$

38,350

 

Service revenue

 

 

8,382

 

 

 

2,339

 

 

 

31,171

 

 

 

4,961

 

Total revenue

 

 

34,249

 

 

 

16,291

 

 

 

124,949

 

 

 

43,311

 

Cost of product revenue

 

 

19,075

 

 

 

10,508

 

 

 

68,778

 

 

 

29,599

 

Cost of service revenue

 

 

6,900

 

 

 

1,613

 

 

 

24,823

 

 

 

3,544

 

Total cost of revenue

 

 

25,975

 

 

 

12,121

 

 

 

93,601

 

 

 

33,143

 

Gross profit

 

 

8,274

 

 

 

4,170

 

 

 

31,348

 

 

 

10,168

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

2,662

 

 

 

2,269

 

 

 

8,274

 

 

 

7,681

 

Sales and marketing

 

 

2,735

 

 

 

2,190

 

 

 

8,359

 

 

 

6,903

 

Research and development

 

 

439

 

 

 

298

 

 

 

1,240

 

 

 

1,057

 

Total operating expenses

 

 

5,836

 

 

 

4,757

 

 

 

17,873

 

 

 

15,641

 

Income (loss) from operations

 

 

2,438

 

 

 

(587

)

 

 

13,475

 

 

 

(5,473

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

2

 

 

 

31

 

 

 

22

 

 

 

65

 

Interest expense

 

 

(38

)

 

 

(77

)

 

 

(261

)

 

 

(335

)

Amortization of debt issue costs

 

 

(61

)

 

 

(31

)

 

 

(182

)

 

 

(31

)

Interest income

 

 

2

 

 

 

2

 

 

 

5

 

 

 

8

 

Total other expense

 

 

(95

)

 

 

(75

)

 

 

(416

)

 

 

(293

)

Income (loss) before income tax

 

 

2,343

 

 

 

(662

)

 

 

13,059

 

 

 

(5,766

)

Income tax expense

 

 

39

 

 

 

0

 

 

 

66

 

 

 

26

 

Net income (loss)

 

$

2,304

 

 

$

(662

)

 

$

12,993

 

 

$

(5,792

)

Basic net income (loss) per share attributable to

   common shareholders

 

$

0.08

 

 

$

(0.02

)

 

$

0.43

 

 

$

(0.20

)

Weighted-average common shares outstanding

 

 

30,243,865

 

 

 

29,568,986

 

 

 

30,053,330

 

 

 

29,376,959

 

Diluted net income (loss) per share

 

$

0.07

 

 

$

(0.02

)

 

$

0.42

 

 

$

(0.20

)

Weighted-average common shares and share

   equivalents outstanding

 

 

30,824,078

 

 

 

29,568,986

 

 

 

30,862,088

 

 

 

29,376,959

 

 

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

4


 

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

 

 

 

Shareholders’ Equity

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Retained

Earnings

(Deficit)

 

 

Total

Shareholders’

Equity

 

Balance, March 31, 2019

 

 

29,600,158

 

 

$

155,828

 

 

$

(36,091

)

 

$

(101,767

)

 

$

17,970

 

Exercise of stock options for cash

 

 

10,000

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Shares issued under Employee Stock Purchase

   Plan

 

 

613

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

535,344

 

 

 

171

 

 

 

 

 

 

 

 

 

171

 

Employee tax withholdings on stock-based

   compensation

 

 

(24,628

)

 

 

 

 

 

(64

)

 

 

 

 

 

(64

)

Net income

 

 

 

 

 

 

 

 

 

 

 

3,968

 

 

 

3,968

 

Balance, June 30, 2019

 

 

30,121,487

 

 

 

156,015

 

 

 

(36,153

)

 

 

(97,799

)

 

 

22,063

 

Shares issued under Employee Stock Purchase

   Plan

 

 

570

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

111,848

 

 

 

159

 

 

 

 

 

 

 

 

 

159

 

Employee tax withholdings on stock-based

   compensation

 

 

(2,828

)

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Net income

 

 

 

 

 

 

 

 

 

 

 

6,721

 

 

 

6,721

 

Balance, September 30, 2019

 

 

30,231,077

 

 

 

156,174

 

 

 

(36,164

)

 

 

(91,078

)

 

 

28,932

 

Shares issued under Employee Stock Purchase

   Plan

 

 

605

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

22,046

 

 

 

185

 

 

 

 

 

 

 

 

 

185

 

Employee tax withholdings on stock-based

   compensation

 

 

(666

)

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,304

 

 

 

2,304

 

Balance, December 31, 2019

 

 

30,253,062

 

 

$

156,359

 

 

$

(36,164

)

 

$

(88,774

)

 

$

31,421

 

 

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

5


 

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

 

 

 

Shareholders’ Equity

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Retained

Earnings

(Deficit)

 

 

Total

Shareholders’

Equity

 

Balance, March 31, 2018

 

 

28,953,183

 

 

$

155,003

 

 

$

(36,085

)

 

$

(95,494

)

 

$

23,424

 

Shares issued under Employee Stock Purchase

   Plan

 

 

415

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

453,754

 

 

 

228

 

 

 

 

 

 

 

 

 

228

 

Employee tax withholdings on stock-based

   compensation

 

 

(3,867

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Cumulative effect of accounting change due to

   adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

401

 

 

 

401

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,692

)

 

 

(2,692

)

Balance, June 30, 2018

 

 

29,403,485

 

 

 

155,231

 

 

 

(36,087

)

 

 

(97,785

)

 

 

21,359

 

Shares issued under Employee Stock Purchase

   Plan

 

 

938

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

137,905

 

 

 

211

 

 

 

 

 

 

 

 

 

211

 

Employee tax withholdings on stock-based

   compensation

 

 

(4,854

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,438

)

 

 

(2,438

)

Balance, September 30, 2018

 

 

29,537,474

 

 

 

155,442

 

 

 

(36,090

)

 

 

(100,223

)

 

 

19,129

 

Shares issued under Employee Stock Purchase

   Plan

 

 

1,708

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

34,785

 

 

 

200

 

 

 

 

 

 

 

 

 

200

 

Employee tax withholdings on stock-based

   compensation

 

 

(2,023

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(662

)

 

 

(662

)

Balance, December 31, 2018

 

 

29,571,944

 

 

$

155,642

 

 

$

(36,092

)

 

$

(100,885

)

 

$

18,665

 

 

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

6


 

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Nine Months Ended December 31,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

12,993

 

 

$

(5,792

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

910

 

 

 

1,006

 

Amortization of intangible assets

 

 

282

 

 

 

343

 

Stock-based compensation

 

 

515

 

 

 

639

 

Amortization of debt issue costs

 

 

182

 

 

 

31

 

Impairment of intangible assets

 

 

3

 

 

 

 

Provision for inventory reserves

 

 

192

 

 

 

(144

)

Provision for bad debts

 

 

 

 

 

66

 

Other

 

 

28

 

 

 

8

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, current and long-term

 

 

(420

)

 

 

2,857

 

Revenue earned but not billed

 

 

2,957

 

 

 

(770

)

Inventories

 

 

970

 

 

 

(367

)

Prepaid expenses and other assets

 

 

44

 

 

 

123

 

Accounts payable

 

 

(2,990

)

 

 

555

 

Accrued expenses and other

 

 

(1,296

)

 

 

(136

)

Deferred revenue, current and long-term

 

 

(95

)

 

 

(29

)

Net cash provided by (used in) operating activities

 

 

14,275

 

 

 

(1,610

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(582

)

 

 

(167

)

Additions to patents and licenses

 

 

(73

)

 

 

(29

)

Net cash used in investing activities

 

 

(655

)

 

 

(196

)

Financing activities

 

 

 

 

 

 

 

 

Payment of long-term debt

 

 

(68

)

 

 

(58

)

Proceeds from revolving credit facility

 

 

63,200

 

 

 

42,498

 

Payments of revolving credit facility

 

 

(71,572

)

 

 

(43,078

)

Payments to settle employee tax withholdings on stock-based compensation

 

 

(76

)

 

 

(10

)

Debt issue costs

 

 

(91

)

 

 

(377

)

Net proceeds from employee equity exercises

 

 

20

 

 

 

3

 

Net cash used in financing activities

 

 

(8,587

)

 

 

(1,022

)

Net increase (decrease) in cash and cash equivalents

 

 

5,033

 

 

 

(2,828

)

Cash and cash equivalents at beginning of period

 

 

8,729

 

 

 

9,424

 

Cash and cash equivalents at end of period

 

$

13,762

 

 

$

6,596

 

 

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

 

7


 

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF BUSINESS

Organization

Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion designs, manufactures, markets and manages the installation of LED solid-state lighting systems to commercial and industrial businesses, and federal and local governments, predominantly in North America.

Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin.  Orion leases office space in Jacksonville, Florida.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries.

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 presentation have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2020 or other interim periods.

The Condensed Consolidated Balance Sheet at March 31, 2019 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, 2019 filed with the SEC on June 5, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts, accruals for warranty, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.

Concentration of Credit Risk and Other Risks and Uncertainties

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

8


 

Orion purchases components necessary for its lighting products, including drivers, chips, ballasts, lamps and other LED components, from multiple suppliers.  For the three months ended December 31, 2019, one supplier accounted for 24.0% of total cost of revenue. For the nine months ended December 31, 2019, one supplier accounted for 12.5% of total cost of revenue. For the three months ended December 31, 2018, one supplier accounted for 11.7% of total cost of revenue. For the nine months ended December 31, 2018, no supplier accounted for more than 10.0% of total cost of revenue.

For the three months ended December 31, 2019, one customer accounted for 72.3% of total revenue. For the nine months ended December 31, 2019, one customer accounted for 77.3% of total revenue. For the three months ended December 31, 2018, one customer accounted for 11.6% of total revenue. For the nine months ended December 31, 2018, no customer accounted for more than 10.0% of total revenue.

As of December 31, 2019, one customer accounted for 63.5% of Accounts receivable. As of March 31, 2019, one customer accounted for 56.2% of Accounts receivable.

Recent Accounting Pronouncements

 

Recently Adopted Standards

On April 1, 2019, Orion adopted Accounting Standards Update 2016-02, and subsequent amendments, which is included in the Accounting Standards Codification (“ASC”) as Topic 842, Leases (“ASC 842”), retrospectively through a cumulative-effect adjustment.  Orion elected the package of practical expedients provided for in ASU 842, which among other things, allows companies to carry forward their historical lease classification.  Previously, Orion followed the guidance set forth in ASC 840, Leases.  

For Orion, the most significant difference between ASC 840 and ASC 842 is the requirement that lessees recognize right-of-use assets and liabilities on the balance sheet for the rights and obligations created by long-term operating leases.  Previously, the financial impact associated with operating leases was recorded only in Orion’s statement of operations.   Determining whether a contract includes a lease, and assessing whether the lease should be accounted for as a finance lease or an operating lease, is a matter of judgment based on whether the risks and rewards, as well as substantive control of the associated assets specified in the contract, have been transferred from the lessor to the lessee.  

Adoption of ASC 842 resulted in the recording of additional lease assets and lease liabilities of approximately $0.2 million as of April 1, 2019.    There was no impact to retained earnings.   The adoption of ASC 842 did not materially impact Orion’s consolidated results of operations and had no impact on Orion’s cash flows.  Orion has updated its processes and controls necessary for implementing ASC 842, including the increased footnote disclosure requirements.

 

NOTE 3 — REVENUE

Changes in Accounting Policies

Orion adopted ASC 606 and ASC 340-40 (the “new standards”) as of April 1, 2018 for contracts with customers that were not fully complete as of April 1, 2018 using the modified retrospective transition method. The cumulative effect of initially applying the new standards was recorded as an immaterial adjustment to the opening balance of retained deficit within Orion’s Condensed Consolidated Statement of Shareholders’ Equity.

General Information

Orion generates revenues primarily by selling commercial LED lighting fixtures and components, including controls and integrated IoT capabilities, and by installing these fixtures in its customer’s facilities on a turnkey basis via a dedicated installation and support team.  Orion recognizes revenue in accordance with the guidance in ASC 606 when control of the goods or services being provided (which Orion refers to as a performance obligation) is transferred to a customer at an amount that reflects the consideration that management expects to receive in exchange for those goods or services.  Prices are generally fixed at the time of order confirmation.  The amount of expected consideration includes estimated deductions and early payment discounts calculated based on historical experience, customer rebates based on agreed upon terms applied to actual and projected sales levels over the rebate period, and any amounts paid to customers in conjunction with fulfilling a performance obligation.

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If there are multiple performance obligations in a contract, the contract’s total sales price is allocated to each individual performance obligation based on their relative standalone selling price.  A performance obligation’s standalone selling price is the price at which Orion would sell such promised good or service separately to a customer.  Orion uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus margin approach when one is not available.  The cost-plus margin approach is used to determine the stand-alone selling price for the installation performance obligation and is based on average historical installation margin.

Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components is classified as Product revenue in the Condensed Consolidated Statements of Operations.   The revenue for these transactions is recorded at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer’s facility. This point in time is determined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning the transaction.

Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which Orion refers to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.

Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management believes the customer obtains control of the product(s) and is reflected in Product revenue.  This point in time is determined separately for each customer contract based upon the terms of the contract and the nature and extent of Orion’s control of the light fixtures during the installation.  Product revenue associated with turnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to shipment or delivery and upon customer payments for the light fixtures, (c) when an individual light fixture is installed and working correctly, or (d) when the customer acknowledges that the entire installation project is substantially complete.  Determining the point in time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and is applied separately for each individual light fixture included in a contract.  In making this judgment, management considers the timing of various factors, including, but not limited to, those detailed below:

 

when there is a legal transfer of ownership;

 

when the customer obtains physical possession of the products;

 

when the customer starts to receive the benefit of the products;

 

the amount and duration of physical control that Orion maintains on the products after they are shipped to, and received at, the customer’s facility;

 

whether Orion is required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered to the customer’s facility;

 

when each light fixture is physically installed and working correctly;

 

when the customer formally accepts the product; and

 

when Orion receives payment from the customer for the light fixtures.  

Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service  revenue.  Service revenue is recorded over-time as Orion fulfills its obligation to install the light fixtures.  Orion measures its performance toward fulfilling its performance obligations for installations using an output method that calculates the number of light fixtures removed and installed as of the measurement date in comparison to the total number of light fixtures to be removed or installed under the contract.

Most products are manufactured in accordance with Orion’s standard specifications.  However, some products are manufactured to a customer’s specific requirements with no alternative use to Orion.  In such cases, and when Orion has an enforceable right to payment, Product revenue is recorded on an over-time basis measured using an input methodology that calculates the costs incurred to date as compared to total expected costs.  There was no over-time revenue related to custom products recognized in the three and nine months ended December 31, 2019 or December 31, 2018.

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Orion also records revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs are supply-side agreements for the generation of electricity.  Orion’s last PPA expires in 2031.  Revenue associated with the sale of energy generated by the solar facilities under these PPAs is within the scope of ASC 606.  Revenues are recognized over-time and are equal to the amount billed to the customer, which is calculated by applying the fixed rate designated in the PPAs to the variable amount of electricity generated each month.  This approach is in accordance with the “right to invoice” practical expedient provided for in ASC 606.  Orion also recognizes revenue upon the sale to third parties of tax credits received from operating the solar facilities and from amortizing a grant received from the federal government during the period starting when the power generating facilities were constructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.

When shipping and handling activities are performed after a customer obtains control of the product, Orion has elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation.  Any shipping and handling costs charged to customers are recorded in Product revenue.  Shipping and handling costs are accrued and included in Cost of product revenue.

See Note 10, Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for its products and services.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.

 

Contract Fulfillment Costs

Costs associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of product revenue at the time revenue is recorded.  See Note 5, Inventories, Net.  Costs associated with installation sales are expensed as incurred.

 

Disaggregation of Revenue

Orion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue which is accounted for under other guidance.  For the three and nine months ended December 31, 2019, Product revenue included $0.2 million and $1.2 million, respectively, derived from sales-type leases for light fixtures, $0.1 million and $0.2 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606.

For the three and nine months ended December 31, 2018, Product revenue included $1.0 million and $2.1 million, respectively, derived from sales-type leases for light fixtures, $26 thousand and $0.2 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606. All remaining Product revenue, and all Service revenue, are derived from contracts with customers as defined in ASC 606.

The primary end-users of Orion’s lighting products and services are (a) commercial or industrial companies, and (b) the federal government.

Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products either direct from Orion or through distributors or energy service companies ("ESCOs").  Revenues associated with commercial and industrial end-users are included within each of Orion’s segments, dependent on the sales channel.

The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select group of contractors who focus on the federal government. Revenues associated with government end-users are primarily included in the Orion Engineered Systems Division segment.

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See Note 17, Segments, for additional discussion concerning Orion’s reportable segments.

The following table provides detail of Orion’s total revenues for the three and nine months ended December 31, 2019 (dollars in thousands):

 

 

 

Three Months Ended December 31, 2019

 

 

Nine Months Ended December 31, 2019

 

 

 

Product

 

 

Services

 

 

Total

 

 

Product

 

 

Services

 

 

Total

 

Revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lighting revenues, by end user

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal government

 

$

78

 

 

$

68

 

 

$

146

 

 

$

902

 

 

$

366

 

 

$

1,268

 

Commercial and industrial

 

 

25,467

 

 

 

8,314

 

 

 

33,781

 

 

 

91,411

 

 

 

30,805

 

 

 

122,216

 

Total lighting

 

 

25,545

 

 

 

8,382

 

 

 

33,927

 

 

 

92,313

 

 

 

31,171

 

 

 

123,484

 

Solar energy related revenues

 

 

10

 

 

 

 

 

 

10

 

 

 

50

 

 

 

 

 

 

50

 

Total revenues from contracts with customers

 

 

25,555

 

 

 

8,382

 

 

 

33,937

 

 

 

92,363

 

 

 

31,171

 

 

 

123,534

 

Revenue accounted for under other guidance

 

 

312

 

 

 

 

 

 

312

 

 

 

1,415

 

 

 

 

 

 

1,415

 

Total revenue

 

$

25,867

 

 

$

8,382

 

 

$

34,249

 

 

$

93,778

 

 

$

31,171

 

 

$

124,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2018

 

 

Nine Months Ended December 31, 2018

 

 

 

Product

 

 

Services

 

 

Total

 

 

Product

 

 

Services

 

 

Total

 

Revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lighting revenues, by end user

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal government

 

$

894

 

 

$

396

 

 

$

1,290

 

 

$

1,009

 

 

$

396

 

 

$

1,405

 

Commercial and industrial

 

 

11,976

 

 

 

1,943

 

 

 

13,919

 

 

 

34,987

 

 

 

4,565

 

 

 

39,552

 

Total lighting

 

 

12,870

 

 

 

2,339

 

 

 

15,209

 

 

 

35,996

 

 

 

4,961

 

 

 

40,957

 

Solar energy related revenues

 

 

8

 

 

 

 

 

 

8

 

 

 

46

 

 

 

 

 

 

46