oesx-10q_20200930.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 September 30, 2020

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 30,715,810 shares of the Registrant’s common stock outstanding on October 31, 2020.

 

 

 


ORION ENERGY SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

 

 

Page(s)

PART I FINANCIAL INFORMATION

3

ITEM 1.

Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2020 and September 30, 2019

4

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended September 30, 2020 and September 30, 2019

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and September 30, 2019

6

 

Notes to the Condensed Consolidated Financial Statements

7

ITEM 2.

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

25

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

38

ITEM 4.

Controls and Procedures

38

PART II OTHER INFORMATION

39

ITEM 1.

Legal Proceedings

39

ITEM 1A.

Risk Factors

39

ITEM 2.

Unregistered Sale of Equity Securities and Use of Proceeds

39

ITEM 5.

Other Information

39

ITEM 6.

Exhibits

40

SIGNATURE

41

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

September 30, 2020

 

 

March 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,124

 

 

$

28,751

 

Accounts receivable, net

 

 

17,019

 

 

 

10,427

 

Revenue earned but not billed

 

 

3,234

 

 

 

560

 

Inventories, net

 

 

18,119

 

 

 

14,507

 

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

 

Total assets

 

$

67,684

 

 

$

72,563

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

13,379

 

 

$

19,834

 

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

 

Total liabilities

 

 

36,444

 

 

 

41,528

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

   September 30, 2020 and March 31, 2020; no shares issued and outstanding at

   September 30, 2020 and March 31, 2020

 

 

 

 

 

 

Common stock, no par value: Shares authorized: 200,000,000 at September 30, 2020

   and March 31, 2020; shares issued: 40,177,700 at September 30, 2020 and

   39,729,569 at March 31, 2020; shares outstanding: 30,709,810 at

   September 30, 2020 and 30,265,997 at March 31, 2020

 

 

 

 

 

 

Additional paid-in capital

 

 

157,031

 

 

 

156,503

 

Treasury stock, common shares: 9,467,890 at September 30, 2020 and 9,463,572 at

   March 31, 2020

 

 

(36,181

)

 

 

(36,163

)

Retained deficit

 

 

(89,610

)

 

 

(89,305

)

Total shareholders’ equity

 

 

31,240

 

 

 

31,035

 

Total liabilities and shareholders’ equity

 

$

67,684

 

 

$

72,563

 

 

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 September 30,

 

 

Six Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Product revenue

 

$

20,260

 

 

$

35,572

 

 

$

29,961

 

 

$

67,911

 

Service revenue

 

 

6,021

 

 

 

12,750

 

 

 

7,131

 

 

 

22,789

 

Total revenue

 

 

26,281

 

 

 

48,322

 

 

 

37,092

 

 

 

90,700

 

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

 

Gross profit

 

 

7,263

 

 

 

12,791

 

 

 

9,898

 

 

 

23,074

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

35

 

 

 

8

 

 

 

44

 

 

 

20

 

Interest expense

 

 

(1

)

 

 

(87

)

 

 

(50

)

 

 

(223

)

Amortization of debt issue costs

 

 

(61

)

 

 

(60

)

 

 

(122

)

 

 

(121

)

Interest income

 

 

 

 

 

1

 

 

 

 

 

 

3

 

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

   common shareholders

 

$

0.06

 

 

$

0.22

 

 

$

(0.01

)

 

$

0.36

 

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

   equivalents outstanding

 

 

31,170,139

 

 

 

30,830,381

 

 

 

30,511,611

 

 

 

30,757,863

 

 

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

Deficit

 

 

Total

Shareholders’

Equity

 

Balance, March 31, 2020

 

 

30,265,997

 

 

$

156,503

 

 

$

(36,163

)

 

$

(89,305

)

 

$

31,035

 

Exercise of stock options for cash

 

 

20,000

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Shares issued under Employee Stock Purchase

   Plan

 

 

458

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

342,780

 

 

 

208

 

 

 

 

 

 

 

 

 

208

 

Employee tax withholdings on stock-based

   compensation

 

 

(4,346

)

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,219

)

 

 

(2,219

)

Balance, June 30, 2020

 

 

30,624,889

 

 

$

156,752

 

 

$

(36,179

)

 

$

(91,524

)

 

$

29,049

 

Exercise of stock options for cash

 

 

9,000

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Shares issued under Employee Stock Purchase

   Plan

 

 

151

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

76,351

 

 

 

251

 

 

 

 

 

 

 

 

 

251

 

Employee tax withholdings on stock-based

   compensation

 

 

(581

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,914

 

 

 

1,914

 

Balance, September 30, 2020

 

 

30,709,810

 

 

$

157,031

 

 

$

(36,181

)

 

$

(89,610

)

 

$

31,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Retained

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

Six Months Ended September 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(305

)

 

$

10,689

 

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

operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

587

 

 

 

610

 

Amortization of intangible assets

 

 

152

 

 

 

188

 

Stock-based compensation

 

 

459

 

 

 

330

 

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

 

Other

 

 

4

 

 

 

23

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, current and long-term

 

 

(5,909

)

 

 

(12,192

)

Revenue earned but not billed

 

 

(2,674

)

 

 

(454

)

Inventories

 

 

(3,723

)

 

 

(4,354

)

Prepaid expenses and other assets

 

 

206

 

 

 

10

 

Accounts payable

 

 

(6,305

)

 

 

12,654

 

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

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(397

)

 

 

(461

)

Additions to patents and licenses

 

 

(30

)

 

 

(73

)

Net cash used in investing activities

 

 

(427

)

 

 

(534

)

Financing activities

 

 

 

 

 

 

 

 

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

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Operating lease assets obtained in exchange for new operating lease liabilities

 

$

355

 

 

$

 

 

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

Organization

Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and seller of lighting and energy management 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 also leases office space in Jacksonville, Florida.

 

NOTE 2 — IMPACT OF COVID-19

The COVID-19 pandemic has disrupted business, trade, commerce, and financial and credit markets in the U.S. and globally. Orion’s business has been adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last month of its fiscal 2020 year. As a deemed essential business, Orion provides products and services to ensure energy and lighting infrastructure and Orion therefore continues to operate throughout the pandemic. Orion has implemented a number of safety protocols, including limiting travel, restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures, and requiring face coverings. Nonetheless, Orion did experience a material adverse effect from the COVID-19 pandemic due to the curtailment of activity in the last few weeks of the 2020 fiscal year and during the first half of fiscal 2021, including the delay of project installations for a major national account customer. This project resumed during the second quarter of fiscal 2021.

As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020, Orion implemented a number of cost reduction and cash conservation measures, including reducing headcount. Orion recognized $0.4 million in restructuring expense during the fourth quarter of fiscal 2020. As of September 30, 2020, all of the restructuring accrual had been paid.

While certain restrictions began to initially lessen in certain jurisdictions during the first half of Orion’s fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees asked to work remotely if possible. Certain areas of the country have seen a spike of COVID-19 cases (including in Manitowoc, Wisconsin), which could result in renewed restrictions and lockdown orders. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of multiple projects have been extended. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources or financial results. However, Orion does expect that the economic and regulatory impacts of COVID-19 will materially and adversely impact revenue and profitability in fiscal 2021. If there is prolonged adverse impact, Orion’s business, liquidity, capital resources, financial results, and the carrying values of Orion’s property, plant and equipment and intangible assets may be impacted negatively. Orion will continue to actively monitor the situation and may take further actions that alter business operations.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses. Orion is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020. For the fiscal year ended March 31, 2020, and three and six months ended September 30, 2020, the CARES Act did not have a material impact on Orion’s consolidated financial statements. See Note 14 – Income Taxes.

7


 

NOTE 3 — 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, 2021 or other interim periods.

The Condensed Consolidated Balance Sheet at March 31, 2020 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, 2020 filed with the SEC on June 5, 2020.

Use of Estimates

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

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.

Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple suppliers. For the three months ended September 30, 2020, one supplier accounted for 10.3% of total cost of revenue. For the six months ended September 30, 2020, no supplier accounted for more than 10% of total cost of revenue. For the three months ended September 30, 2019, two suppliers accounted for 17.2% and 10.0% of total cost of revenue, respectively. For the six months ended September 30, 2019, one supplier accounted for 15.5% of total cost of revenue

For the three months ended September 30, 2020, one customer accounted for 60.7% of total revenue. For the six months ended September 30, 2020, two customers accounted for 44.4% and 14.9% of total revenue, respectively. For the three months ended September 30, 2019, one customer accounted for 81.1% of total revenue. For the six months ended September 30, 2019, one customer accounted for 79.2% of total revenue.

As of September 30, 2020, one customer accounted for 70.9 % of accounts receivable. As of March 31, 2020, two customers accounted for 37.3% and 13.0% of accounts receivable, respectively.

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Recent Accounting Pronouncements

 

Issued: Not Yet Adopted

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

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general rules of Topic 740. The provisions of ASU 2019-12 are effective for Orion for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Orion is currently evaluating the impact of adoption on this standard on its consolidated statements of operations, cash flows, and the related footnote disclosures.

NOTE 4 — REVENUE

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.

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

9


 

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 six months ended September 30, 2020 and September 30, 2019.

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 11 – 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.

 

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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 6 – 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 six months ended September 30, 2020, Product revenue included $0.9 million and $1.4 million, respectively, derived from sales-type leases for light fixtures, $0.1 million and $0.1 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $38 thousand, 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 six months ended September 30, 2019, Product revenue included $0.6 million and $1.0 million, respectively, derived from sales-type leases for light fixtures, $0.1 million derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $38 thousand, 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 18 – Segments, for additional discussion concerning Orion’s reportable segments.

The following tables provide detail of Orion’s total revenues for the three and six months ended September 30, 2020 and September 30, 2019 (dollars in thousands):

 

 

 

Three Months Ended September 30, 2020

 

 

Six Months Ended September 30, 2020

 

 

 

Product

 

 

Services

 

 

Total

 

 

Product

 

 

Services

 

 

Total

 

Revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lighting revenues, by end user

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal government

 

$

85

 

 

$

26

 

 

$

111

 

 

$

135

 

 

$

26

 

 

$

161

 

Commercial and industrial

 

 

18,816

 

 

 

5,995

 

 

 

24,811

 

 

 

27,525

 

 

 

7,105

 

 

 

34,630

 

Total lighting

 

 

18,901

 

 

 

6,021

 

 

 

24,922

 

 

 

27,660

 

 

 

7,131

 

 

 

34,791

 

Solar energy related revenues

 

 

20

 

 

 

 

 

 

20

 

 

 

42

 

 

 

 

 

 

42

 

Total revenues from contracts with customers

 

 

18,921

 

 

 

6,021

 

 

 

24,942

 

 

 

27,702

 

 

 

7,131

 

 

 

34,833

 

Revenue accounted for under other guidance

 

 

1,339

 

 

 

 

 

 

1,339

 

 

 

2,259

 

 

 

 

 

 

2,259

 

Total revenue

 

$

20,260

 

 

$

6,021

 

 

$

26,281

 

 

$

29,961

 

 

$

7,131

 

 

$

37,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

Six Months Ended September 30, 2019

 

 

 

Product

 

 

Services

 

 

Total

 

 

Product

 

 

Services

 

 

Total

 

Revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lighting revenues, by end user

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal government

 

$

166

 

 

$

52

 

 

$

218

 

 

$

824

 

 

$

298

 

 

$

1,122

 

Commercial and industrial

 

 

34,758

 

 

 

12,698

 

 

 

47,456

 

 

 

65,942

 

 

 

22,491

 

 

 

88,433

 

Total lighting

 

 

34,924

 

 

 

12,750

 

 

 

47,674

 

 

 

66,766

 

 

 

22,789

 

 

 

89,555

 

Solar energy related revenues

 

 

22

 

 

 

 

 

 

22

 

 

 

41

 

 

 

 

 

 

41

 

Total revenues from contracts with customers

 

 

34,946

 

 

 

12,750

 

 

 

47,696

 

 

 

66,807

 

 

 

22,789

 

 

 

89,596

 

Revenue accounted for under other guidance

 

 

626

 

 

 

 

 

 

626

 

 

 

1,104

 

 

 

 

 

 

1,104

 

Total revenue

 

$

35,572

 

 

$

12,750

 

 

$

48,322

 

 

$

67,911

 

 

$

22,789

 

 

$

90,700

 

 

Cash Flow Considerations

Customer payments for material-only orders are due shortly after shipment.

Turnkey projects where the end-user is a commercial or industrial company typically span between one week to three months. Customer payment requirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they are delivered, other contracts specify that the customer will pay for the project in its entirety upon completion of the installation.

Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these sales often provide for monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.

Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three and nine months. The customer executes an agreement providing for monthly payments of the contract price, plus interest, over a five-year period. The total transaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects. The portion of the transaction associated with the installation is accounted for consistently with all other installation related performance obligations. The portion of the transaction associated with the sale of the multiple individual light fixtures is accounted for as sales-type leases in accordance with the guidance for leases. Revenues associated with the sales-type leases are included in Product revenue and recorded for each fixture separately based on the customer’s monthly acknowledgment that specified fixtures have been installed and are operating as specified.

The payments associated with these transactions that are due during the twelve months subsequent to September 30, 2020 are included in Accounts receivable, net in Orion’s Condensed Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions are included in Other long-term assets in Orion’s Condensed Consolidated Balance Sheets.

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The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable from the customer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution of the receivables purchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s Condensed Consolidated Balance Sheets until cash is received from the financial institution. The financial institution releases funds to Orion based on the customer’s monthly acknowledgment of the progress Orion has achieved in fulfilling its installation obligation. Orion provides the progress certifications to the financial institution one month in arrears.

The total amount received from the sales of these receivables during the three and six months ended September 30, 2020, was $2.1 million and $2.3 million, respectively. Orion’s losses on these sales were $9 thousand for the three and six months ended September 30, 2020 and are included in Interest expense in the Condensed Consolidated Statements of Operations.

The total amount received from the sales of these receivables during the three months ended three and six months ended September 30, 2019 was $0.9 million and $3.7 million, respectively. Orion’s losses on these sales were $23 thousand and $70 thousand for the three and six months ended September 30, 2019, respectively and are included in Interest expense in the Condensed Consolidated Statement of Operations.

 

Practical Expedients and Exemptions

Orion expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within Sales and marketing expense. There are no other capitalizable costs associated with obtaining contracts with customers.

Orion’s performance obligations related to lighting fixtures typically do not exceed nine months in duration. As a result, Orion has elected the practical expedient that provides an exemption to the disclosure requirements regarding information about value assigned to remaining performance obligations on contracts that have original expected durations of one year or less.

Orion also elected the practical expedient that permits companies to not disclose quantitative information about the future revenue when revenue is recognized as invoices are issued to customers for services performed.

Other than the turnkey projects which result in sales-type leases discussed above, Orion generally receives full payment for satisfied performance obligations in less than one year. Accordingly, Orion does not adjust revenues for the impact of any potential significant financing component as permitted by the practical expedients provided in ASC 606.

 

Contract Balances

A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.

Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of September 30, 2020, and March 31, 2020, includes $21 thousand and $39 thousand, respectively, which was not derived from contracts with customers and therefore not classified as a contract asset as defined by ASC 606.

Deferred revenue, current as of September 30, 2020, and March 31, 2020, includes $0.1 million and $31 thousand, respectively, of contract liabilities which represent consideration received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.

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Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liability as defined by ASC 606.

The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of September 30, 2020 and March 31, 2020 (dollars in thousands):

 

 

 

September 30,

2020

 

 

March 31,

2020

 

Accounts receivable, net

 

$

17,019

 

 

$

10,427

 

Contract assets

 

$

3,260

 

 

$

1,082

 

Contract liabilities