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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, 2021

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: (920892-9340

 

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 31,072,532 shares of the Registrant’s common stock outstanding on October 29, 2021.

 

 

 


 

ORION ENERGY SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

 

 

 

Page(s)

PART I FINANCIAL INFORMATION

3

ITEM 1.

Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2021 and September 30, 2020

4

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended September 30, 2021 and September 30, 2020

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and September 30, 2020

6

 

Notes to the Condensed Consolidated Financial Statements

7

ITEM 2.

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

19

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

28

ITEM 4.

Controls and Procedures

28

PART II OTHER INFORMATION

29

ITEM 1.

Legal Proceedings

29

ITEM 1A.

Risk Factors

29

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

ITEM 5.

Other Information

29

ITEM 6.

Exhibits

30

SIGNATURE

31

 

 


 

 

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, 2021

 

 

March 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,740

 

 

$

19,393

 

Accounts receivable, net

 

 

23,536

 

 

 

13,572

 

Revenue earned but not billed

 

 

2,208

 

 

 

2,930

 

Inventories, net

 

 

19,714

 

 

 

19,554

 

Prepaid expenses and other current assets

 

 

2,359

 

 

 

1,082

 

Total current assets

 

 

62,557

 

 

 

56,531

 

Property and equipment, net

 

 

11,085

 

 

 

11,369

 

Other intangible assets, net

 

 

1,846

 

 

 

1,952

 

Deferred tax assets

 

 

17,710

 

 

 

19,785

 

Other long-term assets

 

 

3,395

 

 

 

3,184

 

Total assets

 

$

96,593

 

 

$

92,821

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,417

 

 

$

17,045

 

Accrued expenses and other

 

 

11,306

 

 

 

13,226

 

Deferred revenue, current

 

 

81

 

 

 

87

 

Current maturities of long-term debt

 

 

15

 

 

 

14

 

Total current liabilities

 

 

27,819

 

 

 

30,372

 

Revolving credit facility

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

27

 

 

 

35

 

Deferred revenue, long-term

 

 

602

 

 

 

640

 

Other long-term liabilities

 

 

3,413

 

 

 

3,700

 

Total liabilities

 

 

31,861

 

 

 

34,747

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

   September 30, 2021 and March 31, 2021; no shares issued and outstanding at

   September 30, 2021 and March 31, 2021

 

 

 

 

 

 

Common stock, no par value: Shares authorized: 200,000,000 at September 30, 2021

   and March 31, 2021; shares issued: 40,537,461 at September 30, 2021 and

   40,279,050 at March 31, 2021; shares outstanding: 31,063,630 at

   September 30, 2021 and 30,805,300 at March 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

157,975

 

 

 

157,485

 

Treasury stock, common shares: 9,473,831 at September 30, 2021 and 9,473,750 at

   March 31, 2021

 

 

(36,241

)

 

 

(36,240

)

Retained deficit

 

 

(57,002

)

 

 

(63,171

)

Total shareholders’ equity

 

 

64,732

 

 

 

58,074

 

Total liabilities and shareholders’ equity

 

$

96,593

 

 

$

92,821

 

 

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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Product revenue

 

$

27,811

 

 

$

20,260

 

 

$

56,057

 

 

$

29,961

 

Service revenue

 

 

8,699

 

 

 

6,021

 

 

 

15,554

 

 

 

7,131

 

Total revenue

 

 

36,510

 

 

 

26,281

 

 

 

71,611

 

 

 

37,092

 

Cost of product revenue

 

 

18,864

 

 

 

14,402

 

 

 

38,297

 

 

 

21,631

 

Cost of service revenue

 

 

6,858

 

 

 

4,616

 

 

 

12,296

 

 

 

5,563

 

Total cost of revenue

 

 

25,722

 

 

 

19,018

 

 

 

50,593

 

 

 

27,194

 

Gross profit

 

 

10,788

 

 

 

7,263

 

 

 

21,018

 

 

 

9,898

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

2,753

 

 

 

2,638

 

 

 

5,864

 

 

 

5,049

 

Sales and marketing

 

 

2,687

 

 

 

2,332

 

 

 

5,932

 

 

 

4,186

 

Research and development

 

 

317

 

 

 

424

 

 

 

773

 

 

 

839

 

Total operating expenses

 

 

5,757

 

 

 

5,394

 

 

 

12,569

 

 

 

10,074

 

Income (loss) from operations

 

 

5,031

 

 

 

1,869

 

 

 

8,449

 

 

 

(176

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

35

 

 

 

1

 

 

 

44

 

Interest expense

 

 

(14

)

 

 

(1

)

 

 

(33

)

 

 

(50

)

Amortization of debt issue costs

 

 

(15

)

 

 

(61

)

 

 

(31

)

 

 

(122

)

Total other expense

 

 

(29

)

 

 

(27

)

 

 

(63

)

 

 

(128

)

Income (loss) before income tax

 

 

5,002

 

 

 

1,842

 

 

 

8,386

 

 

 

(304

)

Income tax expense (benefit)

 

 

1,343

 

 

 

(72

)

 

 

2,217

 

 

 

1

 

Net income (loss)

 

$

3,659

 

 

$

1,914

 

 

$

6,169

 

 

$

(305

)

Basic net income (loss) per share attributable to

   common shareholders

 

$

0.12

 

 

$

0.06

 

 

$

0.20

 

 

$

(0.01

)

Weighted-average common shares outstanding

 

 

31,031,098

 

 

 

30,669,272

 

 

 

30,946,105

 

 

 

30,511,611

 

Diluted net income (loss) per share

 

$

0.12

 

 

$

0.06

 

 

$

0.20

 

 

$

(0.01

)

Weighted-average common shares and share

   equivalents outstanding

 

 

31,287,826

 

 

 

31,170,139

 

 

 

31,310,965

 

 

 

30,511,611

 

 

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, 2021

 

 

30,805,300

 

 

$

157,485

 

 

$

(36,240

)

 

$

(63,171

)

 

$

58,074

 

Exercise of stock options for cash

 

 

24,045

 

 

 

101

 

 

 

 

 

 

 

 

 

101

 

Shares issued under Employee Stock Purchase

   Plan

 

 

496

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

171,470

 

 

 

160

 

 

 

 

 

 

 

 

 

160

 

Employee tax withholdings on stock-based

   compensation

 

 

(610

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,510

 

 

 

2,510

 

Balance, June 30, 2021

 

 

31,000,701

 

 

$

157,746

 

 

$

(36,241

)

 

$

(60,661

)

 

$

60,844

 

Exercise of stock options for cash

 

 

7,000

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Shares issued under Employee Stock Purchase

   Plan

 

 

327

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

55,896

 

 

 

211

 

 

 

 

 

 

 

 

 

211

 

Employee tax withholdings on stock-based

   compensation

 

 

(294

)

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

 

 

 

 

 

 

3,659

 

 

 

3,659

 

Balance, September 30, 2021

 

 

31,063,630

 

 

$

157,975

 

 

$

(36,241

)

 

$

(57,002

)

 

$

64,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,169

 

 

$

(305

)

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

operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

622

 

 

 

587

 

Amortization of intangible assets

 

 

113

 

 

 

152

 

Stock-based compensation

 

 

372

 

 

 

459

 

Amortization of debt issue costs

 

 

31

 

 

 

122

 

Deferred income tax

 

 

2,075

 

 

 

 

(Gain) loss on sale of property and equipment

 

 

(15

)

 

 

6

 

Provision for inventory reserves

 

 

313

 

 

 

112

 

Provision for bad debts

 

 

8

 

 

 

 

Other

 

 

 

 

 

4

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,972

)

 

 

(5,909

)

Revenue earned but not billed

 

 

722

 

 

 

(2,674

)

Inventories

 

 

(495

)

 

 

(3,723

)

Prepaid expenses and other assets

 

 

(1,015

)

 

 

206

 

Accounts payable

 

 

(633

)

 

 

(6,305

)

Accrued expenses and other

 

 

(2,208

)

 

 

3,058

 

Deferred revenue, current and long-term

 

 

(43

)

 

 

72

 

Net cash used in operating activities

 

 

(3,956

)

 

 

(14,138

)

Investing activities

 

 

 

 

 

 

 

 

Cash paid for investment

 

 

(500

)

 

 

 

Purchases of property and equipment

 

 

(312

)

 

 

(397

)

Additions to patents and licenses

 

 

(7

)

 

 

(30

)

Proceeds from sale of property, plant and equipment

 

 

17

 

 

 

 

Net cash used in investing activities

 

 

(802

)

 

 

(427

)

Financing activities

 

 

 

 

 

 

 

 

Payment of long-term debt

 

 

(7

)

 

 

(28

)

Proceeds from revolving credit facility

 

 

 

 

 

8,000

 

Payments of revolving credit facility

 

 

 

 

 

(10,085

)

Payments to settle employee tax withholdings on stock-based compensation

 

 

(6

)

 

 

(20

)

Deferred financing costs

 

 

(5

)

 

 

 

Net proceeds from employee equity exercises

 

 

123

 

 

 

71

 

Net cash provided by (used in) financing activities

 

 

105

 

 

 

(2,062

)

Net decrease in cash and cash equivalents

 

 

(4,653

)

 

 

(16,627

)

Cash and cash equivalents at beginning of period

 

 

19,393

 

 

 

28,751

 

Cash and cash equivalents at end of period

 

$

14,740

 

 

$

12,124

 

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

Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and provider of energy-efficient LED lighting, controls and Internet of Things (“IoT”) systems, including turnkey project implementation, program management and system maintenance to commercial and industrial businesses, and federal and local governments, predominantly in North America.

 

NOTE 2 — IMPACT OF COVID-19

The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Orion’s business was 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 Orion’s fiscal 2020 year, and continuing most significantly into the second quarter of fiscal 2021. During the second half of fiscal 2021, Orion experienced a rebound in business. Project installations resumed for Orion’s largest customer and installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, some customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic. In addition, the COVID-19 pandemic has led to various supply chain challenges, especially related to shipping and logistics issues, component availability, rising input costs and a tight labor market.

As an essential business, Orion provides products and services to ensure energy and lighting infrastructure and Orion therefore continued to operate throughout the pandemic. If there is a resurgence of the COVID-19 pandemic, Orion’s markets and operations could be impacted and there could be a further material adverse financial impact, including supply chain disruption for certain components.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2022 or other interim periods.

The Condensed Consolidated Balance Sheet March 31, 2021 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, 2021 filed with the SEC on June 1, 2021.

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

7


 

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 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 lamps and LED components, from multiple suppliers. For the three and six months ended September 30, 2021, no suppliers accounted for more than 10.0% of total cost of revenue. 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 and six months ended September 30, 2021, one customer accounted for 58.9% and 55.0% of total revenue, respectively. 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.

As of September 30, 2021, one customer accounted for 66.7% of accounts receivable. As of March 31, 2021, three customers accounted for 33.9%, 16.4% and 10.1% of accounts receivable, respectively.

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.

8


 

NOTE 4 — REVENUE

The following tables provide detail of Orion’s total revenues for the three and six months ended September 30, 2021 and September 30, 2020 (dollars in thousands):

 

 

 

Three Months Ended September 30, 2021

 

 

Six Months Ended September 30, 2021

 

 

 

Product

 

 

Services

 

 

Total

 

 

Product

 

 

Services

 

 

Total

 

Revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lighting revenues, by end user