Business context and reporting period
Orion Energy Systems, Inc. develops, manufactures and provides LED lighting, controls and IoT systems, with project implementation and maintenance services, primarily in North America. This filing is for the quarter ended September 30, 2021—the company’s fiscal 2022 second quarter—not 2020 Q2 as indicated in the request metadata. Financial statements are unaudited.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Quarter ended Sept. 30, 2021 | Quarter ended Sept. 30, 2020 | Six months ended Sept. 30, 2021 | Six months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | $36.5 | $26.3 | $71.6 | $37.1 |
| Gross profit | $10.8 | $7.3 | $21.0 | $9.9 |
| Gross margin | 29.5% | 27.6% | 29.4% | 26.7% |
| Operating income (loss) | $5.0 | $1.9 | $8.4 | $(0.2) |
| Net income (loss) | $3.7 | $1.9 | $6.2 | $(0.3) |
| Diluted EPS | $0.12 | $0.06 | $0.20 | $(0.01) |
| Cash from operating activities | Not presented quarterly | $(4.0) | $(14.1) |
Quarterly product and service revenue grew 37% and 45%, respectively. For the six-month period, they rose 87% and 118%. Management attributed growth mainly to resumed and increased installations for a large national retail customer and recovery from COVID-related project delays. Segment results for the quarter: OES revenue was $27.0 million and operating income $4.3 million; ODS revenue was $4.0 million and operating income $0.6 million; USM revenue was $5.5 million and operating income $1.3 million.
Liquidity, debt and cash flow
At September 30, 2021, cash was $14.7 million, down from $19.4 million at March 31, 2021. Current assets were $62.6 million and current liabilities $27.8 million, yielding reported working capital of $34.7 million. Operating cash use of $4.0 million reflected $6.2 million net income and noncash adjustments, offset by $13.7 million of working-capital uses, principally a $10.0 million increase in receivables. Investing cash use was $0.8 million, including a $0.5 million investment in ndustrial, Inc.; financing provided $0.1 million.
No revolving-credit borrowings were outstanding. The $25 million asset-based facility matures December 29, 2025; the company reported full borrowing-base availability and compliance with covenants. Other debt was approximately $42,000. Total liabilities were $31.9 million. Backlog was $15.5 million, down from $19.2 million at March 31, 2021; the company generally expects conversion within one year, though COVID-19 may extend timing.
Material changes, outlook and risks
- Results improved substantially year over year, largely reflecting recovery from prior-period COVID-related delays. Gross margin improved, which management attributed to product-margin improvement, greater fixed-cost absorption on higher volume, and a payroll tax credit.
- The company recorded a $1.6 million employee-retention payroll tax credit as a current asset and offset to payroll expenses across cost of revenue and operating expenses. The timing of refundable amounts depends on IRS processing.
- Customer concentration is significant: one customer represented 58.9% of quarterly revenue and 55.0% of six-month revenue, and 66.7% of receivables at quarter-end. Management says project-based sales, purchase-order timing and customer concentration can create revenue volatility and working-capital exposure.
- COVID-19-related supply-chain risks remain, including shipping and logistics, component availability, rising input costs and tight labor. The company is making incremental inventory purchases. Management says a resurgence could materially adversely affect operations and results.
- Management plans to invest in recurring services, IoT, smart-building and connected-ceiling offerings, and is exploring acquisitions. It cautions these efforts may reduce near-term profitability and may not succeed or become profitable. No specific financial guidance is provided.
- Other matters: the company reported no material expected adverse effect from ordinary-course litigation or a Wisconsin sales-and-use-tax audit. It recorded a $1.3 million valuation allowance against deferred tax assets and disclosed approximately $0.4 million of gross unrecognized tax benefits.
Most important facts for investors to verify
- Confirm the period: this is the quarter ended September 30, 2021, despite the “2020 Q2” request metadata.
- Assess the sustainability of revenue and margin growth excluding the $1.6 million payroll tax credit and considering project timing and customer concentration.
- Monitor receivables, collections and operating cash flow; cash declined despite reported profits, chiefly because of working-capital needs.
- Track backlog conversion, supply-chain costs and availability, and the impact of incremental inventory purchases.
- Review the expected investment, funding needs and execution risks for new services, IoT initiatives and potential acquisitions.