Orion Energy Systems, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended December 31, 2022 (Orion fiscal 2023 Q3), not 2021 Q3 as stated in the request metadata. Figures below are unaudited; financial statement amounts are in millions unless noted.
Business context and reporting period
Orion provides commercial and industrial LED lighting and controls, installation and maintenance services, and EV charging solutions, primarily in North America. The filing covers the three and nine months ended December 31, 2022, compared with the same periods in 2021. Voltrek, acquired October 5, 2022, is included in the new EV segment; Stay-Lite, acquired January 1, 2022, is included in Orion Services Group.
Key financial metrics
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $20.3 | $30.7 | $55.8 | $102.3 |
| Gross profit / margin | $4.8 / 23.6% | $7.6 / 24.9% | $12.8 / 22.9% | $28.7 / 28.0% |
| Operating income (loss) | $(4.6) | $1.3 | $(11.1) | $9.8 |
| Net income (loss) | $(24.1) | $1.1 | $(29.2) | $7.3 |
| Basic and diluted EPS | $(0.75) | $0.04 | $(0.93) | $0.23 |
- Revenue declined 33.9% in the quarter and 45.5% for the nine-month period. Management attributed the decline mainly to the expected reduction in work for its large national retail customer, lower project volume, project delays, and supply-chain-related customer delays.
- Gross margin contracted, primarily because lower sales reduced fixed-cost absorption. Operating expenses rose, including acquisition costs of $2.0 million for the quarter, substantially reflecting a $1.5 million Voltrek earnout expense.
- A $17.8 million non-cash tax charge was recorded after Orion established a valuation allowance against domestic deferred tax assets. The charge drove the substantial difference between pretax and net loss. The valuation allowance was $19.1 million at December 31, 2022.
- Nine-month operating cash flow was $(5.2) million, versus $2.3 million provided in the prior-year period. Investing cash flow was $(6.1) million, including the Voltrek acquisition; financing cash flow was $5.0 million, primarily from a revolver draw. Cash decreased $6.3 million to $8.1 million.
- At December 31, 2022, current assets were $46.6 million and current liabilities $22.1 million, leaving working capital of $24.5 million. Debt totaled $5.0 million, principally revolving-credit borrowings. The $25 million facility had $16.3 million of borrowing-base availability; Orion reported compliance with its covenants.
Material changes versus the prior comparable period
- The large retail customer represented 18.2% of quarterly revenue and 16.1% of nine-month revenue, compared with 48.6% and 53.0%, respectively, in the prior-year periods. Management said the remainder of the business grew approximately 9% over the prior-year nine-month period, despite an approximately $50 million decrease in business from its largest customer and an online retailer.
- All segments other than EV reported lower revenue year over year for the quarter. Nine-month OSG revenue fell 60.3% and its operating result moved from $7.1 million income to a $5.6 million loss. ODS operating income fell to approximately break-even; USM operating income declined to $1.0 million.
- Backlog increased to $19.5 million at December 31, 2022, from $10.1 million at March 31, 2022. Orion generally expects backlog to convert to revenue within one year, though delays may extend timing.
- Orion issued 620,067 shares for the Voltrek acquisition. Shares outstanding were approximately 32.3 million at December 31, versus 31.1 million at March 31, 2022.
Outlook, commentary, risks, and unusual items
- Management said the EV segment was off to an “excellent start” and expected it to exceed expectations in the second half of fiscal 2023. It expects maintenance and EV businesses to accelerate with cross-selling and represent a significant portion of fiscal 2024 revenue. These are management expectations, not quantified financial guidance.
- Management cited delayed starts for large customer projects and slower-than-expected electrical-contractor distribution activity. It cautioned that business and economic challenges could continue to affect project timing and new product and service opportunities.
- Orion plans to invest in maintenance, EV, IoT, smart-building, connected-ceiling, software, and controls offerings, while acknowledging these investments may reduce near-term profitability and may not succeed or become profitable.
- Liquidity statement: management believed available cash, operating cash flow, and credit availability would meet anticipated needs for at least 12 months from the report date. It noted that significant liquidity constraints could require equity or debt issuance, spending reductions, or other cash-conservation measures.
- Voltrek consideration included $5.0 million cash and shares, with potential earnout payments based on performance. The filing describes maximum earnouts of $3.0 million, $3.5 million, and $7.15 million for fiscal 2023, 2024, and 2025, respectively. The stated acquisition purchase consideration was preliminarily allocated at approximately $6.7 million.
- Orion reported no material adverse effect expected from ordinary-course legal proceedings; a Wisconsin sales and use tax audit was settled in June 2022 with no tax adjustment. A long-lived asset impairment review triggered by a forecast change resulted in no impairment charge.
Important facts for investors to verify
- Whether large customer project activity and distribution-channel demand recover, and how much future revenue remains concentrated among major customers.
- Whether the $19.5 million backlog converts on the expected schedule and at margins sufficient to restore profitability.
- Whether EV and maintenance growth, including Voltrek performance and earnout costs, supports management’s fiscal 2024 expectations.
- Cash burn, borrowing-base availability, covenant compliance, and the assumptions supporting management’s at-least-12-month liquidity assessment.
- The assumptions behind the $17.8 million deferred-tax valuation allowance and any subsequent changes in expected realization of deferred tax assets.
- The request labels the period “2021 Q3,” but the filing itself reports fiscal 2023 Q3 ended December 31, 2022.