Orion Energy Systems, Inc. — Form 10-Q Summary
Period clarification: Although the request metadata says 2021 Q2, this filing covers the quarter ended September 30, 2022 (Orion fiscal 2023 second quarter), with six-month comparisons to September 30, 2021. Financial statement amounts below are in millions unless otherwise 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. Its segments are Orion Services Group (OSG), Orion Distribution Services (ODS), and Orion U.S. Markets (USM). Results include Stay-Lite Lighting, acquired January 1, 2022.
Financial performance
| Metric | Three months ended September 30, 2022 | Six months ended September 30, 2022 |
|---|---|---|
| Revenue | $17.6; down 51.9% year over year | $35.5; down 50.5% |
| Gross profit / margin | $4.4 / 25.3%; prior-year margin 29.5% | $8.0 / 22.5%; prior-year margin 29.4% |
| Operating income (loss) | $(2.9); prior year $5.0 | $(6.6); prior year $8.4 |
| Net income (loss) | $(2.3), or $(0.07) per diluted share | $(5.2), or $(0.17) per diluted share |
| Cash from operating activities | Not provided for the quarter alone | $(6.6); prior year $(4.0) |
For the six months, investing activities used $0.4 million and financing activities provided $5.0 million, primarily from a revolving-credit draw. Cash declined $1.9 million from March 31 to $12.5 million at September 30. Net working capital was $32.5 million, versus $32.9 million at fiscal year-end.
At September 30, total debt was approximately $5.0 million, including $5.0 million drawn on the revolving facility and $0.03 million of equipment debt. The $25 million facility had $16.2 million of borrowing-base availability; Orion reported compliance with all debt covenants. Current assets were $44.8 million and current liabilities $12.3 million.
Material changes versus prior comparable periods
- The large national retail project was substantially completed by the end of fiscal 2022; Orion expected substantially lower future sales to that customer. That customer accounted for 16.0% of quarterly revenue and 14.9% of six-month revenue, versus 58.9% and 55.0%, respectively, a year earlier.
- Management attributed lower revenue to the reduced largest-customer project volume, lower activity from other customers, and supply-chain disruptions and delays. Stay-Lite revenue partly offset the decline.
- Lower sales reduced fixed-cost absorption, contributing to weaker gross margins and the swing to operating and net losses. Six-month G&A rose 31.3%, partly due to Stay-Lite and accelerated stock-based compensation; acquisition costs were $0.3 million for the six months.
- Revenue by segment for the six months was OSG $18.8 million (down 61.6%), ODS $9.1 million (down 31.4%), and USM $7.5 million (down 19.3%). OSG posted a $3.8 million operating loss; ODS and USM remained profitable, but at lower operating income than a year earlier.
Outlook, commentary, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management said it expects lower sales to the large national retail customer and is investing in maintenance, IoT, smart-building and connected-ceiling offerings; it cautioned these efforts may reduce near-term profitability and may not succeed or become profitable.
- Management stated that cash, operating cash flow and credit availability were expected to meet anticipated liquidity needs for at least the next 12 months, while warning that this is not assured and depends on revenue, margins, working-capital management and other factors.
- Backlog was $11.2 million at September 30, 2022, compared with $10.1 million at March 31, 2022; Orion generally expects realization within one year, though delays may extend timing.
- On October 5, 2022, after quarter-end, Orion acquired EV-charging provider Voltrek for $5.0 million cash and $1.0 million in Orion shares, with potential additional earnouts of up to $13.65 million. Purchase-price allocation was not yet determinable. A November 4 credit-agreement amendment added Stay-Lite and Voltrek as borrowers and included their eligible assets in borrowing-base calculations.
- Other risks include customer concentration, project and purchase-order timing, supply-chain and input-cost pressures, variable product margins, and possible COVID-19-related disruption. Orion said inflation had not materially affected results after price increases, but future effects were uncertain. Ordinary-course litigation was not expected to have a material adverse effect; a Wisconsin sales/use tax audit settled in June 2022 with no adjustment.
- Orion reported no off-balance-sheet arrangements and said disclosure controls were effective as of September 30, 2022.
Important facts for investors to verify
- Whether revenue and project activity recover as supply-chain delays ease, and how much future business comes from the former large national account.
- Whether gross margins and cash generation improve after the sharp revenue decline and fixed-cost under-absorption.
- Actual Voltrek and Stay-Lite performance, acquisition accounting, earnout costs, and the effect of acquired assets on borrowing availability.
- Liquidity assumptions and borrowing-base availability, particularly if operating cash use continues or working-capital needs increase.
- Progress, investment costs and commercial traction in maintenance, EV charging and connected-building offerings.