Orion(OESX) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, along with detailed notes on accounting policies and segment information Condensed Consolidated Balance Sheet Highlights (in thousands) | | December 31, 2018 | March 31, 2018 | | :--- | :--- | :--- | | Total current assets | $25,468 | $29,453 | | Total assets | $40,333 | $45,325 | | Total current liabilities | $16,860 | $16,424 | | Total liabilities | $21,668 | $21,901 | | Total shareholders' equity | $18,665 | $23,424 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $16,291 | $17,263 | $43,311 | $45,243 | | Gross profit | $4,170 | $5,116 | $10,168 | $11,447 | | Loss from operations | $(587) | $(1,359) | $(5,473) | $(11,393) | | Net loss | $(662) | $(1,433) | $(5,792) | $(11,666) | | Basic net loss per share | $(0.02) | $(0.05) | $(0.20) | $(0.41) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,610) | $(3,081) | | Net cash used in investing activities | $(196) | $(521) | | Net cash used in financing activities | $(1,022) | $(3,142) | | Net decrease in cash and cash equivalents | $(2,828) | $(6,744) | | Cash and cash equivalents at end of period | $6,596 | $10,563 | Notes to the Condensed Consolidated Financial Statements These notes detail the company's business, the adoption of ASC 606, revenue disaggregation, debt, segment performance, and a fiscal 2018 cost reduction plan - The company adopted the new revenue recognition standard ASC 606 on April 1, 2018, using the modified retrospective method, which generally delays some product revenue recognition in turnkey projects and alters the timing for service revenue and costs[27][32] Disaggregation of Revenue - Nine Months Ended Dec 31, 2018 (in thousands) | End User/Type | Product Revenue | Services Revenue | Total Revenue | | :--- | :--- | :--- | :--- | | Lighting - Federal government | $1,009 | $396 | $1,405 | | Lighting - Commercial and industrial | $34,987 | $4,565 | $39,552 | | Total Lighting (Contracts with Customers) | $35,996 | $4,961 | $40,957 | | Solar energy related revenues | $46 | $— | $46 | | Revenue accounted for under other guidance | $2,308 | $— | $2,308 | | Total Revenue | $38,350 | $4,961 | $43,311 | - On October 26, 2018, Orion entered into a new two-year secured revolving credit facility with Western Alliance Bank, with borrowings initially limited to $20.15 million, subject to a borrowing base, which was $4.4 million with $3.3 million outstanding as of December 31, 2018[90][91] - The company has three reportable segments: Orion Engineered Systems Division (OES), Orion Distribution Services Division (ODS), and Orion U.S. Markets Division (USM)[117] - During fiscal 2018, the company executed a cost reduction plan, resulting in restructuring expenses of $2.0 million for the nine months ended December 31, 2017, compared to only $30,000 for the same period in 2018[123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, market shifts, and cost reduction impacts, noting a decrease in Q3 FY2019 revenue but an improved net loss and increased backlog - The company's primary focus is on enterprise-grade LED lighting and energy project solutions, with revenue generated on a project-by-project basis, primarily in North America[127][130] - A cost reduction plan executed in fiscal 2018 included headcount reduction and restructuring of management compensation, leading to significantly lower G&A and Sales & Marketing expenses in fiscal 2019[136][151][152] - On January 11, 2019, the company secured a letter of intent for an LED retrofit project expected to generate approximately $11 million in revenue, with a significant portion anticipated in Q4 fiscal 2019[143][144] Q3 FY2019 vs Q3 FY2018 Performance (in thousands) | Metric | Q3 FY2019 | Q3 FY2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $16,291 | $17,263 | (5.6)% | | Gross Profit | $4,170 | $5,116 | (18.5)% | | Loss from Operations | $(587) | $(1,359) | 56.8% | | Net Loss | $(662) | $(1,433) | 53.8% | - Cash and cash equivalents decreased from $9.4 million at March 31, 2018, to $6.6 million at December 31, 2018, primarily due to the net loss, partially offset by working capital management[181] - Order backlog increased to $5.1 million as of December 31, 2018, compared to $3.3 million as of March 31, 2018[201] Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes to the company's market risk exposures since the disclosures made in its Annual Report on Form 10-K for the fiscal year ended March 31, 2018 - There have been no material changes to the company's market risk exposures since March 31, 2018[207] Controls and Procedures Management concluded that as of December 31, 2018, the company's internal control over financial reporting was not effective due to material weaknesses identified as of March 31, 2018, with a remediation plan underway - Material weaknesses in internal control over financial reporting, first identified as of March 31, 2018, continued to exist at December 31, 2018[211] - The weaknesses are specifically related to: 1) Information & Communication regarding project status and costs, and 2) Control Activities over the accounting close process and forecasts used for fair value estimates[216] - A remediation plan is underway, which includes developing a forecast review process, improving impairment analysis, designing new controls for project cost accounting, and strengthening management review controls[216][217][221] PART II OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, other information, and a list of exhibits filed Legal Proceedings The company is subject to various claims and legal proceedings that arise in the ordinary course of business, with further details provided in the financial statements - The company is subject to various claims and legal proceedings arising in the ordinary course of business[222] - Note 13 of the financial statements provides further details on litigation matters, including the dismissal of a lawsuit from a former CEO and the settlement of a shareholder lawsuit in the first quarter of fiscal 2019[108][109][223] Risk Factors This section directs readers to the comprehensive discussion of risks and uncertainties in Part I, Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018 - For a detailed discussion of risks, readers are referred to the 'Risk Factors' section of the Annual Report on Form 10-K for the fiscal year ended March 31, 2018[224] Unregistered Sale of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities were reported for the period[225] Other Information The company reported no information for this item during the period - No information was reported under this item[225] Exhibits This section lists the exhibits filed with the Form 10-Q, which include a new Business Financing Agreement, CEO and CFO certifications, and XBRL data files - Key exhibits filed include the Business Financing Agreement with Western Alliance Bank dated October 26, 2018, and certifications from the CEO and CFO pursuant to SEC rules[227]