Orion(OESX) - 2022 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements (Unaudited) For the nine months ended December 31, 2021, Orion Energy Systems reported a 25.8% increase in total revenue to $102.3 million and an 81.3% rise in net income to $7.3 million; however, the third quarter saw revenue decline 30.6% to $30.7 million and net income fall 74.5% to $1.1 million year-over-year, with the balance sheet remaining stable and a key subsequent acquisition of Stay-Lite Lighting, Inc. for $3.7 million Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Mar 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $17,264 | $19,393 | | Total current assets | $54,440 | $56,531 | | Total assets | $91,898 | $92,821 | | Liabilities & Equity | | | | Total current liabilities | $22,463 | $30,372 | | Total liabilities | $25,843 | $34,747 | | Total shareholders' equity | $66,055 | $58,074 | | Total liabilities and shareholders' equity | $91,898 | $92,821 | Condensed Consolidated Statements of Operations Three Months Ended December 31, (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenue | $30,714 | $44,251 | | Gross profit | $7,641 | $11,006 | | Income from operations | $1,332 | $4,465 | | Net income | $1,102 | $4,315 | | Diluted EPS | $0.04 | $0.14 | Nine Months Ended December 31, (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenue | $102,325 | $81,343 | | Gross profit | $28,659 | $20,904 | | Income from operations | $9,781 | $4,289 | | Net income | $7,271 | $4,010 | | Diluted EPS | $0.23 | $0.13 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Dec 31, (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,315 | $(5,644) | | Net cash used in investing activities | $(4,548) | $(701) | | Net cash provided by (used in) financing activities | $104 | $(10,127) | | Net decrease in cash | $(2,129) | $(16,472) | - The primary use of cash in investing activities for the nine months ended Dec 31, 2021, was $3.7 million to fund an acquisition and $0.5 million for an investment[14] Notes to the Condensed Consolidated Financial Statements - The company's business involves developing, manufacturing, and providing energy-efficient LED lighting, controls, and IoT systems, primarily in North America[15] - During fiscal 2022, the company experienced customer delays on several large projects due to supply chain disruptions and renewed COVID-19 impacts on their customers' businesses[16] - Significant customer concentration exists, with one customer accounting for 53.0% of total revenue for the nine months ended Dec 31, 2021, and 44.4% of accounts receivable as of Dec 31, 2021[27][28] - Effective January 1, 2022, Orion acquired Stay-Lite Lighting, Inc. for a cash purchase price of $3.7 million, plus a potential earn-out of up to $0.7 million, to accelerate the growth of its Maintenance Services business[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 30.6% year-over-year revenue decline in Q3 FY2022 to project delays from its largest customer and others, caused by supply chain issues and COVID-19 impacts, while year-to-date revenue grew 25.8% due to project recovery, and the company is strategically expanding recurring revenue streams through maintenance services and IoT solutions, supported by strong liquidity with $17.3 million in cash and $24.2 million available under its credit facility Overview - Orion provides LED lighting systems, IoT-enabled controls, and turnkey project management services, primarily for commercial, industrial, and government customers in North America[87] - The company is evolving its business strategy to focus on expanding recurring revenue streams, including lighting and electrical maintenance services and IoT data services, and exploring potential business acquisitions[90][92] - On January 1, 2022, Orion acquired Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for $3.7 million in cash to accelerate the growth of its maintenance services business[102] Results of Operations - Three Months Ended December 31, 2021 vs 2020 Q3 FY2022 vs Q3 FY2021 Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $30,714 | $44,251 | (30.6)% | | Gross Profit | $7,641 | $11,006 | (30.6)% | | Income from Operations | $1,332 | $4,465 | (70.2)% | | Net Income | $1,102 | $4,315 | (74.5)% | - The decrease in revenue was primarily due to lower project revenues from the company's largest customer and other customer delays on large projects, driven by supply chain disruptions and COVID-19 impacts[104] - The Orion Services Group (OSG) segment revenue decreased 45.4% to $20,000 thousand, while the Orion Distribution Services (ODS) and Orion U.S. Markets (USM) segments grew by 25.6% and 57.6%, respectively[110][112][114] Results of Operations - Nine Months Ended December 31, 2021 vs 2020 Nine Months FY2022 vs FY2021 Performance (in thousands) | Metric | 9M 2022 | 9M 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $102,325 | $81,343 | 25.8% | | Gross Profit | $28,659 | $20,904 | 37.1% | | Income from Operations | $9,781 | $4,289 | 128.0% | | Net Income | $7,271 | $4,010 | 81.3% | - The year-to-date increase in revenue was primarily due to the resumption of multiple projects that had been put on hold in the prior year period because of COVID-19 concerns[116] - Gross profit margin improved to 28.0% from 25.7% in the prior-year period, mainly due to better fixed cost absorption on higher sales volume and a payroll tax credit[117] Liquidity and Capital Resources - As of December 31, 2021, the company had $17.3 million in cash and cash equivalents, a decrease from $19.4 million at March 31, 2021, mainly due to funding the Stay-Lite acquisition ($3.7 million) and a non-controlling equity investment ($0.5 million)[125] - The company has a $25.0 million revolving credit facility, with $24.2 million available and no amounts borrowed as of December 31, 2021[137] - Backlog of firm, committed purchase orders was $16.2 million as of December 31, 2021, compared to $19.2 million as of March 31, 2021[139] Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk exposures since its last Annual Report on Form 10-K for the fiscal year ended March 31, 2021 - There have been no material changes to the company's market risk exposures since March 31, 2021[146] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of December 31, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[148] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[149] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal claims and proceedings that arise in the ordinary course of business but does not anticipate that their final resolution will have a material adverse effect on its financial results - The company is subject to various claims and legal proceedings in the ordinary course of business, none of which are expected to have a material adverse effect on future results of operations[151] Risk Factors This section directs investors to the detailed discussion of risks and uncertainties in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021 - The report refers to the Risk Factors section of the Annual Report on Form 10-K for the fiscal year ended March 31, 2021, for a discussion of important risks and uncertainties[152] Exhibits This section lists the exhibits filed with the Form 10-Q, including executive employment agreements, CEO and CFO certifications, and XBRL data files - The exhibits filed with this report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[155]