Orion(OESX) - 2023 Q4 - Annual Report

Part I Business Orion Energy Systems, Inc. provides LED lighting systems, IoT control solutions, EV charging infrastructure, and maintenance services, primarily in North America, focusing on turnkey retrofit solutions for commercial and industrial clients. - The company provides LED lighting, IoT controls, EV charging solutions, and maintenance services to commercial, industrial, and government markets in North America[16] - Orion differentiates itself by offering comprehensive turnkey project management services for multi-location retrofits, from site surveys to installation and maintenance[18] - The company operates through four reportable segments: Orion Services Group (OSG), Orion Distribution Services (ODS), Orion U.S. Markets (USM), and the new Orion Electric Vehicle Charging Division (EV Division) established after the Voltrek acquisition[25] - Customer concentration remains a key factor, with one customer accounting for 16.2% of total revenue in fiscal 2023, down from 49.1% in fiscal 2022 and 56.0% in fiscal 2021[71] - Backlog increased to $17.2 million as of March 31, 2023, from $10.1 million as of March 31, 2022[80] Reportable Segments The company is organized into four reportable segments: Orion Services Group (OSG), Orion Distribution Services (ODS), Orion U.S. Markets (USM), and the new Orion Electric Vehicle Charging (EV) Division. - Orion Services Group (OSG): Develops and sells lighting products and provides engineering and maintenance services for large national accounts and other major customers[27] - Orion Distribution Services (ODS): Sells lighting products through a network of manufacturer representative agencies and distributors[28] - Orion U.S. Markets (USM): Sells lighting and energy management systems to wholesale contractors and ESCOs[29] - Orion Electric Vehicle Charging (EV) Division: Offers turnkey EV charging installation and support services, established through the acquisition of Voltrek[30] Our Growth Strategies Orion's growth strategy centers on leveraging its full-service, turnkey capabilities for large national accounts, expanding service offerings, and innovating in energy efficiency and smart controls. - Focus on executing turnkey LED retrofit projects for large national account customers[54] - Continue product innovation, including air movement solutions and advanced smart lighting controls[55] - Leverage smart lighting systems to support IoT applications, providing customers a path to digitization[56] - Expand maintenance service offerings to build a recurring revenue stream[57] - Grow the EV charging installation business, acquired through Voltrek, by cross-selling to existing channels and customers[60] Products and Services Orion offers LED lighting fixtures, smart controls, and related services, including high-performance high bay fixtures, office ceiling retrofits, smart building systems, and comprehensive project management and maintenance. - Primary products include interior LED High Bay Fixtures like the ISON® class, which delivers up to 214 lumens per watt[63] - The LED Troffer Door Retrofit (LDRTM) is designed for quick installation in office grid ceilings[65] - Offers a broad array of smart building control systems that provide lighting control and data intelligence for building managers[64] - Provides a range of fee-based services including site assessment, engineering design, project management, installation, and maintenance for both lighting and EV charging customers[70][73] - The general warranty policy provides a limited five-year warranty on LED products, with some products offering up to a 10-year warranty[68] Risk Factors The company faces significant risks from customer concentration, challenges in executing strategic initiatives, integrating acquisitions, supply chain disruptions, and market adoption of new offerings. - The company depends on a limited number of customers, and the reduction of revenue from its most significant customer has had, and the potential future loss of other significant customers would likely have, a materially adverse effect[93][94] - The ability to regain profitability depends on the effective execution of key strategic initiatives, including marketing turnkey capabilities, product innovation, and growing the maintenance and EV charging businesses[96][98] - The company may not realize the anticipated benefits of its recent acquisitions of Stay-Lite Lighting and Voltrek, and integration may disrupt business and management[99] - Products use components like semiconductor chips that are subject to price fluctuations, shortages, or supply interruptions, which could increase costs and delay production[101] - The growth of the EV Division depends on consumer willingness to adopt electric vehicles, a market still in its early stages and subject to various influencing factors[118][119] - Government tariffs and the reduction or elimination of incentives for LED lighting or EVs could adversely affect business and slow demand[97][159][160] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission. - None[180] Properties Orion's primary manufacturing and distribution facility is a leased 266,000 square foot space in Manitowoc, Wisconsin, complemented by an owned technology center and corporate headquarters, and additional leased office spaces. - Leases an approximately 266,000 square foot manufacturing and distribution facility in Manitowoc, Wisconsin[182] - Owns an approximately 70,000 square foot technology center and corporate headquarters in Manitowoc, Wisconsin[183] - Leases additional office space in Jacksonville, FL, Lawrence, MA (for the EV Division), and Pewaukee, WI (for the Orion Services Group Division)[183][184] Legal Proceedings The company is subject to various claims and legal proceedings in the ordinary course of business but does not believe their final resolution will materially affect future operations. - The company is subject to various claims and legal proceedings arising in the ordinary course of business[185] - Management does not expect the resolution of any current legal proceedings to have a material adverse effect on future results[185] Mine Safety Disclosures The company reports that there are no mine safety disclosures required. - None[186] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Orion's common stock trades on the NASDAQ Capital Market under "OESX", with 32,295,408 shares outstanding as of May 31, 2023, and the company has never paid cash dividends nor repurchased shares in fiscal 2023. - Common stock is traded on the NASDAQ Capital Market under the symbol "OESX"[187] - As of May 31, 2023, there were 32,295,408 shares of common stock outstanding held by approximately 160 record holders[188] - The company has never paid cash dividends and does not plan to in the foreseeable future, with its credit agreement also restricting dividend payments[189] - No shares of common stock were purchased by the company during the fiscal year ended March 31, 2023[193] Reserved This item is reserved. Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, Orion's revenue significantly decreased to $77.4 million from $124.4 million in fiscal 2022, resulting in a gross margin decline to 22.6% and an operating loss of $16.0 million, primarily due to the completion of a large customer project and a $17.8 million non-cash deferred tax asset valuation allowance. | Fiscal Year Ended March 31, | 2023 | 2022 | | :--- | :--- | :--- | | Total revenue (in thousands) | $77,383 | $124,383 | | Gross profit (in thousands) | $17,511 | $33,912 | | (Loss) income from operations (in thousands) | $(15,985) | $8,391 | | Net (loss) income (in thousands) | $(34,341) | $6,091 | | Net (loss) income per share (diluted) | $(1.08) | $0.19 | - The decrease in revenue was primarily due to the completion of a significant project for the company's largest customer and delays in the commencement of certain other projects[225] - Gross margin decreased to 22.6% from 27.3% due to lower absorption of fixed costs on reduced revenue volume[225] - The fiscal 2023 net loss was significantly impacted by a $17.8 million non-cash charge to increase the valuation allowance on deferred tax assets[230] - As of March 31, 2023, the company had $16.0 million in cash and cash equivalents and had drawn $10.0 million against its $25.0 million revolving credit facility[253][254] Results of Operations In fiscal 2023, total revenue fell 37.8% to $77.4 million, leading to a 48.4% drop in gross profit and an operating loss of $16.0 million, primarily due to a major customer project completion and increased General and Administrative expenses from acquisitions. | Fiscal Year Ended March 31, | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total revenue (in thousands) | $77,383 | $124,383 | (37.8)% | | Gross profit (in thousands) | $17,511 | $33,912 | (48.4)% | | Gross Margin | 22.6% | 27.3% | - | | (Loss) income from operations (in thousands) | $(15,985) | $8,391 | NM | - General and administrative expenses increased by 66.8% in FY2023, primarily due to the acquisitions of Stay-Lite Lighting and Voltrek, which included $4.0 million for compensatory Voltrek earn-out payments[226] Segment Results In fiscal 2023, OSG revenue decreased 54.0% to $38.0 million with an operating loss, ODS revenue fell 30.7% to $15.4 million, USM revenue decreased 9.7% to $17.7 million, and the new EV Division generated $6.3 million in revenue but posted a $4.1 million operating loss due to an earn-out expense. | Segment (FY2023 Revenue) | Revenue (in thousands) | Operating (Loss) Income (in thousands) | | :--- | :--- | :--- | | Orion Services Group | $38,002 | $(6,982) | | Orion Distribution Services | $15,395 | $(186) | | Orion U.S. Markets | $17,710 | $1,605 | | Orion EV Charging | $6,275 | $(4,133) | - OSG segment revenue decreased 54.0% in fiscal 2023 due to reduced project volume from its largest customer, leading to an operating loss[240] - The EV Division's operating loss was primarily a result of a $4.0 million earn-out expense included in general and administrative costs[252] Liquidity and Capital Resources Cash and cash equivalents increased to $16.0 million at March 31, 2023, primarily due to a $10.0 million draw on its credit facility, offsetting cash used for operations and the Voltrek acquisition, while net working capital decreased to $25.9 million. - Cash and cash equivalents increased to $16.0 million as of March 31, 2023, from $14.5 million at March 31, 2022[253] - The company drew $10.0 million on its revolving credit facility in fiscal 2023. As of March 31, 2023, the borrowing base supported $17.3 million of availability[253][254] - Net working capital was $25.9 million as of March 31, 2023, a decrease from $32.9 million at March 31, 2022[267] - In March 2023, the company filed a $100 million universal shelf registration statement to facilitate potential future capital raises[256] Quantitative and Qualitative Disclosures About Market Risk Orion faces market risks from inflation, interest rates, and commodity prices, with a hypothetical 20% increase in aluminum prices potentially reducing fiscal 2023 net income by $0.7 million, while foreign exchange risk is minimal. - The company has experienced inflationary pressures on input costs but has substantially mitigated the impact through price increases[306] - As of March 31, 2023, the company had $10 million of outstanding debt with floating interest rates, exposing it to interest rate risk[309] - The company is exposed to commodity price risk, particularly for aluminum. A hypothetical 20% price increase would have reduced fiscal 2023 net income by $0.7 million[310] - Foreign exchange risk is considered minimal[307] Financial Statements and Supplementary Data This section presents Orion Energy Systems, Inc.'s audited consolidated financial statements for the fiscal year ended March 31, 2023, including the independent auditor's report which highlights the realizability of deferred tax assets as a critical audit matter. - The independent auditor, BDO USA, LLP, issued an opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company[315] - The auditor identified the 'Realizability of Deferred Tax Assets' as a critical audit matter, noting the significant management judgments required in assessing the need for a valuation allowance based on projections of future taxable income[321][322] | (in thousands) | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Total Assets (in thousands) | $71,579 | $86,817 | | Total Liabilities (in thousands) | $38,330 | $21,717 | | Total Shareholders' Equity (in thousands) | $33,249 | $65,100 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure. - None[509] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of March 31, 2023, with no material changes during the fourth quarter. - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[510] - Based on an assessment using the COSO framework, management believes that the company's internal control over financial reporting was effective as of March 31, 2023[514] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[516] Other Information The company reports no other information for this item. - None[517] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company. - Not Applicable[518] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement, and the company has adopted a Code of Conduct. - Information is incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders[521] - The company has adopted a Code of Conduct available on its website[522] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders. - Information is incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders[523] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on securities authorized for issuance under equity compensation plans is included in Item 5, with all other required information incorporated by reference from the 2023 Proxy Statement. - Information is incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders[524] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders. - Information is incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders[525] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders. - Information is incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders[526] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8 and provides an index of all exhibits filed with the Form 10-K, including corporate governance documents and material contracts. - The financial statements are set forth in Item 8 of the Form 10-K[529] - An exhibit index lists all documents filed with the report, including articles of incorporation, bylaws, loan agreements, and executive compensation plans[531] Form 10-K Summary The company reports that there is no Form 10-K summary. - None[536]