Orion(OESX) - 2024 Q4 - Annual Report

Forward-Looking Statements This section outlines Orion Energy Systems, Inc.'s forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially - This Annual Report on Form 10-K includes forward-looking statements based on Orion Energy Systems, Inc.'s beliefs and assumptions, which are subject to risks and uncertainties and may not be achieved[12] - Important factors that could cause actual results to differ materially include pressures to reduce selling prices, ability to regain profitability and positive cash flows, dependence on key customers, liquidity and capital resources, general economic conditions, and the successful execution of business strategies[12][13][16] PART I Business Overview Orion Energy Systems, Inc. provides LED lighting, IoT controls, EV charging, and maintenance services, operating in three segments: Lighting, Maintenance, and EV, with a $22.0 million backlog as of March 31, 2024 - Orion provides state-of-the-art LED lighting systems, wireless IoT-enabled control solutions, commercial and industrial EV charging infrastructure solutions, and lighting and electrical maintenance services, primarily in North America[18] - The company differentiates itself by offering highly efficient light fixtures and comprehensive project management services for national account customers, including site surveys, utility incentive management, engineering design, and installation[20] - Effective fiscal 2024, Orion evaluates and reports its business using three segments: Lighting Segment, Maintenance Segment, and EV Segment[27] - In fiscal 2024, one customer accounted for 25.2% of total revenue, up from 16.2% in fiscal 2023, indicating significant customer concentration[39] - As of March 31, 2024, Orion held over 100 United States patents covering various innovative elements of its products, including HIF and LED fixtures, with patents related to thermal and optical performance considered material to the business[46][47] Backlog (in millions) | Date | Backlog | | :--- | :------ | | March 31, 2024 | $22.0 | | March 31, 2023 | $17.2 | - As of March 31, 2024, Orion had approximately 260 full-time employees, with no labor union representation or work stoppages[56] Risk Factors Orion faces risks including pricing pressure, customer concentration, liquidity constraints, historical net losses, EV market dependency, and challenges with new product integration and intellectual property protection - The company is experiencing increasing pressure to reduce product selling prices due to a normalized supply chain, reduced shipping costs for imported products, and increased competition from foreign competitors[62] - Orion depends on a limited number of customers, with one customer accounting for 25.2% of total revenue in fiscal 2024, and the potential loss of significant customers could materially adversely affect results[64][39] - Existing liquidity and capital resources may be insufficient to fund growth initiatives, potentially requiring additional equity or debt financing on uncertain terms[86][87] - Orion experienced net losses in fiscal 2024 and 2023, and there is no guarantee of regaining sustained profitability and positive cash flows in the future[88] - The success of the EV Segment is highly dependent on consumer adoption of electric vehicles, a relatively new and rapidly evolving market, subject to factors like EV quality, range, charging infrastructure, and government incentives[82][83] - The company's evolving business strategy, including new product and service offerings (IoT, smart-building, connected ceilings) and potential acquisitions, could significantly change the nature of the business and impact financial results[96][97][98] - Orion has never paid cash dividends and does not anticipate doing so in the foreseeable future, which may impact its ability to attract certain investors[133] Unresolved Staff Comments There are no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments[136] Cybersecurity Orion's Board and Audit Committee oversee cybersecurity risks, leveraging third-party consultants, with no material incidents reported to date - The Board of Directors and Audit Committee oversee cybersecurity risks, with quarterly and at least annual detailed reviews[137] - Management relies on third-party consultants for expertise in assessing and managing cybersecurity threats[137] - To date, no cybersecurity incident or attack has materially affected or is reasonably likely to materially affect Orion's business strategy, results of operations, or financial condition[138] Properties Orion leases a 266,000 sq ft manufacturing facility and owns a 70,000 sq ft technology center in Wisconsin, with additional leased offices in Florida, Massachusetts, and Pewaukee - Orion leases an approximately 266,000 square foot primary manufacturing and distribution facility in Manitowoc, Wisconsin, under a ten-year lease with a six-year termination option[140] - The company owns an approximately 70,000 square foot technology center and corporate headquarters adjacent to its Manitowoc facility[141] - Additional leased office spaces include Jacksonville, Florida (10,500 sq ft), Lawrence, Massachusetts (5,375 sq ft), and Pewaukee, Wisconsin (9,180 sq ft)[141] - The Manitowoc and Jacksonville facilities are utilized by all business segments, the Lawrence facility by the EV Segment, and the Pewaukee facility by the Lighting segment[142] Legal Proceedings Orion is involved in ordinary course legal claims, but does not anticipate a material adverse effect on future operations from their resolution - Orion is subject to various claims and legal proceedings arising in the ordinary course of business[143] - The company does not believe that the final resolution of any such claims or legal proceedings would have a material adverse effect on its future results of operations[143] Mine Safety Disclosures There are no mine safety disclosures to report for Orion Energy Systems, Inc - No mine safety disclosures[144] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Orion's common stock trades on NASDAQ under 'OESX', with 32.6 million shares outstanding as of May 31, 2024, and no history or anticipation of cash dividends - Shares of Orion's common stock are traded on the NASDAQ Capital Market under the symbol 'OESX'[145] - As of May 31, 2024, there were 32,567,746 shares of common stock outstanding, held by approximately 158 record holders[5][146] - Orion has never paid or declared any cash dividends on its common stock and intends to retain all available funds for business development and expansion, with its existing credit agreement restricting dividend payments[133][147] Equity Compensation Plan Information (as of March 31, 2024) | Category | Shares to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares | Weighted Average Exercise Price of Outstanding Options | Shares Remaining Available for Future Issuances Under the 2016 Omnibus Incentive Plan | | :--------------------------------------- | :------------------------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------------------------------------- | | Equity Compensation plans approved by security holders | 1,014,104 | — | 1,788,994 | | Equity Compensation plans not approved by security holders | — | — | — | | Total | 1,014,104 | — | 1,788,994 | - The company did not purchase any shares of its common stock or effect any unregistered sales of securities during the fiscal year ended March 31, 2024[151][152] [Reserved] This item is reserved and contains no information - This item is reserved[153] Management's Discussion and Analysis of Financial Condition and Results of Operations Orion's FY2024 revenue increased to $90.6 million, despite a $11.7 million net loss, driven by a government project and EV segment growth, with strategic focus on LED retrofits, IoT, and EV charging - Orion's core business involves LED lighting systems, IoT-enabled control solutions, project engineering, energy project management design, maintenance services, and EV charging infrastructure solutions, primarily in North America[156] - For fiscal 2025, Orion plans to focus on executing and marketing turnkey LED retrofit capabilities, continued product innovation (including ceiling air movement solutions and smart lighting controls), leveraging smart lighting for IoT applications, increasing profitability in maintenance services, supporting ESCO and agent-driven distribution channels, and growing the EV charging installation business[167][169][171][172][173][174] - Recent acquisitions include Voltrek (October 2022) for EV charging solutions and Stay-Lite Lighting (January 2022) for maintenance services, both intended to expand service capabilities and market reach[175][176] - Customer concentration remains significant, with one customer accounting for 25.2% of total revenue in fiscal 2024, compared to 16.2% in fiscal 2023 and 49.1% in fiscal 2022[177] Consolidated Statements of Operations Data (in thousands, except per share amounts) | Metric | FY2024 | FY2023 | FY2022 | | :--------------------------------------- | :------- | :------- | :------- | | Product revenue | $63,307 | $57,210 | $91,889 | | Service revenue | $27,274 | $20,173 | $32,494 | | Total revenue | $90,581 | $77,383 | $124,383 | | Total cost of revenue | $69,670 | $59,872 | $90,471 | | Gross profit | $20,911 | $17,511 | $33,912 | | General and administrative expenses | $16,740 | $19,487 | $11,680 | | Sales and marketing expenses | $12,988 | $11,392 | $11,628 | | Research and development expenses | $1,495 | $1,852 | $1,701 | | (Loss) income from operations | $(10,824) | $(15,985) | $8,391 | | Income tax expense (benefit) | $41 | $17,978 | $2,159 | | Net (loss) income | $(11,671) | $(34,341) | $6,091 | | Basic net (loss) income per share | $(0.36) | $(1.08) | $0.20 | | Diluted net (loss) income per share | $(0.36) | $(1.08) | $0.19 | Revenue, Cost of Revenue and Gross Margin (FY2024 vs. FY2023, in thousands) | Metric | FY2024 Amount | FY2023 Amount | % Change | FY2024 % of Revenue | FY2023 % of Revenue | | :---------------------- | :-------------- | :-------------- | :--------- | :-------------------- | :-------------------- | | Product revenue | $63,307 | $57,210 | 10.7% | 69.9% | 73.9% | | Service revenue | $27,274 | $20,173 | 35.2% | 30.1% | 26.1% | | Total revenue | $90,581 | $77,383 | 17.1% | 100.0% | 100.0% | | Cost of product revenue | $44,466 | $42,979 | 3.5% | 49.1% | 55.5% | | Cost of service revenue | $25,204 | $16,893 | 49.2% | 27.8% | 21.8% | | Total cost of revenue | $69,670 | $59,872 | 16.4% | 76.9% | 77.4% | | Gross profit | $20,911 | $17,511 | 19.4% | 23.1% | 22.6% | Segment Operating Results (in thousands) | Segment | Metric | FY2024 | FY2023 | FY2022 | | :------------------ | :------------------ | :------- | :------- | :------- | | Lighting Segment | Revenues | $61,102 | $56,553 | $118,557 | | | Operating (loss) income | $(1,352) | $(5,150) | $21,647 | | | Operating margin | (2.2)% | (9.1)% | 18.3% | | Maintenance Segment | Revenues | $17,147 | $14,555 | $5,826 | | | Operating (loss) income | $(5,523) | $(2,221) | $337 | | | Operating margin | (32.2)% | (15.3)% | 5.8% | | EV Charging Segment | Revenues | $12,332 | $6,275 | — | | | Operating loss | $(1,563) | $(4,158) | — | | | Operating margin | (12.7)% | (66.3)% | — | - Cash and cash equivalents decreased from $16.0 million at March 31, 2023, to $5.2 million at March 31, 2024, primarily due to operating losses and a $3.0 million Voltrek earn-out payment[207] - As of March 31, 2024, Orion had $20.1 million of availability under its credit facility, with $10.0 million drawn[208] - In April 2024, an amendment to the Loan Security Agreement added a $3.5 million term loan and expanded eligible receivables for the borrowing base calculation[212][451] Cash Flows (in thousands) | Activity | FY2024 | FY2023 | FY2022 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Operating activities | $(10,092) | $(2,291) | $(113) | | Investing activities | $(731) | $(6,195) | $(4,918) | | Financing activities | $(14) | $10,012 | $104 | | Net (decrease) increase in cash and cash equivalents | $(10,837) | $1,526 | $(4,927) | | Cash and cash equivalents at end of period | $5,155 | $15,992 | $14,466 | - Net working capital decreased to $16.7 million as of March 31, 2024, from $25.9 million as of March 31, 2023, primarily due to decreased cash and increased accounts payable[223] - Orion recorded a $0.5 million impairment charge on long-lived assets in the Maintenance segment in fiscal 2024 due to a change in forecast[243] - A full valuation allowance was established on net deferred tax assets in fiscal 2023 due to uncertainty of realization, increasing by $2.7 million in fiscal 2024 due to the current year book loss[252][403] - As of March 31, 2024, Orion had federal net operating loss carryforwards of approximately $78.2 million and state NOL carryforwards of $70.3 million[254][405] Quantitative and Qualitative Disclosures About Market Risk Orion faces minimal market risk from inflation, foreign currency, and interest rates, but is exposed to commodity price fluctuations, particularly aluminum - Orion has substantially mitigated inflationary pressures on input costs (labor, components, transportation) through multiple price increases, with no material effect on operations[261] - The company faces minimal exposure to adverse movements in foreign currency exchange rates, with nominal foreign currency losses[262] - Orion does not believe it is subject to any material risks from changes in interest rates, despite having $10.0 million of outstanding debt with floating interest rates as of March 31, 2024[263][264] - The company is exposed to commodity price risks, primarily from aluminum purchases; a hypothetical 20% increase in aluminum prices would have a negative impact of $0.7 million on net income in fiscal 2024[265] Financial Statements and Supplementary Data This section presents Orion's audited financial statements for FY2024, FY2023, and FY2022, highlighting a $11.7 million net loss in FY2024 and a $0.5 million impairment charge - BDO USA, P.C. issued an unqualified opinion on Orion's consolidated financial statements for the period ended March 31, 2024[269] - The auditor identified the evaluation of excess and obsolete inventory as a critical audit matter due to management's significant judgments regarding historical sales activity and expected product demand[274][275] Consolidated Balance Sheets (in thousands) | Asset/Liability | March 31, 2024 | March 31, 2023 | | :--------------------------------------- | :------------- | :------------- | | Cash and cash equivalents | $5,155 | $15,992 | | Accounts receivable, net | $14,022 | $13,728 | | Inventories | $18,246 | $18,205 | | Total current assets | $44,822 | $50,361 | | Property and equipment, net | $9,593 | $10,470 | | Goodwill | $1,484 | $1,484 | | Other intangible assets, net | $4,462 | $6,004 | | Total assets | $63,169 | $71,579 | | Accounts payable | $18,350 | $13,405 | | Accrued expenses and other | $9,440 | $10,552 | | Total current liabilities | $28,053 | $24,454 | | Revolving credit facility | $10,000 | $10,000 | | Total liabilities | $40,627 | $38,330 | | Total shareholders' equity | $22,542 | $33,249 | Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | FY2024 | FY2023 | FY2022 | | :--------------------------------------- | :------- | :------- | :------- | | Total revenue | $90,581 | $77,383 | $124,383 | | Gross profit | $20,911 | $17,511 | $33,912 | | (Loss) income from operations | $(10,824) | $(15,985) | $8,391 | | Income tax expense | $41 | $17,978 | $2,159 | | Net (loss) income | $(11,671) | $(34,341) | $6,091 | | Basic net (loss) income per share | $(0.36) | $(1.08) | $0.20 | | Diluted net (loss) income per share | $(0.36) | $(1.08) | $0.19 | Consolidated Statements of Cash Flows (in thousands) | Activity | FY2024 | FY2023 | FY2022 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(10,092) | $(2,291) | $(113) | | Net cash used in investing activities | $(731) | $(6,195) | $(4,918) | | Net cash (used in) provided by financing activities | $(14) | $10,012 | $104 | | Net (decrease) increase in cash and cash equivalents | $(10,837) | $1,526 | $(4,927) | | Cash and cash equivalents at end of period | $5,155 | $15,992 | $14,466 | - Orion recognized a non-cash intangible impairment loss of $0.5 million in fiscal 2024 related to the acquired Stay-Lite trade name and customer list within the Maintenance segment, due to sustained expectations of declining revenue growth and decreased margin expectations[382] - As of March 31, 2024, Orion had $10.0 million outstanding on its $25.0 million revolving credit facility, which matures on December 29, 2025[392][393] - Total income tax expense decreased significantly to $41 thousand in fiscal 2024 from $17.9 million in fiscal 2023, primarily due to a $17.8 million non-cash charge in fiscal 2023 to increase the valuation allowance on deferred tax assets[196][401] - Orion recognized $0.1 million in restructuring expense during the fourth quarter of fiscal 2024 related to employee separation agreements[450] Quarterly Financial Data (Unaudited, in thousands, except per share amounts) | Quarter | Total Revenue | Net (Loss) Income | Basic Net (Loss) Income Per Share | | :-------------------- | :-------------- | :---------------- | :-------------------------------- | | Jun 30, 2023 | $17,613 | $(6,637) | $(0.21) | | Sep 30, 2023 | $20,586 | $(4,388) | $(0.14) | | Dec 31, 2023 | $25,971 | $(2,256) | $(0.07) | | Mar 31, 2024 | $26,411 | $1,610 | $0.05 | | Total FY2024 | $90,581 | $(11,671) | $(0.36) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with Orion's independent registered public accounting firm regarding accounting or financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[456] Controls and Procedures Orion's management, including CEO and CFO, assessed disclosure controls and internal control over financial reporting as effective as of March 31, 2024 - Management, with the participation of the CEO and CFO, concluded that Orion's disclosure controls and procedures were effective at a level of reasonable assurance as of March 31, 2024[457] - Management assessed and believes that Orion's internal control over financial reporting was effective as of March 31, 2024, based on the COSO framework[461] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[462] Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal year ended March 31, 2024 - No director or Section 16 officer adopted or terminated a 'Rule 10b5-1 trading arrangement' during the year ended March 31, 2024[463] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Orion Energy Systems, Inc - This item is not applicable[464] PART III Directors, Executive Officers and Corporate Governance Information on Orion's directors, executive officers, and corporate governance, including the Code of Conduct, is incorporated by reference from the 2024 Proxy Statement - Information required for this item is incorporated by reference to the Proxy Statement for the 2024 Annual Meeting of Shareholders[467] - Orion has adopted a Code of Conduct applicable to all directors, employees, and officers, available on its website[468] Executive Compensation Details concerning executive compensation are incorporated by reference from Orion's Proxy Statement for the 2024 Annual Meeting of Shareholders - Information required for this item is incorporated by reference to the Proxy Statement for the 2024 Annual Meeting of Shareholders[469] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on security ownership and related shareholder matters is incorporated by reference from the 2024 Proxy Statement, with additional details in Item 5 - Information required for this item is incorporated by reference to the Proxy Statement for the 2024 Annual Meeting of Shareholders, with additional details in Item 5[470] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from Orion's 2024 Proxy Statement - Information required for this item is incorporated by reference to the Proxy Statement for the 2024 Annual Meeting of Shareholders[471] Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from Orion's Proxy Statement for the 2024 Annual Meeting of Shareholders - Information required for this item is incorporated by reference to the Proxy Statement for the 2024 Annual Meeting of Shareholders[472] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules included in the Form 10-K, encompassing corporate documents, loan agreements, equity plans, and certifications - Financial statements are set forth in Item 8 of this Form 10-K[475] - The exhibit index includes corporate governance documents (Articles of Incorporation, Bylaws), loan and security agreements, equity incentive plans, and certifications[478] Form 10-K Summary This item is not applicable to Orion Energy Systems, Inc - This item is not applicable[483] Signatures This section contains the required signatures for the Annual Report on Form 10-K, including those of the CEO, CFO, and Board members - The Annual Report on Form 10-K is duly signed on behalf of Orion Energy Systems, Inc. by its Chief Executive Officer and other authorized persons[486][487]