ORION ENERGY SYSTEMS INC

Previous wording

We provide state-of-the-art light emitting diode (“LED”) lighting systems, sourced wireless Internet of Things (“IoT”) enabled control solutions, commercial and industrial electric vehicle (“EV”) charging infrastructure solutions and maintenance services. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We sell our products and services into many vertical markets within the broader commercial and industrial market segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and municipal government, healthcare and schools. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America.

Current wording

We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control solutions, commercial and industrial electric vehicle (“EV”) charging infrastructure solutions, and lighting and electrical maintenance services. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We sell our products and services into many vertical markets within the broader commercial and industrial market segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and municipal government, healthcare and schools. Our services consist of turnkey installation (lighting and EV) and system maintenance. Virtually all of our sales occur within North America or for the US Department of Defense's military bases operating in foreign countries.

Previous wording

Our lighting products consist primarily of LED lighting fixtures, many of which include sourced IoT enabled control systems. Our principal lighting customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies (“ESCOs”). Currently, most of our lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development.

Current wording

Our lighting products consist primarily of LED lighting fixtures, many of which include sourced IoT enabled control systems. Our principal lighting customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies (“ESCOs”). Currently, most of our lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development and offerings.

Previous wording

We differentiate ourselves from our competitors through offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”). We completed the Stay-Lite Lighting acquisition on January 1, 2022, which has allowed us to further expand our maintenance services capabilities. We completed the acquisition of Voltrek on October 5, 2022, which has allowed us to further expand our turnkey services capabilities as well as capitalize on the rapidly growing market for EV charging solutions.

Current wording

We differentiate ourselves from our competitors by offering very efficient light fixtures (measured in lumens per watt) coupled with our project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration and commissioning. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021. We believe that providing these services enables us to support a long-term business relationship with our customers and results in an increase in our recurring revenue. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities. On October 5, 2022, we acquired Voltrek, which was intended to leverage our project management and maintenance expertise into the rapidly growing EV sector.

Previous wording

We believe the market for LED lighting products and related controls continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies have been the primary component of our revenue as we continue to strive to be a leader in the LED market.

Current wording

Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems provided by third parties. We believe the market for LED lighting products continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies.

Previous wording

We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.

Current wording

We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our lighting revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on a purchase order basis. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.

Previous wording

We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.

Current wording

We typically sell our lighting systems in replacement of our customers’ existing lighting fixtures. We call this replacement process a "retrofit". We frequently sell our products and services directly to our customers and in many cases we provide design and installation services as well as project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors, electrical contractors and ESCOs which then resell to their own customers.

Previous wording

The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period.

Current wording

The gross margins of our products can vary significantly depending upon the types of products we sell, with gross margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period.

Previous wording

Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2024 and is referred to as “fiscal 2024”. We refer to our just completed fiscal year, which ended on March 31, 2023, as "fiscal 2023", and our prior fiscal year which ended on March 31, 2022 as "fiscal 2022". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.

Current wording

Our fiscal year ends on March 31. We refer to our current fiscal year which ends on March 31, 2025 as "fiscal 2025". We refer to our most recently completed fiscal year, which ended on March 31, 2024, as “fiscal 2024”, and our prior fiscal year which ended on March 31, 2023 as "fiscal 2023". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31, and our fiscal fourth quarter ends on March 31.

Previous wording

Reportable segments are components of an entity that have separate financial data that the entity's CODM regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Previously, we had four reportable segments: Orion Services Group Division, Orion Distribution Services Division, Orion U.S. Markets Division and Orion Electric Vehicle Charging Division (the “EV Segment”). Effective during the first quarter of fiscal 2024, we began to evaluate and report the business using three segments: Orion Lighting Division, Orion Maintenance Division and Orion Electric Vehicle Charging Division.

Current wording

Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Orion's CODM is the chief executive officer. Orion evaluates and reports on the business using three segments: Lighting Segment, Maintenance Segment and Electric Vehicle Charging Segment (“EV Segment”).

Previous wording

Revenue, Cost of Revenue and Gross Margin. Product revenue increased 10.4%, or $1.6 million, for the third quarter of fiscal 2024 versus the third quarter of fiscal 2023. Service revenue increased 83.4%, or $4.1 million, for the third quarter of fiscal 2024 versus the third quarter of fiscal 2023. The increase in total revenue was due to anticipated growth in contract activity for larger customers and a new three-year preventive maintenance contract. Cost of product revenue increased by 7.2%, or $0.8 million, in the third quarter of fiscal 2024 versus the comparable period in fiscal 2023. Cost of service revenue increased by 81.3%, or $3.3 million, in the third quarter of fiscal 2024 versus the comparable period in fiscal 2023. Gross margin increased to 24.5% of revenue in the third quarter of fiscal 2024 from 23.6% in the third quarter of fiscal 2024 due primarily to increased sales covering fixed costs and increased volume on higher margin service projects, partially offset by inflationary cost pressures related to subcontractor costs and maintenance technician costs on fixed price contracts.

Current wording

Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 6.6%, or $0.9 million, for the first quarter of fiscal 2025 versus the first quarter of fiscal 2024. Service revenue increased 81.1%, or $3.2 million, for the first quarter of fiscal 2025 versus the first quarter of fiscal 2024. The resulting increase in total revenue was due to increased revenues in the EV segment, partially offset by decreased revenue in the Maintenance segment. Cost of product revenue decreased by 15.1%, or $1.5 million, in the first quarter of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue increased by 61.2%, or $2.7 million, in the first quarter of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 18.0% of revenue in the first quarter of fiscal 2024 to 21.6% in the first quarter of fiscal 2025, due primarily to project mix and increased sales which assisted in the absorption of fixed costs.

Previous wording

General and Administrative. General and administrative expenses decreased 10.5%, or $0.6 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative decrease was primarily due to the decrease in the expected Voltrek earn-out payment and prior year acceleration of stock-based compensation expense due to retirement-related modifications of existing restricted stock awards, partially offset by increased employee compensation costs.

Current wording

General and Administrative. General and administrative expenses decreased 21.1%, or $1.2 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. This comparative decrease was primarily due to a decrease in Voltrek earn out expense to $0.3 million in the first quarter of fiscal 2025 compared to $1.1 million in the first quarter of fiscal 2024.

Previous wording

Sales and Marketing. Sales and marketing expenses increased 6.3%, or $0.2 million, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. This comparative increase was primarily due to increased employee compensation costs.

Current wording

Sales and Marketing. Sales and marketing expenses decreased 10.9%, or $0.4 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. This comparative decrease was primarily due to the lower volume of product sales resulting in lower commissions expense.

Previous wording

Research and Development. Research and development expenses decreased 11.9%, or $0.2 million, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. This comparative decrease was primarily due to the reduction of employee compensation costs.

Current wording

Research and Development. Research and development expenses decreased 45.0%, or $0.2 million, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

Previous wording

Our lighting division develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting division provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers. Our lighting division sells mostly through direct sales and also through manufacturer representative agencies and to the wholesale contractor markets through ESCOs and contractors.

Current wording

Our lighting segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting segment provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers mostly through direct sales and also sells lighting products though manufacturer representative agencies and to the wholesale contractor markets through ESCOs and contractors.

Previous wording

Lighting division revenue in the third quarter of fiscal 2024 increased by 31.1%, or $4.4 million, compared to the third quarter of fiscal 2023. The increase in lighting division revenue was due to growth in contract activity for larger customers. The increase in corresponding operating income in this segment is a result of increased sales covering fixed costs.

Current wording

Lighting segment revenue in the first quarter of fiscal 2025 increased by 1.0%, or $0.1 million compared to the first quarter of fiscal 2024. The increase in lighting segment revenue was due to variability in the timing of larger lighting projects. The increase in operating loss in this segment is a result of an increased percentage of service revenue, which has a lower gross margin than product revenue.

Previous wording

Our maintenance division provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.

Current wording

Our maintenance segment provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.

Previous wording

Our EV division offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.

Current wording

Our EV segment offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.

Previous wording

We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, based on our current cash flow forecast, including to fund our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our currently anticipated longer-term capital requirements for periods beyond at least one year from the date of this report.

Current wording

We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.

Previous wording

We had approximately $5.0 million in cash and cash equivalents as of December 31, 2023, compared to $16.0 million at March 31, 2023. Our cash position decreased as a result of an operating loss and an overall use of working capital during the first nine months of fiscal 2024.

Current wording

We had approximately $5.7 million in cash and cash equivalents as of June 30, 2024, compared to $5.2 million at March 31, 2024. Our cash position increased as a result of the mortgage loan largely offset by an operating loss and a net use of working capital during the first quarter of fiscal 2025.

Previous wording

Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, working capital management and capital expenditures. While we believe that we will likely have adequate available cash and equivalents and credit availability under our Credit Agreement to satisfy our currently anticipated working capital and liquidity requirements for at least the next 12 months based on our current cash flow forecast, if we experience significant liquidity constraints, we may be required to issue equity or debt securities, reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash. We are also currently pursuing other potential supplemental liquidity sources.

Current wording

Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, working capital management and capital expenditures. While we believe that we will likely have adequate available cash and equivalents and credit availability under our Credit Agreement to satisfy our currently anticipated working capital and liquidity requirements for at least the next 12 months based on our current cash flow forecast, if we experience significant liquidity constraints, we may be required to issue equity or debt securities, reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash.

Previous wording

The following table summarizes our cash flows for the nine months ended December 31, 2023 and 2022 (in thousands):

Current wording

The following table summarizes our cash flows for the three months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Cash Flows Related to Operating Activities. Cash used in operating activities primarily consisted of net loss adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.

Current wording

Cash Flows Related to Operating Activities. Cash used in operating activities primarily consists of net loss adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.

Previous wording

Cash used in operating activities for the first nine months of fiscal 2023 was $5.2 million and consisted of our net loss of $29.2 million adjusted for non-cash expense items and net cash used in changes in operating assets of $24.0 million, the largest of which was a $17.9 million decrease in deferred income tax assets as a result of the valuation allowance.

Current wording

Cash used in operating activities for the first quarter of fiscal 2025 was $3.0 million and consisted of our net loss of $3.8 million adjusted for non-cash expense items and net cash provided in changes in operating assets of $0.6 million, the largest of which was a $3.9 million decrease in accounts payable, which was mostly offset by increases in accounts receivable and inventories.

Previous wording

Cash used in operating activities for the first nine months of fiscal 2024 was $10.3 million and consisted of our net loss of $13.3 million adjusted for non-cash expense items and net cash used in changes in operating assets of $3.0 million, the largest of which was a benefit from a $5.5 million accounts payable.

Current wording

Cash used in operating activities for the first quarter of fiscal 2024 was $7.3 million and consisted of our net loss of $6.6 million adjusted for non-cash expense items and net cash used in changes in operating assets of $0.8 million, the largest of which was a $1.9 million decrease in accounts payable.

Previous wording

Cash Flows Related to Investing Activities. Cash used in investing activities of $0.8 million in the first nine months of fiscal 2024 consisted primarily of purchases of property and equipment, partially offset by proceeds from the sale of property and equipment.

Current wording

Cash Flows Related to Investing Activities. Cash used in investing activities of $24 thousand in the first quarter of fiscal 2025 consisted primarily of purchases of property and equipment, net of proceeds.

Previous wording

Cash used in investing activities of $6.1 million in the first nine months of fiscal 2023 consisted primarily of cash paid for the acquisition of Voltrek and purchases of property and equipment.

Current wording

Cash used in investing activities of $0.4 million in the first quarter of fiscal 2024 consisted primarily of purchases of property and equipment.

Previous wording

Cash Flows Related to Financing Activities. Cash used in financing activities of $8 thousand in the first nine months of fiscal 2024 consisted primarily of payment of long-term debt.

Current wording

Cash used by financing activities of $3 thousand in the first quarter of fiscal 2024 consisted primarily of payment of long-term debt.

Previous wording

Our net working capital as of December 31, 2023 was $15.0 million, consisting of $45.7 million in current assets and $30.7 million in current liabilities. Our net working capital as of March 31, 2023 was $25.9 million, consisting of $50.4 million in current assets and $24.5 million in current liabilities.

Current wording

Our net working capital as of June 30, 2024 was $17.4 million, consisting of $42.1 million in current assets and $24.8 million in current liabilities. Our net working capital as of March 31, 2024 was $16.7 million, consisting of $44.8 million in current assets and $28.1 million in current liabilities.

Previous wording

We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages and supply chain interruptions.

Current wording

We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.

Previous wording

The Credit Agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of December 31, 2023, the borrowing base of the Credit Facility supported $22.5 million of availability, with $12.5 million of remaining availability net of $10.0 million borrowed.

Current wording

Our credit agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of June 30, 2024, the borrowing base supported approximately $18.3 million of availability under the Credit Facility with $10.0 million drawn against that availability. As of June 30, 2023, the borrowing base supported approximately $18.6 million of availability under the Credit Facility with $10.0 million drawn against that availability.

Previous wording

Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $20.6 million and $17.2 million as of December 31, 2023 and March 31, 2023, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services.

Current wording

Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $14.1 million and $22.0 million as of June 30, 2024 and March 31, 2024, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services.