ORION ENERGY SYSTEMS INC

Previous 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 was intended to further expand our maintenance services capabilities. We subsequently dissolved the Stay-Lite business and merged the net assets into Orion effective October 1, 2024. On October 5, 2022, we acquired Voltrek, which was intended to leverage our project management and maintenance expertise into the rapidly growing EV sector.

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 on January 1, 2022, which was intended to further expand our maintenance services capabilities. We subsequently dissolved the Stay-Lite business and merged the net assets into Orion effective October 11, 2024. 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

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.

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 product sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period.

Previous wording

Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 20.7%, or $3.2 million, for the second quarter of fiscal 2025 versus the second quarter of fiscal 2024. Service revenue increased 39.9%, or $2.0 million, for the second quarter of fiscal 2025 versus the second quarter of fiscal 2024. The resulting decrease in total revenue was due to decreased revenues in the Lighting segment, partially offset by increased revenue in the EV segment. Cost of product revenue decreased by 18.4%, or $2.0 million, in the second quarter of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue increased by 17.2%, or $0.9 million, in the second quarter of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 22.2% of revenue in the second quarter of fiscal 2024 to 23.1% in the second quarter of fiscal 2025, due primarily to increased margins in the maintenance segment.

Current wording

Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 15.9%, or $2.7 million, for the third quarter of fiscal 2025 versus the third quarter of fiscal 2024. Service revenue decreased 41.1%, or $3.7 million, for the third quarter of fiscal 2025 versus the third quarter of fiscal 2024. The resulting decrease in total revenue was due to decreased revenues in all three segments because of lower volume. Cost of product revenue decreased by 24.0%, or $3.0 million, in the third quarter of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue decreased by 38.6%, or $2.8 million, in the third quarter of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 24.5% of revenue in the third quarter of fiscal 2024 to 29.4% in the third quarter of fiscal 2025, due primarily to increased margins in the lighting and maintenance segments.

Previous wording

General and Administrative. General and administrative expenses decreased 9.4%, or $0.5 million, in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. This comparative decrease was primarily due to a decrease in Voltrek earn out expense to $0.6 million in the second quarter of fiscal 2025 compared to $1.1 million in the second quarter of fiscal 2024.

Current wording

General and Administrative. General and administrative expenses decreased 21.4%, or $1.1 million, in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024. This comparative decrease was primarily due to a decrease in Voltrek acquisition earn out expense to $0.5 million in the third quarter of fiscal 2025 compared to $1.1 million in the third quarter of fiscal 2024, along with decreased wages and benefits as a result of the restructuring that took place in fiscal 2025.

Previous wording

Sales and Marketing. Sales and marketing expenses decreased 14.0%, or $0.5 million, in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. This comparative decrease was primarily due to the lower volume of product sales resulting in lower commissions expense.

Current wording

Sales and Marketing. Sales and marketing expenses decreased 9.8%, or $0.3 million, in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024. This comparative decrease was primarily due to the lower volume of product sales resulting in lower commission expense.

Previous wording

Research and Development. Research and development expenses decreased 14.1%, or $0.1 million, in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024.

Current wording

Research and Development. Research and development expenses decreased 17.8%, or $0.1 million, in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024.

Previous wording

Lighting segment revenue in the second quarter of fiscal 2025 decreased by 20.1%, or $2.7 million compared to the second quarter of fiscal 2024. The decrease in lighting segment revenue was due to variability in the timing of larger lighting projects along with the completion of the United States Department of Defense project in Germany. The decrease in operating loss in this segment was a result of an increased percentage of product revenue, which has a higher gross margin than service revenue.

Current wording

Lighting segment revenue in the third quarter of fiscal 2025 decreased by 28.7%, or $5.3 million, compared to the third quarter of fiscal 2024. The decrease in lighting segment revenue was primarily due to United States Department of Defense project in Germany boosting the third quarter fiscal 2024 revenue. The project concluded in the second quarter of fiscal 2025. The decrease in operating income in this segment was a result of decreased production volume which was partially offset by increased volumes from sourced goods.

Previous wording

Maintenance segment revenue in the second quarter of fiscal 2025 increased by 4.5%, or $0.2 million, compared to the second quarter of fiscal 2024 primarily due to increased work orders from our major customer. Operating loss in this segment decreased as a result of an increase in gross margins driven by a more favorable revenue mix.

Current wording

Maintenance segment revenue in the third quarter of fiscal 2025 decreased by 14.8%, or $0.7 million, compared to the third quarter of fiscal 2024 primarily due to decreased work orders from our major customer. Operating income in this segment increased as a result of an increase in gross margins driven by a more favorable revenue mix.

Previous wording

EV segment revenue in the second quarter of fiscal 2025 increased by 39.8%, or $1.3 million, compared to the second quarter of fiscal 2024. The increase in revenue over the second quarter of fiscal 2024 was due to a higher revenue volume to municipalities. Operating loss decreased $0.4 million in the second quarter of fiscal 2025 due to a $0.5 million decrease of earn-out expense included in general and administrative costs.

Current wording

EV segment revenue in the third quarter of fiscal 2025 decreased by 13.2%, or $0.4 million, compared to the third quarter of fiscal 2024. The decrease in revenue compared to the third quarter of fiscal 2024 was due to a lower revenue volume to municipalities. Operating loss decreased $0.3 million in the third quarter of fiscal 2025 due to increased margins from a more favorable sales mix.

Previous wording

Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 14.1%, or $4.1 million, for the first six months of fiscal 2025 versus the first six months of fiscal 2024. Service revenue increased 58.1%, or $5.2 million, for the first six months of fiscal 2025 versus the first six months of fiscal 2024. Total revenue increased due to growth in the EV segment, which was partially offset due to a decrease in the Lighting and Maintenance segments. Cost of product revenue decreased by 16.8%, or $3.5 million, in the first six months of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue increased by 37.5%, or $3.6 million, in the first six months of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 20.3% of revenue in the first six months of fiscal 2024 to 22.3% in the first six months of fiscal 2025, due primarily to increased margins within the Maintenance segment.

Current wording

Revenue, Cost of Revenue and Gross Margin. Product revenue decreased 14.7%, or $6.8 million, for the first nine months of fiscal 2025 versus the first nine months of fiscal 2024. Service revenue increased 8.4%, or $1.5 million, for the first nine months of fiscal 2025 versus the first nine months of fiscal 2024. Total revenue decreased due to revenue declines in both the lighting and maintenance segments as a result of decreased volumes, which was partially offset due to a revenue increase in the EV segment, due to increased sales to municipalities. Cost of product revenue decreased by 19.4%, or $6.4 million, in the first nine months of fiscal 2025 versus the comparable period in fiscal 2024. Cost of service revenue increased by 4.4%, or $0.7 million, in the first nine months of fiscal 2025 versus the comparable period in fiscal 2024. Gross margin increased from 22.0% of revenue in the first nine months of fiscal 2024 to 24.6% in the first nine months of fiscal 2025, due primarily to increased margins within the lighting and maintenance segments.

Previous wording

General and Administrative. General and administrative expenses decreased 15.6%, or $1.7 million, in the first six months of fiscal 2025 compared to the first six months of fiscal 2024. This comparative decrease was primarily due to the decreased accrual of the expected Voltrek earn-out payment.

Current wording

General and Administrative. General and administrative expenses decreased 17.3%, or $2.7 million, in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. This comparative decrease was primarily due to the decreased accrual of the expected Voltrek acquisition earn-out payment, along with decreased wages and benefits as a result of the restructuring that took place in fiscal 2025.

Previous wording

Acquisition Related Costs. There were no acquisition related costs in the first six months of fiscal 2025 in comparison to the $0.1 million in the first six months of fiscal 2024.

Current wording

Acquisition Related Costs. There were no acquisition related costs in the first nine months of fiscal 2025 in comparison to the $0.1 million in the first nine months of fiscal 2024.

Previous wording

Sales and Marketing. Sales and marketing expenses decreased 12.5%, or $0.8 million, in the first six months of fiscal 2025 compared to the first six months of fiscal 2024. This comparative decrease was primarily due to decreased commission expenses.

Current wording

Sales and Marketing. Sales and marketing expenses decreased 11.6%, or $1.1 million, in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. This comparative decrease was primarily due to the lower volume of product sales resulting in lower commission expense, along with decreased wages and benefits as a result of the restructuring that took place in fiscal 2025 .

Previous wording

Research and Development. Research and development expenses decreased 31.3%, or $0.3 million, in the first six months of fiscal 2025 compared to the first six months of fiscal 2024. This comparative decrease was primarily due to the reduction of employee compensation costs.

Current wording

Research and Development. Research and development expenses decreased 30.6%, or $0.4 million, in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. This comparative decrease was primarily due to the reduction of employee compensation costs.

Previous wording

Interest Expense. Interest expenses increased 48.1% or $0.2 million, in the first six months of fiscal 2025 compared to the first six months of fiscal 2024. This comparative increase was primarily due to the interest on outstanding borrowings and a higher incremental borrowing rate.

Current wording

Interest Expense. Interest expenses increased 42.6%, or $0.2 million, in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. This comparative increase was primarily due to the interest on outstanding borrowings and a higher incremental borrowing rate.

Previous wording

Lighting division revenue in the first six months of fiscal 2025 decreased by 9.9%, or $2.6 million compared to the first six months of fiscal 2024. The decrease in lighting segment revenue was due to variability in the timing of larger lighting projects along with the completion of the United States Department of Defense project in Germany. The decrease in corresponding operating loss in this segment was a result of a decrease in under absorption of fixed costs.

Current wording

Lighting division revenue in the first nine months of fiscal 2025 decreased by 17.7%, or $7.9 million, compared to the first nine months of fiscal 2024. The decrease in lighting segment revenue was due to variability in the timing of larger lighting projects along with the completion of the United States Department of Defense project in Germany in the second quarter of fiscal 2025. The increase in operating loss in this segment was a result of decreased production volume which was partially offset by increased volumes from sourced goods.

Previous wording

Maintenance division revenue in the first six months of fiscal 2025 decreased by 3.6%, or $0.3 million, compared to the first six months of fiscal 2024, primarily due to the loss of three large customers who decided not to renew their contracts, partially offset by increased work orders from our major customer. Operating loss in this segment decreased as a result of an increase in gross margin primarily due to a more favorable revenue mix.

Current wording

Maintenance division revenue in the first nine months of fiscal 2025 decreased by 7.9%, or $1.0 million, compared to the first nine months of fiscal 2024, primarily due to the loss of three large customers who decided not to renew their contracts, due to our decision to substantially increase service pricing, partially offset by increased work orders from our major customer. Operating loss in this segment decreased as a result of an increase in gross margin primarily due to a more favorable revenue mix.

Previous wording

EV segment revenue in the first six months of fiscal 2025 increased by 85.3%, or $3.9 million, compared to the first six months of fiscal 2024. Operating loss in this segment decreased primarily as a result of the earn-out expense decreasing in fiscal 2025 compared to 2024 along with the significant increase in revenue allowing for greater absorption of fixed costs.

Current wording

EV segment revenue in the first nine months of fiscal 2025 increased by 48.0%, or $3.6 million, compared to the first nine months of fiscal 2024, primarily due to strong revenue volumes to municipalities in the first two quarters of fiscal 2025. Operating loss in this segment decreased primarily as a result of the Voltrek acquisition earn-out expense decreasing in fiscal 2025 compared to 2024 along with the significant increase in revenue allowing for greater absorption of fixed costs.

Previous 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.

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 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 $5.4 million in cash and cash equivalents as of September 30, 2024, compared to $5.2 million at March 31, 2024. Our cash position increased as a result of our newly obtained mortgage loan largely offset by an operating loss, a $1 million repayment of debt, and a net use of working capital during the first two quarters of fiscal 2025.

Current wording

We had approximately $7.5 million in cash and cash equivalents as of December 31, 2024, compared to $5.2 million at March 31, 2024. Our cash position increased as a result of the proceeds of our $3.525 million mortgage loan, which closed in the second quarter of fiscal 2025, along with strong cash receipts in the third quarter, which were partially offset by an operating loss along with $2.5 million repayment of debt during the third quarter of fiscal 2025.

Previous wording

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

Current wording

The following table summarizes our cash flows for the nine months ended December 31, 2024 and 2023 (in thousands):

Previous wording

Cash used in operating activities for the first six months of fiscal 2025 was $2.5 million and consisted of our net loss of $7.4 million adjusted for non-cash expense items and net cash provided in changes in operating assets of $4.9 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.

Current wording

Cash provided by operating activities for the first nine months of fiscal 2025 was $1.3 million and consisted of our net loss of $8.9 million adjusted for non-cash expense items and net cash provided in changes in operating assets of $10.2 million, the largest of which were accounts receivable, revenue earned but not billed, and inventories totaling $8.5 million. These increases were partially offset by a $4.9 million decrease in accounts payable.

Previous wording

Cash used in operating activities for the first six months of fiscal 2024 was $11.3 million and consisted of our net loss of $11.1 million adjusted for non-cash expense items and net cash used in changes in operating assets of $0.2 million, the largest of which was a $2.6 million increase in accounts receivable.

Current 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.

Previous wording

Cash Flows Related to Investing Activities. Cash provided by investing activities of $155 thousand in the first six months of fiscal 2025 consisted primarily of sales of property and equipment.

Current wording

Cash Flows Related to Investing Activities. Cash provided by investing activities of $134 thousand in the first nine months of fiscal 2025 consisted primarily of sales of property and equipment.

Previous wording

Cash used in investing activities of $0.6 million in the first six months of fiscal 2024 consisted primarily of purchases of property and equipment, partially offset by proceeds from sale of property and equipment.

Current wording

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.

Previous wording

Cash Flows Related to Financing Activities. Cash provided by financing activities of $2.5 million in the first six months of fiscal 2025 was primarily due to the term loan discussed in Note 12 above, which was partially offset by payments on the revolving credit facility and long-term debt.

Current wording

Cash Flows Related to Financing Activities. Cash provided by financing activities of $910 thousand in the first nine months of fiscal 2025 was primarily due to the mortgage term loan discussed in Note 12 above, which was partially offset by payments on our revolving credit facility and long-term debt.

Previous wording

Cash used by financing activities of $5 thousand in the first six months of fiscal 2024 consisted primarily of payment of long-term debt.

Current wording

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

Previous wording

Our net working capital as of September 30, 2024 was $13.1 million, consisting of $40.0 million in current assets and $26.9 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.

Current wording

Our net working capital as of December 31, 2024 was $10.5 million, consisting of $37.1 million in current assets and $26.6 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

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 September 30, 2024, the borrowing base supported approximately $16.7 million of availability under the Credit Facility with $9.0 million drawn against that availability. As of September 30, 2023, the borrowing base supported approximately $18.9 million of availability under the Credit Facility with $10.0 million drawn against that availability.

Current wording

Our credit agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on June 30, 2027. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of December 31, 2024, the borrowing base supported approximately $15.6 million of availability under the Credit Facility, with $7.5 million drawn against that availability. As of December 31, 2023, the borrowing base supported approximately $22.5 million of availability under the Credit Facility, with $10.0 million drawn against that availability.

Previous wording

Effective April 22, 2024, we, along with the lender, executed Amendment No. 2 (“Amendment No. 2”) to the credit agreement. The primary purpose of Amendment No. 2 was to add a $3.525 million mortgage loan facility to the credit agreement secured by our office headquarters property in Manitowoc, Wisconsin. Amendment No. 2 also broadened the definition of receivables to encompass government receivables as being eligible to be included in our borrowing base calculation for the purpose of establishing our monthly borrowing availability under the credit agreement. Quarterly installments of $88,125 are due on the first day of each fiscal quarter beginning October 1, 2024.

Current wording

Effective April 22, 2024, we, along with our lender, executed Amendment No. 2 (“Amendment No. 2”) to the credit agreement. The primary purpose of Amendment No. 2 was to add a $3.525 million mortgage loan facility to the credit agreement secured by our office headquarters property in Manitowoc, Wisconsin. Amendment No. 2 also broadened the definition of receivables to encompass government receivables as being eligible to be included in our borrowing base calculation for the purpose of establishing our monthly borrowing availability under the credit agreement. Quarterly installments of $88,125 are due on the first day of each fiscal quarter beginning October 1, 2024.

Previous wording

As discussed in Note 19 - Subsequent Events, the maturity date of the Credit Facility was extended from December 29, 2025 to June 30, 2027.

Current wording

Effective October 30, 2024, we and our lender, executed Amendment No. 3 ("Amendment No. 3") to our Credit Agreement. The primary purpose of Amendment No. 3 was to extend the maturity date of the Credit Facility from December 29, 2025 to June 30, 2027.

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 $11.1 million and $22.0 million as of September 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.

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 $14.4 million and $22.0 million as of December 31, 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.