Orion Energy Systems, Inc.
Shareholders’ Letter and Annual Report on Form 10-K
Fiscal Year Ended March 31, 2021
To Our Valued Shareholders,
Orion executed a strong finish to FY 2021 with solid full year revenue of $116.8 million despite the impact
of the COVID-19 pandemic in the first half. In the second half of the year, we were able to return to the
true strength of our business platform, generating nearly $80 million of revenue, an increase of 33% over
the year-ago second half, as our customers recommenced projects and returned to more normal levels of
activity. Importantly, the solutions we are providing are enabling our customers to achieve their business
and environmental objectives by reducing their energy consumption, enhancing the efficiency of their
operations and improving the work environment for employees and customers.
Our stock price increased by 94% from $3.70 per share on March 31, 2020 to $7.17 on April 1, 2021 and
our market capitalization increased by 97% from approximately $112.0 million to approximately $220.5
million.
Our gross profit percentage increased 120 basis points to 25.8% from 24.6% in FY 2020, as we were able to
improve our product margins and manage supply chain and input costs. Full year gross profit was $30.1
million, as compared to $37.1 million in FY 2020, primarily due to lower first half revenue. Our FY 2021 net
income included a non-cash tax benefit of $20.9 million, or $0.66 per diluted share, for the release of
valuation allowances, previously recorded against Orion's deferred tax assets. This non-cash accounting
change resulted from an improved outlook and likelihood of Orion utilizing approximately $70 million in
net operating loss to shield future profits from income taxes. Including the tax benefit, net income was
$26.1 million, or $0.83 per share, compared to prior-year net income of $12.5 million or $0.40 per share.
Excluding the non-cash tax benefit, Orion's FY 2021 net income was $5.2M, or $0.17 per diluted share.
Additionally, Orion's financial position strengthened in FY 2021 as we secured an expanded $25 million
revolving credit facility with a more generous borrowing base and ended the year with positive cash flow,
net working capital of $26.2 million, including $19.4 million of cash and cash equivalents, and no balance
outstanding on our revolving credit facility. Orion's financial strength allows us to pursue significant growth
opportunities in the markets we serve.
FY 2022 and Longer-Term Outlook
In addition to achieving solid profitability and positive cash flow from operations in FY 2021, Orion made
important progress advancing the scope and potential of our business. In FY 2021, we continued to expand
the breadth and diversity of our customer base across several sectors, including retail, warehousing and
logistics, automotive OEMs, healthcare and the public sector. We also invested in product development,
enabling the introduction of our new Starline high-bay LED fixtures, a new line of exterior lighting
products, and a new line of next generation linear LED fixtures with field-selectable color and lumen
options. These new products provide efficient, cost-effective design and enhanced energy efficiency to
support our customers' environmental and business goals and are being well received in the market.
Underscoring our long-term optimism is the enormous untapped market for LED lighting and controls
upgrades. Industry estimates suggest that LED lighting system penetration remains less than 30% of the
total commercial and industrial lighting market opportunity in the U.S. The U.S. Department of Energy
estimates the domestic LED retrofit opportunity in our core markets to be more than $20 billion currently
and growing to over $80 billion by 2035. This market also provides the potential for substantial reductions
in our nation’s carbon footprint along with quality of life enhancements to provide safer and more
environmentally friendly work environments.
Reflecting our progress and the broader market outlook, Orion enters FY 2022 with expectations for
revenue to increase at least 28% to a range of $150 to $155 million. Longer term, Orion's Board and
management team have updated the Company’s strategic plan to help guide our growth initiatives, with a
4818-6365-2846.1
long-term target of building Orion to a company generating up to $500M in annual revenue in
approximately five years. This plan envisions at least 10% organic growth per year, supplemented by
strategic acquisitions and partnerships. We set this goal to provide shareholders and stakeholders with a
vision for Orion's longer-term potential, including the following growth initiatives.
Product Innovation
Innovation, energy efficiency, smart design and total cost of ownership are key to our strategy and
competitive position. We strive to develop new and custom products and innovation that deliver improved
quality and long-term performance, including enhanced energy efficiency, better quality of light, safer
work environments, smart design and systems integration, and lower cost deployment and maintenance
to meet our customers’ evolving objectives. Helping customers achieve their environmental, safety,
operational and financial goals are core goals that guide our efforts and support our overall margin profile.
In addition to the lighting products mentioned above, we recently extended our product line into the
related area of airflow solutions for healthier indoor spaces, with our new PureMotion product line. This
new product line, designed for conventional dropped-ceiling grids, offers three distinct solutions: a stand-
alone airflow option, an airflow plus LED lighting alternative, and an airflow plus ultraviolet light (UVC)
solution that circulates air through a sealed UVC light ray chamber to safely kill viruses, germs, bacteria
and mold. Air recirculation also helps to eliminate hot and cold spots providing greater comfort and
potential energy savings. We are excited by the opportunities presented by the PureMotion line to build
on our reputation for healthy, safe and sustainable workplace solutions and expand our customer and
market reach across a broad range of use cases from healthcare, athletics and education to commercial,
retail, community and public facilities.
Major National Accounts
Our financial performance is largely driven by our largest segment – Orion Engineered Systems (OES),
which develops and sells lighting products and provides construction, installation and engineering services
for our commercial and industrial lighting and energy management systems. OES solutions are targeted for
large national accounts, including retailers, logistics, public sector institutions, schools, healthcare and
hospitals, automotive and others. Orion's core differentiator is the unique, integrated set of capabilities we
have built to execute turnkey design-build-install LED lighting system and controls projects with a single
Orion point of contact.
We made important progress during FY 2021 in expanding and diversifying our customer base and our
business pipeline. These customers recognize the value of Orion’s innovative, energy efficient products
and our unique, customized, LED lighting design-build-install capabilities and strong customer service. We
have a proven track record executing large national retrofit installation programs with efficient, high-
quality and customized products and excellent, on-schedule service. As a result of our business
development efforts, our largest customer represented about 56% of FY 2021 revenues, versus 74% in FY
2020, our first full year of business with this customer. Based on our success in diversifying our business,
we expect this customer to remain an important contributor to our business in coming years though they
are expected to represent roughly one-third of total revenue in FY 2022.
Debut of Orion Maintenance Services
During FY 2021, we launched Orion Maintenance Services (OMS), a lighting, electrical and other services
business, specifically targeted to large national customers. We identified this business opportunity through
our execution of turnkey LED retrofit programs and developed interest and supportive feedback from
several customers. We built out the team and systems during the latter part of FY 2021 and FY 2022 will be
the first full year of operations for the division. Though it will start out small in scope relative to our other
business segments, we are optimistic about the potential synergies and the long-term opportunity to
provide greater value for our customers and a growing stream of recurring maintenance revenue.
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Other Growth Opportunities
Building on our track record and industry-leading ability to serve as a one-source solution for LED lighting
system, controls and integrated IoT solutions needs, Orion continues to expand its expertise and
capabilities to address added dimensions of our customers' current and future needs. Our strategy is to
steadily expand our expertise and capabilities in introducing and integrating IoT technologies and other
solutions that can leverage our "connected ceiling" grid provided by our lighting systems to host a range of
energy management, data and performance monitoring and collection sensors and solutions and analytics
that are designed to drive improved customer experience, business processes and operational and
financial performance.
As an example, Orion recently completed a strategic investment in ndustrial, a provider of IoT software
and services that provide new levels of data, analytics and business insights used to optimize industrial
performance. Its software enables customers to better aggregate, access, analyze and act on data. We see
significant synergies with ndustrial's solutions and LED lighting system capabilities to efficiently deploy and
host their sensors and controls. While our strategy is to remain 'technology agnostic' with respect to such
third-party solutions, we believe this relationship and investment allows us to further extend the customer
value proposition for our LED lighting systems and controls while also enhancing our business
development opportunities.
Orion has also initiated an active program to identify, review and pursue potential business, technology or
product acquisitions to expand our business or its capabilities to support our long-term strategic growth
objectives. We believe the current business and technology climate could provide some compelling
acquisition opportunities to strengthen and build upon our solid foundation. In addition to accelerating the
growth of our existing businesses, we are also contemplating new and complementary markets such as
solar power generation, EV charging facilities and energy storage, which have synergies with our existing
customer base and our turnkey product and service capabilities. We have extended a number of
indications of interest and proposed letters of intent and term sheets for opportunities that we believe fit
our growth and acquisition criteria. These initiatives remain in the early stages, and therefore it is not
possible to gauge their timing or likelihood of success, but I wanted to update investors on the status of
our efforts in this exciting area of opportunity.
Our People
I would also like to extend our Board and management’s sincere appreciation and thanks to our people for
their dedication and perseverance through a very challenging year due to the pandemic. Your collective
efforts have enabled Orion to progress and thrive during a difficult period and have positioned the
company on a solid growth trajectory. Our people are what make Orion a successful company. Being able
to achieve solid business progress while also delivering meaningful environmental benefits to our
customers makes the Orion mission all the more satisfying.
We also thank you, our shareholders and stakeholders, for your continuing support and confidence in
Orion.
Sincerely,
Mike Altschaefl
CEO and Board Chair
Orion Energy Systems, Inc.
June 21, 2021
4818-6365-2846.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33887
Orion Energy Systems, Inc.
(Exact name of Registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of
incorporation or organization)
2210 Woodland Drive, Manitowoc, WI
(Address of principal executive offices)
39-1847269
(I.R.S. Employer
Identification No.)
54220
(Zip Code)
(920) 892-9340
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the act:
Title of Each Class
Trading Symbol (s)
Common stock, no par value
OESX
Common stock purchase rights
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
(NASDAQ Capital Market)
The Nasdaq Stock Market LLC
(NASDAQ Capital Market)
Securities registered pursuant to Section 12(g) of the act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging
growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the
Exchange Act:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes No
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of shares of the Registrant’s common stock held by non-affiliates as of September 30, 2020, the last business day of the Registrant’s
most recently completed second fiscal quarter, was approximately $189,240,242.
As of May 21, 2021, there were 30,806,390 shares of the Registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders to be held on August 5, 2021 are incorporated herein by reference in
Part III of this Annual Report on Form 10-K.
ORION ENERGY SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2021
Table of Contents
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accountant Fees and Services
PART IV
Item 15 Exhibits and Financial Statement Schedules
Item 16 Form 10-K Summary
Signatures
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements that are based on Orion Energy Systems, Inc.'s ("Orion",
"we", "us", "our" and similar references) beliefs and assumptions and on information currently available to us. When used in this
Form 10-K, the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,”
“should,” “will,” “would” and similar expressions identify forward-looking statements. Although we believe that our plans, intentions,
and expectations reflected in any forward-looking statements are reasonable, these plans, intentions or expectations are based on
assumptions, are subject to risks and uncertainties, and may not be achieved. These statements are based on assumptions made by us
based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we
believe are appropriate under the current circumstances. Such statements are subject to a number of risks and uncertainties, many of
which are beyond our control. Our actual results, performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained in this Form 10-K. Important factors could cause actual results to
differ materially from our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-
looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this Form 10-K,
including particularly the Risk Factors described under Part I. Item 1A. of this Form 10-K. All forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Form 10-K.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible
to identify all of these factors, they include, among others, the following:
• our ability to manage general economic, business and geopolitical conditions, including the impacts of natural disasters,
pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19
pandemic;
•
the deterioration of market conditions, including our dependence on customers' capital budgets for sales of products and
services, and adverse impacts on costs and the demand for our products as a result of factors such as the COVID-19 pandemic
and the implementation of tariffs;
• our ability to successfully launch, manage and maintain our refocused business strategy to successfully bring to market new
and innovative product and service offerings;
• our recent and continued reliance on significant revenue to be generated in fiscal 2022 from the lighting and controls retrofit
projects for two major global logistics companies;
• our dependence on a limited number of key customers, and the potential consequences of the loss of one or more key
customers or suppliers, including key contacts at such customers;
• our ability to identify and successfully complete transactions with suitable acquisition candidates in the future as part of our
growth strategy;
•
the availability of additional debt financing and/or equity capital to pursue our evolving strategy and sustain our growth
initiatives;
• our risk of potential loss related to single or focused exposure within the current customer base and product offerings;
• our ability to sustain our profitability and positive cash flows;
• our ability to differentiate our products in a highly competitive and converging market, expand our customer base and gain
market share;
• our ability to manage and mitigate downward pressure on the average selling prices of our products as a result of competitive
pressures in the light emitting diode ("LED") market;
• our ability to manage our inventory and avoid inventory obsolescence in a rapidly evolving LED market;
• our increasing reliance on third parties for the manufacture and development of products, product components, as well as the
provision of certain services;
• our increasing emphasis on selling more of our products through third party distributors and sales agents, including our ability
to attract and retain effective third party distributors and sales agents to execute our sales model;
• our ability to develop and participate in new product and technology offerings or applications in a cost effective and timely
manner;
• our ability to maintain safe and secure information technology systems;
• our failure to comply with the covenants in our credit agreement;
4
• our ability to recruit, hire and retain talented individuals in all disciplines of our company;
• our ability to balance customer demand and production capacity;
• our ability to maintain an effective system of internal control over financial reporting;
• price fluctuations (including as a result of tariffs), shortages or interruptions of component supplies and raw materials used to
manufacture our products;
• our ability to defend our patent portfolio and license technology from third parties;
•
•
•
a reduction in the price of electricity;
the reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in,
policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting
technologies;
the cost to comply with, and the effects of, any current and future industry and government regulations, laws and policies;
and
• potential warranty claims in excess of our reserve estimates.
You are urged to carefully consider these factors and the other factors described under Part I. Item 1A. “Risk Factors” when
evaluating any forward-looking statements, and you should not place undue reliance on these forward-looking statements.
Except as required by applicable law, we assume no obligation to update any forward-looking statements publicly or to update the
reasons why actual results could differ materially from those anticipated in any forward-looking statements, even if new information
becomes available in the future.
5
ITEM 1.
BUSINESS
As used herein, unless otherwise expressly stated or the context otherwise requires, all references to “Orion,” “we,” “us,” “our,”
“Company” and similar references are to Orion Energy Systems, Inc. and its consolidated subsidiaries.
Overview
We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control
solutions, project engineering, design energy project management and maintenance services. We help our customers achieve energy
savings with healthy, safe and sustainable solutions that enable them to reduce their carbon footprint and digitize their business. We
research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-
performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products
are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications,
although we do sell and install products into other markets. Virtually all of our sales occur within North America.
Our principal customers include large national account end-users, electrical distributors, electrical contractors and energy service
companies (“ESCOS”). Currently, a significant amount of our 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 diversify our product offerings.
We have experienced recent success offering our 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.
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.
We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period
and we typically generate substantially all of our 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.
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
as well as project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors,
electrical contractors and ESCOs to sell to their own customer bases.
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.
Our fiscal year ends on March 31. We refer to our current fiscal year which ended on March 31, 2021 as "fiscal 2021". We refer
to our most recently completed fiscal year, which ended on March 31, 2020, as “fiscal 2020”, and our prior fiscal year which ended on
March 31, 2019 as "fiscal 2019". 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.
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Reportable Segments
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. Our CODM is our chief executive officer. We have
three reportable segments: Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion
U.S. Markets Division ("USM").
For financial results by reportable segment, please refer to Note 18 – Segment Data in our consolidated financial statements
included in Item 8. of this Annual Report.
Orion Engineered Systems Division
Our OES segment develops and sells lighting products and provides construction and engineering services for our commercial
lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for
large national accounts, governments, municipalities, schools and other customers.
Orion Distribution Services Division
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North
American broadline and electrical distributors and contractors.
Orion U.S. Markets Division
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM
customers include ESCOs and contractors.
Our Market Opportunity
We provide enterprise-grade LED lighting and energy management project solutions. We are primarily focused on providing
commercial and industrial facilities lighting retrofit solutions in North America using solid-state LED technology. We believe the market
for lighting products has shifted to LED lighting systems and continues to grow. We believe that LED lighting technology allows for
better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption.
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 technologies.
Our products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their
quantity or quality of light. We estimate that our energy management systems reduce our customers’ legacy lighting-related electricity
costs by approximately 50% or greater, while maintaining their quantity of light after the reduced wattage and improving overall lighting
quality when replacing traditional fixtures. Our customers with legacy lighting systems typically realize a one to four-year payback
period, and most often 18 – 24 months, from electricity cost savings generated by our lighting systems without considering utility
incentives or government subsidies. Energy-efficient lighting systems are cost-effective and environmentally responsible solutions
allowing end users to reduce operating expenses and their carbon footprint.
We serve government and private sector end-customers in the following primary markets: commercial office and retail, exterior
area lighting and industrial applications.
Commercial office and retail. Our commercial office and retail market includes commercial office buildings, retail store fronts,
government offices, schools, hospitals and other buildings with traditional 10 to 12 foot ceiling heights.
Exterior Area lighting. Our market for area lighting includes parking garages, surface lots, automobile dealerships and gas service
stations.
Industrial applications. Our market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities,
government buildings and agricultural buildings. These facilities typically contain "high-bay" lighting fixtures.
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Commercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional
fluorescents, LED and incandescent lighting fixtures. We estimate that approximately 50% of this market still utilizes inefficient high
intensity discharge ("HID") lighting technologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and earlier
generation of LED fixtures.
We believe that utilities within the United States recognize the importance of energy efficiency as an economical means to manage
capacity constraints and as a low-cost alternative when compared to the construction costs of building new power plants. Accordingly,
many of these utilities are continually focused on demand reduction through energy efficiency. According to our research of individual
state and utility programs, utilities design and fund programs that promote or deliver energy efficiency through legislation, regulation
or voluntary action. Our product sales are not solely dependent upon these incentive programs, but we do believe that these incentive
programs provide an important benefit as our customers evaluate their out-of-pocket cash investments.
Our Solution
Value Proposition. We estimate our LED lighting systems generally reduce lighting-related electricity usage and costs by
approximately 50% or greater, compared to legacy fixtures, while retaining the quantity of light, improving overall lighting quality and
helping customers reduce their carbon footprint.
Multi-Facility Roll-Out Capability. We offer our customers a single source, turnkey solution for project implementation in which
we manage and maintain responsibility for entire multi-facility rollouts of our energy management solutions across North American
commercial and industrial facility portfolios. This capability allows us to offer our customers an orderly, timely and scheduled process
for recognizing energy reductions and cost savings.
Rapid Payback Period. In most retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one to
four year, but most often 18 – 24 months, payback period on our lighting systems. These returns are achieved without considering utility
incentives or government subsidies (although subsidies and incentives are continually being made available to our customers in
connection with the installation of our systems that further shorten payback periods).
Easy Installation, Implementation and Maintenance. Most of our fixtures are designed with a lightweight construction and
modular plug-and-play architecture that allows for fast and easy installation, facilitates maintenance, and integration of other components
of our energy management system. Our office LED Troffer Door Retrofit ("LDRTM") products are designed to allow for fast and easy
installation without disrupting the ceiling space or the office workspace. We believe our system’s design reduces installation time and
expense compared to other lighting solutions, which further improves our customers’ return on investment. We also believe that our use
of standard components reduces our customers’ ongoing maintenance costs.
Expanded Product Offerings. We are committed to continuing to develop LED product offerings in all of the markets we serve.
Our third generation of ISON® class of LED interior fixture delivers a market leading up to 214 lumens per watt. This advancement
means our customers can get more light with less energy, and sometimes fewer fixtures, than with any other product on the market. We
have also recently launched a variety of new products, features and functionality targeting healthcare, food service, high and low
temperature environments and other market segments. Our lighting products also may be configured to include IoT enabled control
systems. See "Products and Services" below.
Environmental Benefits. By allowing for the permanent reduction of electricity consumption, we believe our energy management
systems significantly reduce indirect CO2 emissions that are a negative by-product of energy generation.
Our Competitive Strengths
Compelling Value Proposition. By permanently reducing lighting-related electricity usage, our systems enable our customers to
achieve significant cost savings, without compromising quantity and quality of light in their facilities. As a result, our products offer our
customers a rapid return on their investment, without relying on government subsidies or utility incentives.
Comprehensive Project Management. We offer our customers a single source solution whereby we manage and are responsible
for an entire retrofit lighting project, from initial site surveys and energy audits through to installation and controls integration. Our
ability to offer such comprehensive turnkey project management services, coupled with best-in-class customer service, allows us to
8
deliver energy reductions and cost savings to our customers in timely, orderly and planned multi-facility rollouts nationwide. We believe
one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities. These turnkey services were
the principal reason we achieved significant revenue growth in fiscal 2020 as we executed on our commitment to retrofit multiple
locations for a major national account customer. This roll-out resumed in the second half of fiscal 2021 after a suspension in the first
half of fiscal 2021 related to the COVID-19 pandemic response. Our success in the national account market segment centers on our
turnkey design, engineering, manufacturing and project management capabilities, which represent a very clear competitive advantage
for us among large enterprises seeking to benefit from the illumination benefits and energy savings of LED lighting across locations
nationwide. Few LED lighting providers are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive
and timely fashion, from custom fixture design and initial site surveys to final installations. Incrementally, we are also able to help
customers deploy state-of-the-art control systems that provide even greater long-term value from their lighting system investments.
Large and Growing Customer Base. We have developed a large and growing national customer base and have installed our
products in commercial and industrial facilities across North America. We believe that the willingness of our blue-chip customers to
install our products across multiple facilities represents a significant endorsement of our value proposition, which in turn helps us sell
our energy management systems to new customers. We intend to leverage our expertise in managing projects across multiple facilities
within our new LED product markets, which now include new customer opportunities with banks, insurance companies, hospitals, fast
food chains, retail storefronts, grocery and pharmacies.
Innovative Technology. We have developed a portfolio of United States patents primarily covering various elements of our
products. We believe these innovations allow our products to produce more light output per unit of input energy compared to our
competition. We also have patents pending that primarily cover various elements of our newly developed LED products and certain
business methods. To complement our innovative energy management products, our integrated energy management services provide
our customers with a turnkey solution either at a single facility or across their North American facility footprints. Our demonstrated
ability to innovate provides us with significant competitive advantages. Our lighting products offer significantly more light output as
measured in foot-candles of light delivered per watt of electricity consumed when compared to HID or traditional fluorescent fixtures.
Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a “connected
ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other solutions on a digital
platform. This “smart ceiling” can be integrated with other technologies to collect data and manage assets and resources more efficiently.
Orion’s percentage of systems utilizing IoT enabled devices has grown significantly over the past few years and we expect this trend to
continue. Our “Industrial Internet of Things” or IoT enabled devices not only contain energy management control functions, but also
have the ability to collect facility usage and traffic data as well as collect data from other facility mechanical systems, providing our
customers with a path to digitization for their business operations.
Expanded Sales and Distribution Network. In addition to selling directly to national accounts, electrical contractors and ESCOs,
we sell our lighting products and services to electrical distributors through a North American network of independent lighting agencies.
As of the end of fiscal 2021, we had 29 independent lighting agencies representing us in substantially all of North America. We intend
to continue to selectively evaluate our sales network in the future, with a focus on geographic regions where we do not currently have a
strong sales presence.
Impact of COVID-19 in Fiscal 2021
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Our
business was adversely impacted by measures taken by customers, suppliers, government entities and others to control the spread of the
virus beginning in March 2020, the last few weeks of our prior fiscal year, and continuing most significantly into the second quarter of
fiscal 2021. During the third quarter of fiscal 2021, we experienced a rebound in business. Project installations resumed for our largest
customer and we started installations for a new large specialty retail customer. However, some customers continue to refrain from
awarding new projects and potential future risks remain due to the COVID-19 pandemic.
As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 we implemented a
number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions began to initially
lessen in certain jurisdictions during the second half of fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in
others, with employees asked to work remotely if possible. Some customers and projects are in areas where travel restrictions have been
imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have
9
been delayed, extended or terminated. These modifications to our business practices, including any future actions we take, may cause
us to experience reductions in productivity and disruptions to our business routines. In addition, we have needed to make substantial
working capital expenditures and advance inventory purchases that we may not be able to recoup if our customer agreements or a
substantial volume of purchase orders under our customer agreements are delayed or terminated as a result of COVID-19. It is not
possible to predict the overall impact the COVID-19 pandemic will have on our business, liquidity, capital resources or financial results,
although the economic and regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal
2021. If the COVID-19 pandemic becomes more pronounced in our markets or experiences a resurgence in markets recovering from
the spread of COVID-19, our results of operation would likely be materially adversely affected.
Our Growth Strategies
In fiscal 2021, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting
and controls systems with design, build, installation and project management services, including being awarded large additional projects
for a major national account. To build on this success, we are evolving our business strategy to further leverage this unique capability,
while making targeted additions to the scope and nature of our products and services to enhance the value we can provide to our
customers. In particular, we are working to develop recurring revenue streams, including lighting and electrical maintenance services,
with an emphasis on utilizing control sensor technology to collect data and assist customers in the digitization of this data, along with
other potential services. We also plan to expand our “smart-building” and “connected ceiling” IoT capabilities, along with related
software and control technology products and services offerings. While we intend to pursue these expansion strategies organically, we
also are actively exploring potential acquisitions that could accelerate our progress. Our ability to achieve our desired revenue and
profitability goals depends on our ability to manage the adverse impact of COVID-19 and effectively execute on the following key
strategic initiatives.
Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of
our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities starting with energy audits and site
assessments that lead to custom engineering and manufacturing through to fully managed installations. These attributes coupled with
our superior customer service, high quality designs and expedited delivery responsiveness resulted in our contract to retrofit multiple
locations for a single national account in fiscal 2020 that continued into fiscal 2021.
Continue Product Innovation. We continue to innovate, developing lighting fixtures and features that address specific customer
requirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits.
For interior building applications, we recently expanded our product line to include a family of ceiling air movement solutions, some of
which incorporate LED lighting and others which utilize ultraviolet C light waves to kill viruses, bacteria and germs. We also continue
to deepen our capabilities in the integration of smart lighting controls. Our goal is to provide state-of-the-art lighting products with
modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities.
Leverage Orion’s Smart Lighting Systems to Support Internet of Things Applications. We believe we are ideally positioned to help
customers to efficiently deploy new IoT controls and applications by leveraging the “Smart Ceiling” capabilities of their Orion solid
state lighting system. IoT capabilities can include the management and tracking of facilities, personnel, resources and customer behavior,
driving both sales and lowering costs. As a result, these added capabilities provide customers an even greater return on investment from
their lighting system and make us an even more attractive partner, providing our customers with a path to digitization for their business
operations.
Develop Maintenance Service Offerings. We believe we can leverage our construction management process expertise to develop
a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large
installed base of fixtures position us well to extend a maintenance offering to historical customers, as well as to new customers.
Development of this recurring revenue stream is making progress and we believe there is significant market opportunity.
Support success of our ESCO and agent driven distribution sales channels. We continue to focus on building our relationships
and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales
training efforts as well as the development of new products to cater to the unique needs of these sales channels.
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Products and Services
Our primary focus has been the sale of our LED lighting fixtures with integrated controls technology and related installation
services. We will continue to focus on these products and services, as well as the development of a maintenance service offering.
Currently, most of our products are manufactured at our leased production facility location in Manitowoc, Wisconsin, although as
the LED market continues to evolve, we also source products and components from third parties in order to have versatility in our
product development. We are focused on researching, developing and/or acquiring new innovative LED products and technologies for
the retrofit markets. We plan to focus our efforts on developing creative new LED retrofit products in order to offer our customers a
variety of integrated energy management services, such as system design, project management and installation.
Products
The following is a description of our primary products:
Interior LED High Bay Fixtures: Our LED interior high bay lighting products consist of our Harris high bay, ApolloTM high bay
and ISON® high bay products. Our ISON® class of LED interior fixture offers a full package of premium features, including low total
cost of ownership, optics that currently exceed competitors in terms of lumen package, delivered light, modularity and advanced thermal
management. Our third generation of ISON® class of LED interior fixture delivers up to an exceptional 214 lumens per watt. This
advancement means our customers can get more light with less energy, and sometimes fewer fixtures, compared to other products on
the market. Our ApolloTM class of LED interior fixtures is designed for new construction and retrofit projects where initial cost is the
largest factor in the purchase decision. Our Harris high bay is ideal for customers seeking a cost-effective solution to deliver energy
savings and maintenance reductions. In addition, our LED interior lighting products are lightweight and easy to handle, which further
reduces installation and maintenance costs and helps to build brand loyalty with electrical contractors and installers.
Smart Lighting Controls. We offer a broad array of smart building control systems. These control systems provide both lighting
control options (such as occupancy, daylight, or schedule control) and data intelligence capabilities for building managers to log, monitor,
and analyze use of space, energy savings, and provide physical security of the space.
The LED Troffer Door Retrofit (LDRTM): The LDRTM is designed to replace existing 4 foot by 2 foot and 2 foot by 2 foot fluorescent
troffers that are frequently found in office or retail grid ceilings. Our LDRTM product is unique in that the LED optics and electronics
are housed within the doorframe that allows for installation of the product in approximately one to two minutes. Our LDRTM product
also provides reduced maintenance expenses based upon improved LED chips.
Other Products. We also offer our customers a variety of other LED and HIF fixtures to address their lighting and energy
management needs, including fixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and
private label resale.
Warranty Policy. Our warranty policy generally provides for a limited one-year warranty on our HIF products and a limited five-
year warranty on our LED products, although we do offer warranties ranging up to 10 years for certain LED products. Ballasts, lamps,
drivers, LED chips and other electrical components are excluded from our standard warranty as they are covered by separate warranties
offered by the original equipment manufacturers. We coordinate and process customer warranty inquiries and claims, including inquiries
and claims relating to ballast and lamp components, through our customer service department.
Services
We provide a range of fee-based lighting-related energy management services to our customers, including:
•
•
comprehensive site assessment, which includes a review of the current lighting and controls including IoT enabled devices
requirements and energy usage at the customer’s facility;
site field verification, or SFV, during which we perform a test implementation of our energy management system at a
customer’s facility;
• utility incentive and government subsidy management, where we assist our customers in identifying, applying for and
obtaining available utility incentives or government subsidies;
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•
engineering design, which involves designing a customized system to suit our customers' facility lighting and energy
management needs, and providing the customer with a written analysis of the potential energy savings and lighting and
environmental benefits associated with the designed system;
• project management, which involves us working with the electrical contractor in overseeing and managing all phases of
implementation from delivery through installation for a single facility or through multi-facility roll-outs tied to a defined
project schedule;
•
•
•
installation services, for our products, which we provide through our national network of qualified third-party installers;
complete facility design commissioning of IoT enabled control devices; and
recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting
fixtures.
We also provide other services that comprise a small amount of our revenue. These services primarily include management and
control of power quality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and
fixture components into the after-market.
Our Customers
We primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing, and office
facilities. In fiscal 2021, one customer accounted for 56.0% of our total revenue. In fiscal 2020, that same customer accounted for 74.1%
of our total revenue, and in fiscal 2019, this same customer accounted for 20.7% of our total revenue. We expect that we will continue
to experience significant customer concentration in fiscal 2022, particularly as we focus on large multi-location retrofit programs. While
we continue to seek to diversify our customer base by expanding our reach to national accounts, ESCOs and the agent driven distribution
channel, we expect to continue to derive a significant percentage of our revenue from contracts with one or a few customers. These
contracts are entered into in the ordinary course of business and provide that we will deliver products and services on a work order or
purchase order basis and any purchase order may be terminated prior to shipment. These contracts generally do not guarantee that the
customer will buy our products or services.
The amount and concentration of our revenues with one or more customer may fluctuate on a year to year or quarter to quarter
basis depending on the number of purchase orders issued by our customers. The loss of a significant customer or the termination of a
material volume of purchase orders (or the underlying agreements) could have a material adverse effect on our results of operations.
Sales and Marketing
We sell our products in one of three ways: (i) directly through our relationships with our national account partners; (ii) indirectly
through independent sales agencies and broadline North American distributors; and (iii) through ESCOs. Our ODS segment focuses on
developing and expanding customer relationships with independent manufacturer’s sales agents and broadline distributors. As of the
end of fiscal 2021 we had 29 independent lighting agencies representing us in substantially all of North America expanding our reach
with broadline distributors. We attempt to leverage the customer relationships of these distributors to further extend the geographic
scope of our selling efforts. We work cooperatively with our indirect channels through participation in national trade organizations and
by providing training on our sales methodologies.
We have historically focused our marketing efforts on traditional direct advertising, as well as developing brand awareness through
customer education and active participation in trade shows and energy management seminars. These efforts have included participating
in national, regional and local trade organizations, exhibiting at trade shows, executing targeted direct mail campaigns, advertising in
select publications, public relations campaigns, social media and other lead generation and brand-building initiatives.
Competition
The market for energy-efficient lighting products and services is fragmented. We face strong competition primarily from
manufacturers and distributors of lighting products and services as well as electrical contractors. We compete primarily on the basis of
technology, cost, performance, quality, customer experience, energy efficiency, customer service and marketing support.
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There are a number of lighting fixture manufacturers that sell LED and HIF products that compete with our lighting product lines.
Lighting companies such as Acuity Brands, Inc., Energy Focus, Inc., Signify Co., Cree, Inc., LSI Industries, Inc., Cooper Lighting
Solutions, GE Current, a Daintree Company, and Hubbell Incorporated are some of our main competitors within the commercial office,
retail and industrial markets. We are also facing increased competition from manufacturers in low-cost countries.
We also face competition from companies who provide energy management services. Some of these competitors, such as
Ameresco, Inc., Johnson Controls International and Honeywell International, provide basic systems and controls designed to further
energy efficiency.
Intellectual Property
As of March 31, 2021, we had been issued over 100 United States patents and have applied for a number of additional United
States patents. The patented and patent pending technologies cover various innovative elements of our products, including our HIF and
LED fixtures. Our patented LDRTM product allows for a significantly quicker installation when compared to competitor's commercial
office lighting products. Our smart lighting controls allow our lighting fixtures to selectively provide a targeted amount of light where
and when it is needed most.
We believe that our patent portfolio as a whole is material to our business. We also believe that our patents covering our ability to
manage the thermal and optical performance of our lighting products are material to our business, and that the loss of these patents could
significantly and adversely affect our business, operating results and prospects.
Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed orders. Our backlog
as of March 31, 2021 and March 31, 2020 totaled $15.5 million and $18.6 million, respectively. We generally expect our backlog to be
recognized as revenue within one year, although the COVID-19 pandemic extended this time period.
Manufacturing and Distribution
We lease an approximately 266,000 square foot primary manufacturing and distribution facility located in Manitowoc, Wisconsin,
where most of our products are manufactured. We utilize both solar and wind power to support the energy requirements for our
manufacturing facility, allowing us to reduce our carbon footprint.
We generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract
with transportation companies to ship our products and manage all aspects of distribution logistics. We generally ship our products
directly to the end user.
Research and Development
Our research and development efforts are centered on developing new LED products and technologies and enhancing existing
products. The products, technologies and services we are developing are focused on increasing end user energy efficiency and enhancing
lighting output. Over the last three fiscal years, we have focused our development on additional LED products, resulting in our
development and commercialization of several new suites of LED interior high bay products.
We operate research and development lab and test facilities in our Jacksonville, Florida and Manitowoc, Wisconsin locations.
Regulatory Matters
Our operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air,
discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment, and
disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety. We
believe that our business, operations, and facilities are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations.
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State, county or municipal statutes often require that a licensed electrician be present and supervise each retrofit project. Further,
all installations of electrical fixtures are subject to compliance with electrical codes in virtually all jurisdictions in the United States. In
cases where we engage independent contractors to perform our retrofit projects, we believe that compliance with these laws and
regulations is the responsibility of the applicable contractor.
Our Corporate and Other Available Information
We were incorporated as a Wisconsin corporation in April 1996 and our corporate headquarters are located at 2210 Woodland
Drive, Manitowoc, Wisconsin 54220. Our Internet website address is www.orionlighting.com. Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the investor relations page of our
internet website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission, or the SEC. We are not including the information contained on our website as part of, or
incorporating it by reference into, this report.
Human Capital
As of March 31, 2021, we had approximately 213 full-time employees. We also employ temporary employees in our
manufacturing facility as demand requires, at times up to 130 temporary employees. Our employees are not represented by any labor
union, and we have never experienced a work stoppage or strike due to employee relations.
We are an employee centric organization, maintaining a safe and respectful environment that provides opportunity for our
employees.
We believe our employees are among our most important resources and are critical to our continued success. We focus significant
attention on attracting and retaining talented and experienced individuals to manage and support our operations. We pay our employees
competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry.
We are committed to hiring, developing and supporting a diverse and inclusive workplace. Our management teams and all of our
employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. We will not tolerate
discrimination or harassment in any form. All of our employees must adhere to a code of conduct that sets standards for appropriate
behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination.
During fiscal 2021, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our
employees and our customers. These protocols include limiting travel, restricting access to our facilities along with monitoring processes,
physical distancing, physical barriers, enhanced cleaning procedures, and requiring face coverings. In addition, we modified the way we
conduct many aspects of our business to reduce the number of in-person interactions. For example, we significantly expanded the use
of virtual interactions in all aspects of our business, including customer facing activities. Many of our administrative and operational
functions during this time have required modification as well, including most of our professional workforce working remotely. We
expanded paid time-off for employees impacted by COVID-19 and provided increased pay for certain employees involved in critical
infrastructure who could not work remotely. We expect to continue such safety and wellness measures for the foreseeable future and
may take further actions, or adapt these existing policies, as government authorities may require or recommend or as we may determine
to be in the best interest of our employees, clients, vendors and shareholders.
14
ITEM 1A.
RISK FACTORS
You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities
and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the following risk
factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material
adverse effect on our business, financial condition, results of operations and future growth prospects and could cause the trading price
of our common stock to decline.
Risk Factor Summary
Our business is subject to a number of risks and uncertainties, including those highlighted immediately following this summary. Some
of these risks are summarized below:
• Our business has been, and could again in the future be, negatively impacted by the Coronavirus (“COVID-19”) pandemic.
• Our ability to achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on
our key strategic initiatives.
• Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply.
• Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers,
suppliers and business.
• As we evolve our business strategy to increase our focus on new product and service offerings, the nature of our business may
be significantly changed, or transformed.
• We do not have major sources of recurring revenue and the loss of any significant customers or a major customer would likely
materially adversely affect us.
• Our evolving business strategy includes actively exploring potential acquisitions, which involves substantial risks.
• Government tariffs and other actions may adversely affect our business.
• The success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our
competitors.
• We increasingly rely on third-party manufacturers for the manufacture and development of our products and product
components.
• Our continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution
channels has had limited success to date.
• The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in,
policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting
technologies could cause the growth in demand for our products to slow.
• Our ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee
staffing could negatively impact our business.
Risks Related to Our Business
Operational Risks
Our business has been, and could again in the future be, negatively impacted by the COVID-19 pandemic.
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets in the United States and
globally. Our business has been adversely impacted by measures taken by customers, suppliers, government entities and others to
control the spread of the virus beginning in March 2020, the last few weeks of our prior fiscal year, and continuing most significantly
into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, we experienced a rebound in business, with a full quarter
of project installations for our largest customer, as well as installations for a new large specialty retail customer, and no significant
15
COVlD-19 impacts. However, some customers continue to refrain from awarding new projects and potential future risks remain due to
the COVID-19 pandemic.
As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020, we implemented a
number of cost reduction and cash conservation measures, including reducing headcount. While certain COVID-19 related restrictions
began to initially lessen in certain jurisdictions during the second half of fiscal 2021, stay-at-home, face mask or lockdown orders
remain in effect in others, with employees asked to work remotely if possible. Certain areas of the country have seen spikes of
COVID-19 cases (including in and around our headquarters in Manitowoc, Wisconsin and our office in Jacksonville, Florida), which
could result in renewed restrictions and lockdown orders. Some of our customers and projects are in areas where travel restrictions
have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several
projects have been delayed, extended or terminated. These COVID-19 related modifications to our business practices, including any
future actions we take, may cause us to experience reductions in productivity and disruptions to our business routines. In addition, we
have needed to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if
our customer agreements or a substantial volume of purchase orders under our customer agreements are delayed or terminated as a
result of COVID-19. It is not possible to predict the overall impact the COVID-19 pandemic will have on our business, liquidity,
capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced our revenue
and profitability in the first half of fiscal 2021. If the COVID-19 pandemic becomes more pronounced in our markets or experiences a
resurgence in markets recovering from the spread of COVID-19, or if another significant natural disaster or pandemic were to occur in
the future, our results of operation would likely be materially adversely affected. The impact of COVID-19 may also exacerbate other
risks discussed in Item 1A of this Annual Report on Form 10-K, any of which could have a material effect on our financial condition,
results of operations and cash flows.
Our ability to achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our
key strategic initiatives.
Our ability to achieve our desired revenue and profitability goals depends on how effectively and timely we execute on our
following key strategic initiatives:
•
•
•
executing and marketing our turnkey LED retrofit capabilities to large national account customers;
continuing our product innovation;
leveraging our smart lighting systems to support IoT applications;
• developing our maintenance service offerings; and
•
supporting the success of our ESCO and distribution sales channels.
We also may identify and pursue strategic acquisition candidates that would help support these initiatives. There can be no
assurance that we will be able to successfully implement these initiatives or, even if implemented, that they will result in the anticipated
benefits to our business.
Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply,
including semiconductor chips that have been subject to an ongoing significant shortage. If we are unable to maintain supply
sources of our components and raw materials or if our sources fail to satisfy our supply requirements, we may lose sales and
experience increased component costs.
We are vulnerable to price increases, as well as transportation and delivery delays, for components and raw materials that we
require for our products, including aluminum, copper, certain rare earth minerals, semiconductor chips, power supplies and LED chips
and modules. In particular, we utilize semiconductor chips in our LED lighting products and control sensors. Since semiconductor chips
have been recently subject to an ongoing significant shortage, our ability to source these important components that use semiconductor
chips has been adversely affected. This has resulted in increased component delivery lead times, delays in our product production and
increased costs to obtain components with available semiconductor chips. To the extent this semiconductor chip shortage continues, our
production ability and results of operations will be adversely affected. We also source certain finished goods externally.
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Limitations inherent within our supply chain of certain of our components, raw materials and finished goods, including
competitive, governmental, and legal limitations, natural disasters, and other events, could impact costs and future increases in the costs
of these items. For example, the adoption of new tariffs by the new United States administration or by other countries and the ongoing
impact of COVID-19 in China could continue to adversely affect our profitability and availability of raw materials and components, as
there can be no assurance that future price increases will be successfully passed through to customers or that we will be able to find
alternative suppliers. Further, suppliers’ inventories of certain components that our products require may be limited and are subject to
acquisition by others. As a result of disruption to our supply chain due to COVID-19, which has caused supplier delivery constraints
and concerns over component availability, we have attempted to purchase excess quantities of certain components that are critical to our
product manufacturing. We will likely need to continue to follow this practice in the future. As a result, we have had, and may need to
continue, to devote additional working capital to support component and raw material inventory purchases that may not be used over a
reasonable period to produce saleable products, and we may be required to increase our excess and obsolete inventory reserves to account
for these excess quantities, particularly if demand for our products does not meet our expectations. Also, any further delays, shortages
or interruptions in the supply of our components or raw materials could further disrupt our operations. If any of these events occur, our
results of operations, financial condition and cash flows could be materially adversely affected.
The success of our business depends upon market acceptance of our energy management products and services.
Our future success depends upon the continued market acceptance of our energy management products and services and obtaining
additional project management retrofit contracts, as well as customer orders for new and expanded products and services to supplement
our contract with our current single largest customer. If we are unable to convince current and potential new customers of the advantages
of our lighting systems and energy management products and services, or our expanded product and services offerings, then our results
of operations, financial condition and cash flows will likely be materially adversely affected. In addition, because the market for energy
management products and services, as well as potential new customer uses for our products and services, is rapidly evolving, we may
not be able to accurately assess the size of the market, and we may have limited insight into trends that may emerge and affect our
business. If the market for our lighting systems and energy management products and services, as well as potential new customer uses
for our products and services, does not continue to develop as we anticipate, or if the market does not accept our products or services,
then our ability to grow our business could be limited and we may not be able to increase our revenue and our results of operations,
financial condition and cash flows will likely be materially adversely affected.
We increasingly rely on third-party manufacturers for the manufacture and development of our products and product
components.
We have increased our utilization of third-party manufacturers for the manufacture and development of our products and product
components. Our results of operations, financial condition and cash flows could be materially adversely affected if our third-party
manufacturers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in their manufacturing
process or delivery of the finished products and components or the raw materials used to make such products and components.
We operate in a highly competitive industry and, if we are unable to compete successfully, our results of operations, financial
condition and cash flows will likely be materially adversely affected.
We face strong competition, primarily from manufacturers and distributors of energy management products and services, as well
as from ESCOs and electrical contractors. We are also facing increased competition from manufacturers in low-cost countries. We
compete primarily on the basis of customer relationships, price, quality, energy efficiency, customer service and marketing support. Our
products are in direct competition with the expanding availability of LED products, as well as other technologies in the lighting systems
retrofit market.
Many of our competitors are better capitalized than we are and have strong customer relationships, greater name recognition, and
more extensive engineering, manufacturing, sales and marketing capabilities. In addition, the LED market has seen increased
convergence in recent years, resulting in our competition gaining increased market share and resources. Competitors could focus their
substantial resources on developing a competing business model or energy management products or services that may be potentially
more attractive to customers than our products or services. In addition, we may face competition from other products or technologies
17
that reduce demand for electricity. Our competitors may also offer energy management products and services at reduced prices in order
to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain
customers, or require us to lower our average selling prices in order to remain competitive, any of which could have a material adverse
effect on our results of operations, financial condition and cash flows.
Our ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee
staffing could negatively impact our business.
As customer demand for our products changes, we must be able to adjust our production capacity, including increasing or
decreasing our employee workforce, to meet demand. We are continually taking steps to address our manufacturing capacity needs for
our products. If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs
associated with adjusting our capacity levels, our ability to execute our operating plan could be adversely affected
We have recently experienced increased difficulty in hiring sufficient permanent employees to support our production demands.
This circumstance has resulted in our increased reliance on temporary employee staffing to support our production operations.
Temporary employees can be less reliable and require more ongoing training than permanent employees. These factors can adversely
affect our operational efficiencies. This situation has also placed a significant burden on our continuing employees, has resulted in higher
recruiting expenses as we have sought to recruit and train additional new permanent employees, and introduced increased instability in
our operations to the extent responsibilities are reallocated to new or different employees. To the extent that we are unable to effectively
hire a sufficient number of permanent employees, and our reliance on temporary staffing continues to increase, our operations and our
ability to execute our operating plan could be adversely affected.
Our inability to attract and retain key employees, our reseller network members or manufacturer representative agencies could
adversely affect our operations and our ability to execute on our operating plan and growth strategy.
We rely upon the knowledge, experience and skills of key employees throughout our organization, particularly our senior
management team, our sales group that requires technical knowledge or contacts in, and knowledge of, the LED industry, and our
innovation and engineering team. In addition, our ability to attract talented new employees, particularly in our sales group and our
innovation and engineering team, is also critical to our success. We also depend on our distribution channels and network of manufacturer
sales representative agencies. If we are unable to attract and retain key employees, resellers, and manufacturer sales representative
agencies because of competition or, in the case of employees, inadequate compensation or other factors, our results of operations and
our ability to execute our operating plan could be adversely affected.
If our information technology systems security measures are breached or fail, our products may be perceived as not being secure,
customers may curtail or stop buying our products, we may incur significant legal and financial exposure, and our results of
operations, financial condition and cash flows could be materially adversely affected.
Our information technology systems involve the storage of our confidential information and trade secrets, as well as our customers’
personal and proprietary information in our equipment, networks and corporate systems. Security breaches expose us to a risk of loss of
this information, litigation and increased costs for security measures, loss of revenue, damage to our reputation and potential liability.
Security breaches or unauthorized access may result in a combination of significant legal and financial exposure, increased remediation
and other costs, theft and/or unauthorized use or publication of our trade secrets and other confidential business information, damage to
our reputation and a loss of confidence in the security of our products, services and networks that could have an adverse effect upon our
business. While we take steps to prevent unauthorized access to our corporate systems, because the techniques used to obtain
unauthorized access, disable or sabotage systems change frequently or may be designed to remain dormant until a triggering event, we
may be unable to anticipate these techniques or implement adequate preventative measures. Further, the risk of a security breach or
disruption, particularly through cyber attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber
terrorists, has generally increased as cyber attacks have become more prevalent and harder to detect and fight against. In addition,
hardware, software or applications we procure from third parties may contain defects in design or manufacture or other problems that
could unexpectedly compromise network and data security. Any breach or failure of our information technology systems could result in
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decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which
could have a material adverse effect on our results of operations, financial condition and cash flows.
Some of our existing information technology systems are in need of enhancement, updating and replacement. If our information
technology systems fail, or if we experience an interruption in their operation, then our business, results of operations and
financial condition could be materially adversely affected.
The efficient operation of our business is dependent on our information technology systems, some of which are in need of
enhancement, updating and replacement. We rely on these systems generally to manage day-to-day operations, manage relationships
with our customers, maintain our research and development data, and maintain our financial and accounting records. The failure of our
information technology systems, our inability to successfully maintain, enhance and/or replace our information technology systems, or
any compromise of the integrity or security of the data we generate from our information technology systems, could have a material
adverse affect on our results of operations, disrupt our business and product development and make us unable, or severely limit our
ability, to respond to customer demands. In addition, our information technology systems are vulnerable to damage or interruption from:
•
•
•
earthquake, fire, flood and other natural disasters;
employee or other theft;
attacks by computer viruses or hackers;
• power outages; and
•
computer systems, internet, telecommunications or data network failure.
Any interruption of our information technology systems could result in decreased revenue, increased expenses, increased capital
expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on our results of
operations, financial condition and cash flows.
If we fail to establish and maintain effective internal controls over financial reporting, our business and financial results could
be harmed.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control
over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes
in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our consolidated
financial statements or fraud. As of March 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that our internal
controls for fiscal 2021 were designed and operating effectively. There can be no assurance that we will not experience a material
weakness in our internal control over financial reporting in the future. A material weakness is defined as a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our
annual or interim consolidated financial statements will not be prevented or detected on a timely basis. A failure to maintain an effective
system of internal control over financial reporting could limit our ability to report our financial results accurately and in a timely manner
or to detect and prevent fraud, could result in a restatement of our consolidated financial statements, and could also cause a loss of
investor confidence and decline in the market price of our common stock.
Financial Risks
Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers,
suppliers and business.
Our operations and financial performance are impacted by worldwide economic conditions. Uncertainty about global economic
conditions has contributed to customers postponing purchases of our products and services in response to tighter credit, unemployment,
negative financial news and/or declines in income or asset values and other macroeconomic factors. The occurrence of these
circumstances will likely have a material negative effect on demand for our products and services and, accordingly, on our results of
operations, financial condition and cash flows. For example, any economic and political uncertainty caused by the United States tariffs
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imposed on other countries, and any corresponding tariffs from such other countries in response, may negatively impact demand and/or
increase the cost for our products and components used in our products.
The new United States administration may pursue a wide range of monetary, regulatory and trade policies, including the continued
imposition of the previous United States administration’s tariffs on certain imports. Certain sourced finished products and certain of the
components used in our products are impacted by tariffs imposed on China imports. Our efforts to mitigate the impact of added costs
resulting from these tariffs include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we
are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations, financial condition and
cash flows may be materially adversely affected.
In addition, global economic and political uncertainty has led many customers to adopt strategies for conserving cash, including
limits on capital spending. Our lighting systems are often purchased as capital assets and therefore are subject to our customers’ capital
availability. Uncertainty around such availability has led customers to delay their purchase decisions, which has elongated the duration
of our sales cycles. Weak economic conditions in the past have adversely affected our customers’ capital budgets, purchasing decisions
and facilities managers and, as a result, have adversely affected our results of operations, financial condition and cash flows. The return
to a recessionary state of the global economy could potentially have negative effects on our near-term liquidity and capital resources,
including slower collections of receivables, delays of existing order deliveries, postponements of incoming orders and reductions in the
number and volume of purchase orders received from key customers as a result of reduced capital expenditure budgets. Our business
and results of operations will be adversely affected to the extent these adverse economic conditions affect our customers’ purchasing
decisions.
We do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to
generate a substantial portion of our revenue. The loss of any significant customers or a major customer would likely have a
materially adverse effect on our results of operations, financial condition and cash flows.
We do not have any significant long-term contracts with our customers that provide us with recurring revenue from period to
period. We currently generate a substantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new
and existing customers. As a result, our dependence on individual key customers can vary from period to period due to the significant
size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately 80%, 83% and 48%
respectively, of our total revenue for fiscal 2021, 2020 and 2019. In fiscal 2020, one customer accounted for 74.1% of our total revenue
compared to 20.7% in fiscal 2019. In fiscal 2021, this customer accounted for 56.0% of our total revenue. We expect that we will
continue to experience significant customer concentration in fiscal 2022, although we expect this relative concentration level to diminish
during fiscal 2022. The loss of this customer or our failure to satisfy its installation requirements could have a material adverse effect
on our results of operations, financial condition and cash flows, as well as on our reputation and our ability to execute our business
strategy. We expect large retrofit and rollout projects to continue to remain a significant component of our total revenue.
The multi-location master retrofit agreements we have entered into with several of our key customers (including our current largest
customer) generally require that the customer issue individual facility location work orders or purchase orders before we may install our
products at that location. These master agreements do not guarantee that our key customers will make individual facility location
purchases from us and they also generally allow any individual location purchase order or work order to be terminated prior to shipment.
As a result, the relative amount and concentration of our revenues may fluctuate year over year and period over period depending on
the number of purchase orders or work orders issued by our key customers, which may fluctuate due to factors such as our customers’
capital expenditure budgets and general economic conditions. The loss of, or substantial reduction in sales to, any of our significant
customers, or a major customer, or the termination or delay of a significant volume of purchase orders by one or more key customers,
would likely have a material adverse effect on our results of operations, financial condition and cash flows in any given future period.
Our net operating loss carry-forwards provide a future benefit only if we continue to be profitable and may be subject to
limitation based upon ownership changes.
We have significant federal net operating loss carry-forwards and state net operating loss carry-forwards. If we are unable to
maintain our recent profitability, we may not be able to fully utilize these tax benefits. Furthermore, generally a change of more than
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50% in the ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for federal income tax
purposes. An ownership change may limit a company’s ability to use its net operating loss carry-forwards attributable to the period
prior to such change. As a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such
ownership change to offset taxable income could be subject to limitations in a particular year, which could potentially result in our
increased future tax liability.
Given our current earnings and potential future earnings, as of March 31, 2021, we recorded a valuation allowance release of
$20.9 million against our deferred tax assets. This resulted in substantially and disproportionately increasing our reported net income
and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not, and will not
be, indicative of actual profitability trends for our business.
We may not be able to obtain equity capital or debt financing necessary to effectively pursue our evolving strategy and sustain
our growth initiatives.
Our existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving growth strategy,
complete potential acquisitions or otherwise fund or sustain our growth initiatives. If we require additional capital resources, we may
not be able to obtain sufficient equity capital and/or debt financing on acceptable terms or conditions, or at all. Factors affecting the
availability to us of additional equity capital or debt financing on acceptable terms and conditions, or in sufficient amounts, include:
• Our history of operating losses prior to our fiscal 2020;
• Our current and future financial results and condition;
• Our limited collateral availability;
• Our current customer concentration;
• The market’s, investors’ and lenders' view of our company, industry and products;
• The perception in the equity and debt markets of our ability to execute and sustain our business plan or achieve our operating
results expectations; and
• The price, volatility and trading volume and history of our common stock.
Our inability to obtain the equity capital or debt financing necessary to pursue our evolving growth strategy could force us to
scale back our growth initiatives or abandon potential acquisitions. If we are unable to pursue our evolving growth strategy and
growth initiatives, our results of operations, financial condition and cash flows could be materially adversely affected.
Until fiscal 2020, we had a history of losses and negative cash flow and we may be unable to sustain our recent profitability
and positive cash flows in the future.
Prior to fiscal 2020, we experienced net losses and negative cash flows for the prior five fiscal years. There is no guarantee that
we will be able to sustain our recent profitability and positive cash flows in the future. Our inability to successfully sustain our
profitability and positive cash flows could materially and adversely affect our ability to pursue our evolving strategy and growth
initiatives.
We are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or
obtain waivers in the event of non-compliance, could limit our borrowing availability under the credit agreement, resulting in
our being unable to borrow under our credit agreement and materially adversely impact our liquidity.
Our credit agreement contains provisions that limit our future borrowing availability and sets forth other customary covenants,
including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, make
investments, pay any dividend or distribution on our stock, redeem, repurchase or retire shares of our stock, or pledge or dispose of
assets.
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There can be no assurance that we will be able to comply with the financial and other covenants in our credit agreement. Our
failure to comply with these covenants could cause us to be unable to borrow under the credit agreement and may constitute an event of
default which, if not cured or waived, could result in the acceleration of the maturity of any indebtedness then outstanding under the
credit agreement, which would require us to pay all amounts then outstanding. Such an event could materially adversely affect our
financial condition and liquidity. Additionally, such events of non-compliance could impact the terms of any additional borrowings
and/or any credit renewal terms. Any failure to comply with such covenants may be a disclosable event and may be perceived negatively.
Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future.
Strategic Risks
As we evolve our business strategy to increase our focus on new product and service offerings, including our comprehensive
energy management and maintenance services and our IoT, “smart-building,” “connected ceilings” and other related technology,
software and controls products and services, the nature of our business may be significantly changed, or transformed, and our
results of operations, financial condition and cash flows may be materially adversely affected.
Our future growth and profitability are tied in part to our ability to successfully bring to market new and innovative product and
service offerings. We have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and
services offered to our customers. This further expansion of our products and services includes pursuing projects to develop recurring
revenue streams, including beginning to offer lighting, electrical, heating and ventilation, and other energy maintenance services to large
customers with numerous locations. Our expansion efforts also involve utilizing control sensor technology to collect data and assisting
customers in the digitization of this data, along with other potential services. We have experienced recent success offering our
comprehensive energy project management services to national account customers to retrofit their multiple locations. We also plan to
pursue the expansion of our IoT “smart-building” and “connected ceiling” and other related technology, software and controls products
and services we offer to our customers. We have invested, and plan to continue to invest, significant time, resources and capital into
expanding our offerings in these areas with no expectation that they will provide material revenue in the near term and without any
assurance they will succeed or be profitable. In fact, these efforts have reduced our profitability, and will likely continue to do so, at
least in the near term. Moreover, as we continue to explore, develop and refine new offerings, we expect that market preferences will
continue to evolve, our offerings may not generate sufficient interest by end-user customers and we may be unable to compete effectively
with existing or new competitors, generate significant revenues or achieve or maintain acceptable levels of profitability.
If we are successful in introducing new product and services offerings, including expanded energy management and maintenance
services and products with new technology, software and controls, the nature of our business may significantly change or be transformed
away from being principally lighting products focused. Additionally, our experience providing energy maintenance services and
technology, software and controls products and services is limited. If we do not successfully execute our strategy or anticipate the needs
of our customers, our credibility as a provider of energy maintenance services and technology, software and controls products could be
questioned and our prospects for future revenue growth and profitability may never materialize.
As we expand our product and services offerings to new markets, the overall complexity of our business will likely increase at an
accelerated rate and we may become subject to different market dynamics. The new markets into which we are expanding, or may
expand, may have different characteristics from the markets in which we have historically competed. These different characteristics may
include, among other things, rapidly changing technologies, different supply chains, different competitors and methods of competition,
new product development rates, client concentrations and performance and compatibility requirements. Our failure to make the
necessary adaptations to our business model to address these different characteristics, complexities and new market dynamics could
adversely affect our operating results.
Accordingly, if we fail to successfully launch, manage and maintain our evolving business strategy, our future revenue growth and
profitability would likely be limited and our results of operations, financial condition and cash flows would likely be materially adversely
affected.
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Our evolving business strategy includes actively exploring potential acquisitions, including potential acquisitions that could
significantly change, or even transform, the nature of our business. These acquisitions could be unsuccessful or consume
significant resources, which could materially adversely affect our results of operations, financial condition and cash flows.
We are actively exploring potential business acquisitions which would more quickly add expanded and different capabilities to
our product and services offerings, including potential acquisitions that could significantly change, or even transform, the nature of
our business. There can be no assurance that we will identify or successfully complete transactions with suitable acquisition
candidates in the future. Similarly, there can be no assurance that any completed acquisitions will be successful. Acquisitions may
involve significant cash expenditures, debt incurrence, stock issuances, operating losses and expenses that would otherwise be directed
to investments in our existing business and could have a material adverse effect on our financial condition, results of operations and
cash flows. To pursue acquisitions and other strategic transactions, we may need to raise additional debt and/or equity capital in the
future, which may not be available on acceptable terms, in sufficient amounts or at all. In addition, we may issue new shares of our
common stock as consideration in such transactions, which may have a dilutive impact on our existing shareholders and may also
result in a reduction in the market price of our shares once those newly issued shares are resold in the market. In addition, acquisitions
involve numerous other risks, including:
•
•
the failure of the acquired business to achieve its revenue or profit forecasts;
the business culture of the acquired business may not match well with our culture;
• our business strategies and focus may change in ways that adversely affect our results of operations;
•
technological and product synergies, economies of scale and cost reductions from the acquisition may not occur as expected;
• unforeseen expenses, delays or conditions may result from the acquisition, including required regulatory approvals or
consents;
• potential changes may result to our management team and/or board of directors;
• we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions or legal
consequences;
•
faulty assumptions may be made regarding the macroeconomic environment or the integration process that form a basis for
the acquisition;
• unforeseen difficulties, delays and costs may arise in integrating the acquired business’s operations, processes and systems;
• higher than expected investments may be required to implement necessary compliance processes and related systems,
including information technology systems, accounting systems and internal controls over financial reporting;
• we may fail to retain, motivate and integrate key management and other employees of the acquired business;
• higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension
policies in any jurisdiction in which the acquired business conducts its operations;
• we may adversely impact our sales channels and our sales channel partners; and
• we may experience problems in retaining customers and integrating customer bases.
Many of these factors will be outside of our control and any one of them could result in increased costs and reduced profitability,
decreases in the amount of expected revenues and diversion of our management’s time and attention. They may also delay, decrease or
eliminate the realization of some or all of the benefits we anticipate when we enter into the transaction.
Because we have historically only made one acquisition to date, our ability to do so again successfully is unproven. Moreover,
our management team has limited experience in, and limited time to dedicate to, pursuing, negotiating or integrating acquisitions. If
we do identify suitable candidates, we may not be able to negotiate or consummate such acquisitions on favorable terms or at all. Any
acquisitions we complete may not achieve their initially intended results and benefits, and may be viewed negatively by investors and
other stakeholders.
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We may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities,
including through the new issuance of our common stock or debt securities as consideration in an acquisition transaction. Such
acquisition financing could result in dilution to our current shareholders, a decrease in our earnings and/or adversely affect our
financial condition, liquidity or other leverage measures.
In addition to committing additional capital resources to complete any acquisitions, substantial additional capital may be
required to operate the acquired businesses following their acquisition. Moreover, these acquisitions may result in significant financial
losses if the intended objectives of the transactions are not achieved. Some of the businesses we may acquire may have significant
operating and financial challenges, requiring significant additional capital commitments to overcome such challenges and adversely
affecting our financial condition and liquidity.
Failure to implement our acquisition strategy, including successfully integrating acquired businesses, could have a material
adverse effect on our results of operations, financial condition and cash flows.
The success of our business depends upon our adaptation to the quickly changing market conditions in the lighting industry and
on market acceptance of our lighting retrofit solutions using LED and control technologies.
The market for lighting products has experienced a significant technology shift to LED lighting systems. In addition, we continue
to explore utilizing our system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the
installation and integration of other business technology or data information solutions on our lighting platform.
As a result, our future success depends significantly upon the adoption rate of LED products within our primary markets, our
ability to participate in this ongoing market trend and our ability to expand into complementary markets. To be an effective participant
in the LED market, we must keep up with the evolution of LED and related technologies, which continue to move at a fast pace. We
may be unable to successfully develop and market new products or services that keep pace with technological or industry changes,
differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and
industry regulations and technology standards. The development and introduction of new products and services may result in increased
warranty expenses and other new product and services introduction expenses. In addition, we will likely continue to incur substantial
costs to research and develop new products and services, which will increase our expenses, without guarantee that our new products and
services will be commercially viable. We may also spend time and resources to develop and release new products and services only to
discover that a competitor has also introduced similar new products and services with superior performance, at a lower price or on better
delivery terms. Moreover, if new sources of lighting or lighting-based solutions are developed, our current products and technologies
could become less competitive or obsolete, which could result in reduced revenue, reduced earnings or increased losses, and/or inventory
and other impairment charges.
Finally, in connection with our historical primary focus on selling our LED products, we expect our results of operations to
continue to fluctuate from quarter to quarter to the extent that customers delay purchasing decisions as they evaluate their return on
investment from purchasing LED products compared to alternative lighting solutions, the pricing of LED products continues to fall and
LED products continue to gain more widespread customer acceptance. Similarly, these circumstances have adversely impacted, and may
continue to adversely impact, our product gross margins and our profitability from quarter to quarter.
If we are unable to achieve market acceptance of our lighting retrofit solutions using LED technologies and our system platform
as a “connected ceiling” or “smart ceiling” or realize the expected benefits from our focus on promoting new products and services, our
results of operations, financial condition and cash flows will likely be materially adversely affected.
The success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our
competitors. If we are unable to expand our customer base and increase sales in our targeted markets, our results of operations,
financial condition and cash flows will likely be materially adversely affected.
Participants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely
to gain a competitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life of
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several years following installation. If we are unable to broaden our customer base and achieve greater market penetration in the LED
market in a timely manner, we may lose the opportunity to market our LED products and services to significant portions of the lighting
systems retrofit market for several years and may be at a disadvantage in securing future business opportunities from customers that
have previously established relationships with one or more of our competitors. These circumstances could have a material adverse effect
on our results of operations, financial condition and cash flows.
In addition, as we continue to seek to expand our customer base within our national account, agent and ESCO sales channels, our
success will depend, in part, on our ability to attract and retain talent to execute on our sales model. If we are unable to attract and retain
sufficient talent, we may be unable to broaden our customer base, which will adversely affect our results of operations, financial
condition and cash flows.
Our continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution
channels has had limited success to date. If we are unable to attract, incentivize and retain our third-party distributors and sales
agents, or our distributors and sales agents do not sell our products and services at the levels expected, our revenues could decline
and our costs could increase.
We utilize manufacturer representative sales agencies that sell our products through distributors. Many of these sales agents and
distributors are not exclusive, which means that these sales agents and distributors may sell other third-party products and services in
direct competition with us. Since many of our competitors use sales agents and distributors to sell their products and services,
competition for such agents and distributors is intense and may adversely affect our product pricing and gross margins. Additionally,
due to mismanagement, industry trends, macro-economic developments, or other reasons, our sales agents and distributors may be
unable to effectively sell our products at the levels desired or anticipated. In addition, we have historically relied on direct sales to sell
our products and services, which were often made in competition with sales agents and distributors. In order to attract and form lasting
partnerships with sales agents and distributors, we are attempting to overcome our historical perception as a direct sales competitor. As
a result, we may have difficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative
effect on our ability to attract and obtain customers, which could have an adverse impact on our business.
Our financial performance is dependent on our ability to achieve growth in our average selling price of our products.
The gross margins of our products can vary significantly, with margins ranging from 10% to 50%. While we continue to implement
our strategy of transitioning to higher-margin products and reducing the material cost of our products, a change in the total mix of our
sales toward lower margin products, a decrease in the margins on our products as a result of competitive pressures driving down the
average selling price of our products, lower sales volumes, and promotional programs to increase sales volumes could reduce our
profitability and result in a material adverse effect on our results of operations, financial condition and cash flows. Furthermore, the
average selling price of our products has been, and may be further, negatively impacted by market over-supply conditions, product
feature cannibalization by competitors or component providers, low-cost non-traditional sales methods by new market entrants, and
comparison of our retrofit fixture products with replacement lamp equivalents. While we recently implemented a general price increase
applicable to many new product orders, there is no assurance that such price increase will be accepted by our customers or succeed in
increasing the average selling price of our products. In our highly competitive lighting industry, we must be able to innovate and release
new products on a regular basis with features and benefits that generate increases in our average selling price and average gross margin.
There can be no assurance we will be successful in achieving these goals.
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Legal, Regulatory and Compliance Risks
Government tariffs and other actions may adversely affect our business.
The United States government has been implementing various monetary, regulatory, and trade importation restraints, penalties,
and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs
imposed on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety
of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the
impacts of these tariffs and other trade policies (including any new or different tariffs or policies implemented by the new United
States administration), our results of operations may be adversely affected. Any future policy changes that may be implemented by the
new United States administration could have a negative consequence on our financial performance.
The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies,
incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies
could cause the growth in demand for our products to slow, which could have a material adverse affect on our results of
operations, financial condition and cash flows.
Reductions in (including as a result of any budgetary constraints), or the elimination of, government investment and favorable
energy policies designed to accelerate the adoption of LED lighting could result in decreased demand for our products and adversely
affect our results of operations, financial condition and cash flows. Further, if our products fail to qualify for any financial incentives or
rebates provided by governmental agencies or utilities for which our competitors’ products qualify, such programs may diminish or
eliminate our ability to compete by offering products at lower prices than ours.
The elimination of, or changes in, policies, incentives or rebates in certain states that encourage the use of solar power over other
traditional power sources could cause the revenue from our sale of solar-related tax credits to third parties to decrease, which
could have a material adverse effect on our results of operations, financial condition and cash flows.
We have long-lived assets associated with our legacy solar business and recognize revenue from the sale to third parties of tax
credits received from operating these solar assets. There is currently legislation pending which may decrease the future cash flows
associated with the sale of these tax credits. Such a decrease could have a material adverse effect on our results of operations, financial
condition and cash flows. Depending on the result of this pending legislation change, we may be required to record a non-cash
impairment charge in a future period.
Changes in government budget priorities and political gridlock, and future potential government shutdown, could negatively
impact our results of operations, financial condition and cash flows.
Actual and perceived changes in governmental budget priorities as a result of the new United States administration, and future potential
government shutdowns, could adversely affect our results of operations, financial condition and cash flows. Certain government agencies
purchase certain products and services directly from us. When the government changes budget priorities, such as in times of war,
financial crisis, or a changed administration, or reallocates spending to areas unrelated to our business, our results of operations, financial
condition and cash flows can be negatively impacted. For example, demand and payment for our products and services may be affected
by public sector budgetary cycles, funding authorizations or rebates. Funding reductions or delays, including delays caused by political
gridlock, and future potential government shutdowns, could negatively impact demand and payment for our products and services. If
any of these events occur, our results of operations, financial condition and cash flows could be materially adversely affected.
Product liability claims could adversely affect our business, results of operations and financial condition.
We face exposure to product liability claims in the event that our energy management products fail to perform as expected or cause
bodily injury or property damage. Since virtually all of our products use electricity, it is possible that our products could result in injury,
whether by product malfunctions, defects, improper installation or other causes. Particularly because our products often incorporate new
technologies or designs, we cannot predict whether or not product liability claims will be brought against us in the future or result in
negative publicity about our business or adversely affect our customer relations. Moreover, we may not have adequate resources in the
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event of a successful claim against us. A successful product liability claim against us that is not covered by insurance or is in excess of
our available insurance limits could require us to make significant payments of damages and could materially adversely affect our results
of operations, financial condition and cash flows.
Our inability to protect our intellectual property, or our involvement in damaging and disruptive intellectual property litigation,
could adversely affect our results of operations, financial condition and cash flows or result in the loss of use of the related
product or service.
We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws,
as well as employee and third-party nondisclosure and assignment agreements. Our failure to obtain or maintain adequate protection of
our intellectual property rights for any reason could have a material adverse effect on our results of operations, financial condition and
cash flows.
We own United States patents and patent applications for some of our products, systems, business methods and technologies. We
offer no assurance about the degree of protection which existing or future patents may afford us. Likewise, we offer no assurance that
our patent applications will result in issued patents, that our patents will be upheld if challenged, that competitors will not develop
similar or superior business methods or products outside the protection of our patents, that competitors will not infringe upon our patents,
or that we will have adequate resources to enforce our patents. Effective protection of our United States patents may be unavailable or
limited in jurisdictions outside the United States, as the intellectual property laws of foreign countries sometimes offer less protection
or have onerous filing requirements. In addition, because some patent applications are maintained in secrecy for a period of time, we
could adopt a technology without knowledge of a pending patent application, and such technology could infringe a third party’s patent.
We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar
technology or otherwise learn of our unpatented technology. To protect our trade secrets and other proprietary information, we generally
require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these
agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to
maintain the proprietary nature of our technologies, our business could be materially adversely affected.
We rely on our trademarks, trade names, and brand names to distinguish our company and our products and services from our
competitors. Some of our trademarks may conflict with trademarks of other companies. Failure to obtain trademark registrations could
limit our ability to protect our trademarks and impede our sales and marketing efforts. Further, we cannot assure you that competitors
will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
In addition, third parties may bring infringement and other claims that could be time-consuming and expensive to defend. Also,
parties making infringement and other claims against us may be able to obtain injunctive or other equitable relief that could effectively
block our ability to provide our products, services or business methods and could cause us to pay substantial damages. In the event of a
successful claim of infringement against us, we may need to obtain one or more licenses from third parties, which may not be available
at a reasonable cost, or at all. It is possible that our intellectual property rights may not be valid or that we may infringe upon existing
or future proprietary rights of others. Any successful infringement claims could subject us to significant liabilities, require us to seek
licenses on unfavorable terms, prevent us from manufacturing or selling products, services and business methods and require us to
redesign or, in the case of trademark claims, re-brand our company or products, any of which could have a material adverse effect on
our results of operations, financial condition and cash flows.
Our retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous
materials.
When we retrofit a customer’s facility, we typically assume responsibility for removing and disposing of its existing lighting
fixtures. Certain components of these fixtures typically contain trace amounts of mercury and other hazardous materials. Older
components may also contain trace amounts of polychlorinated biphenyls, or PCBs. We currently rely on contractors to remove the
components containing such hazardous materials at the customer job site. The contractors then arrange for the disposal of such
components at a licensed disposal facility. Failure by such contractors to remove or dispose of the components containing these
27
hazardous materials in a safe, effective and lawful manner could give rise to liability for us, or could expose our workers or other persons
to these hazardous materials, which could result in claims against us which may have a material adverse effect on our results of
operations, financial condition and cash flows.
The cost of compliance with environmental laws and regulations and any related environmental liabilities could adversely affect
our results of operations, financial condition and cash flows.
Our operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air,
discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment and
disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety. These
laws and regulations frequently change, and the violation of these laws or regulations can lead to substantial fines, penalties and other
liabilities. The operation of our manufacturing facility entails risks in these areas and there can be no assurance that we will not incur
material costs or liabilities in the future that could adversely affect our results of operations, financial condition and cash flows.
Risks Related to Our Common Stock
We expect our quarterly revenue and operating results to fluctuate. If we fail to meet the expectations of market analysts or
investors, the market price of our common stock could decline substantially, and we could become subject to securities litigation.
Our quarterly revenue and operating results have fluctuated in the past and will likely vary from quarter to quarter in the future.
Our results for any particular quarter are not an indication of our future performance. Our revenue and operating results may fall below
the expectations of market analysts or investors in some future quarter or quarters. Our failure to meet these expectations could cause
the market price of our common stock to decline substantially. If the price of our common stock is volatile or falls significantly below
our current price, we may be the target of securities litigation. If we become involved in this type of litigation, regardless of the outcome,
we could incur substantial legal costs, management’s attention could be diverted from the operation of our business, and our reputation
could be damaged, which could adversely affect our results of operations, financial condition and cash flows.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our
business, our stock price and trading volume could decline.
The trading market for our common stock will continue to depend, in part, on the research reports that securities or industry
analysts publish about us and our peer group companies. If these analysts do not continue to provide adequate research coverage or if
one or more of the analysts who covers us downgrades our stock, lowers our stock’s price target or publishes inaccurate or unfavorable
research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or
fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to
decline.
The price of our common stock has been, and may continue to be, volatile.
Historically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common
stock will continue to be volatile in the future. The trading price of our common stock has ranged from $3.22 to $11.67 per share during
the period from April 1, 2020 to March 31, 2021. The market price of our common stock could be impacted due to a variety of factors,
including:
•
•
•
actual or anticipated fluctuations in our operating results or our competitors’ operating results;
actual or anticipated changes in the growth rate of the general LED lighting industry, our growth rates or our competitors’
growth rates;
conditions in the financial markets in general or changes in general economic conditions, including government efforts to
mitigate the severe economic downturn resulting from the COVID-19 pandemic;
• novel and unforeseen market forces and trading strategies, such as the massive short squeeze rally caused by retail investors
and social media activity affecting companies such as GameStop Corp.;
28
•
•
actual or anticipated changes in governmental regulation, including taxation and tariff policies;
interest rate or currency exchange rate fluctuations;
• our ability to forecast or report accurate financial results; and
•
changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry
generally.
In addition, due to one or more of the foregoing factors in one or more future quarters, our results of operations may fall below
the expectations of securities analysts and investors. In the event any of the foregoing occur, the market price of our common stock
could be highly volatile and may materially decline
The market price of our common stock could be adversely affected by future sales of our common stock in the public market by
us or our executive officers and directors.
We and our executive officers and directors may from time to time sell shares of our common stock in the public market or
otherwise. On February 18, 2021, we reported that Michael W. Altschaefl, our Chief Executive Officer and Board Chair, and Scott A.
Green, our Chief Operating Officer and Executive Vice President, had each adopted separate prearranged trading plans for a specified
number of their shares of our common stock, in accordance with guidelines specified by Rule 10b5-1 under the Exchange Act and our
policies regarding transactions by insiders in our common stock. We cannot predict the size or the effect, if any, that future sales of
shares of our common stock by us or our executive officers and directors, or the perception of such sales, will have on the market price
of our common stock.
We are not currently paying dividends on our common stock and will likely continue not paying dividends for the foreseeable
future.
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and
any future earnings to fund the continued development and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. In addition, the terms of our existing revolving credit agreement restrict the
payment of cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions and other factors
that our board of directors deems relevant. The restrictions on, and decision not to, pay dividends on our common stock may impact our
ability to attract certain investors and raise funds, if necessary, in the capital markets.
Anti-takeover provisions included in the Wisconsin Business Corporation Law, provisions in our amended and restated articles
of incorporation or bylaws and the common share purchase rights that accompany shares of our common stock could delay or
prevent a change of control of our company, which could adversely impact the value of our common stock and may prevent or
frustrate attempts by our shareholders to replace or remove our current board of directors or management.
A change of control of our company may be discouraged, delayed or prevented by certain provisions of the Wisconsin Business
Corporation Law. These provisions generally restrict a broad range of business combinations between a Wisconsin corporation and a
shareholder owning 15% or more of our outstanding common stock. These and other provisions in our amended and restated articles of
incorporation, including our staggered board of directors and our ability to issue “blank check” preferred stock, as well as the provisions
of our amended and restated bylaws and Wisconsin law, could make it more difficult for shareholders or potential acquirers to obtain
control of our board of directors or initiate actions that are opposed by our then-current board of directors, including to delay or impede
a merger, tender offer or proxy contest involving our company or result in a lower price per share paid to our shareholders.
Each currently outstanding share of our common stock includes, and each newly issued share of our common stock will include,
a common share purchase right. These rights are attached to, and trade with, the shares of our common stock and generally are not
currently exercisable. These rights will become exercisable if a person or group acquires, or announces an intention to acquire, 20% or
more of our outstanding common stock. These rights have some anti-takeover effects and generally will cause substantial dilution to a
person or group that attempts to acquire control of us without conditioning the offer on either redemption of the rights or amendment of
the rights to prevent this dilution. These rights could have the effect of delaying, deferring or preventing a change of control or result in
a lower price per share paid to our shareholders.
29
In addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of
benefits, including accelerated vesting of stock options and restricted stock awards, upon a change of control and a subsequent qualifying
termination (other than for our Chief Executive Officer). These provisions could limit the price that investors might be willing to pay in
the future for shares of our common stock, thereby adversely affecting the market price of our common stock. These provisions may
also discourage or prevent a change of control or result in a lower price per share paid to our shareholders.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We lease our approximately 266,000 square foot manufacturing and distribution facility located in Manitowoc, Wisconsin. On
January 31, 2020, we entered a new lease for the facility with a ten-year term, and an option to terminate after six years.
We own our approximately 70,000 square foot technology center and corporate headquarters adjacent to our leased Manitowoc
manufacturing and distribution facility, of which we sub-lease a portion to third parties. We also lease approximately 10,500 square feet
of office space in Jacksonville, Florida.
The facilities noted above are utilized by all our business segments.
ITEM 3.
LEGAL PROCEEDINGS
We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, we
do not believe that the final resolution of any of such claims or legal proceedings would have a material adverse effect on our future
results of operations.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our common stock are traded on the NASDAQ Capital Market under the symbol “OESX”.
Shareholders
As of May 21, 2021, there were approximately 159 record holders of the 30,806,390 outstanding shares of our common stock.
The number of record holders does not include shareholders for whom shares are held in a “nominee” or “street” name.
Dividend Policy
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and
any future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our existing credit agreement restrict the payment of cash dividends on our common stock.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition,
results of operations, capital requirements, contractual restrictions (including those under our loan agreements) and other factors that
our board of directors deems relevant.
30
Securities Authorized for Issuance under Equity Compensation Plans
The following table represents shares outstanding under our 2004 Stock and Incentive Awards Incentive Plan, and our 2016
Omnibus Incentive Plan as of March 31, 2021.
Equity Compensation Plan Information
Plan Category
Equity Compensation plans approved by security holders
Equity Compensation plans not approved by security holders
Total
Number of
Shares to be
Issued Upon
Exercise of
Outstanding
Options and
Vesting of
Restricted
Shares
Number of
Shares
Remaining
Available for
Future Issuances
Under the 2016
Omnibus
Incentive Plan
Plans (1)
Weighted
Average
Exercise Price of
Outstanding
Options
665,957 $
—
665,957 $
2.74
—
2.74
1,578,445
—
1,578,445
(1)
Excludes shares reflected in the column titled “Number of Shares to be Issued Upon Exercise of Outstanding Options and Vesting
of Restricted Shares”.
Issuer Purchase of Equity Securities
We did not purchase shares of our common stock during the fiscal year ended March 31, 2021.
Unregistered Sales of Securities
We did not make any unregistered sales of our common stock during the year ended March 31, 2021 that were not previously
disclosed in a Quarterly Report on Form 10-Q or a current report on Form 8-K during such period.
31
ITEM 6.
SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data in conjunction with Item 7. "Management’s Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included in
Item 8. "Financial Statements and Supplementary Data" of this report. The selected historical consolidated financial data are not
necessarily indicative of future results.
Consolidated statements of operations data:
Product revenue
Service revenue
Total revenue
Cost of product revenue (1)(2)
Cost of service revenue (1) (3)
Total cost of revenue
Gross profit
General and administrative expenses (1)(4)
Impairment of assets (5)
Sales and marketing expenses (1) (6)
Research and development expenses (1) (7)
Income (loss) from operations
Other income
Interest expense
Amortization of debt issue costs
Loss on debt extinguishment
Dividend and interest income
Income (loss) before income tax
Income tax (benefit) expense (8)
Net income (loss)
Net income (loss) per share attributable to common
shareholders:
Basic (8)
Diluted (8)
Weighted-average shares outstanding:
Basic
Diluted
2021
Fiscal Year Ended March 31,
2020
2018
2019
(in thousands, except per share amounts)
$
87,664 $ 113,352 $
37,489
29,176
116,840
150,841
63,233
23,483
86,716
30,124
11,262
—
10,341
1,685
6,836
56
(127 )
(157 )
(90 )
—
83,588
30,130
113,718
37,123
11,184
—
11,113
1,716
13,110
28
(279 )
(243 )
—
5
6,518
(19,616 )
$
26,134
12,621
159
$
12,462
56,261 $
9,493
65,754
44,111
7,091
51,202
14,552
10,231
—
9,104
1,374
(6,157 )
80
(493 )
(101 )
—
11
(6,660 )
14
(6,674 ) $
55,595 $
4,705
60,300
41,415
4,213
45,628
14,672
13,159
710
11,879
1,905
(12,981 )
248
(333 )
(92 )
—
15
(13,143 )
(15 )
(13,128 ) $
2017
66,224
3,987
70,211
49,630
3,244
52,874
17,337
14,777
250
12,833
2,004
(12,527 )
215
(163 )
(110 )
—
36
(12,549 )
(261 )
(12,288 )
0.85 $
0.83 $
0.41 $
0.40 $
(0.23 ) $
(0.23 ) $
(0.46 ) $
(0.46 ) $
(0.44 )
(0.44 )
30,635
31,304
30,105
30,965
29,430
29,430
28,784
28,784
28,156
28,156
$
$
$
(1)
Includes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards
Codification Topic 718, or ASC Topic 718, as follows:
Cost of product revenue
Cost of service revenue
General and administrative expenses
Sales and marketing expenses
Research and development expenses
Total stock-based compensation expense
2021
2020
Fiscal Year Ended March 31,
2019
(in thousands)
2018
2017
$
$
4 $
—
716
29
4
753 $
3 $
(1 )
576
38
2
618 $
2 $
3
764
54
2
825 $
12 $
—
929
155
6
1,102 $
30
—
1,337
139
99
1,605
(2)
Fiscal 2020 includes expenses of $0.1 million related to restructuring. Fiscal 2018 includes expenses of $34 thousand related to
restructuring. Fiscal 2017 includes expenses of $2.2 million related to an increase in inventory reserves and other inventory
adjustments.
(3)
Fiscal 2020 includes expenses of $0.1 million related to restructuring.
32
(4)
(5)
(6)
(7)
(8)
Fiscal 2020 includes expenses of $28 thousand related to restructuring. Fiscal 2018 includes $1.8 million of restructuring expense
and $1.4 million benefit on the reversal of an accrual for a loss contingency. Fiscal 2016 includes a $1.4 million loss contingency
accrual.
Fiscal 2018 includes an intangible asset impairment of $0.7 million. Fiscal 2017 includes an intangible asset impairment of $0.3
million. Fiscal 2016 includes expenses of $4.4 million related to the impairment of goodwill and $1.6 million related to the
write-down to fair value of the manufacturing facility.
Fiscal 2020 includes expenses of $0.2 million related to restructuring. Fiscal 2018 includes expenses of $0.2 million related to
restructuring.
Fiscal 2018 includes expenses of $0.1 million related to restructuring.
Fiscal 2021 includes tax benefit of $20.9 million related to the release of the valuation allowance on deferred tax assets.
Consolidated balance sheet data:
Cash and cash equivalents
Total assets
Long term borrowings
Shareholder notes receivable
Total shareholders’ equity
2021
2020
As of March 31,
2019
(in thousands)
2018
2017
$
19,393 $
92,821
35
—
58,074
28,751 $
72,563
10,063
—
31,035
8,729 $
56,021
9,283
—
17,970
9,424 $
45,325
4,013
—
23,424
17,307
62,051
6,819
(4 )
35,450
33
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our audited
consolidated financial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31,
2021. See also “Forward-Looking Statements” and Item 1A “Risk Factors”.
Overview
We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control
solutions, project engineering, design energy project management and maintenance services. We help our customers achieve energy
savings with healthy, safe and sustainable solutions that enable them to reduce their carbon footprint and digitize their business. We
research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-
performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products
are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications,
although we do sell and install products into other markets. Virtually all of our sales occur within North America.
Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems. Our principal
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 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.
We have experienced recent success offering our 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.
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 become the primary component of our revenue as we continue to strive to be
a leader in the LED market.
In fiscal 2021, we successfully capitalized on our capability of being a full service, turn-key provider of LED lighting and controls
systems with design, build, installation and project management services, as we continued a very large project for a major national
account. As a result of this success, we have begun to evolve our business strategy to focus on further expanding the nature and scope
of our products and services offered to our customers. This further expansion of our products and services includes pursuing projects to
develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor
technology to collect data and assisting customers in the digitization of this data, along with other potential services. We also plan to
pursue the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products
and services that we offer to our customers. We currently plan on investing significant time, resources and capital into expanding our
offerings in these areas with no expectation that they will result in us realizing material revenue in the near term and without any
assurance they will succeed or be profitable. In fact, it is likely that these efforts will reduce our profitability, at least in the near term as
we invest resources and incur expenses to develop these offerings. While we intend to pursue these expansion strategies organically, we
also are actively exploring potential business acquisitions which would more quickly add these types of expanded and different
capabilities to our product and services offerings. It is possible that one or more of such potential acquisitions, if successfully completed,
could significantly change, and potentially transform, the nature and extent of our business.
We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period
and 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
34
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.
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.
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.
Our fiscal year ends on March 31. We refer to our just completed fiscal year, which ended on March 31, 2021, as "fiscal 2021",
and our prior fiscal years which ended on March 31, 2020 and March 31, 2019 as "fiscal 2020" and “fiscal 2019”, respectively. 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.
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. Our CODM is our chief executive officer. Orion
has three reportable segments: Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and
Orion U.S. Markets Division (“USM”).
Impact of COVID-19 and Fiscal 2022 Outlook
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Our
business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in
March 2020, the last few weeks of our prior fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During
the second half of fiscal 2021, we experienced a rebound in business. Project installations for our largest customer recommenced, as
well installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, some
customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic, including
supply chain disruption for certain components.
As a deemed essential business, we provide products and services to ensure energy and lighting infrastructure and we therefore
have continued to operate throughout the pandemic. We have implemented a number of safety protocols, including limiting travel and
restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures
and requiring face coverings.
As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 we implemented a
number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions began to initially
lessen in certain jurisdictions during fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees
asked to work remotely if possible. Some customers and projects are in areas where travel restrictions have been imposed, certain
customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed,
extended or terminated. These modifications to our business practices, including any future actions we take, may cause us to experience
reductions in productivity and disruptions to our business routines. In addition, we are required to make substantial working capital
expenditures and advance inventory purchases that we may not be able to recoup if our customer agreements or a substantial volume of
purchase orders under our customer agreements are delayed or terminated as a result of COVID-19. At this time, it is not possible to
predict the overall impact the COVID-19 pandemic will have on our business, liquidity, capital resources or financial results, although
the economic and regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal 2021. If
the COVID-19 pandemic becomes more pronounced in our markets or experiences a resurgence in markets recovering from the spread
of COVID-19, our operations in areas impacted by such events could experience further material adverse financial impacts due to market
changes and other resulting events and circumstances.
35
The impact of COVID-19 has caused significant uncertainty and volatility in the credit markets. We rely on the credit markets to
provide us with liquidity to operate and grow our businesses beyond the liquidity that operating cash flows provide. If our access to
capital were to become significantly constrained or if costs of capital increased significantly due the impact of COVID-19, including
volatility in the capital markets, a reduction in our credit ratings or other factors, then our financial condition, results of operations and
cash flows could be adversely affected.
In addition to the managing the adverse financial impact of the COVID-19 pandemic, our ability to achieve our desired revenue
growth and profitability goals depends on our ability to effectively execute on the following key strategic initiatives. We may identify
strategic acquisition candidates that would help support these initiatives.
Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of
our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities. These turnkey services were the
principal reason we achieved significant recent revenue growth as we executed on our commitment to retrofit multiple locations for a
major national account customer. Our success in the national account market segment centers on our turnkey design, engineering,
manufacturing and project management capabilities, which represent a very clear competitive advantage for us among large enterprises
seeking to benefit from the illumination benefits and energy savings of LED lighting across locations nationwide. We believe one of our
competitive advantages is that we are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and
timely fashion, from custom fixture design and initial site surveys to final installations. We are also able to help customers deploy state-
of-the-art control systems that provide even greater long-term value from their lighting system investments.
Looking forward, we are focused on continuing to successfully execute on existing national account opportunities while also
actively pursuing new national account opportunities that leverage our customized, comprehensive turnkey project solutions, and
expanding our addressable market with high-quality, basic lighting systems to meet the needs of value-oriented customer segments
served by our other market channels. Given our compelling value proposition, capabilities and focus on customer service, we are
optimistic about our business prospects and working to build sales momentum with existing and new customers.
Continued Product Innovation. We continue to innovate, developing lighting fixtures and features that address specific customer
requirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits.
For interior building applications, we recently expanded our product line to include a family of ceiling air movement solutions, some of
which incorporate LED lighting and others which utilize ultraviolet C light waves to kill viruses, bacteria and germs. We also continue
to deepen our capabilities in the integration of smart lighting controls. Our goal is to provide state-of-the-art lighting products with
modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities.
Leverage of Orion’s Smart Lighting Systems to Support Internet of Things Applications. We believe we are ideally positioned to
help customers to efficiently deploy new IoT controls and applications by leveraging the “Smart Ceiling” capabilities of their Orion
solid state lighting system. IoT capabilities can include the management and tracking of facilities, personnel, resources and customer
behavior, driving both sales and lowering costs. As a result, these added capabilities provide customers an even greater return on
investment from their lighting system and make us an even more attractive partner. We plan to pursue the expansion of our IoT, “smart-
building” and “connected ceiling” and other related technology, software and controls products and services that we offer to our
customers. While we intend to pursue these expansion strategies organically, we also are actively exploring potential business
acquisitions which would more quickly add these types of expanded and different capabilities to our product and services offerings.
Develop Maintenance Service Offerings. We believe we can leverage our construction management process expertise to develop
a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large
installed base of fixtures position us well to extend a maintenance offering to historical customers, as well as to new customers.
Development of this recurring revenue stream is making progress and we believe there is significant market opportunity.
Support success of our ESCO and agent-driven distribution sales channels. We continue to focus on building our relationships
and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales
training efforts as well as the development of new products to cater to the unique needs of these sales channels.
36
Major Developments in Fiscal 2021
During fiscal years 2021 and 2020, we executed on a series of master contracts for a major national account customer with our
state-of-the-art LED lighting systems and wireless IoT enabled control solutions at locations nationwide. This single national account
customer represented 56.0% of our total revenue in fiscal 2021 and 74.1% of our total revenue in fiscal 2020. During March 2020, due
to the COVID-19 pandemic, this customer temporarily suspended our installations at a significant number of locations that were
scheduled for installation during our fiscal 2020 fourth quarter and our fiscal 2021 first quarter. These originally scheduled installations
resumed during the second quarter of fiscal 2021 and continued through the second half of fiscal 2021.
Additionally, we added a large specialty retail customer and are providing turnkey LED lighting retrofit solutions for a number of
its stores. This project generated product and service revenue of $8.1 million during the second half fiscal 2021. We expect to retrofit
additional stores for this customer in fiscal 2022.
We also completed several initial retrofit projects at facilities for a major global logistics company. This customer is expected to
be a significant source of revenue as we move forward, although these installations are likely to occur more slowly than we had originally
anticipated. We expect to work with the customer on a project-by-project basis, versus larger-scale multi-site commitments, which limits
visibility on the timing of future revenue contributions. We also have been selected to work with another major logistics company that
is also expected to be a significant source of revenue in the future.
Given our current earnings and potential future earnings, as of March 31, 2021, we recorded a net valuation allowance release of
$20.9 million against our deferred tax assets. This resulted in substantially and disproportionately increasing our reported net income
and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not, and will not
be, indicative of actual profitability trends for our business.
Results of Operations: Fiscal 2021 versus Fiscal 2020
The following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total
revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods
(in thousands, except percentages):
Fiscal Year Ended March 31,
Product revenue
Service revenue
Total revenue
Cost of product revenue
Cost of service revenue
Total cost of revenue
Gross profit
General and administrative expenses
Sales and marketing expenses
Research and development expenses
Income from operations
Other income
Interest expense
Amortization of debt issue costs
Loss on debt extinguishment
Interest income
Income before income tax
Income tax (benefit) expense
Net income
*
NM = Not Meaningful
2021
2020
Amount
$
Amount
87,664 $ 113,352
37,489
29,176
116,840 150,841
83,588
63,233
23,483
30,130
86,716 113,718
37,123
30,124
11,184
11,262
11,113
10,341
1,716
1,685
13,110
6,836
28
56
(279 )
(127 )
(243 )
(157 )
—
(90 )
5
—
12,621
6,518
159
(19,616 )
12,462
26,134 $
$
%
Change
2021
% of
Revenue
2020
% of
Revenue
(22.7 )%
(22.2 )%
(22.5 )%
(24.4 )%
(22.1 )%
(23.7 )%
(18.9 )%
0.7 %
(6.9 )%
(1.8 )%
(47.9 )%
100.0 %
54.5 %
35.4 %
NM
(100.0 )%
(48.4 )%
NM
109.7 %
75.0 %
25.0 %
100.0 %
54.1 %
20.1 %
74.2 %
25.8 %
9.6 %
8.9 %
1.4 %
5.9 %
0.0 %
(0.1 )%
(0.1 )%
(0.1 )%
—
5.6 %
-16.8 %
22.4 %
75.1 %
24.9 %
100.0 %
55.4 %
20.0 %
75.4 %
24.6 %
7.4 %
7.4 %
1.1 %
8.7 %
0.0 %
(0.2 )%
(0.2 )%
—
0.0 %
8.4 %
0.1 %
8.3 %
37
Revenue. Product revenue decreased by 22.7%, or $25.7 million, for fiscal 2021 versus fiscal 2020. Service revenue decreased by
22.2%, or $8.3 million, for fiscal 2021 versus fiscal 2020. The decrease in product and service revenue was primarily due to multiple
projects put on hold during the first half of fiscal 2021 as a result of COVID-19, including the projects for one large national account
customer which represented 56.0% of revenue in fiscal 2021, and 74.1% of revenue in fiscal 2020. The project installations for this large
national account customer resumed during the second quarter of fiscal 2021. Total revenue decreased by 22.5%, or $34.0 million, due
to the items discussed above.
Cost of Revenue and Gross Margin. Cost of product revenue decreased by 24.4%, or $20.4 million, in fiscal 2021 versus the
comparable period in fiscal 2020. Cost of service revenue decreased by 22.1%, or $6.6 million, in fiscal 2021 versus fiscal 2020. The
decrease in product and service costs was primarily due to the decrease in revenue. Gross margin increased from 24.6% of revenue in
fiscal 2020 to 25.8% in fiscal 2021, due primarily to cost management and a change in customer sales mix.
Operating Expenses
General and Administrative. General and administrative expenses increased 0.7%, or $0.1 million, in fiscal 2021 compared to
fiscal 2020, primarily due to a decrease in travel as a result of COVID-19 restrictions, offset by an increase in services and insurance
costs.
Sales and Marketing. Our sales and marketing expenses decreased 6.9%, or $0.8 million, in fiscal 2021 compared to fiscal 2020.
The decrease year over year was primarily due to a decrease in commission expense on lower sales and a decrease in travel, both a result
of COVID-19 restrictions.
Research and Development. Research and development expenses decreased by 1.8%, or $31 thousand in fiscal 2021 compared to
fiscal 2020 primarily due to lower travel costs due to COVID-19 restrictions, partially offset by an increase in site testing.
Interest Expense. Interest expense in fiscal 2021 decreased by 54.5%, or $0.2 million, from fiscal 2020. The decrease in interest
expense was due to fewer sales of receivables.
Loss on Debt Extinguishment. Loss on debt extinguishment in fiscal 2021 related to the write-off of fees incurred with respect to
our prior credit facility, which was recognized upon execution of our new credit facility during the third quarter of fiscal 2021.
Income Taxes. In fiscal 2021, we recognized a tax benefit of $19.6 million. The benefit was driven by the release of the valuation
allowance on a significant portion of our deferred tax assets. This resulted in substantially and disproportionately increasing our reported
net income and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not,
and will not be, indicative of actual profitability trends for our business.
38
Results of Operations: Fiscal 2020 versus Fiscal 2019
The following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total
revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods
(in thousands, except percentages):
Fiscal Year Ended March 31,
Product revenue
Service revenue
Total revenue
Cost of product revenue
Cost of service revenue
Total cost of revenue
Gross profit
General and administrative expenses
Sales and marketing expenses
Research and development expenses
Income (loss) from operations
Other income
Interest expense
Amortization of debt issue costs
Interest income
Income (loss) before income tax
Income tax expense
Net income (loss)
*
NM = Not Meaningful
2020
2019
Amount
%
Change
2020
% of
Revenue
2019
% of
Revenue
Amount
$ 113,352 $
37,489
150,841
83,588
30,130
113,718
37,123
11,184
11,113
1,716
13,110
28
(279 )
(243 )
5
12,621
159
12,462 $
$
56,261
9,493
65,754
44,111
7,091
51,202
14,552
10,231
9,104
1,374
(6,157 )
80
(493 )
(101 )
11
(6,660 )
14
(6,674 )
101.5 %
294.9 %
129.4 %
89.5 %
324.9 %
122.1 %
155.1 %
9.3 %
22.1 %
24.9 %
NM
(65.0 )%
43.4 %
(140.6 )%
(54.5 )%
NM
1035.7 %
NM
75.1 %
24.9 %
100.0 %
55.4 %
20.0 %
75.4 %
24.6 %
7.4 %
7.4 %
1.1 %
8.7 %
0.0 %
(0.2 )%
(0.2 )%
0.0 %
8.4 %
0.1 %
8.3 %
85.6 %
14.4 %
100.0 %
67.1 %
10.8 %
77.9 %
22.1 %
15.6 %
13.8 %
2.1 %
(9.4 )%
0.1 %
(0.7 )%
(0.2 )%
0.0 %
(10.1 )%
0.0 %
(10.1 )%
Revenue. Product revenue increased by 101.5%, or $57.1 million, for fiscal 2020 versus fiscal 2019. This increase in product
revenue was primarily a result of higher sales volume through our national account channel, and almost exclusively as a result of a major
retrofit project for multiple locations for one of our national account customers. Service revenue increased by 294.9%, or $28.0 million,
due to higher sales volume through our national account channel for the major retrofit project for one customer and the timing of those
project installations. In fiscal 2020, sales to this one national account customer represented 74.1% of our total revenue. Total revenue
increased by 129.4%, or $85.1 million, due to the items discussed above.
Cost of Revenue and Gross Margin. Cost of product revenue increased by 89.5%, or $39.5 million, in fiscal 2020 versus the
comparable period in fiscal 2019 primarily due to the corresponding increase in sales. Cost of service revenue increased by 324.9%, or
$23.0 million, in fiscal 2020 versus fiscal 2019 primarily due to the corresponding increase in service revenue. Gross margin increased
from 22.1% of revenue in fiscal 2019 to 24.6% in fiscal 2020, due to our higher sales levels covering fixed costs.
Operating Expenses
General and Administrative. General and administrative expenses increased 9.3%, or $1.0 million, in fiscal 2020 compared to
fiscal 2019, primarily due to higher bonus and employment costs.
Sales and Marketing. Our sales and marketing expenses increased 22.1%, or $2.0 million, in fiscal 2020 compared to fiscal 2019.
The increase year over year was primarily due to an increase in commission expense on higher sales and higher employment costs.
Research and Development. Research and development expenses increased by 24.9%, or $0.3 million in fiscal 2020 compared to
fiscal 2019 primarily due to higher employment costs.
Interest Expense. Interest expense in fiscal 2020 decreased by 43.4%, or $0.2 million, from fiscal 2019. The decrease in interest
expense was due to fewer sales of receivables.
39
Orion Engineered Systems Division
Our OES segment develops and sells lighting products and provides construction and engineering services for our commercial
lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for
large national accounts, governments, municipalities, schools and other customers.
The following table summarizes our OES segment operating results (dollars in thousands):
Revenues
Operating income (loss)
Operating margin
Fiscal 2021 Compared to Fiscal 2020
2021
Fiscal Year Ended March 31,
2020
2019
$
$
84,243 $
7,472 $
8.9 %
122,744 $
16,164 $
13.2 %
30,925
(1,237 )
(4.0 )%
OES segment revenue decreased in fiscal 2021 by 31.4%, or $38.5 million, compared to fiscal 2020, due to multiple projects put
on hold as a result of COVID-19, including the projects to one large national account customer that represented 56.0% in fiscal 2021
and 74.1% of total revenue in fiscal 2020. The project installations for this customer resumed during the second quarter of fiscal 2021.
This sales decrease led to a corresponding decrease in operating income in this segment.
Fiscal 2020 Compared to Fiscal 2019
OES revenue increased in fiscal 2020 by 296.9%, or $91.8 million, compared to fiscal 2019 almost exclusively as the result of a
major retrofit project for multiple locations for one of our national account customers. This sales increase led to a corresponding increase
in operating income in this segment from a net loss position in fiscal 2019.
Orion Distribution Services Division
Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North
American broadline and electrical distributors and contractors.
The following table summarizes our ODS segment operating results (dollars in thousands):
Revenues
Operating income (loss)
Operating margin
Fiscal 2021 Compared to Fiscal 2020
2021
Fiscal Year Ended March 31,
2020
2019
$
$
21,122 $
2,430 $
11.5 %
$
15,087
(852 )
$
(5.6 )%
24,173
(1,742 )
(7.2 )%
ODS segment revenue in fiscal 2021 increased 40.0%, or $6.0 million, compared to fiscal 2020, primarily due to sales to one
customer who represented 5.9% of fiscal 2021 total consolidated revenue. This sales increase led to a corresponding increase in operating
income in this segment based on operating leverage.
Fiscal 2020 Compared to Fiscal 2019
ODS revenue decreased in fiscal 2020 by 37.6%, or $9.1 million, compared to fiscal 2019, primarily due to a decrease in sales
volume through our distribution channel. ODS operating loss in fiscal 2020 improved to $(0.9) million. The decrease in segment
operating loss was primarily due to lower operating costs on lower employment expenses and commissions.
Orion U.S. Markets Division
Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM
customers include ESCOs and contractors.
40
The following table summarizes our USM segment operating results (dollars in thousands):
Revenues
Operating income
Operating margin
Fiscal 2021 Compared to Fiscal 2020
2021
Fiscal Year Ended March 31,
2020
2019
$
$
11,476 $
1,683 $
14.7 %
13,010 $
2,447 $
18.8 %
10,656
1,132
10.6 %
USM segment revenue in fiscal 2021 decreased 11.8%, or $1.5 million, from fiscal 2020, primarily due to the impact of COVID-
19, and resulted in a corresponding decrease in operating income in this segment based on operating leverage.
Fiscal 2020 Compared to Fiscal 2019
USM revenue increased in fiscal 2020 by 22.1%, or $2.4 million, compared to fiscal 2019, primarily due to an increase in sales
volume as a result of our reengagement in the sales channel. This sales increase led to a corresponding increase in operating income in
this segment based on operating leverage.
Liquidity and Capital Resources
Overview
We had $19.4 million in cash and cash equivalents as of March 31, 2021, compared to $28.8 million at March 31, 2020. Our cash
position decreased primarily as a result of the paydown of our line of credit.
On December 29, 2020, we entered into a new Loan and Security Agreement (the “Credit Agreement”) with Bank of America,
N.A., as lender (the “Lender”). The Credit Agreement replaced our existing $20.15 million secured revolving credit and security
agreement dated as of October 26, 2018, as amended, with Western Alliance Bank, National Association, as lender (the “Prior Credit
Agreement”). The replacement of the existing credit agreement with the Credit Agreement provides us with increased financing capacity
and liquidity to fund our operations and implement our strategic plans.
As of March 31, 2021, the borrowing base supported the full availability of the Credit Facility. As of March 31, 2021, no amounts
were borrowed under the Credit Facility.
Additional information on our Credit Agreement can be found in the “Indebtedness” section located below.
In March 2020, we filed a universal shelf registration statement with the Securities and Exchange Commission. Under our shelf
registration statement, we currently have the flexibility to publicly offer and sell from time to time up to $100.0 million of debt and/or
equity securities. The filing of the shelf registration statement may help facilitate our ability to raise public equity or debt capital to
expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general
corporate purposes. The COVID-19 pandemic has had a negative near-term impact on the capital markets and may impact our ability to
access this capital.
In March 2021, we entered into an At Market Issuance Sales Agreement to undertake an “at the market” (ATM) public equity
capital raising program pursuant to which we may offer and sell shares of our common stock, having an aggregate offering price of up
to $50 million from time to time through or to the Agent, acting as sales agent or principal. No share sales were effected pursuant to the
ATM program through March 31, 2021.
We also are exploring various alternative sources of liquidity to help ensure that we will have the best allocation of investing
capital to satisfy our working capital needs.
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, capital expenditures. Further, as discussed in the
41
“Risk Factors,” we expect our forecasted cash flows to be materially adversely impacted by the COVID-19 pandemic, the magnitude
and period of impact of which is uncertain. 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 during the next
12 months based on our current cash flow forecast, there can be no assurance to that effect. 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.
Cash Flows
The following table summarizes our cash flows for our fiscal 2021, fiscal 2020 and fiscal 2019:
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash and cash equivalents
2021
Fiscal Year Ended March 31,
2020
(in thousands)
2019
$
$
1,729 $
(946 )
(10,141 )
(9,358 ) $
20,343 $
(936 )
615
20,022 $
(5,058 )
(449 )
4,812
(695 )
Cash Flows Related to Operating Activities. Cash provided by (used in) operating activities primarily consists of net income
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.
Cash provided by operating activities for fiscal 2021 was $1.7 million and consisted of a net income adjusted for non-cash expense
items of $9.1 million and net cash used by changes in operating assets and liabilities of $7.4 million. Cash used by changes in operating
assets and liabilities consisted primarily of an increase in inventory of $5.3 million due to the release of new product lines and pre-
ordering due to supply chain delays as a result of COVID-19, a decrease in accounts payable of $2.6 million due to the timing of
payments, an increase in accounts receivable of $2.4 million due to the timing of billing and customer collections, and an increase in
Revenue earned but not billed of $2.4 million due to timing on revenue recognition compared to invoicing. Cash provided by changes
in operating assets and liabilities included an increase in accrued expenses of $5.8 million due to the timing of project completions and
the receipt of invoices.
Cash provided by operating activities for fiscal 2020 was $20.3 million and consisted of a net income adjusted for non-cash
expense items of $15.2 million and net cash provided by changes in operating assets and liabilities of $5.2 million. Cash used by changes
in operating assets and liabilities consisted primarily of an increase in Inventory of $1.3 million due to delayed shipments at the end of
the fiscal year as a result of COVID-19. Cash provided by changes in operating assets and liabilities included a decrease in Accounts
receivable of $3.6 million due to the timing of billing and customer collections, a decrease in Revenue earned but not billed of $3.2
million due to timing on revenue recognition compared to invoicing.
Cash used in operating activities for fiscal 2019 was $5.1 million and consisted of a net loss adjusted for non-cash expense items
of $4.1 million and net cash used in changes in operating assets and liabilities of $1.0 million. Cash used by changes in operating assets
and liabilities consisted of an increase of $5.8 million in Accounts receivable due to the timing of billing and customer collections on
comparatively higher fourth quarter sales, an increase in Inventory of $4.7 million due to higher backlog for anticipated first quarter
fiscal 2020 sales, and an increase of $1.4 million in Revenue earned but not billed due to timing on revenue recognition compared to
invoicing. Cash provided by changes in operating assets and liabilities included an increase of $8.9 million in Accounts payable based
on timing of payments and an increase of $2.0 million in Accrued expenses and other primarily due to increased accrued project costs
on higher installation volume.
Cash Flows Related to Investing Activities. Cash used in investing activities in fiscal 2021 was $0.9 million and consisted primarily
of purchases of property and equipment.
Cash used in investing activities in fiscal 2020 was $0.9 million and consisted primarily of purchases of property and equipment
of $0.8 million.
42
Cash used in investing activities in fiscal 2019 was $0.4 million and consisted primarily of purchases of property and equipment
of $0.4 million.
Cash Flows Related to Financing Activities. Cash used in financing activities in fiscal 2021 was $10.1 million. This cash used
consisted primarily of a net payment of $10.0 million under our Credit Facility.
Cash provided by financing activities in fiscal 2020 was $0.6 million. This cash provided consisted primarily of net proceeds of
$0.8 million from our Credit Facility, offset by $0.1 million in debt issue costs due to the Credit Facility and $0.1 million of payment of
long-term debt.
Cash provided by financing activities in fiscal 2019 was $4.8 million. This cash provided consisted primarily of net proceeds of
$5.3 million from our Credit Facility, offset by $0.4 million in debt issue costs due to the Credit Facility and $0.1 million of payment of
long-term debt.
Working Capital
Our net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million
in current liabilities. Our net working capital as of March 31, 2020 was $27.8 million, consisting of $55.0 million in current assets and
$27.2 million in current liabilities. Our Cash and cash equivalents, net balance decreased by $9.4 million from the fiscal 2020 year-end
due primarily to the paydown of our line of credit. Our current Accounts receivable, net balance increased by $3.1 million from the
fiscal 2020 year-end due to the timing of billing and customer collections. Our Revenue earned but not billed balance increased by $2.4
million from the fiscal 2020 year-end due to the timing of billing. Our Inventories, net increased $5.0 million from the fiscal 2020 year-
end due to the release of new product lines and pre-purchases of components for our products to help mitigate the impact of the COVID-
19 pandemic on our supply chain.
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. 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, including purchases to support the provision of products and services to our largest customer.
Indebtedness
Revolving Credit Agreement
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 March 31, 2021, the borrowing base supports the full availability of the Credit Facility. As of March 31, 2021,
no amounts were borrowed under the Credit Facility.
The Credit Agreement is secured by a first lien security interest in substantially all of our assets.
Borrowings under the Credit Agreement are permitted in the form of LIBOR or prime rate-based loans and generally bear interest
at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees,
we are required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.
The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the
Credit Facility falls below the greater of $3.0 million or 15% of the committed facility. Currently, the required springing minimum fixed
cost coverage ratio is not required.
The Credit Agreement also contains customary events of default and other covenants, including certain restrictions on our ability
to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem,
43
retire or purchase shares of our stock, make investments or pledge or transfer assets. If an event of default under the Credit Agreement
occurs and is continuing, then the Lender may cease making advances under the Credit Agreement and declare any outstanding
obligations under the Credit Agreement to be immediately due and payable. In addition, if we become the subject of voluntary or
involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the Credit Agreement will
automatically become immediately due and payable.
We did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a
loss on debt extinguishment of $0.1 million on the write-off of unamortized debt issue costs related to the Prior Credit Agreement. The
Prior Credit Agreement was scheduled to mature on October 26, 2021.
Capital Spending
Our capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center,
production equipment and tooling and for information technology systems. Our capital expenditures totaled $0.9 million in fiscal 2021,
$0.8 million in fiscal 2020, and $0.5 million in fiscal 2019. Our capital spending plans predominantly consist of investments related to
new product development tooling and equipment and information technology systems, exclusive of any capital spending for potential
acquisitions. We expect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases,
to the extent needed, long-term debt financing, or by using our Credit Facility.
Contractual Obligations
Information regarding our known contractual obligations of the types described below as of March 31, 2021 is set forth in the
following table (dollars in thousands):
Payments Due By Period
Total
Less than
1 Year
1-3 Years
(in thousands)
3-5 Years
More than
5 Years
Bank debt obligations
Other debt obligations
Cash interest payments on debt
Lease obligations
Purchase order and capital expenditure commitments (1)
Total
$
$
— $
49
9
3,739
13,117
16,914 $
— $
14
3
810
13,117
13,944 $
— $
31
5
1,566
—
1,602 $
— $
4
1
1,363
—
1,368 $
—
—
—
—
—
—
(1)
Reflects non-cancellable purchase commitments primarily for certain inventory items entered into in order to secure better
pricing and ensure materials on hand.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
Our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot currently
predict the future impact to our operations by inflation.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our
consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue
and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including
those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and
44
income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth below.
Revenue Recognition. We generate revenue primarily by selling commercial lighting fixtures and components and by installing these
fixtures in our customer’s facilities. We recognize revenue in accordance with the guidance in “Revenue from Contracts with Customers”
(Topic 606) (“ASC 606”) when control of the goods or services being provided (which we refer to as a performance obligation) is transferred
to a customer at an amount that reflects the consideration we expect to receive in exchange for those goods or services. Prices are generally
fixed at the time of order confirmation. The amount of expected consideration includes estimated deductions and early payment discounts
calculated based on historical experience, customer rebates based on agreed upon terms applied to actual and projected sales levels over the
rebate period, and any amounts paid to customers in conjunction with fulfilling a performance obligation.
If there are multiple performance obligations in a single contract, the contract’s total transaction price per GAAP is allocated to
each individual performance obligation based on their relative standalone selling price. A performance obligation’s standalone selling
price is the price at which we would sell such promised good or service separately to a customer. We use an observable price to determine
the stand-alone selling price for separate performance obligations or an expected cost-plus margin per GAAP approach when one is not
available. The expected cost-plus margin per GAAP approach is used to determine the stand-alone selling price for the installation
performance obligation and is based on average historical installation margin.
Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and
components is classified as Product revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded
at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon
delivery to the customer’s facility. This point in time is determined separately for each contract and requires judgment by management of
the contract terms and the specific facts and circumstances concerning the transaction.
Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which we refer to
as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone
selling prices.
Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management
believes the customer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately
for each customer contract based upon the terms of the contract and the nature and extent of our control of the light fixtures during the
installation. Product revenue associated with turnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to shipment
or delivery and upon customer payments for the light fixtures, (c) when an individual light fixture is installed and working correctly, or
(d) when the customer acknowledges that the entire installation project is substantially complete. Determining the point in time when a
customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and is applied separately for each
individual light fixture included in a contract. In making this judgment, management considers the timing of various factors, including,
but not limited to, those detailed below:
• when there is a legal transfer of ownership;
• when the customer obtains physical possession of the products;
• when the customer starts to receive the benefit of the products;
•
the amount and duration of physical control that we maintain on the products after they are shipped to, and received at, the
customer’s facility;
• whether we are required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered to
the customer’s facility;
• when each light fixture is physically installed and working correctly;
• when the customer formally accepts the product; and
• when we receive payment from the customer for the light fixtures.
45
Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue.
Service revenue is recorded over-time as we fulfill our obligation to install the light fixtures. We measure our performance toward
fulfilling our performance obligations for installations using an output method that calculates the number of light fixtures completely
removed and installed as of the measurement date in comparison to the total number of light fixtures to be removed and installed under
the contract.
We offer a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of our energy management
systems. The OTA is structured as a sales-type lease and upon successful installation of the system and customer acknowledgment that
the system is operating as specified, revenue is recognized at our net investment in the lease, which typically is the net present value of
the future cash flows.
We also record revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs
are supply-side agreements for the generation of electricity. Our last PPA expires in 2031. Revenue associated with the sale of energy
generated by the solar facilities under these PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to
the amount billed to the customer, which is calculated by applying the fixed rate designated in the PPAs to the variable amount of
electricity generated each month. This approach is in accordance with the “right to invoice” practical expedient provided for in ASC
606. We also recognize revenue upon the sale to third parties of tax credits received from operating the solar facilities and from
amortizing a grant received from the federal government during the period starting when the power generating facilities were constructed
until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC
606.
Inventories. Inventories are stated at the lower of cost or net realizable value and include raw materials, work in process and
finished goods. Items are removed from inventory using the first-in, first-out method. Work in process inventories are comprised of raw
materials that have been converted into components for final assembly. Inventory amounts include the cost to manufacture the item,
such as the cost of raw materials and related freight, labor and other applied overhead costs. We review our inventory for obsolescence.
If the net realizable value, which is based upon the estimated selling price, less estimated costs of completion, disposal, and
transportation, falls below cost, then the inventory value is reduced to its net realizable value. Our inventory obsolescence reserves at
March 31, 2021 were $1.9 million, or 8.9% of gross inventory, and $2.4 million, or 14.3% of gross inventory, at March 31, 2020.
Allowance for Doubtful Accounts. We perform ongoing evaluations of our customers and continuously monitor collections and
payments and estimate an allowance for doubtful accounts based upon the aging of the underlying receivables, our historical experience
with write-offs and specific customer collection issues that we have identified. While such credit losses have historically been within
our expectations, and we believe appropriate reserves have been established, we may not adequately predict future credit losses. If the
financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional
allowances might be required which would result in additional general and administrative expense in the period such determination is
made. Our allowance for doubtful accounts was eleven thousand dollars, or 0.1% of gross receivables, at March 31, 2021 and twenty-
eight thousand dollars, or 0.3% of gross receivables, at March 31, 2020.
Recoverability of Long-Lived Assets. We evaluate long-lived assets such as property, equipment and definite lived intangible assets,
such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial
statements may not be recoverable. Factors that we consider include whether there has been a significant decrease in the market value
of an asset, a significant change in the way an asset is being utilized, or a significant change, delay or departure in our strategy for that
asset, or a significant change in the macroeconomic environment, such as the impact of the COVID-19 pandemic. Our assessment of
the recoverability of long-lived assets involves significant judgment and estimation. These assessments reflect our assumptions, which,
we believe, are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when
performing recoverability and impairment tests include, among others, forecasted revenue, margin costs and the economic life of the
asset. If impairment is indicated, we first determine if the total estimated future cash flows on an undiscounted basis are less than the
carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.
As of March 31, 2020, due to the forecasted change in the macroeconomic conditions due to the COVID-19 pandemic, a triggering
event occurred requiring us to evaluate our long-lived assets for impairment. Due to the central nature of our operations, our tangible
and intangible definite-lived assets support our full operations, are utilized by all three of our reportable segments, and do not generate
separately identifiable cash flows. As such, these assets together represent a single asset group. We performed the recoverability test for
46
the asset group by comparing the carrying value to the group’s expected future undiscounted cash flows. We concluded that the
undiscounted cash flows of the definite lived asset group exceeded the carrying value. As such the asset group was deemed recoverable
and no impairment was recorded.
Our impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows,
determining asset fair values, and estimating asset’s useful lives. To make these judgments, we may use internal discounted cash flow
estimates, quoted market prices, when available, and independent appraisals, as appropriate, to determine fair value.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values,
we may be required to recognize future impairment losses which could be material to our results of operations.
Indefinite Lived Intangible Assets. We test indefinite lived intangible assets for impairment at least annually on the first day of our
fiscal fourth quarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators
throughout the fiscal year. Our annual impairment test may begin with a qualitative test to determine whether it is more likely than not
that an indefinite lived intangible asset's carrying value is greater than its fair value. If our qualitative assessment reveals that asset
impairment is more likely than not, we perform a quantitative impairment test by comparing the fair value of the indefinite lived
intangible asset to its carrying value. Alternatively, we may bypass the qualitative test and initiate impairment testing with the
quantitative impairment test.
We performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets as
of January 1, 2021. This qualitative assessment considered our operating results for the first nine months of fiscal 2021 in comparison
to prior years as well as its anticipated fourth quarter results and fiscal 2022 plan. As a result of the conditions that existed as of the
assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.
Stock-Based Compensation. We currently issue restricted stock awards to our employees, executive officers and directors. Prior
to fiscal 2015, we also issued stock options to these individuals. We apply the provisions of ASC 718, Compensation - Stock
Compensation, to these restricted stock and stock option awards which requires us to expense the estimated fair value of the awards
based on the fair value of the award on the date of grant. Compensation costs for equity incentives are recognized in earnings, on a
straight-line basis over the requisite service period.
Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to
determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax
expenses, together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery
is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we
must reflect this increase as an expense within the tax provision in our statements of operations.
Our judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation
allowance recorded against our net deferred tax assets. We continue to monitor the realizability of our deferred tax assets and adjust the
valuation allowance accordingly. For fiscal 2020 and 2019 we have recorded a full valuation allowance against our net federal and net
state deferred tax assets due to our cumulative three-year taxable losses. During fiscal 2021, we reduced our valuation allowance on the
basis of our reassessment of the amount of our deferred tax assets that are more likely than not to be realized. In making these
determinations, we considered all available positive and negative evidence, including projected future taxable income, tax planning
strategies, recent financial performance and ownership changes.
47
We believe that past issuances and transfers of our stock caused an ownership change in fiscal 2007 that affected the timing of the
use of our net operating loss carry-forwards, but we do not believe the ownership change affects the use of the full amount of the net
operating loss carry-forwards. As a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such
ownership change to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased
future tax liability for us.
As of March 31, 2021, we had net operating loss carryforwards of approximately $69.4 million for federal tax purposes, $61.8
million for state tax purposes, and $0.8 million for foreign tax purposes. As of the prior fiscal year, this amount is inclusive of the entire
loss carryforward on the filed returns.
We also had federal tax credit carryforwards of $1.3 million and state tax credit carryforwards of $0.8 million, which are partially
reserved for as part of our valuation allowance. Of these tax attributes, $8.4 million of the federal and state net operating loss
carryforwards are not subject to time restrictions on use but may only be used to offset 80% of future adjusted taxable income. The
$123.6 million net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2022 and 2040.
We recognize penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest were immaterial
as of the date of adoption and are included in unrecognized tax benefits.
By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position
is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. ASC 740 utilizes a
two-step approach for evaluating tax positions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based
solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step
1 has been satisfied. Under Step 2, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability
basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation
necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment
that depends on all available evidence. As of March 31, 2021, the balance of gross unrecognized tax benefits was approximately $0.3
million, all of which would reduce our effective tax rate if recognized. We believe that our estimates and judgments discussed herein are
reasonable, however, actual results could differ, which could result in gains or losses that could be material.
Recent Accounting Pronouncements
See Note 3 – Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a
full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results
of operations and financial condition.
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity
pricing that may adversely impact our consolidated financial position, results of operations or cash flows.
Inflation. Our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot
currently predict the future impact to our operations by inflation.
Foreign Exchange Risk. We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign
currency losses for all reporting periods have been nominal.
Interest Rate Risk. Our investments consist primarily of investments in money market funds. While the instruments we hold are
subject to changes in the financial standing of the issuer of such securities, we do not believe that we are subject to any material risks
arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that
affect market risk sensitive instruments. It is our policy not to enter into interest rate derivative financial instruments. As a result, we do
not currently have any significant interest rate exposure.
48
As of March 31, 2021, we had no outstanding debt with floating interest rates.
Commodity Price Risk. We are exposed to certain commodity price risks associated with our purchases of raw materials, most
significantly our aluminum purchases. A hypothetical 20% increase in aluminum prices would have had a negative impact of $0.6 million
on our net income in fiscal 2021. We have not experienced any material adverse impacts from commodity price risk due to the COVID-
19 pandemic; however, as of the date of this report, we are not able to predict the future impact of COVID-19 on this risk.
49
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
Number
51
54
55
56
57
58
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Orion Energy Systems, Inc.
Manitowoc, Wisconsin
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Orion Energy Systems, Inc. (the “Company”) as of March 31, 2021
and 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period
ended March 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2021 and
2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2021, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our
report dated June 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Revenue Recognition - Standalone selling price estimations on turnkey contracts
As described in Note 3 to the consolidated financial statements, the Company generates revenue by selling commercial lighting fixtures
and components and by installing these fixtures. For contracts that contain multiple performance obligations, the contract’s transaction
price is allocated to the performance obligations based on their relative standalone selling prices. For turnkey contracts, the standalone
selling price for installation service is estimated using an expected cost-plus a margin approach.
51
We identified the estimation of the standalone selling price of installation service in turnkey contracts as a critical audit matter. Under
the expected cost-plus a margin approach, management estimates the cost of services and applies an estimated margin. The margin
estimate requires significant management judgment and is based on a variety of factors such as geographical location, quantity and type
of product to be removed and/or installed, and average historical installation margins. Auditing this estimate involved subjective and
complex auditor judgment.
The primary procedures we performed to address this critical audit matter included:
• Testing the design and operating effectiveness of internal controls over revenue recognition; specifically, inspecting the
Company’s controls over estimation of the margin, including their review of a sample of completed turnkey contracts to
compare the actual margins achieved to the estimated margin.
• Evaluating the reasonableness of assumptions used by management in estimating standalone selling price for installation
services by (i) examining a sample of turnkey contracts and assessing the reasonableness of the factors considered
including geographical location, product type and historical experience; and (ii) examining the most significant contract
on a disaggregated level and comparing management’s assumptions to our independently-developed assumptions and
evaluating the reasons for significant differences.
• Assessing that the estimated margin is applied consistently and calculated accurately by testing the calculation for a
sample of turnkey contracts and vouching the historical cost inputs incurred for installation and recycling services and
verifying the estimated margin fell within a reasonable range of historical margins
Deferred Tax Asset Valuation Allowance
As described in Note 14 to the Company’s consolidated financial statements, during the year ended March 31, 2021, the Company
released approximately $20.9 million of the valuation allowance on a significant portion of its deferred tax assets. In evaluating the
realizability of deferred tax assets, the available positive and negative evidence, including projected future taxable income exclusive of
reversing temporary differences, history of book losses, tax planning strategies, and results of recent operations, are considered.
We identified the Company’s evaluation of the realizability of deferred tax assets as a critical audit matter. Significant management
judgments are required in evaluating and weighing the collective positive and negative evidence that are used to assess the realizability
of deferred tax assets, which include various assumptions surrounding projected future taxable income, the rate of continued growth,
and forecasted timing of reversal of temporary differences. Auditing these elements involved complex and subjective auditor judgment
due to the nature and extent of audit effort required to address these matters, including the need to involve personnel with specialized
skill and knowledge.
The primary procedures we performed to address this critical audit matter included:
•
Testing the design and operating effectiveness of internal controls over income taxes, specifically, inspecting the
Company’s controls over the evaluation of the realizability of deferred tax assets and controls over the development and
review of the projected future taxable income.
• Assessing the reasonableness of the Company’s ability to generate future taxable income and utilize the deferred tax
assets by evaluating: (i) the forecast of future taxable income , (ii) the rate of continued growth, including performing
independent estimates of the expected growth against the Company’s historical performance, and (iii) the timing of
future reversal of temporary differences.
• Utilizing personnel with specialized knowledge and skill in taxes to assist in the evaluation of the Company’s assessment
of positive and negative evidence, and whether the estimated future sources of taxable income were sufficient to utilize
the deferred tax assets in the relevant time period.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2012.
Milwaukee, Wisconsin
June 1, 2021
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Orion Energy Systems, Inc.
Manitowoc, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited Orion Energy Systems, Inc.’s (the “Company’s”) internal control over financial reporting as of March 31, 2021, based
on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of March 31, 2021 and 2020, the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2021, and the related notes and our report
dated June 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Milwaukee, Wisconsin
June 1, 2021
53
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Assets
Cash and cash equivalents
Accounts receivable, net
Revenue earned but not billed
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other intangible assets, net
Deferred tax assets
Long-term accounts receivable
Other long-term assets
Total assets
Liabilities and Shareholders’ Equity
Accounts payable
Accrued expenses and other
Deferred revenue, current
Current maturities of long-term debt
Total current liabilities
Revolving credit facility
Long-term debt, less current maturities
Deferred revenue, long-term
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares
at March 31, 2021 and 2020; no shares issued and outstanding at
March 31, 2021 and 2020
Common stock, no par value: Shares authorized: 200,000,000 at
March 31, 2021 and 2020; shares issued: 40,279,050 and
39,729,569 at March 31, 2021 and 2020; shares outstanding:
30,805,300 and 30,265,997 at March 31, 2021 and 2020
Additional paid-in capital
Treasury stock: 9,473,750 and 9,463,572 common shares at
March 31, 2021 and 2020
Retained deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
March 31,
2021
2020
19,393 $
13,572
2,930
19,554
1,082
56,531
11,369
1,952
19,785
—
3,184
92,821 $
17,045 $
13,226
87
14
30,372
—
35
640
3,700
34,747
28,751
10,427
560
14,507
723
54,968
11,817
2,216
—
760
2,802
72,563
19,834
7,228
107
35
27,204
10,013
50
715
3,546
41,528
—
—
—
157,485
(36,240 )
(63,171 )
58,074
92,821 $
—
156,503
(36,163 )
(89,305 )
31,035
72,563
$
54
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Product revenue
Service revenue
Total revenue
Cost of product revenue
Cost of service revenue
Total cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income (loss) from operations
Other income (expense):
Other income
Interest expense
Amortization of debt issue costs
Loss on debt extinguishment
Interest income
Total other expense
Income (loss) before income tax
Income tax (benefit) expense
Net income (loss)
Basic net income (loss) per share attributable to common shareholders
Weighted-average common shares outstanding
Diluted net income (loss) per share
Weighted-average common shares and share equivalents
outstanding
$
2021
Fiscal Year Ended March 31,
2020
2019
87,664 $
29,176
116,840
63,233
23,483
86,716
30,124
11,262
10,341
1,685
23,288
6,836
113,352 $
37,489
150,841
83,588
30,130
113,718
37,123
11,184
11,113
1,716
24,013
13,110
56,261
9,493
65,754
44,111
7,091
51,202
14,552
10,231
9,104
1,374
20,709
(6,157 )
56
(127 )
(157 )
(90 )
—
(318 )
6,518
(19,616 )
26,134 $
0.85 $
30,634,553
0.83 $
28
(279 )
(243 )
—
5
(489 )
12,621
159
12,462 $
0.41 $
30,104,552
0.40 $
80
(493 )
(101 )
—
11
(503 )
(6,660 )
14
(6,674 )
(0.23 )
29,429,540
(0.23 )
31,303,727
30,964,777
29,429,540
$
$
$
55
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
Balance, March 31, 2018
Shares issued under Employee Stock Purchase
Plan
Stock-based compensation
Employee tax withholdings on stock-based
compensation
Cumulative effect of accounting change due to
adoption of ASC 606
Net loss
Balance, March 31, 2019
Exercise of stock options and warrants for cash
Shares issued under Employee Stock Purchase
Plan
Stock-based compensation
Employee tax withholdings on stock-based
compensation
Net income
Balance, March 31, 2020
Exercise of stock options and warrants for cash
Shares issued under Employee Stock Purchase
Plan
Stock-based compensation
Employee tax withholdings on stock-based
compensation
Net income
Balance, March 31, 2021
Shareholders’ Equity
Common Stock
Shares
Additional
Paid-in
Capital
28,953,183 $
155,003 $
Treasury
Stock
(36,085 ) $
Retained
Earnings
(Deficit)
Total
Shareholders’
Equity
(95,494 ) $
23,424
4,642
653,394
—
825
4
—
—
—
(11,061 )
—
(10 )
—
4
825
(10 )
—
—
29,600,158
22,362
—
—
155,828
57
—
—
(36,091 )
—
401
(6,674 )
(101,767 )
—
401
(6,674 )
17,970
57
2,361
669,238
—
618
7
—
—
—
7
618
(28,122 )
—
30,265,997
99,000
—
—
156,503
229
(79 )
—
(36,163 )
—
—
12,462
(89,305 )
—
(79 )
12,462
31,035
229
1,146
450,481
—
753
7
—
—
—
7
753
(11,324 )
—
30,805,300 $
—
—
157,485 $
(84 )
—
(36,240 ) $
—
26,134
(63,171 ) $
(84 )
26,134
58,074
56
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
2021
Fiscal Year Ended March 31,
2020
2019
$
26,134 $
12,462 $
(6,674 )
(used in) operating activities:
Depreciation
Amortization of intangible assets
Stock-based compensation
Amortization of debt issue costs
Loss on debt extinguishment
Deferred income tax benefit
Loss on sale of property and equipment
Provision for inventory reserves
Provision for bad debts
Other
Changes in operating assets and liabilities:
Accounts receivable
Revenue earned but not billed
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue, current and long-term
Net cash provided by (used in) operating activities
Investing activities
Purchase of property and equipment
Additions to patents and licenses
Proceeds from sales of property, plant and equipment
Net cash used in investing activities
Financing activities
Payment of long-term debt
Proceeds from revolving credit facility
Payment of revolving credit facility
Payments to settle employee tax withholdings on stock-based
compensation
Debt issue costs
Net proceeds from employee equity exercises
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Cash paid for interest
Cash (paid) received for income taxes
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property, plant and equipment by issuing a debt
Operating lease assets obtained in exchange for new operating lease
liabilities
$
$
$
$
$
57
1,190
290
753
157
90
(19,860 )
1
275
—
106
(2,384 )
(2,370 )
(5,322 )
(396 )
(2,637 )
5,797
(95 )
1,729
(902 )
(51 )
7
(946 )
(35 )
8,000
(18,013 )
(84 )
(245 )
236
(10,141 )
(9,358 )
28,751
19,393 $
1,203
359
618
243
—
—
10
205
—
57
3,616
3,186
(1,319 )
66
(79 )
(192 )
(92 )
20,343
(814 )
(131 )
9
(936 )
1,339
444
825
101
—
—
—
(202 )
56
57
(5,840 )
(1,390 )
(4,689 )
68
8,916
1,975
(44 )
(5,058 )
(381 )
(68 )
—
(449 )
(92 )
74,100
(73,289 )
(80 )
60,270
(54,976 )
(76 )
(91 )
63
615
20,022
8,729
28,751 $
(10 )
(396 )
4
4,812
(695 )
9,424
8,729
(176 )
12
74
—
(118 ) $
(175 ) $
(254 ) $
(28 ) $
— $
— $
355 $
2,757 $
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer,
manufacturer and seller of lighting and energy management systems to commercial and industrial businesses, and federal and local
governments, predominantly in North America.
Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases
office space in Jacksonville, Florida.
NOTE 2 — IMPACT OF COVID-19
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally. Orion’s
business was adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in
March 2020, the last month of Orion’s fiscal 2020 year, and continuing most significantly into the second quarter of fiscal 2021. During
the second half of fiscal 2021, Orion experienced a rebound in business. Project installations resumed for Orion’s largest customer and
started installations for a new large specialty retail customer began, with no further significant COVID-19 impacts. However, some
customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic.
As an essential business, Orion provides products and services to ensure energy and lighting infrastructure and Orion therefore
has continued to operate throughout the pandemic.
As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020 Orion implemented
a number of cost reduction and cash conservation measures, including reducing headcount. While certain restrictions began to initially
lessen in certain jurisdictions during fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees
asked to work remotely if possible. Some customers and projects are in areas where travel restrictions have been imposed, certain
customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed,
extended or terminated. These modifications to Orion’s business practices, including any future actions Orion takes, may cause Orion
to experience reductions in productivity and disruptions to Orion’s business routines. In addition, Orion is required to make substantial
working capital expenditures and advance inventory purchases that Orion may not be able to recoup if Orion’s customer agreements or
a substantial volume of purchase orders under Orion’s customer agreements are delayed or terminated as a result of COVID-19. At this
time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources
or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced Orion’s revenue and profitability
in the first half of fiscal 2021. If the COVID-19 pandemic becomes more pronounced in Orion’s markets or experiences a resurgence in
markets recovering from the spread of COVID-19, Orion’s operations in areas impacted by such events could experience further material
adverse financial impacts due to market changes and other resulting events and circumstances.
Due to the forecasted change in macroeconomic conditions due to the COVID-19 pandemic, as of March 31, 2020, a triggering
event occurred requiring Orion to evaluate its long-lived assets for impairment. Orion performed the Step 1 recoverability test for the
asset group, and the asset group was deemed recoverable. See Note 8 – Property and Equipment.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain
income tax provisions relevant to businesses. Orion is required to recognize the effect on the consolidated financial statements in the
period the law was enacted, which was the period ended March 31, 2020. For the fiscal years ended March 31, 2021, and March 31,
2020, the CARES Act did not have a material impact on Orion’s consolidated financial statements. See Note 14 – Income Taxes.
58
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant
management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts, accruals for warranty and
loss contingencies, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from
those estimates.
Cash and Cash Equivalents
Orion considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
Orion’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and
other, revolving credit facility and long-term debt. The carrying amounts of Orion’s financial instruments approximate their respective
fair values due to the relatively short-term nature of these instruments, or in the case of long-term debt and revolving credit facility,
because of the interest rates currently available to Orion for similar obligations. Valuation techniques used to measure fair value must
maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on
the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to
measure fair value:
Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that
are not active for which significant inputs are observable, either directly or indirectly.
Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to
the overall fair value measurement. Inputs reflect management's best estimate of what market participants would use in valuing the asset
or liability at the measurement date.
Allowance for Doubtful Accounts
Orion performs ongoing evaluations of its customers and continuously monitors collections and payments. Orion estimates an
allowance for doubtful accounts based upon the aging of the underlying receivables, historical experience with write-offs and specific
customer collection issues that have been identified. See Note 5 – Accounts Receivable for further discussion of the allowance for
doubtful accounts.
59
Incentive Plan
Orion’s compensation committee approved an Executive Annual Cash Incentive Program. Based upon the results for the fiscal
years ended March 31, 2021, 2020 and 2019, Orion accrued approximately $0.7 million, $0.8 million, and no expense related to this
plan, respectively.
Revenue Recognition
Orion generates revenues primarily by selling commercial lighting fixtures and components and by installing these fixtures in its
customer’s facilities. Orion recognizes revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606)
(“ASC 606”) when control of the goods or services being provided (which Orion refers to as a performance obligation) is transferred to a
customer at an amount that reflects the consideration that management expects to receive in exchange for those goods or services. Prices
are generally fixed at the time of order confirmation. The amount of expected consideration includes estimated deductions and early payment
discounts calculated based on historical experience, customer rebates based on agreed upon terms applied to actual and projected sales
levels over the rebate period, and any amounts paid to customers in conjunction with fulfilling a performance obligation.
If there are multiple performance obligations in a single contract, the contract’s total transaction price is allocated to each individual
performance obligation based on their relative standalone selling price. A performance obligation’s standalone selling price is the price
at which Orion would sell such promised good or service separately to a customer. Orion uses an observable price to determine the
stand-alone selling price for separate performance obligations or an expected cost-plus margin approach when one is not available. The
expected cost-plus margin approach is used to determine the estimated stand-alone selling price for the installation performance
obligation and is based on average historical installation margin.
Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and
components is classified as Product revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded
at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon
delivery to the customer’s facility. This point in time is determined separately for each contract and requires judgment by management of
the contract terms and the specific facts and circumstances concerning the transaction.
Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which Orion refers
to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone
selling prices.
Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management
believes the customer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately
for each customer contract based upon the terms of the contract and the nature and extent of Orion’s control of the light fixtures during
the installation. Product revenue associated with turnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to
shipment or delivery and upon customer payments for the light fixtures, (c) when an individual light fixture is installed and working
correctly, or (d) when the customer acknowledges that the entire installation project is substantially complete. Determining the point in
time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and is applied separately
for each individual light fixture included in a contract. In making this judgment, management considers the timing of various factors,
including, but not limited to, those detailed below:
• when there is a legal transfer of ownership;
• when the customer obtains physical possession of the products;
• when the customer starts to receive the benefit of the products;
•
the amount and duration of physical control that Orion maintains on the products after they are shipped to, and received at,
the customer’s facility;
• whether Orion is required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered
to the customer’s facility;
• when each light fixture is physically installed and working correctly;
60
• when the customer formally accepts the product; and
• when Orion receives payment from the customer for the light fixtures.
Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue.
Service revenue is recorded over-time as Orion fulfills its obligation to install the light fixtures. Orion measures its performance toward
fulfilling its performance obligations for installations using an output method that calculates the number of light fixtures removed and
installed as of the measurement date in comparison to the total number of light fixtures to be removed and installed under the contract.
Orion offers a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of Orion’s energy
management systems. The OTA is structured as a sales-type lease and upon successful installation of the system and customer
acknowledgment that the system is operating as specified, revenue is recognized at Orion’s net investment in the lease, which typically
is the net present value of the future cash flows.
Orion also records revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs
are supply-side agreements for the generation of electricity. Orion’s last PPA expires in 2031. Revenue associated with the sale of energy
generated by the solar facilities under these PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to
the amount billed to the customer, which is calculated by applying the fixed rate designated in the PPAs to the variable amount of
electricity generated each month. This approach is in accordance with the “right to invoice” practical expedient provided for in ASC
606. Orion also recognizes revenue upon the sale to third parties of tax credits received from operating the solar facilities and from
amortizing a grant received from the federal government during the period starting when the power generating facilities were constructed
until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC
606.
See Note 11 – Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for
its products and services.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues)
basis.
Shipping and Handling Costs
Orion records costs incurred in connection with shipping and handling of products as cost of product revenue. Amounts billed to
customers in connection with these costs are included in product revenue.
Research and Development
Orion expenses research and development costs as incurred. Amounts are included in the Statement of Operations on the line item
Research and development.
Income Taxes
Orion recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between financial
reporting and income tax basis of assets and liabilities, measured using the enacted tax rates and laws expected to be in effect when the
temporary differences reverse. Deferred income taxes also arise from the future tax benefits of operating loss and tax credit
carryforwards. A valuation allowance is established when management determines that it is more likely than not that all or a portion of
a deferred tax asset will not be realized. For the fiscal year ended March 31, 2021, Orion decreased its full valuation allowance by $20.9
million against its deferred tax assets on the basis of management’s reassessment of the amount of its deferred tax assets that are more
likely than not to be realized.
ASC 740, Income Taxes, also prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination. Orion has classified the amounts recorded for uncertain tax benefits in the
balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. Orion recognizes penalties
61
and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are immaterial and are included in the
unrecognized tax benefits.
Stock Based Compensation
Orion’s share-based payments to employees are measured at fair value and are recognized against earnings, on a straight-line basis
over the requisite service period.
Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair
value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award
and is recognized as expense ratably over the requisite service period. As more fully described in Note 17 – Stock Options and Restricted
Shares, Orion currently awards non-vested restricted stock (and in some cases, in conjunction with associated cash award accounted for
as a liability) to employees, executive officers and directors.
Orion has not paid dividends in the past and does not plan to pay any dividends in the foreseeable future.
Concentration of Credit Risk and Other Risks and Uncertainties
Orion’s cash is deposited with three financial institutions. At times, deposits in these institutions exceed the amount of insurance
provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant
financial institution viability risk on these balances.
Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple
suppliers. For fiscal 2021, no supplier accounted for more than 10% of total cost of revenue. For fiscal 2020, one supplier accounted for
11.8% of total cost of revenue. For fiscal 2019, no supplier accounted for more than 10% of total cost of revenue.
In fiscal 2021, one customer accounted for 56.0% of revenue. In fiscal 2020, one customer accounted for 74.1% of total revenue.
In fiscal 2019, one customer accounted for 20.7% of total revenue.
As of March 31, 2021, three customers accounted for 33.9%, 16.4% and 10.1% of accounts receivable, respectively, and as of
March 31, 2020, two customers accounted for 37.3% and 13.0% of accounts receivable, respectively.
Recent Accounting Pronouncements
Issued: Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on
its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify
the implementation guidance. The provisions of ASU 2016-13 and the related amendments are effective for Orion for fiscal years (and
interim reporting periods within those years) beginning after December 15, 2022. Entities are required to apply these changes through a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
Orion is currently evaluating the impact of adoption of this standard on its consolidated statements of operations, cash flows, and the
related footnote disclosures.
Recently Adopted Standards
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which simplifies the accounting for income taxes by removing certain exceptions to the general rules of Topic 740. The provisions of
ASU 2019-12 are effective for Orion in the current period. One provision applicable to Orion and relevant to recently filed financial
statements relate to hybrid tax regimes. Hybrid tax regimes are those that impose the greater of two taxes – one based on income or one
62
based on items other than income. The old guidance specified that if there is a tax based on income that is greater than a franchise tax
based on capital, only that excess is subject to ASC 740. The new guidance states that an entity should include the amount of tax based
on income in the tax provision and include any incremental amount recorded as a tax not based on income. The adoption of this ASU
did not have a material impact on Orion’s consolidated financial statements.
NOTE 4 — REVENUE
Revenue Recognition
See Note 3 – Summary of Significant Accounting Policies for a discussion of Orion’s accounting policies related to revenue
recognition.
Contract Fulfillment Costs
Costs associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of
product revenue at the time revenue is recorded. See Note 6 – Inventories. Costs associated with installation sales are expensed as
incurred.
Disaggregation of Revenue
Orion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue
which is accounted for under other guidance. For fiscal year 2021, Product revenue included $2.8 million derived from sales-type leases
for light fixtures, $0.1 million derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy,
and $0.1 million derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs
to construct the legacy solar facilities which are not under the scope of ASC 606. All remaining Product revenue, and all Service revenue,
are derived from contracts with customers as defined in ASC 606.
The primary end-users of Orion’s lighting products and services are (a) the federal government, and (b) commercial or industrial
companies.
The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select
group of contractors who focus on the federal government. Revenues associated with government end-users are primarily included in
the Orion Engineered Systems Division segment.
Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products
either direct from Orion or through distributors or energy service companies ("ESCOs"). Revenues associated with commercial and
industrial end-users are included within each of Orion’s segments, dependent on the sales channel.
See Footnote 18 - Segment Data, for additional discussion concerning Orion’s reportable segments.
63
The following table provides detail of Orion’s total revenues for the year ended March 31, 2021 (dollars in thousands):
Revenue from contracts with customers:
Lighting revenues, by end user
Year Ended March 31, 2021
Product Services Total
Year Ended March 31, 2020
Product
Services Total
Year Ended March 31, 2019
Product Services Total
Federal government
Commercial and industrial
Total lighting
Solar energy related revenues
Total revenues from contracts with
customers
Revenue accounted for under other
guidance
Total revenue
Cash Flow Considerations
696 $
965 $ 1,661 $
$
379 $ 1,301 $ 2,579 $ 642 $ 3,221
83,963 28,211 112,174 110,742 37,110 147,852 49,963 8,851 58,814
84,659 29,176 113,835 111,664 37,489 149,153 52,542 9,493 62,035
57
56 —
57 —
57 —
922 $
57
56
84,716 29,176 113,892 111,720 37,489 149,209 52,599 9,493 62,092
2,948 —
1,632 3,662 — 3,662
1,632 —
$ 87,664 $ 29,176 $ 116,840 $ 113,352 $ 37,489 $ 150,841 $ 56,261 $ 9,493 $ 65,754
2,948
Customer payments for material only orders are due shortly after shipment.
Turnkey projects where the end-user is a commercial or industrial company typically span between one week to three months. Customer
payment requirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they
are delivered, other contracts specify that the customer will pay for the project in its entirety upon completion of the installation.
Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these
sales often provide for monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.
Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three
and nine months. The customer executes an agreement providing for monthly payments of the contract price, plus interest, over a five-year
period. The total transaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects.
The portion of the transaction associated with the installation is accounted for consistently with all other installation related performance
obligations. The portion of the transaction associated with the sale of the multiple individual light fixtures is accounted for as sales-type leases
in accordance with the guidance for leases. Revenues associated with the sales-type leases are included in Product revenue and recorded for
each fixture separately based on the customer’s monthly acknowledgment that specified fixtures have been installed and are operating as
specified.
The payments associated with these transactions that are due during the twelve months subsequent to March 31, 2021 are included in
Accounts receivable, net in Orion’s Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions
are included in Long-term accounts receivable in Orion’s Consolidated Balance Sheets. As of March 31, 2021, there were no such
transactions included in Long-term accounts receivable.
The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable
from the customer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution
of the receivables purchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s
Consolidated Balance Sheets until cash is received from the financial institution. The financial institution releases funds to Orion based on
the customer’s monthly acknowledgment of the progress Orion has achieved in fulfilling its installation obligation. Orion provides the
progress certifications to the financial institution one month in arrears.
The total amount received from the sales of these receivables during the twelve months ended March 31, 2021, 2020, and 2019
was $5.1 million, $4.4 million, and $6.9 million, respectively. Orion’s losses on these sales aggregated to $0.1 million, $0.1 million, and
$0.3 million for the twelve months ended March 31, 2021, 2020, and 2019, respectively, and are included in Interest expense in the
Consolidated Statements of Operations.
64
Practical Expedients and Exemptions
Orion expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded
within Sales and marketing expense. There are no other capitalizable costs associated with obtaining contracts with customers.
Orion’s performance obligations related to lighting fixtures typically do not exceed nine months in duration. As a result, Orion has
elected the practical expedient that provides an exemption to the disclosure requirements regarding information about value assigned to
remaining performance obligations on contracts that have original expected durations of one year or less.
Orion also elected the practical expedient that permits companies to not disclose quantitative information about the future revenue
when revenue is recognized as invoices are issued to customers for services performed.
Other than the turnkey projects which result in sales-type leases discussed above, Orion generally receives full payment for
satisfied performance obligations in less than one year. Accordingly, Orion does not adjust revenues for the impact of any potential
significant financing component as permitted by the practical expedients provided in ASC 606.
Contract Balances
A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has
been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.
Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common
practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically
bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of March 31,
2021 and March 31, 2020 includes $0.6 million and $39 thousand, respectively, which was not derived from contracts with customers
and therefore not classified as a contract asset as defined by the new standards.
Long term accounts receivable as of March 31, 2020, includes $0.6 million of contract assets related to the service portion of the
long-term financing agreement provided one customer.
Deferred revenue, current as of March 31, 2021, includes $11 thousand of contract liabilities which represented consideration
received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded
revenue.
Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and
2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a
customer, this value is not a contract liability as defined by the new standards.
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract
liabilities as of March 31, 2021, and March 31, 2020, after the adoption of the new standards (dollars in thousands):
Accounts receivable, net
Contract assets
Contract liabilities
March 31, 2020
March 31, 2021
$
$
$
13,572 $
2,367 $
11 $
10,427
1,082
31
There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon
billing. There were no significant changes to contract liabilities.
65
NOTE 5 — ACCOUNTS RECEIVABLE
Orion’s accounts receivable are due from companies in the commercial, governmental, industrial and agricultural industries, as
well as wholesalers. Credit is extended based on an evaluation of a customer’s financial condition. Generally, collateral is not required
for end users; however, the payment of certain trade accounts receivable from wholesalers is secured by irrevocable standby letters of
credit and/or guarantees. Accounts receivable are generally due within 30-60 days. Accounts receivable are stated at the amount Orion
expects to collect from outstanding balances. Orion provides for probable uncollectible amounts through a charge to earnings and a
credit to an allowance for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still
outstanding after Orion has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts
and a credit to accounts receivable. Orion's accounts receivable and allowance for doubtful accounts balances were as follows (dollars
in thousands):
Accounts receivable, gross
Allowance for doubtful accounts
Accounts receivable, net
NOTE 6 — INVENTORIES
2021
2020
$
$
13,583 $
(11 )
13,572 $
10,455
(28 )
10,427
Inventories consist of raw materials and components, such as drivers, metal sheet and coil stock and molded parts; work in process
inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories
are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out (FIFO) method. Orion reduces the
carrying value of its inventories for differences between the cost and estimated net realizable value, taking into consideration usage in
the preceding 9 to 12 months, expected demand, and other information indicating obsolescence. Orion records, as a charge to cost of
product revenue, the amount required to reduce the carrying value of inventory to net realizable value. As of March 31, 2021 and 2020,
Orion's inventory balances were as follows (dollars in thousands):
As of March 31, 2021
Raw materials and components
Work in process
Finished goods
Total
As of March 31, 2020
Raw materials and components
Work in process
Finished goods
Total
Cost
Excess and
Obsolescence
Reserve
Net
$
$
$
$
12,410 $
758
8,295
21,463 $
9,639 $
699
6,598
16,936 $
(967 ) $
(356 )
(586 )
(1,909 ) $
(1,244 ) $
(305 )
(880 )
(2,429 ) $
11,443
402
7,709
19,554
8,395
394
5,718
14,507
Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and
receiving costs, are also included in cost of product revenue.
NOTE 7 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid subscription fees, prepaid insurance premiums, debt issue
costs, and sales tax receivable.
66
NOTE 8 — PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for additions and improvements are capitalized, while replacements,
maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred. Properties and
equipment sold, or otherwise disposed of, are removed from the property and equipment accounts, with gains or losses on disposal
credited or charged to income from operations.
Orion periodically reviews the carrying values of property and equipment for impairment in accordance with ASC 360, Property,
Plant and Equipment, if events or changes in circumstances indicate that the assets may be impaired. The estimated future undiscounted
cash flows expected to result from the use of the assets and their eventual disposition are compared to the assets' carrying amount to
determine if a write down to market value is required.
As of March 31, 2020, due to the forecasted change in the macroeconomic conditions due to the COVID-19 pandemic, a triggering
event occurred requiring Orion to evaluate its long-lived assets for impairment. Due to the central nature of its operations, Orion’s
tangible and intangible definite-lived assets support its full operations, are utilized by all three of its reportable segments, and do not
generate separately identifiable cash flows. As such, these assets together represent a single asset group. Orion performed the
recoverability test for the asset group by comparing its carrying value to the group’s expected future undiscounted cash flows. Orion
concluded that the undiscounted cash flows of the long-lived asset group exceeded its carrying value. As such the asset group was
deemed recoverable and no impairment was recorded.
Property and equipment were comprised of the following (dollars in thousands):
Land and land improvements
Buildings and building improvements
Furniture, fixtures and office equipment
Leasehold improvements
Equipment leased to customers
Plant equipment
Construction in progress
Less: accumulated depreciation and amortization
Net property and equipment
March 31, 2021
March 31, 2020
$
$
433 $
9,477
7,372
340
4,997
12,451
135
35,205
(23,836 )
11,369 $
433
9,470
7,270
324
4,997
12,021
15
34,530
(22,713 )
11,817
Depreciation is recognized over the estimated useful lives of the respective assets, using the straight-line method. Orion recorded
depreciation expense of $1.2 million, $1.2 million and $1.3 million for the years ended March 31, 2021, 2020 and 2019, respectively.
Depreciable lives by asset category are as follows:
Land improvements
Buildings and building improvements
Furniture, fixtures and office equipment
Leasehold improvements
Equipment leased to customers under Power Purchase Agreements
Plant equipment
10-15 years
10-39 years
2-10 years
Shorter of asset life or life of lease
20 years
3-10 years
No interest was capitalized for construction in progress during fiscal 2021 or fiscal 2020.
NOTE 9 — LEASES
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties. Effective April 1, 2019,
leases are accounted for, and reported upon, following the requirements of ASC 842, Leases.
Whether it is the lessee or the lessor, Orion’s determination of whether a contract includes a lease, and assessing how the lease
should be accounted for, is a matter of judgment based on whether the risks and rewards, as well as substantive control of the assets
specified in the contract, have been transferred from the lessor to the lessee. The judgement considers matters such as whether the assets
67
are transferred from the lessor to the lessee at the end of the contract, the term of the agreement in relation to the asset’s remaining
economic useful life, and whether the assets are of such a specialized nature that the lessor will not have an alternative use for such
assets at the termination of the agreement. Other matters requiring judgement are the lease term when the agreement includes renewal
or termination options and the interest rate used when initially determining the ROU asset and lease liability.
ROU assets represent Orion’s right to use an underlying asset for the lease term and lease liabilities represent Orion’s obligation
to make lease payments arising from the lease. Under ASC 842, both finance and operating lease ROU assets and lease liabilities for
leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments
over the lease term. When available, Orion uses the implicit interest rate in the lease when completing this calculation. However, as
most of Orion’s operating lease agreements generating ROU assets do not provide the implicit rate, Orion’s incremental borrowing rate
under its line of credit, adjusted for differences in duration and the relative collateral value in relation to the payment obligation, at the
commencement of the lease is generally used in this calculation. The lease term includes options to extend or renew the agreement, or
for early termination of the agreement, when it is reasonably certain that Orion will exercise such option. ROU assets are depreciated
using the straight-line method over the lease term.
Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-
line basis over the lease term.
One of Orion’s frequent customers purchases products and installation services under agreements that provide for monthly
payments, at a fixed monthly amount, of the contract price, plus interest, typically over a five-year period. While Orion retains ownership
of the light fixtures during the financing period, the transaction terms and the underlying economics associated with used lighting fixtures
results in Orion essentially ceding ownership of the lighting fixtures to the customer after completion of the agreement. The portions of
the transaction associated with the sale of the light fixtures is accounted for as a sales-type lease. The total transaction price in these
contracts is allocated between the lease and non-lease components in the same manner as the total transaction price of other turnkey
projects containing lighting fixtures and installation services.
Orion leases portions of its corporate headquarters to third parties; all such agreements have been, and continue to be, classified
as operating leases under the applicable authoritative accounting guidance. The assets being leased continue to be included in Property
and equipment, net. Lease payments earned are recorded as a reduction in administrative expenses.
Assets Orion Leases from Other Parties
On January 31, 2020, Orion entered into the current lease for its approximately 266,000 square foot primary manufacturing and
distribution facility in Manitowoc, WI. The lease has a 10-year term, with the option to terminate after six years. Orion is responsible
for the costs of insurance and utilities for the facility. These costs are considered variable lease costs. The agreement is classified as an
operating lease.
The prior lease agreement for this facility provided the lessor the right to terminate the lease agreement at any time with 12
months’ notice to Orion. As a result, the agreement was previously classified as a short-term lease.
In February 2014, Orion entered into a multi-year lease agreement for use of approximately 10,500 square feet of office space in
a multi-use office building in Jacksonville, Florida. The lease has since been extended, most recently during the first quarter of fiscal
2021, and presently terminates on June 30, 2023. The agreement is classified as an operating lease.
Orion has leased other assets from third parties, principally office and production equipment. The terms of our other leases vary
from contract to contract and expire at various dates in the next five years.
The weighted average discount rate for Orion’s lease obligations as of March 31, 2021 is 5.4%. The weighted average remaining
lease term as of March 31, 2021 is 4.6 years.
68
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
Balance sheet classification
March 31, 2021
March 31, 2020
Assets
Operating lease assets
Liabilities
Current liabilities
Other long-term assets
$
2,585 $
2,745
Operating lease liabilities
Accrued expenses and other
Non-current liabilities
Operating lease liabilities
Total lease liabilities
Other long-term liabilities
$
647
2,642
3,289 $
691
2,830
3,521
Orion had operating lease costs of $0.9 million for the year ended March 31, 2021. This includes short-term leases and variable
lease costs, which are immaterial.
The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):
Maturity of Lease Liabilities
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Total lease payments
Less: Interest
Present value of lease liabilities
Assets Orion Leases to Other Parties
Operating Leases
$
810
820
746
735
628
3,739
(450 )
3,289
$
$
Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between
three and nine months. The customer executes an agreement providing for monthly payments, at a fixed monthly amount, of the contract
price, plus interest, over typically a five-year period. The total transaction price in these contracts is allocated between product and
services in the same manner as all other turnkey projects. The portion of the transaction associated with the installation is accounted for
consistently with all other installation related performance obligations under ASC 606.
While Orion retains ownership of the light fixtures during the financing period, the transaction terms and the underlying economics
associated with used lighting fixtures results in Orion essentially ceding ownership of the lighting fixtures to the customer after
completion of the agreement. Therefore, the portions of the transaction associated with the sale of the multiple individual light fixtures
is accounted for as a sales-type lease under ASC 842.
Revenues, and production and acquisition costs, associated with sales-type leases are included in Product revenue and Costs of
product revenues in the Consolidated Statement of Operations. These amounts are recorded for each fixture separately based on the
customer’s monthly acknowledgment that specified fixtures have been installed and are operating as specified. The execution of the
acknowledgement is considered the commencement date as defined in ASC 842.
The following chart shows the amount of revenue and cost of sales arising from sales-type leases during the year ended March 31,
2021 and 2020 (dollars in thousands):
Product revenue
Cost of product revenue
$
March 31, 2021
March 31, 2020
2,758 $
2,512
1,362
1,208
The Consolidated Balance Sheet as of March 31, 2021 does not include a net investment in sales-type leases as all amounts due
from the customer associated with lighting fixtures that were acknowledged to be installed and working correctly prior to period end
were transferred to the financing institution prior to the respective balance sheet dates. The Consolidated Balance Sheet as of March 31,
2020 includes an immaterial amount related to the net investment in sales-type leases.
69
Other Agreements where Orion is the Lessor
Orion has leased unused portions of its corporate headquarters to third parties. The length and payment terms of the leases vary
from contract to contract and, in some cases, include options for the tenants to extend the lease terms. Annual lease payments are recorded
as a reduction in administrative operating expenses and were not material in the years ended March 31, 2021 and 2020. Orion accounts
for these transactions as operating leases.
NOTE 10 — OTHER INTANGIBLE ASSETS
The costs of specifically identifiable intangible assets that do not have an indefinite life are amortized over their estimated useful
lives. Intangible assets with indefinite lives are not amortized.
Amortizable intangible assets are amortized over their estimated economic useful life to reflect the pattern of economic benefits
consumed based upon the following lives and methods:
Patents
Licenses
Customer relationships
10-17 years
7-13 years
5-8 years
Developed technology
8 years
Straight-line
Straight-line
Accelerated based upon the pattern of economic benefits
consumed
Accelerated based upon the pattern of economic benefits
consumed
Intangible assets that have a definite life are evaluated for potential impairment whenever events or circumstances indicate that
the carrying value may not be recoverable based primarily upon whether expected future undiscounted cash flows are sufficient to
support the asset recovery. If the actual useful life of the asset is shorter than the estimated life, the asset may be deemed to be impaired
and accordingly a write-down of the value of the asset determined by a discounted cash flow analysis or shorter amortization period
may be required.
Indefinite lived intangible assets are evaluated for impairment at least annually on the first day of Orion’s fiscal fourth quarter, or
when indications of potential impairment exist. This annual impairment review may begin with a qualitative test to determine whether
it is more likely than not that an indefinite lived intangible asset's carrying value is greater than its fair value. If the qualitative assessment
reveals that asset impairment is more likely than not, a quantitative impairment test is performed comparing the fair value of the
indefinite lived intangible asset to its carrying value. Alternatively, the qualitative test may be bypassed and the quantitative impairment
test may be immediately performed. If the fair value of the indefinite lived intangible asset exceeds its carrying value, the indefinite
lived intangible asset is not impaired and no further review is performed. If the carrying value of the indefinite lived intangible asset
exceeds its fair value, an impairment loss would be recognized in an amount equal to such excess. Once an impairment loss is recognized,
the adjusted carrying value becomes the new accounting basis of the indefinite lived intangible asset.
Orion performed a qualitative assessment in conjunction with its annual impairment test of its indefinite lived intangible assets as
of January 1, 2021. This qualitative assessment considered Orion’s operating results for the first nine months of fiscal 2021 in comparison
to prior years as well as its anticipated fourth quarter results and fiscal 2022 plan. As a result of the conditions that existed as of the
assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.
70
The components of, and changes in, the carrying amount of other intangible assets were as follows (dollars in thousands):
March 31, 2021
March 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Patents
Licenses
Trade name and trademarks
Customer relationships
Developed technology
Total
$
$
2,796 $
58
1,011
3,600
900
8,365 $
(1,875 ) $
(58 )
—
(3,591 )
(889 )
(6,413 ) $
921 $
—
1,011
9
11
1,952 $
2,766 $
58
1,014
3,600
900
8,338 $
(1,700 ) $
(58 )
—
(3,545 )
(819 )
(6,122 ) $
1,066
—
1,014
55
81
2,216
As of March 31, 2021, the weighted average useful life of definite life intangible assets was 3.75 years. The estimated amortization
expense for each of the next five years is shown below (dollars in thousands):
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
$
$
Amortization expense is set forth in the following table (dollars in thousands):
Amortization included in cost of sales:
Patents
Total
Amortization included in operating expenses:
Customer relationships
Developed technology
Non-competition agreements
Total
Total amortization of intangible assets
2021
Fiscal Year Ended March 31,
2020
2019
$
$
$
$
175 $
175 $
47 $
68
—
115
290 $
171 $
171 $
86 $
102
—
188
359 $
206
115
111
100
90
319
941
171
171
133
135
5
273
444
Orion’s management periodically reviews the carrying value of patent applications and related costs. When a patent application is
probable of being unsuccessful or a patent is no longer in use, Orion writes off the remaining carrying value as a charge to general and
administrative expense within its Consolidated Statements of Operations. In fiscal years 2021, 2020, and 2019, write-offs were
immaterial.
71
NOTE 11 — ACCRUED EXPENSES AND OTHER
As of March 31, 2021 and March 31, 2020, Accrued expenses and other included the following (dollars in thousands):
Compensation and benefits
Sales tax
Accrued project costs
Legal and professional fees
Warranty
Sales returns reserve
Credits due to customers
Other accruals
Total
March 31, 2021
March 31, 2020
$
$
2,851 $
1,318
5,010
497
705
106
1,009
1,730
13,226 $
2,594
513
1,173
312
708
98
932
898
7,228
Orion generally offers a limited warranty of one to 10 years on its lighting products including the pass through of standard
warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, ballasts, LED
modules, LED chips, LED drivers, control devices, and other fixture related items, which are significant components in Orion's lighting
products.
Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):
Beginning of year
Accruals
Warranty claims (net of vendor reimbursements)
Ending balance
March 31,
2021
2020
$
$
1,069 $
644
(704 )
1,009 $
657
863
(451 )
1,069
NOTE 12 — NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the
weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net income (loss) per common share reflects the dilution that would occur if stock options were exercised and restricted
shares vested. In the computation of diluted net income (loss) per common share, Orion uses the treasury stock method for outstanding
options and restricted shares. Because of the net loss for the year ended March 31, 2019 potentially dilutive securities would be anti-
dilutive, and therefore diluted net income (loss) per common share is the same as basic net income (loss) per common share for the year
ended March 31, 2019. Net income (loss) per common share is calculated based upon the following shares:
Numerator:
Net income (loss) (dollars in thousands)
Denominator:
Weighted-average common shares outstanding
Weighted-average effect of assumed conversion of stock options and
restricted stock
Weighted-average common shares and share equivalents outstanding
Net income (loss) per common share:
Basic
Diluted
2021
Fiscal Year Ended March 31,
2020
2019
$
26,134 $
12,462 $
(6,674 )
30,634,553
30,104,552
29,429,540
669,174
31,303,727
860,225
30,964,777
—
29,429,540
$
$
0.85 $
0.83 $
0.41 $
0.40 $
(0.23 )
(0.23 )
72
The following table indicates the number of potentially dilutive securities excluded from the calculation of Diluted net income
(loss) per common share because their inclusion would have been anti-dilutive. The number of shares is as of the end of each period:
Common stock options
Restricted shares
Total
NOTE 13 — LONG-TERM DEBT
2021
March 31,
2020
—
—
—
164,072
—
164,072
2019
467,836
1,312,593
1,780,429
Long-term debt as of March 31, 2021 and 2020 consisted of the following (dollars in thousands):
Revolving credit facility
Equipment debt obligations
Total long-term debt
Less current maturities
Long-term debt, less current maturities
Revolving Credit Agreement
March 31,
2021
2020
— $
49
49
(14 )
35 $
10,013
85
10,098
(35 )
10,063
$
$
On December 29, 2020, Orion entered into a new Loan and Security Agreement with Bank of America, N.A., as lender (the “Credit
Agreement”). The Credit Agreement replaced Orion’s prior $20.15 million secured revolving credit and security agreement dated as of
October 26, 2018, as amended, by and among Orion and Western Alliance Bank, National Association, as lender (the “Prior Credit
Agreement”). The replacement of the Prior Credit Agreement with the Credit Agreement provides Orion with increased financing
capacity and liquidity to fund its operations and implement its strategic plans.
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 March 31, 2021, the borrowing base supports the full availability of the Credit Facility. As of March 31, 2021,
no amounts were borrowed under the Credit Facility.
The Credit Agreement is secured by a first lien security interest in substantially all of Orion’s assets.
Borrowings under the Credit Agreement are permitted in the form of LIBOR or prime rate-based loans and generally bear interest
at floating rates plus an applicable margin determined by reference to Orion’s availability under the Credit Agreement. Among other
fees, Orion is required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.
The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the
Credit Facility falls below the greater of $3.0 million or 15% of the committed facility. Currently, the required springing minimum fixed
cost coverage ratio is not required.
The Credit Agreement also contains customary events of default and other covenants, including certain restrictions on Orion’s
ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on Orion’s stock,
redeem, retire or purchase shares of Orion’s stock, make investments or pledge or transfer assets. If an event of default under the Credit
Agreement occurs and is continuing, then Bank of America, N.A. may cease making advances under the Credit Agreement and declare
any outstanding obligations under the Credit Agreement to be immediately due and payable. In addition, if Orion becomes the subject
of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the Credit
Agreement will automatically become immediately due and payable.
73
Orion did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize
a loss on debt extinguishment of $0.1 million on the write-off of unamortized debt issue costs related to the Prior Credit Agreement. The
Prior Credit Agreement was scheduled to mature on October 26, 2021.
As of March 31, 2021, Orion is in compliance with all debt covenants.
Equipment Debt Obligation
In February 2019, Orion entered into additional debt agreements with a financing company in the principal amount of $44 thousand
and $30 thousand fund certain equipment. The debts are secured by the related equipment. The debts bear interest at a rate of 6.43% and
8.77% respectively and both debts mature in January 2024.
Aggregate Maturities
As of March 31, 2021, aggregate maturities of long-term debt were as follows (dollars in thousands):
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
$
$
NOTE 14 — INCOME TAXES
The total provision (benefit) for income taxes consists of the following for the fiscal years ended (dollars in thousands):
Current
Deferred
Total
Federal, Current
Federal, Deferred
Total Federal
State, Current
State, Deferred
Total State
Total
2021
Fiscal Year Ended March 31,
2020
2019
244 $
(19,860 )
(19,616 ) $
84 $
75
159 $
2021
2020
2019
— $
(16,217 ) $
(16,217 )
244
(3,643 )
(3,399 )
(19,616 ) $
17 $
39 $
56
67
36
103
159 $
$
$
$
$
14
14
17
4
49
(5 )
19
14
(16 )
19
3
11
—
11
14
A reconciliation of the statutory federal income tax rate and effective income tax rate is as follows:
Statutory federal tax rate
State taxes, net
Federal tax credit
Change in valuation reserve
Permanent items
Change in tax contingency reserve
Federal refunds
Equity compensation cancellations
Other, net
Effective income tax rate
2021
Fiscal Year Ended March 31,
2020
2019
21.0 %
3.7 %
— %
(321.4 )%
(3.4 )%
(0.5 )%
0.0 %
0.6 %
(1.0 )%
(301.0 )%
21.0 %
6.5 %
— %
(25.0 )%
(1.0 )%
0.2 %
0.0 %
0.2 %
(0.6 )%
1.3 %
21.0 %
5.6 %
(0.3 )%
(23.8 )%
(1.1 )%
— %
0.3 %
(1.0 )%
(0.9 )%
(0.2 )%
74
The net deferred tax assets and liabilities reported in the accompanying consolidated financial statements include the following
components (dollars in thousands):
Deferred tax assets:
Inventory, accruals and reserves
Federal and state operating loss carry-forwards
Tax credit carry-forwards
Equity compensation
Deferred revenue
Lease liability
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Lease ROU asset
Fixed assets
Intangible assets
Total deferred tax liabilities
March 31,
2021
2020
860
18,313
1,916
198
38
853
406
22,584
(1,279 )
21,305
(670 )
(626 )
(224 )
(1,520 )
1,046
19,540
1,916
250
18
903
121
23,794
(22,228 )
1,566
(704 )
(689 )
(248 )
(1,641 )
Total net deferred tax assets/(liabilities)
$
19,785 $
(75 )
The CARES Act includes significant business tax provisions that, among other things, temporarily eliminate the taxable income
limit for certain NOLs, allow businesses to carry back tax year 2018-2020 NOLs to the five prior tax years, accelerate refunds of
corporate AMT credits, and generally decrease the amount of disallowed business interest expense. Because of Orion’s loss
carryforwards, the income tax provisions of the CARES Act did not result in a material cash or financial statement impact.
For fiscal year ended March 31, 2021, Orion’s deferred tax assets were primarily the result of U.S. NOL and tax credit
carryforwards. Orion recorded a valuation allowance of $1.3 million and $22.2 million against its net deferred tax asset balance as of
March 31, 2021 and March 31, 2020, respectively, due to the uncertainty of its realization value in the future. For the year ended March
31, 2021, Orion recorded a net valuation allowance release of $20.9 million on the basis of management’s reassessment of the amount
of its deferred tax assets that are more likely than not to be realized. For the fiscal year ended March 31, 2020, the valuation allowance
against Orion's net federal and net state deferred tax assets decreased $3.2 million, primarily due to the fiscal year ended March 31, 2020
loss usage.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future
realization of deferred tax assets. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance. As of March 31, 2021, in part because Orion achieved its second full year of pretax
income and three years of cumulative pretax income in the U.S. federal tax jurisdiction, management determined there was sufficient
positive evidence to conclude that it is more likely than not that deferred taxes assets of $20.9 are realizable. It therefore reduced the
valuation allowance accordingly.
As of March 31, 2021, Orion has federal NOL carryforwards of approximately $69.4 million, state NOL carryforwards of
approximately $61.8 million, and foreign NOL carryforwards of approximately $0.8 million. Orion also had federal tax credit
carryforwards of approximately $1.3 million and state tax credits of $0.8 million. All of Orion's tax credit carryforwards and $123.6
million of its NOL carryforwards will begin to expire in varying amounts between 2022 and 2040. The remaining $8.4 million of its
federal and state NOL carryforwards are not subject to time restrictions but may only be used to offset 80% of adjusted taxable income.
Orion believes it is more likely than not that the benefit from its state credit carryforwards, foreign NOL carryforwards, a portion of its
federal credit carryforwards, and certain state loss carryforwards will not be realized. In recognition of this risk, Orion has provided a
valuation allowance of $1.3 million on the deferred tax assets related to these carryforwards.
75
Generally, a change of more than 50% in the ownership of Orion's stock, by value, over a three-year period constitutes an
ownership change for federal income tax purposes as defined under Section 382 of the Internal Revenue Code. As a result, Orion's
ability to use its net operating loss carryforwards, attributable to the period prior to such ownership change, to offset taxable income can
be subject to limitations in a particular year, which could potentially result in increased future tax liability for Orion. There was no
limitation of NOL carryforwards that occurred for fiscal 2021, fiscal 2020, or fiscal 2019.
Orion records its tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where
Orion believes that a tax position is supportable for income tax purposes, the item is included in their income tax returns. Where treatment
of a position is uncertain, a liability is recorded based upon the expected most likely outcome taking into consideration the technical
merits of the position based on specific tax regulations and facts of each matter. These liabilities may be affected by changing
interpretations of laws, rulings by tax authorities, or the expiration of the statute of limitations.
Orion files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company's federal
tax returns for tax years beginning April 1, 2017 or later are open. For states in which Orion files state income tax returns, the statute of
limitations is generally open for tax years ended March 31, 2017 and forward.
State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The
state effect of any federal changes remains subject to examination by various states for a period of up to two years after formal
notification to the states. Orion currently has no state income tax return positions in the process of examination, administrative appeals
or litigation.
Uncertain tax positions
As of March 31, 2021, the balance of gross unrecognized tax benefits was approximately $0.3 million, all of which would affect
Orion’s effective tax rate if recognized.
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the
extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income
tax expense. Penalties and interest are included in the unrecognized tax benefits. Orion had the following unrecognized tax benefit
activity (dollars in thousands):
Unrecognized tax benefits as of beginning of fiscal year
Additions based on tax positions related to the current period positions
Additions/(reductions) for tax positions of prior years
Unrecognized tax benefits as of end of fiscal year
$
$
259 $
123
(97 )
285 $
130 $
23
106
259 $
129
1
—
130
2021
Fiscal Year Ended March 31,
2020
2019
NOTE 15 — COMMITMENTS AND CONTINGENCIES
Purchase Commitments
Orion enters into non-cancellable purchase commitments for certain inventory items in order to secure better pricing and ensure
materials on hand. As of March 31, 2021, Orion had entered into $13.1 million of purchase commitments related primarily to inventory
purchases.
Retirement Savings Plan
Orion sponsors a tax deferred retirement savings plan that permits eligible employees to contribute varying percentages of their
compensation up to the limit allowed by the Internal Revenue Service. This plan also provides for discretionary contributions by Orion.
In fiscal 2021, Orion made matching contributions of $0.1 million. In fiscal 2020 and 2019, Orion made matching contributions of
approximately $0.1 million and $9 thousand, respectively.
76
Litigation
Orion is subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report,
Orion does not believe that the final resolution of any of such claims or legal proceedings would have a material adverse effect on its
future results of operations. In addition to ordinary-course litigation, Orion was or is a party to the proceedings described below.
State Tax Assessment
During fiscal year 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the
period covering April 1, 2013 through March 31, 2017. Although the final resolution of the Company’s sales and use tax audit is
uncertain, based on current information, in the opinion of the Company’s management, the ultimate disposition of these matters will not
have a material adverse effect on the Company’s consolidated balance sheet, statements of operations, or liquidity.
NOTE 16 — SHAREHOLDERS’ EQUITY
Share Repurchase Program and Treasury Stock
In 2011 and 2012, Orion’s Board approved several share repurchase programs authorizing Orion to repurchase in aggregate up to
a maximum of $ 7.5 million of Orion's outstanding common stock. As of March 31, 2021, Orion had repurchased 3,022,349 shares of
common stock at a cost of $6.8 million under these programs. Orion did not repurchase any shares in fiscal 2021, fiscal 2020 or fiscal
2019 and currently does not intend to repurchase any additional common stock under this program in the near-term.
Shareholder Rights Plan
On January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amended the Rights Agreement dated
as of January 7, 2009 and extended its terms by three years to January 7, 2022. Under the amendment, each common share purchase
right (a “Right”), if exercisable, will initially represent the right to purchase from Orion, one share of Orion’s common stock, no par
value per share, for a purchase price of $7.00 per share (the “Purchase Price”).
The Rights will not be exercisable (and will be transferable only with Orion’s common stock) until a “Distribution Date” occurs
(or the Rights are earlier redeemed or expire). A Distribution Date generally will occur on the earlier of a public announcement that a
person or group of affiliated or associated persons (“Acquiring Person”) has acquired beneficial ownership of 20% or more of Orion’s
outstanding common stock (“Shares Acquisition Date”) or 10 business days after the commencement of, or the announcement of an
intention to make, a tender offer or exchange offer that would result in any such person or group of persons acquiring such beneficial
ownership.
If a person becomes an Acquiring Person, holders of Rights (except as otherwise provided in the Rights Agreement) will have the
right to receive that number of shares of Orion’s common stock having a market value of two times the then-current Purchase Price, and
all Rights beneficially owned by an Acquiring Person, or by certain related parties or transferees, will be null and void. If, after a Shares
Acquisition Date, Orion is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of a Right (except as otherwise provided in the Rights
Agreement) will thereafter have the right to receive that number of shares of the acquiring company’s common stock which at the time
of such transaction will have a market value of two times the then-current Purchase Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Orion. At any time prior to a person
becoming an Acquiring Person, the Board of Directors of Orion may redeem the Rights in whole, but not in part, at a price of $0.001
per Right. Unless they are extended or earlier redeemed or exchanged, the Rights will expire on January 7, 2022.
77
Employee Stock Purchase Plan
In August 2010, Orion’s Board of Directors approved a non-compensatory employee stock purchase plan, or ESPP. The ESPP
authorizes 2,500,000 shares to be issued from treasury or authorized shares to satisfy employee share purchases under the ESPP. All
full-time employees of Orion are eligible to be granted a non-transferable purchase right each calendar quarter to purchase directly from
Orion up to $20,000 of Orion’s common stock at a purchase price equal to 100% of the closing sale price of Orion’s common stock on
The NASDAQ Capital Market on the last trading day of each quarter. In prior years, Orion issued loans to non-executive employees to
purchase shares of its stock. The loan program has been discontinued and new loans are no longer issued. Orion had the following shares
issued from treasury during fiscal 2021 and fiscal 2020:
Quarter Ended March 31, 2021
Quarter Ended December 31, 2020
Quarter Ended September 30, 2020
Quarter Ended June 30, 2020
Total
Quarter Ended March 31, 2020
Quarter Ended December 31, 2019
Quarter Ended September 30, 2019
Quarter Ended June 30, 2019
Total
Sale of shares
As of March 31, 2021
Shares Issued
Under ESPP
Plan
Closing Market
Price
359
178
151
458
1,146 $
6.90
9.87
7.57
3.46
3.46 - 6.90
As of March 31, 2020
Shares Issued
Under ESPP
Plan
Closing Market
Price
512 $
666 $
570 $
613 $
2,361 $
3.70
3.35
2.85
2.97
2.85 - 3.70
In March 2020, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf
registration statement, Orion currently has the flexibility to publicly offer and sell from time to time up to $100.0 million of debt and/or
equity securities. The filing of the shelf registration statement may help facilitate Orion’s ability to raise public equity or debt capital to
expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general
corporate purposes. The COVID-19 pandemic has had a negative near-term impact on the capital markets and may impact Orion’s ability
to access this capital.
In March 2021, Orion entered into an At Market Issuance Sales Agreement to undertake an “at the market” (ATM) public equity
capital raising program pursuant to which Orion may offer and sell shares of common stock, having an aggregate offering price of up to
$50 million from time to time through or to the Agent, acting as sales agent or principal. No share sales were effected pursuant to the
ATM program through March 31, 2021.
NOTE 17 — STOCK OPTIONS AND RESTRICTED SHARES
At Orion’s 2019 annual meeting of shareholders held on August 7, 2019, Orion’s shareholders approved the Orion Energy Systems,
Inc. 2016 Omnibus Incentive Plan, as amended and restated (the “Amended 2016 Plan”). Approval of the Amended 2016 Plan increased
the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from 1,750,000 shares to 3,500,000
shares (an increase of 1,750,000 shares); added a minimum vesting period for all awards granted under the Amended 2016 Plan (with
limited exceptions); and added a specific prohibition on the payment of dividends and dividend equivalents on unvested awards. As of
March 31, 2021, the number of shares available for grant under the Amended 2016 Plan was 1,578,445.
The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the
Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares,
performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.
78
Prior to the 2016 Omnibus Incentive Plan, the Company maintained its 2004 Stock and Incentive Awards Plan, as amended,
which authorized the grant of cash and equity awards to employees (the “2004 Plan”). No new awards are being granted under the
2004 Plan; however, all awards granted under the 2004 Plan that are outstanding will continue to be governed by the 2004 Plan.
Forfeited awards originally issued under the 2004 Plan are canceled and are not available for subsequent issuance under the 2004 Plan
or under the Amended 2016 Plan.
Certain non-employee directors have elected to receive stock awards in lieu of cash compensation pursuant to elections made
under Orion’s non-employee director compensation program. The Amended 2016 Plan and the 2004 Plan also permit accelerated vesting
in the event of certain changes of control of Orion as well as under other special circumstances.
Orion historically granted stock options and restricted stock under the 2004 Plan. Orion has not issued stock options since fiscal
2014 and instead has issued restricted stock.
Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair
value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award
and is recognized as expense ratably over the requisite service period.
The following amounts of stock-based compensation expense for restricted shares and options were recorded (dollars in
thousands):
Cost of product revenue
Cost of service revenue
General and administrative
Sales and marketing
Research and development
2021
Fiscal Year Ended March 31,
2020
2019
$
$
4 $
—
716
29
4
753 $
3 $
(1 )
576
38
2
618 $
The following table summarizes information with respect to outstanding stock options:
Outstanding at March 31, 2018
Granted
Exercised
Forfeited
Outstanding at March 31, 2019
Granted
Exercised
Forfeited
Outstanding at March 31, 2020
Granted
Exercised
Forfeited
Outstanding at March 31, 2021
Exercisable at March 31, 2021
Number of
Shares
Weighted
Average
Exercise
Price
629,667 $
— $
— $
(161,831 ) $
467,836 $
— $
(22,362 ) $
(49,174 ) $
396,300 $
— $
(99,000 ) $
(100,982 ) $
196,318 $
196,318
79
2
3
764
54
2
825
3.36
—
—
3.61
3.14
—
2.51
4.63
2.80
—
2.34
3.39
2.74
The following table summarizes the range of exercise prices on outstanding stock options at March 31, 2021:
$2.00 - 2.03
$2.41 - 2.75
$4.19
March 31, 2021
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
1.21 $
1.53
0.15
1.11 $
2.03
2.46
4.19
2.74
Outstanding and
Vested
57,292
92,936
46,090
196,318
The following table summarizes information with respect to restricted shares activity:
2021
Balance at March 31, 2020
Shares issued
Shares vested
Shares forfeited
Shares outstanding at March 31, 2021
Per share price on grant date
Fiscal Year Ended March 31,
2020
1,312,593
279,468
(669,238 )
(150,103 )
772,720
772,720
287,998
(450,481 )
(140,598 )
469,639
$3.92 - 10.01
$2.69 - 3.03
2019
1,485,799
529,000
(653,394 )
(48,812 )
1,312,593
$0.84 - 1.00
During fiscal 2021, Orion recognized $0.8 million of stock-based compensation expense related to restricted shares.
As of March 31, 2021, the weighted average grant-date fair value of restricted shares granted was $4.27.
Unrecognized compensation cost related to non-vested common stock-based compensation as of March 31, 2021 is expected to
be recognized as follows (dollars in thousands):
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Total
Remaining weighted average expected term
NOTE 18 — SEGMENT DATA
$
$
484
361
93
10
948
3.1 years
Orion has the following business segments: Orion Engineered Services Division (“OES”), Orion Distribution Services Division
(“ODS”), and Orion U.S. Markets Division (“USM”). The accounting policies are the same for each business segment as they are on a
consolidated basis.
Orion Engineered Systems Division (“OES”)
The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial
lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for
large national accounts, governments, municipalities, schools and other customers.
Orion Distribution Services Division (“ODS”)
The ODS segment sells lighting products through manufacturer representative agencies and a network of North American
broadline electrical distributors and contractors.
80
Orion U.S. Markets Division (“USM”)
The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM
customers include ESCOs and contractors.
Corporate and Other
Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile
to consolidated results (dollars in thousands).
(dollars in thousands)
Segments:
Engineered Systems
Distribution Services
U.S. Markets
Corporate and Other
Segments:
Engineered Systems
Distribution Services
U.S. Markets
Corporate and Other
Segments:
Engineered Systems
Distribution Services
U.S. Markets
Corporate and Other
Revenues
For the year ended March 31,
2020
2021
2019
2021
Operating Income (Loss)
For the year ended March 31,
2020
2019
$
84,243 $ 122,744 $
15,087
21,122
13,010
11,475
—
—
$ 116,840 $ 150,841 $
30,925 $
24,173
10,656
—
65,754 $
7,472 $
2,430
1,683
(4,749 )
6,836 $
16,164 $
(852 )
2,447
(4,649 )
13,110 $
(1,237 )
(1,742 )
1,132
(4,310 )
(6,157 )
Depreciation and Amortization
For the year ended March 31,
2020
2019
2021
Capital Expenditures
For the year ended March 31,
2020
2019
2021
$
$
913 $
231
128
208
1,480 $
1,013 $
187
126
236
1,562 $
774 $
485
233
291
1,783 $
516 $
158
107
121
902 $
302 $
81
78
353
814 $
165
44
31
215
455
March 31, 2021
March 31, 2020
Total Assets
$
$
29,856 $
6,530
6,057
50,378
92,821 $
22,354
5,502
4,859
39,848
72,563
Orion’s revenue outside the United States is insignificant and Orion has no long-lived assets outside the United States.
NOTE 19 — RESTRUCTURING EXPENSE
During the fourth quarter of fiscal 2020, as part of Orion’s response to the impacts of the COVID-19 pandemic, Orion entered into
separation agreements with multiple employees, and recognized $0.4 million of expense. Orion’s restructuring expense for the 12 months
ended March 31, 2021, 2020 and 2019 is reflected within its consolidated statements of operations as follows (dollars in thousands):
Cost of product revenue
Cost of product service
General and administrative
Sales and marketing
Total
Year Ended
March 31,
2021
Year Ended
March 31,
2020
Year Ended
March 31,
2019
$
$
— $
—
—
—
— $
82 $
74
28
207
391 $
—
26
17
—
43
81
Total restructuring expense by segment was recorded as follows (dollars in thousands):
Orion Engineered Systems
Orion Distribution Systems
Corporate and Other
Total
NOTE 20 — SUBSEQUENT EVENTS
Year Ended
March 31,
2021
Year Ended
March 31,
2020
Year Ended
March 31,
2019
$
$
— $
—
—
— $
139 $
142
110
391 $
—
12
31
43
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued.
Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the
balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are
events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
On May 5, 2021, Orion announced a $0.5 million strategic investment in ndustrial, a provider of software and services that
optimize industrial facilities across all stages of discrete and process manufacturing supply chains. Orion secured an equity stake in
ndustrial through its participation in the ndustrial’s $6 million Series A financing.
NOTE 21 — QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly results for the years ended March 31, 2021 and March 31, 2020 are as follows:
Total revenue
Gross profit
Net income (loss) (1)
Basic net income (loss) per share (1)
Shares used in basic per share calculation
Diluted net loss per share (1)
Shares used in diluted per share calculation
Total revenue
Gross profit
Net income (loss) (2)
Basic net loss per share
Shares used in basic per share calculation
Diluted net loss per share
Shares used in diluted per share calculation
Three Months Ended
Jun 30, 2020
Sep 30, 2020 Dec 31, 2020
(in thousands, except per share amounts)
March 31,
2021
Total
$
$
$
$
$
10,811 $
2,635 $
(2,219 ) $
(0.07 ) $
30,352
(0.07 ) $
30,352
26,281 $
7,263 $
1,914 $
0.06 $
30,669
0.06 $
31,170
44,251 $
11,006 $
4,315 $
0.14 $
30,736
0.14 $
31,320
35,497 $ 116,840
30,124
9,220 $
26,134
22,124 $
0.72 $
0.85
30,635
30,782
0.71 $
0.83
31,304
31,295
Three Months Ended
Jun 30, 2019
Sep 30, 2019 Dec 31, 2019 Mar 31, 2020
Total
(in thousands, except per share amounts)
$
$
$
$
$
42,378 $
10,283 $
3,968 $
0.13 $
29,723
0.13 $
30,551
48,322 $
12,791 $
6,721 $
0.22 $
30,189
0.22 $
30,830
34,249 $
8,274 $
2,304 $
0.08 $
30,244
0.07 $
30,824
25,892 $ 150,841
37,123
5,775 $
12,462
(531 ) $
(0.02 ) $
0.41
30,105
30,259
0.40
(0.02 ) $
30,965
30,259
(1)
(2)
Includes $20.9 million of tax benefit related to the release of the valuation allowance on deferred tax assets during the three
months ended March 31, 2021.
Includes a $0.4 million restructuring charge during the three months ended March 31, 2020.
The four quarters for net earnings per share may not add to the total year because of differences in the weighted average number
of shares outstanding during the quarters and the year.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
82
None
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is
defined in Rule 13a-15(f) of the Exchange Act. We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate,
to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness
of our disclosure controls and procedures and our internal control over financial reporting as of March 31, 2021, pursuant to Exchange
Act Rule 13a-15(b) and 15d-15. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded
that our disclosure controls and procedures were effective at a level of reasonable assurance as of March 31, 2021.
Management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated financial statements
included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and
cash flows at and for the periods presented in accordance with GAAP.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the
supervision of, the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the
board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
i. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;
ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, our management has assessed the effectiveness of our internal control over financial reporting based on the criteria set forth in
the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment, management believes that, as of March 31, 2021, our internal control over financial reporting was
effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2021, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
83
ITEM 9B.
OTHER INFORMATION
None.
84
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to directors, executive officers and corporate governance is incorporated by
reference to our Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end
of the fiscal year ended March 31, 2021.
Code of Conduct
We have adopted a Code of Conduct that applies to all of our directors, employees and officers, including our principal executive
officer, our principal financial officer, our controller and persons performing similar functions. Our Code of Conduct is available on our
web site at www.orionlighting.com. Future material amendments or waivers relating to the Code of Conduct will be disclosed on our
web site referenced in this paragraph within four business days following the date of such amendment or waiver.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
See Item 5, Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchaser of Securities, under the
heading “Equity Compensation Plan Information” for information regarding our securities authorized for issuance under equity
compensation plans. The additional information required by this item is incorporated by reference to our Proxy Statement for its 2021
Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
85
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
Our financial statements are set forth in Item 8 of this Form 10-K.
86
Number
Exhibit Title
EXHIBIT INDEX
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Amended and Restated Articles of Incorporation of Orion Energy Systems, Inc., filed as Exhibit 3.3 to the Registrant’s
Form S-1 filed August 20, 2007, is hereby incorporated by reference.
Amended and Restated Bylaws of Orion Energy Systems, Inc., filed as Exhibit 3.1 to the Registrant’s Form 8-K filed May
22, 2020, is hereby incorporated by reference.
Rights Agreement, dated as of January 7, 2009, between Orion Energy Systems, Inc. and Wells Fargo Bank, N.A., which
includes as Exhibit A thereto the Form of Right Certificate and as Exhibit B thereto the Summary of Common Share Purchase
Rights, filed as Exhibit 4.1 to the Registrant’s Form 8-A filed January 8, 2009, is hereby incorporated by reference.
Amendment No. 1 to the Rights Agreement, dated as of January 3, 2019, between the Company and Equiniti Trust Company
(as successor to Wells Fargo Bank, N.A.), as Rights Agent, filed as Exhibit 4.1 to the Registrants Form 8-K filed January 3,
2019, is hereby incorporated by reference.
Description of Orion Energy Systems, Inc. Capital Stock, filed as Exhibit 4.3 to the Registrant’s Form 10-K filed on June 5,
2019 is hereby incorporated by reference.
Loan and Security Agreement dated as of December 29, 2020 among Orion Energy Systems, Inc., Bank of America, N.A.,
as lender, and the subsidiary borrowers party thereto, filed as Exhibit 10.1 to Registrant’s Form 8-K filed on January 5, 2021,
is hereby incorporated by reference.
Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, filed as Exhibit 10.9 to the Registrant’s Form S-1 filed
August 20, 2007, is hereby incorporated by reference.*
Amendment to Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, filed September 9, 2011 as Appendix A
to the Registrant’s definitive proxy statement is hereby incorporated by reference.*
Form of Stock Option Agreement under the Orion Energy Systems, Inc. 2004 Equity Incentive Plan, filed as Exhibit 10.10
to the Registrant’s Form S-1 filed August 20, 2007, is hereby incorporated by reference.*
Form of Stock Option Agreement as of May 14, 2013 under the Orion Energy Systems, Inc. 2004 Stock and Incentive Awards
Plan, filed as Exhibit 10.7 to the Registrant’s Form 10-K filed on June 13, 2014, is hereby incorporated by reference.*
Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated, filed as Annex A to the Registrant’s
Definitive Proxy Statement on Schedule 14A filed on June 21, 2019, is hereby incorporated by reference.*
Form of Non-Employee Director Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems,
Inc. 2016 Omnibus Incentive Plan, filed as Exhibit 4.5 to the Registrant’s Form S-8 filed August 10, 2016, is hereby
incorporated by reference.*
Form of Non-Employee Director Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus
Incentive Plan, filed as Exhibit 4.6 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.*
Form of Executive Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems, Inc. 2016
Omnibus Incentive Plan, filed as Exhibit 4.7 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by
reference.*
Form of Executive Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan,
filed as Exhibit 4.8 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.*
Orion Energy Systems, Inc. Non-Employee Director Compensation Plan, updated and effective as of February 7, 2020, filed
as Exhibit 10.14 to the Registrant’s Form 10-K filed on June 5, 2020, is hereby incorporated by reference.*
Amended and Restated Executive Employment and Severance Agreement, dated as of June 1, 2020, by and between Orion
Energy Systems, Inc. and Michael W. Altschaefl, filed as Exhibit 10.15 to the Registrant’s Form 10-K filed on June 5,
2020, is hereby incorporated by reference.*
Amended and Restated Executive Employment and Severance Agreement, dated as of June 1, 2020, by and between Orion
Energy Systems, Inc. and William T. Hull, filed as Exhibit 10.16 to the Registrant’s Form 10-K filed on June 5, 2020, is
hereby incorporated by reference.*
Voluntary Retirement Agreement and Release, dated as of September 21, 2020, between Orion Energy Systems, Inc. and
William T. Hull, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on September 23, 2020, is hereby incorporated by
reference.*
Executive Employment and Severance Agreement, effective as of October 19, 2020, between Orion Energy Systems, Inc.
and J. Per Brodin, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on October 15, 2020, is hereby incorporated by
reference.*
87
10.16
10.17
Amended and Restated Executive Employment and Severance Agreement, dated as of June 1, 2020, by and between Orion
Energy Systems, Inc. and Scott A. Green, filed as Exhibit 10.17 to the Registrant's Form 10-K filed on June 5, 2020, is
hereby incorporated by reference*
Mutual Retirement and Severance Agreement, dated as of June 30, 2017, by and between Orion Energy Systems, Inc. and
Michael J. Potts, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on June 30, 2017, is hereby incorporated by
reference. *
10.18
At Market Issuance Sales Agreement between Orion Energy Systems, Inc. and B. Riley Securities, Inc., dated March 26,
2021, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on March 26, 2021, is hereby incorporated by reference.
21.1
Subsidiaries of Orion Energy Systems, Inc.+
23.1
Consent of Independent Registered Public Accounting Firm. +
31.1
31.2
32.1
Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as amended. +
Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as amended. +
Certification of Chief Executive Officer and Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-
14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. +
101
101.INS XBRL Instance Document+
101.SCH Taxonomy extension schema document+
101.CAL Taxonomy extension calculation linkbase document+
101.DEF Taxonomy extension definition linkbase document+
101.LAB Taxonomy extension label linkbase document+
101.PRE Taxonomy extension presentation linkbase document+
Documents incorporated by reference by Orion Energy Systems, Inc. are filed with the Securities and Exchange Commission
under File No. 001-33887.
* Management contract or compensatory plan or arrangement.
+
Filed herewith
ITEM 16.
FORM 10-K SUMMARY
None.
88
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on June 1, 2021.
SIGNATURES
ORION ENERGY SYSTEMS, INC.
By: /s/ MICHAEL W. ALTSCHAEFL
Michael W. Altschaefl
Chief Executive Officer and Board Chair
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the
following persons on behalf of the Registrant in the capacities indicated on June 1, 2021.
Signature
/s/ Michael W. Altschaefl
Michael W. Altschaefl
/s/ J. Per Brodin
J. Per Brodin
/s/ Anthony L. Otten
Anthony L. Otten
/s/ Alan B. Howe
Alan B. Howe
/s/ Michael J. Potts
Michael J. Potts
/s/ Ellen B. Richstone
Ellen B. Richstone
/s/ Mark C. Williamson
Mark C. Williamson
Title
Chief Executive Officer and Board Chair (Principal
Executive Officer)
Chief Financial Officer, Chief Accounting Officer and
Treasurer (Principal Financial Officer)
Lead Independent Director
Director
Director
Director
Director
89
Executive Officers
Michael W. Altschaefl
Chief Executive Officer and Board Chair
Scott A. Green
Executive Vice President and Chief Operating
Officer
John Per Brodin
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer
Board of Directors
Michael W. Altschaefl (4)
Chief Executive Officer and
Board Chair
Anthony L. Otten (1), (2), (3a), (5)
Retired Chief Executive Officer, Versar, Inc.,
Managing Member, Stillwater LLC
Michael J. Potts
Retired Executive Vice President and
Chief Risk Officer
Orion Energy Systems, Inc.
Alan B. Howe (1)
Managing Partner, Broadband Initiatives,
LLC
Ellen B. Richstone (1a), (2), (3)
Director, National Association of Corporate Directors
(NACD-New England), Superior Industries
International and eMargin Corporation
Mark C. Williamson (2a), (3)
Retired Partner, Putnam Roby Williamson
Communications of Madison, Wis.
(1) Audit and Finance Committee
(2) Compensation Committee
(3) Nominating and Corporate Governance
Committee
(4) Board Chair
(5) Lead Independent Director
(a) Committee Chair
4818-6365-2846.1
NASDAQ Capital Market: OESX
2210 Woodland Drive, Manitowoc, WI 54220