Orion Energy Systems, Inc.
Shareholders’ Letter and Annual Report on Form 10-K
Fiscal Year Ended March 31, 2022
To Our Valued Shareholders,
Orion made solid progress advancing our long‐term growth goals in FY 2022. Despite challenging business
conditions that caused several customers to delay larger LED lighting and controls projects in the second
half, Orion grew FY 2022 revenues 6.5% to $124.4 million. We further diversified our revenue base,
growing revenue outside of our largest customer, a major national retailer, by almost 25% over FY 2021.
This progress was supported by new customer wins, 71% revenue growth from our energy service
company (ESCO) partner channel, and $5.8 million of revenue from our new maintenance services
business.
While supply chain and other challenges continue to impact near‐term visibility on customer decision
making, we believe Orion has entered FY 2023 as a stronger, more diversified business. We have a solid
base of large national customers, expanding ESCO and distribution channels, a broader array of products
and services and an increasingly impressive track record of success to support our long‐term growth
objectives. We continue to build our base of national accounts, who are attracted to our high product
quality, custom engineering, industry leading energy efficiency, domestic manufacturing, and turnkey
design, build and install capabilities – all delivered with the highest levels of customer service. We are
building on our unique ability to execute large national LED lighting and controls projects and are now able
to provide ongoing lighting and electrical maintenance services to expand our customer value proposition.
We believe our capabilities and growing reputation for high quality products and large project execution
position us well to build on our success.
Importantly, in an environment of increasing inflationary pressures and high energy costs, our solutions
enable customers to achieve core business and environmental goals of reducing energy consumption and
their environmental footprint while also creating a better and safer environment for employees and
customers.
We also achieved solid progress enhancing many of our key financial metrics. Our gross profit percentage
improved to 27.3% in FY 2022 from 25.8% in FY 2021, benefitting from a more favorable mix of product
focused on fewer LED fixture models, price increases and production efficiencies. Our FY 2022 net income
improved to $6.1 million, or $0.19 per share, compared to FY 2021 net income, excluding a large one‐time
tax benefit of $5.2 million, or $0.17 per share.
Orion’s balance sheet and financial position remain strong, ending FY 2022 with over $35 million of
liquidity, including $14.5 million of cash and cash equivalents and $21 million of availability on our credit
facility with no material debt outstanding. Orion’s net working capital balance improved to $32.9 million at
the close of FY 2022 versus $26.2 million at the end of FY 2021. This financial strength positions Orion to
navigate near‐term economic uncertainties and to pursue organic growth as well as external opportunities,
such as our acquisition of Stay‐Lite Lighting in January 2022.
Orion Maintenance Services
Our recently launched lighting and electrical maintenance services business gained critical mass during FY
2022 and now offers an important long‐term opportunity to build a growing base of recurring maintenance
services revenue. Lighting and electrical maintenance services allow more regular, ongoing customer
contact and provide an ideal complement to our existing business, allowing us to extend our expertise and
customer value proposition, while building a growing base of recurring services revenue.
FY 2022 was our first full year of maintenance services operations and included the acquisition of Stay‐Lite
Lighting at the start of our fourth quarter to expand our maintenance team, customer base and create a
national service footprint. Our maintenance services business is expected to grow to revenue of more than
$20 million in FY 2023, up from $5.8 million in FY 2022. Growth in lighting and electrical maintenance
services should also provide a base of steady, recurring revenue and balance our LED lighting solutions and
turnkey project business.
Awards and Recognition
Innovation remains at the core of Orion’s vision as we seek to develop new and improved products that
bring enhanced value to our customers and their evolving needs. Our innovative products and
technologies were acknowledged by several awards over the past year.
Orion’s connected LED troffer retrofit fixture was recognized in the concept category of the American
Made Challenges L‐Prize competition, sponsored by the US Department of Energy, NREL and Pacific
Northwest National Laboratory. This highly‐efficient, networked LED luminaire with advanced controls,
including Li‐Fi technology, can retrofit an existing fluorescent luminaire in less than two minutes. For those
unfamiliar, Li‐Fi is analogous to Wi‐Fi, except it uses light waves to transmit data indoors.
Our ISON PureMotion UVC and ISON PureMotion Light products each won New Product Awards from
Spaces4Learning, a leading publication for education institutions, service providers and others interested
in creating high‐quality educational facilities. Our PureMotion product line is designed for conventional
dropped‐ceiling grids to sanitize air in schools, medical facilities, offices and other shared public spaces.
PureMotion UVC combines air circulation with a sealed ultraviolet light ray chamber to safely kill viruses,
including COVID‐19 along with germs, bacteria and mold. Our PureMotion line is an exciting opportunity to
build on our reputation for healthy, safe and sustainable workplace solutions and to expand our customer
and market reach.
Additionally, Orion’s ISON LED high bay light fixture was ranked #1 for energy efficiency and our Harris LED
High Bay Star Line was ranked #2 in the Ultra‐high Lumen category by inside.lighting, a highly reputable
online industry resource for lighting professionals.
Orion was also a finalist for the Wisconsin Manufacturer of the Year awards, and we are very proud to be
in the company of such high‐quality businesses in our home state.
FY 2023 and Longer‐Term Outlook
Following a year of growth and improved performance, Orion has a realistic path to matching or exceeding
our FY 2022 revenue performance in FY 2023 while continuing to diversify our revenue sources, though
current uncertainties around the timing of larger projects make it difficult to provide specific revenue
guidance. We expect revenue from our largest customer to decline to approximately $25 million in fiscal
‘23 following the completion of the turnkey LED lighting and control retrofit of the bulk of their U.S. store
footprint. We are optimistic regarding the potential for strong growth in our business outside of this
customer to offset this revenue decline. Our path to matching or exceeding fiscal ’22 revenue would result
in organic revenue growth of approximately 50% outside of our largest customer.
Longer term, Orion remains committed to a strategic plan to grow the business, via organic and external
growth, to a $500 million annual revenue business over approximately five years. Our plan assumes double
digit organic growth, supplemented by strategic acquisitions, partnerships and other ventures.
Orion will continue to expand its expertise and capabilities to address our customers’ current and evolving
needs, as a one‐source solution in existing LED lighting systems, controls, and related lighting and electrical
maintenance services – over the entire product life cycle. The connected ceiling grid provided by our
lighting systems can host a range of energy management, data collection and performance monitoring
solutions and analytics designed to drive an improved customer experience, as well as operational and
financial performance.
We look to continue our team’s success in mitigating the impact of supply chain and pandemic related
challenges on our own operations. Efforts in supply chain management, including expanded sourcing
options for critical materials and components, advanced purchasing of key supplies, components and
materials, and ongoing cost management discipline have enabled us to substantially mitigate impacts on
our business. Our proactive measures have enabled us to continue to meet our customer requirements,
including the delivery of most products in two weeks or less. Orion’s ability to meet short order timelines,
combined with turnkey project and maintenance service solutions, puts us in a strong position for an
expected rebound in customer activity as business conditions normalize and customers reengage on
current and new projects.
Sustainability ‐ Environmental, Social and Governance (ESG) Update
With a history of delivering improved workplace environments, safety and reduced energy consumption,
Orion has long been committed to fundamental ESG concepts. In response to the growing interest in
enhanced ESG reporting, this year we are providing stakeholders with our initial Sustainability Report,
which will be updated annually. Core values that drive our ESG thinking include a One Team mentality –
meaning Orion is nothing but the sum of our employees, as a collective team. We also embrace Innovation
and Change that leverage the benefits of new technology to meet our customers’ evolving needs with
enhanced efficiency, safety and a lower environmental impact. Finally, we embrace a Customers For Life
philosophy, as a core value, in which we view our customer and partner relationships, as ongoing and
perpetual. We are committed to serving these key relationships to meet their increasing needs for
operating performance, sustainability, energy savings, and carbon footprint reduction.
We thank you, our shareholders and our partners, for your continuing support of Orion Energy Systems.
Sincerely,
Mike Altschaefl
CEO and Board Chair
Orion Energy Systems, Inc.
June 21, 2022
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, 2022
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
Name of Each Exchange on Which Registered
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, 2021, the last business day of the Registrant’s
most recently completed second fiscal quarter, was approximately $103,616,098.
As of May 31, 2022, there were 31,098,938 shares of the Registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2022 Annual Meeting of Shareholders to be held on August 4, 2022 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 [Reserved]
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
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 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;
•
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 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;
• 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 ability to recruit, hire and retain talented individuals in all disciplines of our company;
• 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 identify and successfully complete transactions with suitable acquisition candidates in the future as part of our
growth strategy;
• our ability to realize the anticipated benefits of future acquisitions;
•
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 our 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;
4
• our ability to maintain safe and secure information technology systems;
• our ability to balance customer demand and production capacity;
• our ability to maintain an effective system of internal control over financial reporting;
• 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;
• our failure to comply with the covenants in our credit agreement;
•
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, energy project management design and maintenance services. We help our customers achieve their
sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. 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. Our services consist of turnkey installation and system maintenance. 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 differentiate ourselves from our competitors thorough offering comprehensive project management services to national
account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive
and government subsidy management, engineering design, and project management from delivery through to installation and controls
integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a
lifetime business relationship with our customers.
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 for product or turnkey services that provide us with recurring
annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate
substantially all of our revenue from sales of lighting 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, 2022 as "fiscal 2022". We refer
to our most recently completed fiscal year, which ended on March 31, 2021, as “fiscal 2021”, and our prior fiscal year which ended on
March 31, 2020 as "fiscal 2020". 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.
6
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 Services Group Division ("OSG"), 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 Services Group Division
Our OSG segment (a) develops and sells lighting products and provides construction and engineering services for our commercial
lighting and energy management systems and (b) provides retailers, distributors and other businesses with maintenance, repair and
replacement services for the lighting and related electrical components deployed in their facilities. OSG 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.
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.
7
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 25-30% 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.
Exterior Area lighting. Our market for area lighting includes parking garages, surface lots, automobile dealerships and gas service
stations.
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. In fiscal 2022, we introduced a product range under the brand PureMotion. These products circulate air for enhanced airflow,
temperature comfort and energy savings. In addition, the PureMotion UVC products sanitize air in a safe UVC chamber that eliminates
various airborne viruses, bacteria, mold and fungi. 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 which help enable our customers
to achieve their sustainability, energy savings and carbon footprint reduction goals.
8
Our Competitive Strengths
Compelling Value Proposition. By permanently reducing lighting-related electricity usage, our systems help enable our customers
to achieve their sustainability, energy savings and carbon footprint reduction goals 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 and
subsequent maintenance. Our ability to offer such comprehensive turnkey project management services, coupled with best-in-class
customer service, allows us to 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 and subsequent maintenance,
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 2022, we had 27 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 2022
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
9
virus beginning in March 2020 (the last few weeks of our 2020 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 as project installations resumed for our largest
customer. However, potential future risks remain due to the COVID-19 pandemic. 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 2022, 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 related supply chain disruptions 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 significant single national account beginning in fiscal 2020 that continued into fiscal 2022.
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.
Expand 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 continue 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. In fiscal 2022, we introduced a range of air movement products capable of virus elimination. 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;
11
•
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
recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting
fixtures; and
•
lighting and electrical system maintenance services both preventative and reactive in nature.
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 2022, one customer accounted for 49.1% of our total revenue. In fiscal 2021, that same customer accounted for 56.0%
of our total revenue, and in fiscal 2020, this same customer accounted for 74.1% of our total revenue. We expect that we will continue
to experience significant customer concentration in fiscal 2023, but to a lesser degree than in the previous three years. 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 typically 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. Our maintenance work orders or contracts may be for
discrete projects or may have multi-year terms. 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 2022 we had 27 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.
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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.
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., Signify Co., Cree, Inc., LSI Industries, Inc. and GE Current, a Daintree Company, 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, 2022, 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, 2022 and March 31, 2021 totaled $10.1 million and $15.5 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.
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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.
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, 2022, we had approximately 314 full-time employees. We also employ temporary employees in our
manufacturing facility as demand requires, at times in excess of 100 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.
At times during fiscal 2022, in response to the COVID-19 pandemic, we continued to implement safety protocols and procedures
to protect our employees and our customers. These protocols included 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 conducted 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 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 implement such safety and wellness measures 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.
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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 products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply.
• Our ability to achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on
our key strategic initiatives.
• 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.
• Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our
financial results.
• 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
15
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
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 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.
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
16
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.
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 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.
17
We may not realize the anticipated benefits of past or future acquisitions, including our recent acquisition of Stay-Lite Lighting,
and integration of Stay-Lite Lighting or other acquired businesses may disrupt our business and management, which could
adversely affect our business, financial condition, or results of operations.
Effective on January 1, 2022, the Company acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc.
(“Stay-Lite Lighting”), a nationwide lighting and electrical maintenance service provider (the “Stay-Lite Acquisition”); and, we may
acquire additional companies or enter into other business combinations or strategic initiatives in the future. We may not realize the
anticipated benefits of the Stay-Lite Acquisition or such other business combinations or acquisitions, and we may encounter substantial
difficulties, costs and delays involved in integrating our operations with such businesses, including:
• Exposure to unknown liabilities;
• Potential conflicts between business cultures;
• Adverse changes in business focus perceived by third-party constituencies;
• Disruption of our ongoing business;
• Potential conflicts in distribution, marketing or other important relationships;
• Potential constraints of management resources;
•
Inability to implement uniform standards, controls, procedures and policies;
• Failure to maximize our financial and strategic position;
• Failure to achieve planned synergies or expected financial results benefits;
• Failure to realize the potential of the acquired businesses' technologies, complete product development, or properly obtain or
secure appropriate protection of intellectual property rights; and
• Loss of key employees and/or the diversion of management's attention from other ongoing business concerns.
Business combinations and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration
of Stay-Lite Lighting or other acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of
such acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
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
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.
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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.
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.
Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our
financial results.
Geopolitical issues around the world can impact macroeconomic conditions in where we operate and where we anticipate operating
in the future and could have a material adverse impact on our financial results. For example, the ultimate impact of the conflict in
Ukraine on fuel prices, inflation, the global supply chain and other macroeconomic conditions is unknown and could materially adversely
affect global economic growth, disrupting discretionary spending habits and generally decreasing demand for our products and services,
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including our planned retrofit project in Germany in fiscal year 2023. While we do not purchase any of significant raw materials directly
from Russia, it is a significant global producer of fuel, nickel, and copper. Disruptions in the markets for those inputs could negatively
impact the macroeconomy. We cannot predict the extent or duration of sanctions in response to the conflict in Ukraine, nor can we
predict the effects of legislative or other governmental actions or regulatory scrutiny of Russia and Belarus, Russia's other allies or other
countries with which Russia has significant trade or financial ties, including China. The conflict in Ukraine may also exacerbate
geopolitical tensions globally.
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
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.
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, 2022, our Chief Executive Officer and Chief Financial Officer concluded that our internal
controls for fiscal 2022 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
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
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size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately 69.4%, 80% and 83%
respectively, of our total revenue for fiscal 2022, 2021 and 2020. In fiscal 2020, one customer accounted for 74.1% of our total revenue
compared to 56.0% in fiscal 2021. In fiscal 2022, this customer accounted for 49.1% 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
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.
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.
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
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
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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 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.
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.
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.
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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.
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.
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
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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.
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.
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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.
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.
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.
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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.
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.
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
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.
Legal, Regulatory and Compliance Risks
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
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.
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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
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
27
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.
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.
28
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 $2.74 to $7.30 per share during
the period from April 1, 2021 to March 31, 2022. 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.;
•
•
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
29
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.
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.
30
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, and 9,180 square feet of office space in Pewaukee, Wisconsin.
The Manitowoc and Jacksonville facilities noted above are utilized by all our business segments, and the Pewaukee facility by our
Orion Services Group Division.
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 31, 2022, there were approximately 159 record holders of the 31,098,938 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.
31
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, 2022.
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
592,886 $
—
592,886 $
2.28
—
2.28
1,387,612
—
1,387,612
(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, 2022.
Unregistered Sales of Securities
We did not make any unregistered sales of our common stock during the year ended March 31, 2022 that were not previously
disclosed in a Quarterly Report on Form 10-Q or a current report on Form 8-K during such period.
ITEM 6 .
[RESERVED]
32
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, energy project management design and maintenance services. We help our customers achieve their
sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. 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. Our services consist of turnkey installation and system maintenance. 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 differentiate ourselves from our competitors through offering comprehensive project management services to national account
customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and
government subsidy management, engineering design, and project management from delivery through to installation and controls
integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a
lifetime business relationship with our customer. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is
intended to further expand our maintenance services capabilities.
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 2022, 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, 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, like our acquisition of Stay-Lite Lighting, 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.
33
We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring
annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate
substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and
industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with
major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our
multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory
purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are
delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest
customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material
adverse effect on our results of operations in any given future period.
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, 2022, as "fiscal 2022",
and our prior fiscal years which ended on March 31, 2021 and March 31, 2020 as "fiscal 2021" and “fiscal 2020”, 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 Services Group Division ("OSG"), and Orion Distribution Services Division ("ODS"), and Orion
U.S. Markets Division (“USM”).
34
Selected Financial Data
The selected historical consolidated financial data are not necessarily indicative of future results.
2022
Fiscal Year Ended March 31,
2021
2019
2020
(in thousands, except per share amounts)
Consolidated statements of operations data:
Product revenue
Service revenue
Total revenue
Cost of product revenue (1) (2) (10)
Cost of service revenue (1) (3) (10)
Total cost of revenue
Gross profit
General and administrative expenses (1) (4) (10)
Impairment of assets (5)
Acquisition expenses (9)
Sales and marketing expenses (1) (6) (10)
Research and development expenses (1) (7) (10)
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
Diluted
Weighted-average shares outstanding:
Basic
Diluted
2018
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 )
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 ) $
$
91,889 $
32,494
87,664 $ 113,352 $
37,489
29,176
124,383
116,840
150,841
65,249
25,222
90,471
33,912
11,680
—
512
11,628
1,701
8,391
1
(80 )
(62 )
—
—
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
8,250
2,159
$
6,091
6,518
(19,616 )
$
26,134
12,621
159
$
12,462
$
$
$
0.20 $
0.19 $
0.85 $
0.83 $
0.41 $
0.40 $
(0.23 ) $
(0.23 ) $
(0.46 )
(0.46 )
31,018
31,295
30,635
31,304
30,105
30,965
29,430
29,430
28,784
28,784
(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
2022
2021
Fiscal Year Ended March 31,
2020
(in thousands)
2019
$
$
5 $
—
793
12
3
813 $
4 $
—
716
29
4
753 $
3 $
(1 )
576
38
2
618 $
2 $
3
764
54
2
825 $
2018
12
—
929
155
6
1,102
35
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Fiscal 2020 includes expenses of $0.1 million related to restructuring. Fiscal 2018 includes expenses of $34 thousand related to
restructuring.
Fiscal 2020 includes expenses of $0.1 million related to restructuring.
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 2018 includes an intangible asset impairment of $0.7 million.
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.
Fiscal 2022 includes expenses of $0.5 million related to acquisition.
(10)
Fiscal 2022 includes an offset to payroll expenses of $1.6 million related to the anticipated employee retention payroll tax credit
(“payroll tax credit”), as expanded and extended by the American Rescue Plan Act of 2021, as follows:
Cost of product revenue
Cost of service revenue
General and administrative expenses
Sales and marketing expenses
Research and development expenses
Total payroll tax credit
Impact of COVID-19
Fiscal Year Ended
March 31, 2022
(in thousands)
$
$
649
144
273
416
105
1,587
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 2020 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 as project installations resumed for our largest
customer. However, potential future risks remain due to the COVID-19 pandemic. 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.
Fiscal 2023 Outlook
In fiscal 2023, we plan on focusing on the following initiatives:
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
36
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 our 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.
Increase our 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 positions 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. In fiscal 2021,
we began providing energy maintenance services, and, on January 1, 2022, we completed the acquisition of Stay-Lite Lighting. The
acquisition of Stay-Lite Lighting is intended to further increase our energy maintenance services capabilities.
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.
Major Developments in Fiscal 2022
Acquisition of Stay-Lite Lighting
Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide
lighting and electrical maintenance service provider, for a cash purchase price of $4.0 million. In addition, depending upon the relative
gross profit growth of Stay-Lite Lighting’s legacy business over the next two calendar years, Orion could pay up to an additional $0.7
million in earn out related purchase price. The acquisition was funded from existing cash resources. Stay-Lite Lighting will operate as
Stay-Lite, an Orion Energy Systems business. The acquisition accelerates the growth of our maintenance services offerings through our
Orion Services Group, which provides lighting and electrical services to customers.
37
Results of Operations: Fiscal 2022 versus Fiscal 2021
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
Acquisition costs
Sales and marketing expenses
Research and development expenses
Income from operations
Other income
Interest expense
Amortization of debt issue costs
Loss on debt extinguishment
Income before income tax
Income tax expense (benefit)
Net income
*
NM = Not Meaningful
2022
2021
Amount
%
Change
2022
% of
Revenue
2021
% of
Revenue
Amount
$
91,889 $
32,494
87,664
29,176
124,383 116,840
63,233
23,483
86,716
30,124
11,262
—
10,341
1,685
6,836
56
(127 )
(157 )
(90 )
6,518
(19,616 )
26,134
65,249
25,222
90,471
33,912
11,680
512
11,628
1,701
8,391
1
(80 )
(62 )
—
8,250
2,159
6,091 $
$
4.8 %
11.4 %
6.5 %
3.2 %
7.4 %
4.3 %
12.6 %
3.7 %
NM
12.4 %
0.9 %
22.7 %
(98.2 )%
37.0 %
60.5 %
NM
26.6 %
NM
(76.7 )%
73.9 %
26.1 %
100.0 %
52.5 %
20.3 %
72.7 %
27.3 %
9.4 %
0.4 %
9.3 %
1.4 %
6.7 %
0.0 %
(0.1 )%
(0.0 )%
—
6.6 %
1.7 %
4.9 %
75.0 %
25.0 %
100.0 %
54.1 %
20.1 %
74.2 %
25.8 %
9.6 %
0.0 %
8.9 %
1.4 %
5.9 %
0.0 %
(0.1 )%
(0.1 )%
(0.1 )%
5.6 %
-16.8 %
22.4 %
Revenue, Cost of Revenue and Gross Margin. Product revenue increased by 4.8%, or $4.2 million, for fiscal 2022 versus fiscal
2021. Service revenue increased by 11.4%, or $3.3 million, for fiscal 2022 versus fiscal 2021. The increase in product revenue was
primarily due to multiple projects put on hold in the prior year as a result of COVID-19. The increase in service revenue was primarily
due to the acquisition of Stay-Lite Lighting. Cost of product revenue increased by 3.2%, or $2.0 million, in fiscal 2022 versus the
comparable period in fiscal 2021. Cost of service revenue increased by 7.4%, or $1.7 million, in fiscal 2022 versus fiscal 2021. The
increase in product costs was primarily due to the increase in product revenue. Gross margin increased to 27.3% of revenue in fiscal
2022 from 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 3.7%, or $0.4 million, in fiscal 2022 compared to
fiscal 2021. This comparative increase was primarily due to the acquisition of Stay-Lite Lighting and lower employment costs in fiscal
2021 as a result of COVID-19 related actions, partially offset by the payroll tax credit.
Acquisition Costs. In fiscal 2022, we incurred acquisition expenses of $0.5 million, relating to the acquisition of Stay-Lite Lighting.
Sales and Marketing. Our sales and marketing expenses increased 12.4%, or $1.3 million, in fiscal 2022 compared to fiscal 2021.
The increase was primarily due to an increase in commission expense on higher sales and an increase in travel, both a result of COVID-
19 restrictions in fiscal 2021, as well as a result of the acquisition of Stay-Lite Lighting.
Research and Development. Research and development expenses were essentially flat in fiscal 2022 compared to fiscal 2021 and
also remained consistent as a percentage of sales between years.
Interest Expense. Interest expense in fiscal 2022 decreased by 37.0%, or $47 thousand, from fiscal 2021. The decrease in interest
expense was due to fewer sales of receivables.
38
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 2022, we recognized a tax expense of $2.2 million. 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. Our
fiscal 2022 income tax provision reflects a more normalized effective income tax rate; however, we do not expect to remit significant
cash taxes for the next several years.
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
NM
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 )%
0.0 %
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 %
0.0 %
8.4 %
0.1 %
8.3 %
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.
39
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.
Orion Services Group Division
Our OSG segment (a) develops and sells lighting products and provides construction and engineering services for our commercial
lighting and energy management systems and (b) provides retailers, distributors and other businesses with maintenance, repair and
replacement services for the lighting and related electrical components deployed in their facilities. OSG 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 OSG segment operating results (dollars in thousands):
Revenues
Operating income
Operating margin
Fiscal 2022 Compared to Fiscal 2021
2022
Fiscal Year Ended March 31,
2021
2020
$
$
82,568 $
6,462 $
7.8 %
84,243 $
7,472 $
8.9 %
122,744
16,164
13.2 %
OSG segment revenue decreased in fiscal 2022 by 2.0%, or $1.7 million, and operating income decreased by 13.5%, or $1.0
million, compared to fiscal 2021, due to an overall reduction in project volume performed for our largest customer, partially offset by
the acquisition of Stay-Lite Lighting.
Fiscal 2021 Compared to Fiscal 2020
OSG 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.
40
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 2022 Compared to Fiscal 2021
2022
Fiscal Year Ended March 31,
2021
2020
$
$
22,209 $
3,114 $
14.0 %
21,122 $
2,430 $
11.5 %
15,087
(852 )
(5.6 )%
ODS segment revenue increased $1.1 million or 5.1% and operating income increased by $0.7 million or 28.1%, in fiscal 2022
compared to fiscal 2021 primarily due to sales to a more diversified customer base.
Fiscal 2021 Compared to Fiscal 2020
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.
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.
The following table summarizes our USM segment operating results (dollars in thousands):
Revenues
Operating income
Operating margin
Fiscal 2022 Compared to Fiscal 2021
2022
Fiscal Year Ended March 31,
2021
2020
$
$
19,606 $
3,963 $
20.2 %
11,475 $
1,683 $
14.7 %
13,010
2,447
18.8 %
USM segment revenue increase $8.1 million, or 70.9% and operating income increased by $2.3 million or 135.5%, in fiscal 2022
compared to fiscal 2021, primarily due to the impact of COVID-19 on fiscal 2021 and an increased focus on sales opportunities in this
segment.
Fiscal 2021 Compared to Fiscal 2020
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.
Liquidity and Capital Resources
Overview
We had $14.5 million in cash and cash equivalents as of March 31, 2022, compared to $19.4 million at March 31, 2021. Our cash
position decreased primarily as a result of the funding of our acquisition of Stay-Lite Lighting and the results of our operations offset
by an overall use of working capital during the year.
41
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 provides for a five-year $25.0 million revolving credit facility (the “Credit
Facility”) that matures on December 29, 2025. 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, 2022, the borrowing base supported $21.5 million of availability of the Credit Facility. As of March 31, 2022, 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.
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, 2022.
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. 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 2022, fiscal 2021 and fiscal 2020:
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash and cash equivalents
2022
Fiscal Year Ended March 31,
2021
(in thousands)
2020
$
$
(113 ) $
(4,918 )
104
(4,927 ) $
1,729 $
(946 )
(10,141 )
(9,358 ) $
20,343
(936 )
615
20,022
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 used in operating activities for fiscal 2022 was $0.1 million and consisted of a net income of $6.1 million adjusted for non-
cash expense items of $5.0 million and offset by net cash used by changes in operating assets and liabilities of $11.2 million. Cash used
by changes in operating assets and liabilities consisted primarily of decreases in accounts payable of $8.1 million and accrued liabilities
42
of $6.9 million, partially offset by cash provided by a decrease in accounts receivable of $4.4 million, all caused by changes in business
volume late in fiscal 2022 compared to late fiscal 2021.
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 Flows Related to Investing Activities. Cash used in investing activities in fiscal 2022 was $4.9 million and consisted primarily
of the $4.0 million acquisition of Stay-Lite Lighting, the $0.5 million investment in ndustrial.io and purchases of property and equipment.
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.
Cash Flows Related to Financing Activities. Cash provided by financing activities in fiscal 2022 was $0.1 million.
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.
Working Capital
Our net working capital as of March 31, 2022 was $32.9 million, consisting of $51.2 million in current assets and $18.4 million
in current liabilities. 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. The increase in our working capital from the fiscal 2021 year-end was primarily due to an overall
reduction in project volume performed for our largest customer and partially offset by the acquisition of Stay-Lite Lighting.
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.
43
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, 2022, the borrowing base supports approximately $21 million of availability of the Credit Facility.
As of March 31, 2022, 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,
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 $0.5 million in fiscal 2022,
$0.9 million in fiscal 2021, and $0.8 million in fiscal 2020. Our capital spending plans predominantly consist of investments related to
maintenance fleet vehicles, 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.
Inflation
We have experienced increases in various input costs including labor, components and transportation in the past year. In response,
we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that 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
44
those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and
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 manufactured or sourced commercial lighting fixtures and
components, installing these fixtures in our customer’s facilities, and providing maintenance services including repairs and replacements
for the lighting and related electrical components 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, either for the contract as a whole or
for the hourly rates that will be charged for the type of maintenance services delivered. 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 we manufacture, or source 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 Orion manufactured or sourced 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;
45
• when the customer formally accepts the product; and
• when we receive 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 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.
Revenue from a customer contract that includes maintenance services and delivery of lighting fixtures and / or related components
that were not manufactured or sourced by Orion classified as Services revenue in the Consolidated Statement of Operations. The revenue
for the actual labor service is recorded as the time the service is provided based on the hours incurred multiplied by the agreed upon
contractual rate. The revenue for fixtures or other tangible components is recorded at the completion of the project as this is when
management believes the customer has obtained control of these components.
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, 2022 were $2.1 million, or 9.5% of gross inventory, and $1.9 million, or 8.9% of gross inventory, at March 31, 2021.
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 eight thousand dollars, or 0.1% of gross receivables, at March 31, 2022 and eleven
thousand dollars, or 0.1% of gross receivables, at March 31, 2021.
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
46
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 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.
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, 2022. This qualitative assessment considered our operating results for the first nine months of fiscal 2022 in comparison
to prior years as well as its anticipated fourth quarter results and fiscal 2023 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 we 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. During fiscal 2022, further positive evidence provided support that no material change
to the valuation allowance is required.
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, 2022, 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, 2022, the balance of gross unrecognized tax benefits was approximately $0.2
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. We have experienced increases in various input costs including labor, components and transportation in the past year. In
response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that 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
48
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.
As of March 31, 2022, 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. During fiscal 2022, we have experienced commodity price increases; however, as of the date of
this report, we are not able to predict the future impact of on this risk. A hypothetical additional 20% increase in aluminum prices would
have had a negative impact of $0.8 million on our net income in fiscal 2022.
49
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm (BDO USA, LLP; Milwaukee, WI; PCAOB ID#243)
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, 2022
and 2021, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period
ended March 31, 2022, 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, 2022 and
2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, 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, 2022, 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 10, 2022 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 Public
Company Accounting Oversight Board (United States) (“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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the
accounts or disclosures to which it relates.
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, installing these fixtures, and providing maintenance services. For contracts that contain multiple performance
obligations, the contract’s total transaction price is allocated to the individual performance obligations based on their relative standalone
selling prices. For contracts which include both the sale and installation of fixtures, the standalone selling price for installation service
is estimated using an expected cost-plus a margin approach.
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
51
estimate requires significant management judgment and is based on 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 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.
Testing 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 services and verifying the estimated margin
fell within a reasonable range of historical margins.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2012
Milwaukee, Wisconsin
June 10, 2022
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, 2022, 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, 2022, 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, 2022 and 2021, the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and our report
dated June 10, 2022 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 10, 2022
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
Goodwill
Other intangible assets, net
Deferred tax assets
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, 2022 and 2021; no shares issued and outstanding at
March 31, 2022 and 2021
Common stock, no par value: Shares authorized: 200,000,000 at
March 31, 2022 and 2021; shares issued: 40,570,909 and
40,279,050 at March 31, 2022 and 2021; shares outstanding:
31,097,872 and 30,805,300 at March 31, 2022 and 2021
Additional paid-in capital
Treasury stock: 9,473,037 and 9,473,750 common shares at
March 31, 2022 and 2021
Retained deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
March 31,
2022
2021
14,466 $
11,899
2,421
19,832
2,631
51,249
11,466
350
2,404
17,805
3,543
86,817 $
9,855 $
8,427
76
16
18,374
—
19
564
2,760
21,717
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
—
—
—
158,419
(36,239 )
(57,080 )
65,100
86,817 $
—
157,485
(36,240 )
(63,171 )
58,074
92,821
$
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
Acquisition costs
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income (expense):
Other income
Interest expense
Amortization of debt issue costs
Loss on debt extinguishment
Interest income
Total other expense
Income before income tax
Income tax (benefit) expense
Net income
Basic net income per share attributable to common shareholders
Weighted-average common shares outstanding
Diluted net income per share
Weighted-average common shares and share equivalents
outstanding
$
2022
Fiscal Year Ended March 31,
2021
2020
91,889 $
32,494
124,383
65,249
25,222
90,471
33,912
11,680
512
11,628
1,701
25,521
8,391
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
1
(80 )
(62 )
—
—
(141 )
8,250
2,159
6,091 $
0.20 $
31,018,356
0.19 $
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
31,294,573
31,303,727
30,964,777
$
$
$
55
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
Balance, March 31, 2019
Exercise of stock options 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 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
Exercise of stock options for cash
Shares issued under Employee Stock Purchase
Plan
Stock-based compensation
Employee tax withholdings on stock-based
compensation
Net income
Balance, March 31, 2022
Shareholders’ Equity
Common Stock
Shares
Additional
Paid-in
Capital
29,600,158 $
22,362
155,828 $
57
Treasury
Stock
(36,091 ) $
—
Retained
Earnings
(Deficit)
(101,767 ) $
—
Total
Shareholders’
Equity
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
31,845
—
—
157,485
121
(84 )
—
(36,240 )
—
—
26,134
(63,171 )
—
1,617
260,014
—
813
6
—
(84 )
26,134
58,074
121
6
813
(904 )
—
31,097,872 $
—
—
158,419 $
(5 )
—
(36,239 ) $
—
6,091
(57,080 ) $
(5 )
6,091
65,100
56
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation
Amortization of intangible assets
Stock-based compensation
Amortization of debt issue costs
Loss on debt extinguishment
Deferred income tax benefit
(Gain) 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 (used in) provided by operating activities
Investing activities
Cash paid for acquisition
Cash paid for investment
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 provided by (used in) 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 for income taxes
Supplemental disclosure of non-cash investing and financing activities:
Operating lease assets obtained in exchange for new operating lease
liabilities
57
2022
Fiscal Year Ended March 31,
2021
2020
$
6,091 $
26,134 $
12,462
1,327
227
813
62
—
1,980
(77 )
623
10
26
4,407
851
(420 )
(888 )
(8,125 )
(6,933 )
(87 )
(113 )
(4,012 )
(500 )
(518 )
(10 )
122
(4,918 )
(14 )
—
—
(5 )
(4 )
127
104
(4,927 )
19,393
14,466 $
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 $
(68 ) $
(203 ) $
(118 ) $
(175 ) $
1,203
359
618
243
—
—
10
205
—
57
3,616
3,186
(1,319 )
66
(79 )
(192 )
(92 )
20,343
—
—
(814 )
(131 )
9
(936 )
(92 )
74,100
(73,289 )
(76 )
(91 )
63
615
20,022
8,729
28,751
(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 provides state-of-
the-art light emitting diode lighting systems, wireless Internet of Things enabled control solutions, project engineering, energy project
management design and maintenance services 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 and Pewaukee, Wisconsin.
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 customers, suppliers, government entities and others to control the spread of the
virus beginning in March 2020, the last few weeks of Orion’s 2020 fiscal year, and continuing most significantly into the second quarter
of fiscal 2021. During the third quarter of fiscal 2021, Orion experienced a rebound in business as project installations resumed for its
largest customer. However, potential future risks remain due to the COVID-19 pandemic. 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 results of operation would likely be materially adversely affected.
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.
58
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.
Incentive Plan
Orion’s compensation committee approved an Executive Annual Cash Incentive Program. Based upon the results for the fiscal
years ended March 31, 2022, 2021, and 2020, Orion accrued approximately $0.1 million, $0.7 million, and $0.8 million expense related
to this plan, respectively.
Revenue Recognition
Orion generates revenues primarily by selling commercial lighting fixtures and components, installing these fixtures in its customer’s
facilities, and providing maintenance services including repairs and replacements for the lighting and related electrical components
deployed 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, either for the contact as a whole or for the hourly rates
that will be charged for the type of maintenance services delivered. 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 Orion manufactured or sourced
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
59
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 Orion manufactured or sourced 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;
• 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.
Revenue from a customer contract that includes maintenance services and delivery of lighting fixtures and / or related components
that were not manufactured or sourced by Orion classified as Services revenue in the Consolidated Statement of Operations. The revenue
for the actual labor service is recorded as the time the service is provided based on the hours incurred multiplied by the agreed upon
contractual rate. The revenue for fixtures or other tangible components is recorded at the completion of the project as this is when
management believes the customer has obtained control of these components.
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
60
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, 2022, Orion decreased its valuation allowance by $30
thousand due to the decrease in its deferred tax balance.
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
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.
61
Concentration of Credit Risk and Other Risks and Uncertainties
Orion’s cash is primarily deposited with one financial institution. 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 2022 and 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.
In fiscal 2022, one customer accounted for 49.1% of revenue. In fiscal 2021, one customer accounted for 56.0% of total revenue.
In fiscal 2020, one customer accounted for 74.1% of total revenue.
As of March 31, 2022, two customers accounted for 11.8% and 10.4% of accounts receivable. As of March 31, 2021, three
customers accounted for 33.9%, 16.4% and 10.1% 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.
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 2022, Product revenue included $1.2 million derived from sales-type leases
for light fixtures, $0.2 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.
62
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.
The following table provides detail of Orion’s total revenues for the year ended March 31, 2022 (dollars in thousands):
Revenue from contracts with customers:
Lighting revenues, by end user
Year Ended March 31, 2022
Product Services Total
Year Ended March 31, 2021
Product Services Total
Year Ended March 31, 2020
Services Total
Product
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
920 $ 1,370 $ 2,290 $
$
379 $ 1,301
89,480 31,124 120,604 83,963 28,211 112,174 110,742 37,110 147,852
90,400 32,494 122,894 84,659 29,176 113,835 111,664 37,489 149,153
56
965 $ 1,661 $
42 —
57 —
56 —
696 $
922 $
42
57
90,442 32,494 122,936 84,716 29,176 113,892 111,720 37,489 149,209
1,632
1,447 —
$ 91,889 $ 32,494 $ 124,383 $ 87,664 $ 29,176 $ 116,840 $ 113,352 $ 37,489 $ 150,841
1,447 2,948 —
1,632 —
2,948
Customer payments for material only orders are due shortly after shipment.
Turnkey projects and repair services provided to commercial or industrial companies 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, 2022 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, 2022, there were no such
transactions included in Long-term accounts receivable.
63
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, 2022, 2021, and 2020
was $2.8 million, $5.1 million, and $4.4 million, respectively. Orion’s losses on these sales aggregated to $13 thousand, $0.1 million,
and $0.1 million for the twelve months ended March 31, 2022, 2021, and 2020, respectively, and are included in Interest expense in the
Consolidated Statements of Operations.
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 contracts for turnkey installations and repairs / replacement services. Once Orion has an unconditional right to
consideration under these contracts, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable,
net. Revenue earned but not billed as of March 31, 2022 and March 31, 2021 includes $0.5 million and $0.6 million, respectively, which
was not derived from contracts with customers and therefore not classified as a contract asset as defined by the new standards.
Deferred revenue, current as of March 31, 2022, includes no contract liabilities which represent 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.
64
The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract
liabilities as of March 31, 2022, and March 31, 2021 (dollars in thousands):
Accounts receivable, net
Contract assets
Contract liabilities
March 31, 2021
March 31, 2022
$
$
$
11,899 $
1,966 $
— $
13,572
2,367
11
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
2022
2021
$
$
11,907 $
(8 )
11,899 $
13,583
(11 )
13,572
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, 2022 and 2021,
Orion's inventory balances were as follows (dollars in thousands):
As of March 31, 2022
Raw materials and components
Work in process
Finished goods
Total
As of March 31, 2021
Raw materials and components
Work in process
Finished goods
Total
Cost
Excess and
Obsolescence
Reserve
Net
$
$
$
$
10,781 $
1,529
9,593
21,903 $
12,410 $
758
8,295
21,463 $
(1,140 ) $
(267 )
(664 )
(2,071 ) $
(967 ) $
(356 )
(586 )
(1,909 ) $
9,641
1,262
8,929
19,832
11,443
402
7,709
19,554
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.
65
NOTE 7 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of March 31, 2022, and March 31, 2021, prepaid expenses and other current assets include the following (dollars in thousands):
Payroll tax credit
Other prepaid expenses
Total
March 31, 2022
$
March 31, 2021
1,587 $
1,044
2,631 $
—
1,082
1,082
$
During the three months ended September 30, 2021, Orion recorded a $1.6 million current asset for the anticipated employee
retention payroll tax credit (“payroll tax credit”), as expanded and extended by the American Rescue Plan Act of 2021. The credit was
recorded as an offset to payroll expense, in accordance with IAS 20, in the following income statement categories: $0.7 million in cost
of product revenue, $0.1 million in cost of service revenue, $0.3 million in general and administrative, $0.4 million in sales and
marketing, and $0.1 million in research and development expenses. The timing of the refundable portion of the payroll tax credit is
subject to Internal Revenue Service processing times.
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.
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
Vehicles
Construction in progress
Less: accumulated depreciation and amortization
Net property and equipment
March 31, 2022
March 31, 2021
$
$
433 $
9,491
7,650
490
4,997
11,130
796
3
34,990
(23,524 )
11,466 $
433
9,477
7,372
340
4,997
12,451
—
135
35,205
(23,836 )
11,369
Depreciation is recognized over the estimated useful lives of the respective assets, using the straight-line method. Orion recorded
depreciation expense of $1.3 million, $1.2 million and $1.2 million for the years ended March 31, 2022, 2021 and 2020, 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
Vehicles
66
10-15 years
10-39 years
2-10 years
Shorter of asset life or life of lease
20 years
3-10 years
5-7 years
No interest was capitalized for construction in progress during fiscal 2022 or fiscal 2021.
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
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.
67
We also lease approximately 9,180 square feet of office space in Pewaukee, Wisconsin. The lease presently terminates in December,
2026.
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, 2022 is 5.3%. The weighted average remaining
lease term as of March 31, 2022 is 3.8 years.
A summary of Orion’s assets leased from third parties follows (dollars in thousands):
Balance sheet classification
March 31, 2022
March 31, 2021
Assets
Operating lease assets
Liabilities
Current liabilities
Other long-term assets
$
2,440 $
2,585
Operating lease liabilities
Accrued expenses and other
Non-current liabilities
Operating lease liabilities
Total lease liabilities
Other long-term liabilities
$
768
2,271
3,039 $
647
2,642
3,289
Orion had operating lease costs of $1.1 million for the year ended March 31, 2022. 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 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Assets Orion Leases to Other Parties
Operating Leases
$
$
$
939
838
828
722
71
3,398
(359 )
3,039
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.
68
The following chart shows the amount of revenue and cost of sales arising from sales-type leases during the year ended March 31,
2022, 2021 and 2020 (dollars in thousands):
Product revenue
Cost of product revenue
March 31, 2022
March 31, 2021
March 31, 2020
$
1,169 $
1,073
2,758 $
2,512
1,362
1,208
The Consolidated Balance Sheet as of March 31, 2022 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.
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, 2022, 2021 and 2020. Orion
accounts for these transactions as operating leases.
NOTE 10 — GOODWILL AND OTHER INTANGIBLE ASSETS
Orion recorded goodwill of $0.4 million and intangibles of $0.7 million related to its purchase of Stay-Lite Lighting during fiscal
2022. The goodwill is assigned to the Orion Services Group reporting unit. See Note 20 – Acquisition for further discussion of the Stay-
Lite Lighting acquisition.
The costs of specifically identifiable intangible assets that do not have an indefinite life are amortized over their estimated useful
lives. Goodwill and 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
Developed technology
Tradename
10-17 years
7-13 years
5-8 years
8 years
5-10 years
Straight-line
Straight-line
Accelerated based upon the pattern of economic benefits
consumed
Accelerated based upon the pattern of economic benefits
consumed
Straight-line
Goodwill and 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.
69
Orion performed a qualitative assessment in conjunction with its annual impairment test of its indefinite lived intangible assets as
of January 1, 2022. This qualitative assessment considered Orion’s operating results for the first nine months of fiscal 2022 in
comparison to prior years as well as its anticipated fourth quarter results and fiscal 2023 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.
The components of, and changes in, the carrying amount of other intangible assets were as follows (dollars in thousands):
March 31, 2022
March 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amortized Intangible Assets
Patents
Licenses
Trade name and trademarks
Customer relationships
Developed technology
$
Total Amortized Intangible Assets
$
2,652 $
58
118
4,178
900
7,906 $
(1,932 ) $
(58 )
(6 )
(3,618 )
(900 )
(6,514 ) $
720 $
—
112
560
—
1,392 $
2,796 $
58
—
3,600
900
7,354 $
(1,875 ) $
(58 )
—
(3,591 )
(889 )
(6,413 ) $
921
—
—
9
11
941
Indefinite-lived Intangible Assets
Trade name and trademarks
Total Indefinite-lived Intangible Assets
$
$
1,012 $
1,012 $
— $
— $
1,012 $
1,012 $
1,011 $
1,011 $
— $
— $
1,011
1,011
Total Other Intangible Assets
$
8,918 $
(6,514 ) $
2,404 $
8,365 $
(6,413 ) $
1,952
As of March 31, 2022, the weighted average useful life of definite life intangible assets was 8.0 years. The estimated amortization
expense for each of the next five years is shown below (dollars in thousands):
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Thereafter
$
$
207
203
195
184
163
440
1,392
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
Tradename
Total
Total amortization of intangible assets
2022
Fiscal Year Ended March 31,
2021
2020
$
$
$
$
183 $
183 $
27 $
11
6
44
227 $
175 $
175 $
47 $
68
—
115
290 $
171
171
86
102
—
188
359
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 2022, 2021, and 2020, write-offs were
immaterial.
70
NOTE 11 — ACCRUED EXPENSES AND OTHER
As of March 31, 2022 and March 31, 2021, Accrued expenses and other included the following (dollars in thousands):
Other accruals
Accrued project costs
Compensation and benefits
Credits due to customers
Warranty
Sales tax
Sales returns reserve
Legal and professional fees
Total
March 31, 2022
March 31, 2021
$
$
2,221 $
2,215
1,668
1,209
728
157
123
106
8,427 $
1,730
5,010
2,851
1,009
705
1,318
106
497
13,226
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,
2022
2021
$
$
1,009 $
434
(583 )
860 $
1,069
644
(704 )
1,009
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. Net income (loss) per common share is calculated based upon the following shares:
Numerator:
Net income (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 per common share:
Basic
Diluted
2022
Fiscal Year Ended March 31,
2021
2020
$
6,091 $
26,134 $
12,462
31,018,356
30,634,553
30,104,552
276,217
31,294,573
669,174
31,303,727
860,225
30,964,777
$
$
0.20 $
0.19 $
0.85 $
0.83 $
0.41
0.40
71
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
2022
—
17,803
17,803
March 31,
2021
—
—
—
2020
164,072
—
164,072
Long-term debt as of March 31, 2022 and 2021 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,
2022
2021
$
$
— $
35
35
(16 )
19 $
—
49
49
(14 )
35
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, 2022, the borrowing base supports $21.5 million availability of the Credit Facility. As of March
31, 2022, 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 and a fee 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 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 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.
72
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, 2022, 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, 2022, aggregate maturities of long-term debt were as follows (dollars in thousands):
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
2022
Fiscal Year Ended March 31,
2021
2020
179 $
1,980
2,159 $
244 $
(19,860 )
(19,616 ) $
2022
2021
2020
— $
1,658
1,658
179
322
501
2,159 $
— $
(16,217 ) $
(16,217 )
244
(3,643 )
(3,399 )
(19,616 ) $
$
$
$
$
16
17
2
35
84
75
159
17
39
56
67
36
103
159
A reconciliation of the statutory federal income tax rate and effective income tax rate is as follows:
Statutory federal tax rate
State taxes, net
Change in valuation reserve
Permanent items
Change in tax contingency reserve
Equity compensation cancellations
State return to provision
Other, net
Effective income tax rate
2022
Fiscal Year Ended March 31,
2021
2020
21.0 %
5.2 %
(0.4 )%
(1.9 )%
0.1 %
0.1 %
2.3 %
(0.2 )%
26.2 %
21.0 %
5.3 %
(321.4 )%
(3.4 )%
(0.5 )%
0.6 %
(1.7 )%
(0.9 )%
(301.0 )%
21.0 %
4.9 %
(25.0 )%
(1.0 )%
0.2 %
0.2 %
1.2 %
(0.2 )%
1.3 %
73
The net deferred tax assets 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
Total net deferred tax assets
March 31,
2022
2021
809
16,485
1,847
231
29
670
247
20,318
(1,249 )
19,069
(518 )
(529 )
(217 )
(1,264 )
860
18,313
1,916
198
38
853
406
22,584
(1,279 )
21,305
(670 )
(626 )
(224 )
(1,520 )
$
17,805 $
19,785
For fiscal year ended March 31, 2022, Orion’s deferred tax assets were primarily the result of U.S. NOL and tax credit
carryforwards. Orion recorded a valuation allowance of $1.2 million and $1.3 million against its net deferred tax asset balance as of
March 31, 2022 and March 31, 2021, respectively, due to the uncertainty of its realization value in the future. For the year ended March
31, 2022, Orion recorded no material change in the valuation allowance on the basis of management’s continued reassessment of the
amount of its deferred tax assets that are more likely than not to be realized. 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.
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, 2022, Orion has federal NOL carryforwards of approximately $61.8 million, state NOL carryforwards of
approximately $56.7 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 $0.7 million. All of Orion's tax credit carryforwards and $111.0
million of its NOL carryforwards will begin to expire in varying amounts between 2023 and 2033. The remaining $8.3 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 $1.2 million on the deferred tax assets related to these carryforwards.
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 2022, fiscal 2021, or fiscal 2020.
74
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, 2018 or later are open. For states in which Orion files state income tax returns, the statute of
limitations is generally open for tax years beginning April 1, 2018 or later.
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, 2022, the balance of gross unrecognized tax benefits was approximately $0.2 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. Accrued interest and penalties for such unrecognized
tax benefits as of March 31, 2022 and 2021 were $0.1 million. 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
$
$
285 $
39
(109 )
215 $
259 $
123
(97 )
285 $
130
23
106
259
2022
Fiscal Year Ended March 31,
2021
2020
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, 2022, Orion had entered into $7.8 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 2022, Orion made matching contributions of $0.1 million. In both fiscal 2021 and 2020, Orion made matching contributions of
approximately $0.1 million.
75
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, 2022, 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 2022, fiscal 2021 or fiscal
2020 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. In December 2021, Orion’s Board of Directors announced
that it had decided to allow the Rights Agreement to terminate and expire by its terms on January 7, 2022.
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. Orion had the following shares issued from treasury during fiscal
2022 and fiscal 2021:
Quarter Ended March 31, 2022
Quarter Ended December 31, 2021
Quarter Ended September 30, 2021
Quarter Ended June 30, 2021
Total
Quarter Ended March 31, 2021
Quarter Ended December 31, 2020
Quarter Ended September 30, 2020
Quarter Ended June 30, 2020
Total
As of March 31, 2022
Shares Issued
Under ESPP
Plan
Closing Market
Price
439 $
355
327
496
1,617 $
2.80
3.62
3.89
5.73
2.80 - 5.73
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 - 9.87
76
Sale of shares
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.
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 have been effected pursuant to
the ATM program through March 31, 2022.
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, 2022, the number of shares available for grant under the Amended 2016 Plan was 1,387,612.
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.
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.
77
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
2022
Fiscal Year Ended March 31,
2021
2020
$
$
5 $
—
793
12
3
813 $
4 $
—
716
29
4
753 $
The following table summarizes information with respect to outstanding stock options:
Outstanding at March 31, 2019
Granted
Exercised
Forfeited
Outstanding at March 31, 2020
Granted
Exercised
Forfeited
Outstanding at March 31, 2021
Granted
Exercised
Forfeited
Outstanding at March 31, 2022
Exercisable at March 31, 2022
Number of
Shares
Weighted
Average
Exercise
Price
467,836 $
— $
(22,362 ) $
(49,174 ) $
396,300 $
— $
(99,000 ) $
(100,982 ) $
196,318 $
— $
(31,845 ) $
(22,045 ) $
142,428 $
142,428
3
(1 )
576
38
2
618
3.14
—
2.51
4.63
2.80
—
2.34
3.39
2.74
—
3.79
4.19
2.28
The following table summarizes the range of exercise prices on outstanding stock options at March 31, 2022:
$2.00 - 2.03
$2.41 - 2.75
March 31, 2022
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Outstanding and
Vested
57,292
85,136
142,428
0.21 $
1.02
0.62 $
2.03
2.45
2.28
The following table summarizes information with respect to restricted shares activity:
Balance at March 31, 2021
Shares issued
Shares vested
Shares forfeited
Shares outstanding at March 31, 2022
Per share price on grant date
2022
Fiscal Year Ended March 31,
2021
469,639
240,833
(260,014 )
—
450,458
772,720
287,998
(450,481 )
(140,598 )
469,639
$3.62 - 5.98
$3.92 - 10.01
2020
1,312,593
279,468
(669,238 )
(150,103 )
772,720
$2.69 - 3.03
During fiscal 2022, Orion recognized $0.8 million of stock-based compensation expense related to restricted shares.
78
As of March 31, 2022, the weighted average grant-date fair value of restricted shares granted was $5.55.
Unrecognized compensation cost related to non-vested common stock-based compensation as of March 31, 2022 is expected to
be recognized as follows (dollars in thousands):
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total
Remaining weighted average expected term
NOTE 18 — SEGMENT DATA
$
$
799
532
126
4
3
1,464
3.0 years
Orion has the following business segments: Orion Services Group Division (“OSG”), 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 Services Group Division
The OSG segment (a) develops and sells lighting products and provides construction and engineering services for Orion's
commercial lighting and energy management systems and (b) provides retailers, distributors and other businesses with maintenance,
repair and replacement services for the lighting and related electrical components deployed in their facilities. OSG 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
The ODS segment sells lighting products through manufacturer representative agencies and a network of North American
broadline electrical distributors and contractors.
Orion U.S. Markets Division
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:
Services Group
Distribution Services
U.S. Markets
Corporate and Other
Revenues
For the year ended March 31,
2021
2020
2022
Operating Income (Loss)
For the year ended March 31,
2021
2020
2022
$
82,568 $
22,209
19,606
—
84,243 $ 122,744 $
15,087
21,122
13,010
11,475
—
—
$ 124,383 $ 116,840 $ 150,841 $
6,462 $
3,114
3,963
(5,148 )
8,391 $
7,472 $
2,430
1,683
(4,749 )
6,836 $
16,164
(852 )
2,447
(4,649 )
13,110
79
Depreciation and Amortization
For the year ended March 31,
2021
2020
2022
Capital Expenditures
For the year ended March 31,
2021
2020
2022
Segments:
Services Group
Distribution Services
U.S. Markets
Corporate and Other
Segments:
Services Group
Distribution Services
U.S. Markets
Corporate and Other
$
$
997 $
205
185
229
1,616 $
913 $
231
128
208
1,480 $
1,013 $
187
126
236
1,562 $
224 $
63
58
153
498 $
516 $
158
107
121
902 $
302
81
78
353
814
March 31, 2022
March 31, 2021
Total Assets
$
$
26,642 $
6,723
8,017
45,435
86,817 $
29,856
6,530
6,057
50,378
92,821
Orion’s revenue outside the United States is insignificant and Orion has no long-lived assets outside the United States.
Fiscal 2022 Operating Income above includes a payroll tax credit, in accordance with IAS 20.
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, 2022, 2021 and 2020 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,
2022
Year Ended
March 31,
2021
Year Ended
March 31,
2020
$
$
— $
—
—
—
— $
— $
—
—
—
— $
82
74
28
207
391
Total restructuring expense by segment was recorded as follows (dollars in thousands):
Orion Services Group
Orion Distribution Systems
Corporate and Other
Total
NOTE 20 — ACQUISITION
Year Ended
March 31,
2022
Year Ended
March 31,
2021
Year Ended
March 31,
2020
$
$
— $
—
—
— $
— $
—
—
— $
139
142
110
391
Effective on January 1, 2022, Orion acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc. (“Stay-Lite
Lighting”), a nationwide lighting and electrical maintenance service provider, for $4.3 million (the “Stay-Lite Acquisition”). Stay-Lite
Lighting will operate as Stay-Lite Lighting, an Orion Energy Systems business. The acquisition accelerates the growth of Orion's
maintenance services offerings through its Orion Services Group, which provides lighting and electrical services to customers.
80
Orion has accounted for this transaction as a business combination. Orion has preliminarily allocated the purchase price of
approximately $4.3 million, which includes an estimate of the earn-out liability of $0.2 million and a receivable of $0.1 million for the
working capital adjustment received subsequent to year-end, to the assets acquired and liabilities assumed at estimated fair values, and
the excess of the purchase price over the aggregate fair values is recorded as goodwill. Orion could pay up to $0.7 million in earnout
related purchase price, which is based on the gross profit of the legacy business over the next two calendar years. Orion is in the process
of finalizing third party valuations of property and equipment and intangible assets.
The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of
January 1, 2022, is as follows (dollars in thousands):
Cash
Accounts receivable
Revenue earned but not billed
Inventory
Prepaid expenses and other current assets
Property and equipment
Goodwill
Other intangible assets
Other long-term assets
Accounts payable
Accrued expenses and other
Other long-term liabilities
Net purchase consideration
$
95
2,690
342
504
41
958
350
696
537
(965 )
(550 )
(412 )
4,286
Goodwill recorded from the acquisition of Stay-Lite Lighting is attributable to the expected synergies from the business
combination. The goodwill resulting from the acquisition is deductible for tax purposes. The intangible assets include amounts
recognized for the fair value of the trade name and customer relationships. The fair value of the intangible assets was determined based
upon the income (discounted cash flow) approach.
The following table presents the details of the intangible assets acquired at the date of acquisition (dollars in thousands):
Tradename
Customer relationships
Estimated
Fair Value
Estimated Useful Life
(Years)
$
118
578
5
8
Transaction costs related to the acquisition totaled $0.5 million in fiscal 2022 and are recorded in acquisition costs in the
consolidated statements of operations.
Stay-Lite Lighting’s post-acquisition results of operations for the period from January 1, 2022, through March 31, 2022, are
included in the Orion’s Consolidated Statements of Operations. Since the acquisition date, net sales of Stay-Lite Lighting for the period
were $2.7 million and operating income was $0.2 million. The operating results of Stay-Lite Lighting are included in the Orion Services
Group segment.
The unaudited pro forma revenue for the year ended March 31, 2022 and 2021, assuming the acquisition had occurred on April 1,
2020 was $131.3 million and $125.4 million respectively.
The unaudited pro forma information was determined based on the historical results of Orion and unaudited financial results from
Stay-Lite Lighting. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative
of what would have occurred had the business combination been completed at the beginning of the period or the results that may occur
in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies resulting from the
acquisition of Stay-Lite Lighting.
NOTE 21 — SUBSEQUENT EVENTS
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
81
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.
NOTE 22 — QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly results for the years ended March 31, 2022 and March 31, 2021 are as follows:
Total revenue
Gross profit
Net income (loss)
Basic net income (loss) per share
Shares used in basic per share calculation
Diluted net income (loss) per share
Shares used in diluted per share calculation
Total revenue
Gross profit
Net income (loss) (1)
Basic net income (loss) per share (1)
Shares used in basic per share calculation
Diluted net income (loss) per share (1)
Shares used in diluted per share calculation
Three Months Ended
Jun 30, 2021
Sep 30, 2021 Dec 31, 2021
(in thousands, except per share amounts)
March 31,
2022
Total
$
$
$
$
$
35,101 $
10,230 $
2,510 $
0.08 $
30,860
0.08 $
31,290
36,510 $
10,788 $
3,659 $
0.12 $
31,031
0.12 $
31,288
30,714 $
7,641 $
1,102 $
0.04 $
31,085
0.04 $
31,235
22,058 $ 124,383
33,912
5,253 $
6,091
(1,180 ) $
(0.04 ) $
0.20
31,018
31,097
(0.04 ) $
0.19
31,295
31,097
Jun 30, 2020
Sep 30, 2020 Dec 31, 2020 Mar 31, 2021
Total
Three Months Ended
$
$
$
$
$
(in thousands, except per share amounts)
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 $
0.85
0.72 $
30,635
30,782
0.71 $
0.83
31,304
31,295
(1)
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.
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
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.
82
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, 2022, 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, 2022.
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, 2022, our internal control over financial reporting was
effective.
Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this Item 9A is contained in Item 8. Financial Statements and Supplementary Data of this
Annual Report on Form 10-K under the heading Report of Independent Registered Public Accounting Firm.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
83
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 2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end
of the fiscal year ended March 31, 2022.
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 2022 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2022.
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 2022
Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2022.
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 2022 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2022.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of
Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2022.
84
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.
85
EXHIBIT INDEX
86
Number
Exhibit Title
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.*v
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.*
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.*
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 1, 2021, is hereby
incorporated by reference.*
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.
87
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Executive Employment and Severance Agreement, effective as of November 11, 2021, between Orion Energy Systems, Inc.
and Michael H. Jenkins, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on November 4, 2021, is hereby incorporated
by reference.*
Amendment to Executive Employment and Severance Agreement, effective as of the third business day after the Company
publicly announces its financial results for its fiscal 2022 fourth quarter and year-end, between Orion Energy Systems, Inc.
and Michael W. Altschaefl, filed as Exhibit 10.1 to the Registrant's Form 8-K filed on February 22, 2022, is hereby
incorporated by reference.*
Restricted Stock Award Agreement, effective as of the third business day after the Company publicly announces its financial
results for its fiscal 2022 fourth quarter and year-end, between Orion Energy Systems, Inc. and Michael W. Altschaefl, filed
as Exhibit 10.3 to the Registrant's Form 8-K filed on February 22, 2022, is hereby incorporated by reference.*
Form of Executive Performance Share Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive
Plan.* +
Form of Non-Employee Director Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus
Incentive Plan. * +
Form of Executive Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems, Inc. 2016
Omnibus Incentive Plan. * +
Form of Non-Employee Director Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems, Inc.
2016 Omnibus Incentive Plan. * +
Form of Executive Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan.
* +
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 Inline XBRL Instance Document+
101.SCH Inline XBRL Taxonomy extension schema document+
101.CAL Inline XBRL Taxonomy extension calculation linkbase document+
101.DEF Inline XBRL Taxonomy extension definition linkbase document+
101.LAB Inline XBRL Taxonomy extension label linkbase document+
101.PRE Inline XBRL Taxonomy extension presentation linkbase document+
104
The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, has been
formatted in Inline XBRL
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 10, 2022.
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 10, 2022.
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/ 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
89
Executive Officers
Michael W. Altschaefl
Chief Executive Officer and Board Chair
Michael H. Jenkins
Executive Vice President and Chief Operating
Officer
John Per Brodin
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer
Scott A. Green
President, Orion Services Group
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
Alan B. Howe (1)
Managing Partner, Broadband Initiatives, LLC
Ellen B. Richstone (1a), (2), (3)
Director, National Association of Corporate Directors
(NACD‐New England), Cognition Therapeutics, Inc.,
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
NASDAQ Capital Market: OESX
2210 Woodland Drive, Manitowoc, WI 54220