Orion Energy Systems Inc. (OESX, Financial) filed Quarterly Report for the period ended 2011-09-30.
Orion Energy Systems Inc. has a market cap of $61.4 million; its shares were traded at around $2.67 with a P/E ratio of 38.2 and P/S ratio of 0.7.
Cost of Revenue and Gross Margin. Our cost of product revenue increased from $9.7 million for the fiscal 2011 second quarter to $12.1 million for the fiscal 2012 second quarter, an increase of $2.4 million, or 25%. Our cost of service revenue decreased from $0.5 million for the fiscal 2011 second quarter to $0.4 million for the fiscal 2012 second quarter, a decrease of $0.1 million, or 20%. Total gross margin was 35.4% for the fiscal 2011 second quarter and fiscal 2012 second quarters, respectively. Total cost of product revenue increased from $20.1 million for the fiscal 2011 first half to $27.1 million for the fiscal 2012 first half, an increase of $7.0 million, or 35%. Our cost of service revenue decreased from $1.4 million for the fiscal 2011 first half to $1.1 million for the fiscal 2012 first half, a decrease of $0.3 million, or 21%. Total gross margin decreased from 34.6% for the fiscal 2011 first half to 33.0% for the fiscal 2012 first half. For the fiscal 2012 first half, our gross margin declined due to a higher mix of renewable product and service revenues from our Orion Engineered Systems Division. Our gross margin on renewable revenues was 14.7% during the fiscal 2012 first half. Gross margin from our HIF integrated systems revenue for the fiscal 2012 first half was 36.9%.
Sales and Marketing. Our sales and marketing expenses increased from $3.3 million for the fiscal 2011 second quarter to $3.7 million for the fiscal 2012 second quarter, an increase of $0.4 million, or 12%. Our sales and marketing expenses increased from $6.9 million for the fiscal 2011 first half to $7.5 million for the fiscal 2012 first half, an increase of $0.6 million, or 9%. The increase was a result of increased costs for headcount additions to our direct sales force and for our newly formed telemarketing department, higher commission expense on our increased revenue and increased depreciation for our new customer relationship management, or CRM, system. Total sales and marketing employee headcount was 79 and 93 at September 30, 2010 and September 30, 2011, respectively.
Income Taxes. Our income tax benefit decreased from a benefit of $1.7 million for the fiscal 2011 second quarter to an income tax benefit of $0.1 million for the fiscal 2012 second quarter, a decrease of $1.6 million, or 94%. Our income tax benefit decreased from a benefit of $2.5 million for the fiscal 2011 first half to an income tax benefit of $0.2 million for the fiscal 2012 first half, a decrease of $2.3 million, or 92%. Our effective income tax rate for the fiscal 2011 first half was 100.2%, compared to 40.3% for the fiscal 2012 first half. The change in effective rate was due to the conversion of our incentive stock options, or ISOs, to non-qualified stock options, or NQSOs, completed during the fourth quarter of fiscal 2011, a decrease from the prior year for non-deductible expenses and an increase in fiscal 2011 for the state valuation reserve. The conversion of our ISOs to NQSOs eliminated the volatility in our effective tax rates at lower pre-tax earnings levels and should result in an effective tax rate in the 40% range for future periods.
In September 2011, we entered into a credit agreement with JP Morgan that provided us with $5.0 million immediately available to fund completed customer contracts under our OTA finance program and an additional $5.0 million upon our achievement of meeting a trailing 12-month earnings before interest, taxes, depreciation and amortization (EBITDA) target of $8.0 million. We have one-year from the date of the commitment to borrow under the credit agreement. In September 2011, we borrowed $1.8 million. The borrowing is collateralized by the OTA-related equipment and the expected future monthly payments under the supporting 27 individual OTA customer contracts. The current borrowing under the credit agreement bears interest at LIBOR plus 4% and matures in September 2016. The credit agreement includes certain financial covenants, including funded debt to EBITDA and debt service coverage ratios. We were in compliance with all covenants in the credit agreement as of September 30, 2011.
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Orion Energy Systems Inc. has a market cap of $61.4 million; its shares were traded at around $2.67 with a P/E ratio of 38.2 and P/S ratio of 0.7.
Highlight of Business Operations:
Revenue. Product revenue increased from $15.1 million for the fiscal 2011 second quarter to $18.7 million for the fiscal 2012 second quarter, an increase of $3.6 million, or 24%. The increase in product revenue was a result of increased sales of our HIF lighting systems and renewable energy systems. Service revenue decreased from $0.8 million for the fiscal 2011 second quarter to $0.5 million for the fiscal 2012 second quarter, a decrease of $0.3 million, or 38%. The decrease in service revenues was a result of the continued percentage increase of our total revenues generated by our wholesale channels, where our services are not provided. Total revenue from renewable energy systems was $2.0 million for the fiscal 2012 second quarter compared to none for the fiscal 2011 second quarter. Product revenue increased from $30.8 million for the fiscal 2011 first half to $40.4 million for the fiscal 2012 first half, an increase of $9.6 million, or 31%. Total revenue from renewable energy systems was $7.4 million for the fiscal 2012 first half compared to $0.4 million for the fiscal 2011 first half, an increase of $7.0 million, or 1,750%. Service revenue decreased from $2.0 million for the fiscal 2011 first half to $1.6 million for the fiscal 2012 first half, a decrease of $0.4 million, or 20%. The decrease in service revenue was a result of the continued percentage increase of total revenue to our wholesale channels where services are not provided.Cost of Revenue and Gross Margin. Our cost of product revenue increased from $9.7 million for the fiscal 2011 second quarter to $12.1 million for the fiscal 2012 second quarter, an increase of $2.4 million, or 25%. Our cost of service revenue decreased from $0.5 million for the fiscal 2011 second quarter to $0.4 million for the fiscal 2012 second quarter, a decrease of $0.1 million, or 20%. Total gross margin was 35.4% for the fiscal 2011 second quarter and fiscal 2012 second quarters, respectively. Total cost of product revenue increased from $20.1 million for the fiscal 2011 first half to $27.1 million for the fiscal 2012 first half, an increase of $7.0 million, or 35%. Our cost of service revenue decreased from $1.4 million for the fiscal 2011 first half to $1.1 million for the fiscal 2012 first half, a decrease of $0.3 million, or 21%. Total gross margin decreased from 34.6% for the fiscal 2011 first half to 33.0% for the fiscal 2012 first half. For the fiscal 2012 first half, our gross margin declined due to a higher mix of renewable product and service revenues from our Orion Engineered Systems Division. Our gross margin on renewable revenues was 14.7% during the fiscal 2012 first half. Gross margin from our HIF integrated systems revenue for the fiscal 2012 first half was 36.9%.
Sales and Marketing. Our sales and marketing expenses increased from $3.3 million for the fiscal 2011 second quarter to $3.7 million for the fiscal 2012 second quarter, an increase of $0.4 million, or 12%. Our sales and marketing expenses increased from $6.9 million for the fiscal 2011 first half to $7.5 million for the fiscal 2012 first half, an increase of $0.6 million, or 9%. The increase was a result of increased costs for headcount additions to our direct sales force and for our newly formed telemarketing department, higher commission expense on our increased revenue and increased depreciation for our new customer relationship management, or CRM, system. Total sales and marketing employee headcount was 79 and 93 at September 30, 2010 and September 30, 2011, respectively.
Income Taxes. Our income tax benefit decreased from a benefit of $1.7 million for the fiscal 2011 second quarter to an income tax benefit of $0.1 million for the fiscal 2012 second quarter, a decrease of $1.6 million, or 94%. Our income tax benefit decreased from a benefit of $2.5 million for the fiscal 2011 first half to an income tax benefit of $0.2 million for the fiscal 2012 first half, a decrease of $2.3 million, or 92%. Our effective income tax rate for the fiscal 2011 first half was 100.2%, compared to 40.3% for the fiscal 2012 first half. The change in effective rate was due to the conversion of our incentive stock options, or ISOs, to non-qualified stock options, or NQSOs, completed during the fourth quarter of fiscal 2011, a decrease from the prior year for non-deductible expenses and an increase in fiscal 2011 for the state valuation reserve. The conversion of our ISOs to NQSOs eliminated the volatility in our effective tax rates at lower pre-tax earnings levels and should result in an effective tax rate in the 40% range for future periods.
In September 2011, we entered into a credit agreement with JP Morgan that provided us with $5.0 million immediately available to fund completed customer contracts under our OTA finance program and an additional $5.0 million upon our achievement of meeting a trailing 12-month earnings before interest, taxes, depreciation and amortization (EBITDA) target of $8.0 million. We have one-year from the date of the commitment to borrow under the credit agreement. In September 2011, we borrowed $1.8 million. The borrowing is collateralized by the OTA-related equipment and the expected future monthly payments under the supporting 27 individual OTA customer contracts. The current borrowing under the credit agreement bears interest at LIBOR plus 4% and matures in September 2016. The credit agreement includes certain financial covenants, including funded debt to EBITDA and debt service coverage ratios. We were in compliance with all covenants in the credit agreement as of September 30, 2011.
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