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Orion Energy Systems Needs To Improve Its SG&A Expenses

Sep. 02, 2022 5:54 PM ETOrion Energy Systems, Inc. (OESX)4 Comments


  • OESX is a manufacturer of LED systems and engineer of lighting solutions for B2B customers.
  • The company's revenues and profits soared between 2019 and 2021 because of a big contract. Before that revenues had fell for almost 5 years.
  • Now, contracts are receding, and the company's revenues are falling fast. OESX has very high fixed SG&A expenses that make reaching profitability difficult unless revenues are unusually high.
  • Fortunately OESX only suffers from operational leverage but has no financial debts to worry about.
  • In my opinion, the company needs a strong shareholder that can improve SG&A expenses to make the company profitable at lower revenue levels.
Techo con luces brillantes en un moderno almacén, edificio de centro comercial, oficina u otro objeto de bienes raíces comerciales. Luces LED direccionales en rieles debajo del techo

Lari Bat/iStock via Getty Images

Orion Energy Systems (NASDAQ:OESX) is an American LED system manufacturer that offers complete LED retrofit solutions for B2B clients looking to improve their energy efficiency.

The company was operationally unprofitable for most of the past decade, including the start and abandonment

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Comments (4)

The sg&a comments are spot on, but misses one important structural flaw in the business. In the article it alludes to the one significant customer as a one time bubble and is tapering off, but fails to see that ALL customers are essentially one time customers. This is what I called a “go-get” business, meaning you have to go get the business every day. There is very little business that repeats from year to year. No recurring revenue. If it is a $100mln business today, it is a $0 business next year UNLESS you go get $100mln of new business. That is why SGA is needing to be high. To grow from $100mln to $120mln, you need to go get $120mln, not $20mln. So SGA needs to grow as well. Structurally this business can not sustain growth. The bigger it gets, the harder it becomes to grow marginal revenue. Until the Board listens to this and recognizes this, the stock will continue on its glide path down. The solution to the SGA problem is a sale to a larger player. There is no fix as a stand alone as reducing SGA will only accelerate its decline in sales. John S.
Tomas Andrade Campanini profile picture
@Jimmy Swanson Thanks for your comment! It is really instructive. I haven't considered how recurring revenues are and how that affects the SG&A structure. I will try to add that aspect in future articles.
ffnorth profile picture
Great job summing up the situation! I view this company as more of a civic pride scenario with a founder that has his ego and reputation at stake in a relatively small community and therefore profit is not the real motive. It looks a lot like Datronics (DAKT) in Sioux Falls to be honest. Ongoing profitability is not one of their primary goals. Kind of like owning a share in the Green Bay Packers football team. Yes, there is some potential here if they adopted standard business practices and addressed the SGA line item being out of control or not in line with sales. An activist would be helpful for sure. But the new outsider brought in as CEO may also be the catalyst to light a fire under Orion. We'll see very soon whether he is following the old playbook or is intent on making his own mark. I've initiated a position last month as a high-risk play.
I agree that this company is in desperate need of an activist. Management has no plan to grow revenues at an acceptable level and has no interest in bringing down its cost especially management compensation which is way too much given their low level talent .
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