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Orion Energy Systems Inc (OESX) |
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WIKI ANALYSIS
Company Overview
Orion Energy Systems, Inc. AMEX (OESX) manufactures, promotes, and installs, energy management systems, consisting of energy efficient lighting, controls, and other related services. Founded in 1996 by CEO Neal Verfuerth, with headquarters and manufacturing facilities in Manitowoc, Wisconsin. [1] Orion has since sold and installed over 5,600 energy management systems throughout North America, including 120 fortune 500 companies like, Anheuser-Bush Companies, Inc, Coca-Cola Enterprises Inc., General Electric Co., Kraft Foods Inc., Office Max Inc., Newell Rubbermaid Inc., Pepsi Americas, Inc., and SYSCO Corp.[2]
Products are engineered, manufactured, and sold directly from Orion headquarters, products include: HIF, InteLite, and Apollo Solar Light Pipe. All three energy conservation products complement one and other creating a full energy management system. Additional services Orion provides are site assessments, site field verification, utility incentive and government subsidy management, engineering design, project management, installation services, and recycling.
In the past ten years, Orion has been recognized and awarded over 17 times by various engineering, technology, and environmental organizations, including, most recently: Wisconsin Partners for Clean Air Award (2010), Plant Engineering Product of the Year Award Apollo® Solar Light Pipe (2008 Grand Award), and Platt’s Global Energy Award (2008). [3] After being acknowledged in President Barack Obama’s 2011 State of the Union Address, President Obama made a special trip to the Orion campus, commending Orion on its outstanding efforts in innovation and clean energy development. President Obama stated,
“Orion is a leader in solar power and energy-efficient technology, plus the plant is just very cool.” [4] The President went on to say that Orion is at the forefront of bringing the United States to 80% clean energy production by 2035.
Products
The Compact Modular
The Compact Modular is the largest contributor to Orion’s sales, and is also known as HIF. The HIFs operate on 224 watts per 6-lamp fixture, compared to substitutes who drain 465 watts per 6-lamp fixture. Orion’s Compact Modular has a thermal efficiency design, meaning the modular runs at a much lower temperature in comparison to HID fixtures. [2]
This equates to more efficient operations for the ballast and lamps, thus less energy is converted to heat and vibrations. Energy that is usually wasted is converted into more light. This reduction from heat output means a reduction in the cooling of customer facilities, which in turn reduces electricity costs, as the average commercial building uses 5-10% of their electricity to counter act the heat produced by inefficient lighting.
InteLite Wireless Controls
InteLite is a web based software program, used to communicate and control individual light fixtures. Customers are able to adjust their facilities energy usage from exterior locations. InteLite is designed to integrate, and enhance Orion’s Compact Modular product. [2]
Apollo Solar Light Pipe ®
Orion’s new Apollo Solar Light Pipe is also another enhancement to the Compact Modular and InteLite, completing the energy management system. ASLP collects and stores natural light outdoors, bringing it indoors for consumption, with zero electricity usage. Light collection periods, are generally the strongest during the morning and late afternoon hours, when the sun is at a more direct angle to the collection site. These collection times are conveniently during the hours of peak electricity prices, as utilities charger higher consumption rates during day time hours. [5]
Energy Management System
The combination of Orion’s three products makes up their Energy management System. The trio provides energy savings and efficiencies gained by commercial and industrial customers, without loss of quality in service of light. Orion sells their HIF lighting by promoting its ability to reduce electricity costs by 50%, and increase customers light quality by 50%.
Customers are believed to receive a two to three year return on investment, looking at electricity cost savings alone. This does not take into account additional savings from government subsidies and utility incentives. Cumulative electricity cost savings for customers were around $857 million, reducing base and peak load electricity demand by 527 megawatts, in the 2010 fiscal year, ending March 31, 2010. Orion estimates this reduces carbon dioxide emissions by 7.4 million tons. [2]
Manufacturing & Distribution
Orion has a 266,00 square foot manufacturing and distribution facility on their campus in Manitowoc, WI. Since 2005 they have invested in new equipment, expanded their workforce, increased production capabilities, and increased production capacity. Generally, all manufacturing and assembly is done in-house, with a few exceptions on a short-term basis only, when outsourcing small contracts. The recent investments provide Orion with a fourteen-day lag time, from place of order to customer receipt of order. [2]
Electricity Market
The United States electricity market is predicted to continue rising in demand, and there is increasing concern on how the electricity industry will meet this demand in the coming years. Recently, more and more concerns are rising in regards to fossil fuels. Greenhouse gas emissions and carbon dioxide levels are under high scrutiny. The current U.S. government is pushing the electricity industry to focus on how to wean off fossil fuels, and refocus on new energy efficient avenues.[2] [4]
Competitors
- Cooper Industries (CBE) manufactures, markets, and sells electrical products and services worldwide. Cooper has manufacturing facilities located in 21 countries, with U.S. operations as wholly owned subsidiaries. CI can be subdivided into two divisions, Energy and Safety Solutions and Electrical Products Group. They span across four consumer markets including: industrial, commercial, utility, and residential. Cooper produces a vast array of products including alarm systems, plugs, fuses, switches, wires, electrical power transistors, and distribution systems. While Cooper does not have direct products that compete with Orion’s head-to-head, Cooper’s Energy and Safety Solutions products provide the highest competition and threat to Orion. [6]
- ACUITY BRANDS (AYI) manufactures, markets, and sells lighting fixtures, control devices, components, systems, and services. Customers include: electrical distributors, retail home improvement centers, national accounts, electric utilities, municipalities, and lighting showrooms. Acuity has 8 manufacturing facilities in the U.S., 6 in Mexico, and 2 in Europe. In July 26, 2010 Acuity acquired Renaissance Lighting, Inc., which has since put them in direct competition with Orion. Renaissance brought their LED lighting products to Acuity’s product line. [7]
S.W.O.T.
Strengths
Orion is a well-positioned company, with a cohesive product line that only continues to strengthen the Orion brand. Customers have a return on their investments of 2-3 years, in energy savings alone. Their high payoff products are one of a kind. Competition is strong, but competitors have yet to produce a comparable product. One of Orion’s largest strengths is government legislation, and their push for renewable portfolio standards. President Obama continues to endorse and recognize Orion in the pursuit for clean energy. Additionally, Orion has 26 patents to their name, and another 23 pending.
Weakness
Orion has yet to move into the residential market. This is a major weakness, as both Acuity and Cooper Industries have been successful in entering and establishing a significant market share. Orion is also lacking in their ability to integrate with U.S. utility corporations. Perhaps Orion’s greatest weakness is their size. With only one manufacturing site, Orion can only grow so fast.
Opportunity
The U.S. government, utilities, and businesses are all looking for energy efficiencies. With cap-and-trade and renewable portfolio standards continually in the works, energy efficient operations are becoming an absolute. Currently, 48 states, less Alaska, West Virginia, and the District of Columbia, require some form of energy efficient programs, regulations, and subsidies. The green energy industry is a new and growing market, with room for vast exploration and capture. [2]
Threats
Both Cooper Industries and Acuity Brands have international presence, with much larger capital structures. Their ability to communicate and integrate with utilities is highly probable. Orion’s competitors’ brand recognition is a threat all on its own. With their brand recognition and their strong capital structures, both Cooper and Acuity could invest and begin competing directly with Orion’s energy management system. It also remains to be seen how competitive Acuity’s newly acquired Renaissance Lighting, Inc., and their LED lighting products will be with Orion.[7]
Porter's 5 Forces
Competition
Orion’s competition is at medium strength. Cooper Industries and Acuity do not have directly competing products with Orion, for this reason it evens competition slightly. At the current time, Orion has captured a niche market sector, that is essentially untapped by its competition.
Substitutes
Substitution goes back to Orion’s current competition. Both competitors do not have comparable products therefore substitution risk is low. However, if one is to compare Orion to its competitors on general lighting products alone, substitution is extremely high. Because Orion is a producer of energy efficient lighting, it is safe to say that substitution remains low.
Supplier Power
Orion’s supplier power is medium to low. All products, except for a few short-term contracts, are produced in house. However, Orion is purchasing various raw materials at much lower economies of scale.
Buyer Power
Buyer power is low, as Orion’s products are one of a kind. If corporations are looking to reduce their energy bills, or increase their clean energy usage, Orion is essentially their only option.
Barriers to Enter
It is extremely difficult to enter the electricity industry. A new entrant would have to compete against Acuity and Coopers large economies of scale, not to mention attempt to capture some of their market share. Production advantages already exist in great expertise between Acuity, Cooper, and Orion. Orion the smallest of the three, hold 26 patents and another 23 patents are still pending.
Financials
Orion’s 2010 gross profit margin is somewhat equal with competitors, while not as impressive as Acuity Brands 40.66% gross profit margin, but only 0.5% less than Cooper Industries. Operating margins are also competitive; Orion is less than 1% lower than Acuity’s operating margin. However, Orion’s net profit margin is a concern, dropping to a -6.40%. [8] [9] Orion had an increase in general and administration expense from $10,451,000 in 2009 to $12,836,000 in 2010, an increase of $2,385,000. [2] Orion also incurred an increase of $1,335,000 in sales and marketing expenses from 2009 to 2010. These are two plausible reasons for the negative net profit margin. Currently, this is not necessarily a great concern, as long as the negative return stays short-term. Because Orion is a young company, who is working to increase brand recognition and pulling customers from their big competitors, it is safe to say that these expense increases are incurring to expand Orion’s market share.
| 2010 Results | OESX | AYI | CBE |
| Revenues | $65,418,000 | $1,626,900,000 | $5,065,900,000 |
| Gross Profit Margin | 32.90% | 40.66% | 33.27% |
| Operating Margin | 8.86% | 9.69% | 11.44% |
| Net Profit Margin | -6.40% | 4.89% | 8.76% |
| Current Ratio | 5.56 | 1.95 | 2.43 |
| Inventory Turnover | 2.52 | 10.92 | 11.54 |
| ROA | -4.04% | 5.29% | 6.66% |
| Return on Equity | -1.59% | 12.83% | 14.39% |
| Market Cap | 84.43M | 2.48 B | 10.92B |
It is clear from this graph that Orion peaked in 2008, revenues hitting an all time high of $80,687,000. Since then demand has decreased, with a $15,000,000 drop in profits over the past two years, all while expenses continue to increase at a stead rate. [2]
With a high current ratio of 5.56, a strong ratio, and high compared to Cooper Industries with a 2.43 current ratio, and Acuity Brands at a mere 1.95. A strong current ratio equates to efficient operations, and the ability for a corporation to turn their short-term debt into cash. Orion is well positioned against its short-term debt. [2] [8] [9]
| ORION | 2009 | 2010 | % Change |
| Total revenue | 72,634 | 65,418 | 9.93% |
| Net income (loss) | 511 | -4,190 | 919.96% |
Orion has an extremely low inventory turnover, 2.52, when compared to Acuity’s 10.92 and Coopers 11.54. This may seem alarming, however we must consider the size of Orion. With only one manufacturing facility and a small market share, Orion will always have a lower turnover rate. One concern is however, an increase in Orion’s net inventories from 2009-2010 of $19,582,000 to $25,991,000, a $6,409,000 increase in inventory. Holding excess inventory like this can become a high risk for Orion. [2] [8] [9]
Orion’s low return on equity has contributed to their low market capitalization of $84.43 million. Revenues have dropped by 9.93% from 2009 to 2010. Since 2008, an all time high in profits for Orion, has dropped from $4,410,000 to $511,000 in 2009 and to ($4,190,000). Net loss form 2009 to 2010 was a 919.96% drop. ref name=10KOrion />
References
- ↑ “Orion’s Story”
- ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 "Orion 10-K 2010 Financial Results"
- ↑ “Orion Awards”
- ↑ 4.0 4.1 “President Obama Speaks to Orion”
- ↑ “Reuters Orion Overview”
- ↑ "Reuters: Cooper Industries"
- ↑ 7.0 7.1 "Reuters: Acuity Brands, Inc."
- ↑ 8.0 8.1 8.2 8.3 “Cooper Industries 2010 Financial Resurlts”
- ↑ 9.0 9.1 9.2 9.3 “Acuity Brands, Inc. 2010 Financial Results”
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