Orion adopted ASC 606 and ASC 340-40 (the “new standards”) as of April 1, 2018 for contracts with customers that were not fully complete as of April 1, 2018 using the modified retrospective transition method. The cumulative effect of initially applying the new standards was recorded as a $0.4 million adjustment to the opening balance of retained deficit within Orion’s Consolidated Statement of Shareholders’ Equity.

The new standards are applied separately for each contract between Orion and a customer. While the impact of the new standards vary for each contract based on its specific terms, in general, the new standards result in Orion (a) delaying the recognition of some of its Product revenue from the point of shipment until a later date during the installation period, (b) recording Service revenue associated with installing lighting fixtures as such fixtures are installed instead of recording all Service revenue at the completion of the installation, and (c) recording costs associated with installing lighting fixtures as they are incurred instead of deferring such costs and recognizing them at the time Service revenue was recorded.

The adoption of the new standards also resulted in reclassifications (a) between Product revenue and Service revenue, and between Cost of service revenue and Sales and marketing expenses in Orion’s Consolidated Statements of Operations, and (b) between Accounts receivable, net, Revenue earned but not billed, Inventories, net, Deferred contract costs, Prepaid expenses and other current assets, Accounts payable, Accrued expenses and other, Deferred revenue, current, Deferred revenue, long-term, and Other long-term liabilities in Orion’s Consolidated Balance Sheets.

For all adjustments and changes as a result of adopting the new standards for the current period, refer to the section “Impacts on Financial Statements” below. In accordance with the modified retrospective transition method, the historical information within Orion’s financial statements has not been restated and continues to be reported under the accounting standard in effect for those periods. As a result, Orion has disclosed the accounting policies in effect prior to April 1, 2018, as well as the policies applied starting April 1, 2018.

See Note 2, Summary of Significant Accounting Policies for a discussion of Orion’s accounting policies in effect prior to April 1, 2018, as well as the policies applied starting April 1, 2018 in regards to revenue recognition.

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 5, Inventories, Net. Costs associated with installation sales are expensed as incurred.

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 2019, Product revenue included $3.4 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.

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 16, 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, 2019 (dollars in thousands):

	Year Ended March 31, 2019
	Product		Services		Total
Revenue from contracts with customers:
Lighting revenues, by end user
Federal government	$	2,579	$	642	$	3,221
Commercial and industrial		49,963		8,851		58,814
Total lighting		52,542		9,493		62,035
Solar energy related revenues		57		—		57
Total revenues from contracts with customers		52,599		9,493		62,092
Revenue accounted for under other guidance		3,662		—		3,662
Total revenue	$	56,261	$	9,493	$	65,754

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.

Turnkey projects where the end-user is a commercial or industrial company typically span between two weeks 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.

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 ASC 840, "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, 2019 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 Other long-term assets in Orion’s Consolidated Balance Sheets.

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, 2019 was $6.9 million. Orion’s losses on these sales aggregated to $0.3 million for the twelve months ended March 31, 2019 and is included in Interest expense in the Consolidated Statements of Operations.

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 has also adopted the practical expedient that provides an exemption to the disclosure requirement of the value assigned to performance obligations associated with contracts that were not complete as of April 1, 2018.

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.

A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.

Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of March 31, 2019 and April 1, 2018 includes $0.7 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, 2019, included $48 thousand of contract liabilities which represented consideration received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.

Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liability as defined by the new standards.

The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of March 31, 2019, and April 1, 2018, after the adoption of the new standards (dollars in thousands):

There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon billing. There were no significant changes to contract liabilities.

	As Reported March 31, 2019			Adjustments			Balances without application of ASC 606 As of March 31, 2019
Assets
Cash and cash equivalents	$	8,729		$	—		$	8,729
Accounts receivable, net		14,804			(67	)		14,737
Revenue earned but not billed		3,746			(3,746	)		—
Inventories, net		13,403			(351	)		13,052
Deferred contract costs		0			396			396
Prepaid expenses and other current assets		695			3,419			4,114
Total current assets		41,377			(349	)		41,028
Property and equipment, net		12,010			—			12,010
Other intangible assets, net		2,469			—			2,469
Other long-term assets		165			—			165
Total assets	$	56,021		$	(349	)	$	55,672
Liabilities and Shareholders’ Equity
Accounts payable	$	19,706		$	987		$	20,693
Accrued expenses and other		7,410			(1,193	)		6,217
Deferred revenue, current		123			51			174
Current maturities of long-term debt		96			—			96
Total current liabilities		27,335			(155	)		27,180
Revolving credit facility		9,202			—			9,202
Long-term debt, less current maturities		81			—			81
Deferred revenue, long-term		791			104			895
Other long-term liabilities		642			(104	)		538
Total liabilities		38,051			(155	)		37,896
Commitments and contingencies
Shareholders’ equity:
Preferred stock		—			—			—
Common stock		—			—			—
Additional paid-in capital		155,828			—			155,828
Treasury stock		(36,091	)		—			(36,091	)
Retained deficit		(101,767	)		(194	)		(101,961	)
Total shareholders’ equity		17,970			(194	)		17,776
Total liabilities and shareholders’ equity	$	56,021		$	(349	)	$	55,672

	Year Ended March 31, 2019 (in thousands)
	As Reported			Adjustments			Balances without application of ASC 606
Product revenue	$	56,261		$	2,191		$	58,452
Service revenue		9,493			(2,143	)		7,350
Total revenue		65,754			48			65,802
Cost of product revenue		44,111			1			44,112
Cost of service revenue		7,091			(1,472	)		5,619
Total cost of revenue		51,202			(1,471	)		49,731
Gross profit		14,552			1,519			16,071
Operating expenses:
General and administrative		10,231			—			10,231
Sales and marketing		9,104			1,459			10,563
Research and development		1,374			—			1,374
Total operating expenses		20,709			1,459			22,168
Loss from operations		(6,157	)		60			(6,097	)
Other income (expense):
Other income		80			—			80
Interest expense		(493	)		19			(474	)
Amortization of debt issue costs		(101	)					(101	)
Interest income		11			—			11
Total other expense		(503	)		19			(484	)
Loss before income tax		(6,660	)		79			(6,581	)
Income tax expense		14			—			14
Net loss	$	(6,674	)	$	79		$	(6,595	)

	Year Ended March 31, 2019 (in thousands)
	As Reported			Adjustments			Balances without application of ASC 606
Operating activities
Net loss	$	(6,674	)	$	79		$	(6,595	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,339			—			1,339
Amortization of intangible assets		444			—			444
Stock-based compensation		825			—			825
Amortization of debt issue costs		101			—			101
Provision for inventory reserves		(202	)		—			(202	)
Provision for bad debts		56			—			56
Other		57			—			57
Changes in operating assets and liabilities:
Accounts receivable		(5,840	)		(217	)		(6,057	)
Revenue earned but not billed		(1,390	)		1,390			—
Inventories		(4,689	)		(335	)		(5,024	)
Deferred contract costs		0			599			599
Prepaid expenses and other assets		68			(1,512	)		(1,444	)
Accounts payable		8,916			102			9,018
Accrued expenses and other		1,975			84			2,059
Deferred revenue, current and long-term		(44	)		(190	)		(234	)
Net cash used in operating activities		(5,058	)		—			(5,058	)
Investing activities
Purchases of property and equipment		(381	)		—			(381	)
Additions to patents and licenses		(68	)		—			(68	)
Net cash used in investing activities		(449	)		—			(449	)
Financing activities
Payment of long-term debt		(80	)		—			(80	)
Proceeds from revolving credit facility		60,270			—			60,270
Payment of revolving credit facility		(54,976	)		—			(54,976	)
Payments to settle employee tax withholdings on stock-based compensation		(10	)		—			(10	)
Debt issue costs		(396	)		—			(396	)
Net proceeds from employee equity exercises		4			—			4
Net cash used in financing activities		4,812			—			4,812
Net decrease in cash and cash equivalents		(695	)		—			(695	)
Cash and cash equivalents at beginning of period		9,424			—			9,424
Cash and cash equivalents at end of period	$	8,729		$	—		$	8,729