Q4 2020 Orion Energy Systems Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Orion energy full year, 2024th quarter Conference call.
At this time, all participants' lines are in listen only mode.
Later, we'll conduct a question and answer session and instructions will be given at that time.
As a reminder, today's conference is being recorded.
Now, let's turn the call over to Bill.
Sure you may begin.
First you and good morning.
Nine CEO, Mike all truthful open today's call with an update on current events.
It's comforting some highlights and review the company's business strategies.
Ryan CFO Phil.
Then review some additional financial items, we will open the calls question.
Archived replay of this call will be available later today sitting Investor Relations section overruns corporate website.
Dot com.
It's called taking place on Thursday June 420 Corning.
Mark the fall and answers to questions and crew statements as a company believes to be forward looking within the meaning of the private Securities Litigation Reform Act of 90 95.
Forward looking statements. What's your word circuits believes anticipates expects, we're words with similar imports.
Likewise statement squirts future plans objectives portfolio are also.
Great.
These forward looking statements are subject to risks.
Current actual results to be materially different than anticipated.
Those risks include among other matters that the company has described this press release issued this morning, I mean, its filings with the securities and experience.
Except as described in these filings.
Disclaims any obligation to update forward looking statements.
With that let me turn the call over March.
Thanks, Bill Good morning, everyone and thank you for joining today's call to review a truly transformational year for our company.
First I want to thank the entire Orion team for their hard work and dedication over the past 15 months first helping us to achieve record results for fiscal 2020.
And then working together in recent months as we continue to navigate the cold the 19th pandemic.
I will begin today's call, providing an overview of how Orion has been managing through the cold with 19 pandemic.
Our primary concern has been and we'll continue to be the safety and well being up our people our customers and our suppliers.
Ryan has implemented numerous safety precautions or protocols to address the related risks. These measures continue to change and evolve as more information becomes available.
We have been adversely impacted by the actions taken by various government entities to control the spread of cold 19 academic beginning in March.
Like most companies are near term business prospects have been substantially impacted by actions being taken across North America to control the spread of the global Cobot 19 pandemic.
Since we were designated in a central business, our U.S. based manufacturing operations were allowed to remain open.
We also took steps beginning in early in our fourth quarter to firm up our supply chain.
These actions were successful, allowing us to meet our promise to our customers to deliver product on a timely basis.
Nonetheless, we experienced weaker curtailment of activity in the last few weeks about fiscal year.
Existing and new potential customers are delaying postponing or change your project for a range of reasons, including travel restrictions and mandated work stoppages capex spending freezes financial constraints strategy updates and in some cases, where business activity has escalated to avoid possible disruptions.
As a result.
Approximately 5 billion a previously anticipated fiscal 2020 product and service revenues were put on hold as was the launch of multiple other projects, including those with new National accounts, most of which are now expected to result in revenue in fiscal 2021 in fiscal 2022.
We also took proactive steps to reduce our overhead and operating costs.
These cost reductions resulted in one time charges totaling approximately 400000 in Q4 fiscal 2020 and were substantially implemented by the start of our fiscal 2021.
Turning to our business progress in fiscal 2020, I'm extremely proud of what our company was able to accomplish by focusing on our key areas of strength, the competitive advantages and how well our strategy is resonating with customers.
<unk> Ryan's fiscal 2020 revenue grew 129%, Steve just over 150 million and we were successful in expanding our gross margin to 24.6% from 22.1% last year.
At the same time through continued expense management and discipline, we were able to leverage our costs, resulting in significant improvements in profitability cash flow and our year end financial position.
We achieved record profitability in fiscal 2020 with full year net income of 12.5 million or 40 cents per diluted share compared to a net loss of 6.7 million or 23 cents per share in fiscal 2019 and improvement of over 19 million.
As anticipated our fiscal 2020 results demonstrate the financial leverage of our business as we build scale.
Our fiscal 2020 performance was largely driven by strength in our national accounts business and in particular the contribution from an ongoing turnkey design build install led lighting system and controls project for a major national account.
This project underscores one of our major areas of business focus fully leveraging the integrated set of capabilities that are Ryan it's developed to execute large national scale projects.
Capabilities that are unique in our industry.
Specifically, our turnkey solutions include an in depth ongoing dialogue regarding customer needs and objectives into individual lighting and energy audit said each customer site.
Custom engineering and product designed to achieve specific customer goals with rapid order production to be a U.S. based manufacturing on time delivery complete installation management of lighting systems and controls and overall project management.
Customers with extensive national operations appreciate the value inefficiency of centralizing their led lighting retrofit process with one point of contact.
The also value orion's proven commitment to the high levels of customer service.
Putting on time delivery high quality components industry, leading energy efficiency as well as our ability to incorporate a wide range of technology not only for lighting controls, but also aiotv data systems, which together provide a very strong a compelling product offering and attractive ROI.
Our success Im still still 2020 with our major national account customer demonstrates our ability to provide turnkey project services of a significant scale on a national basis.
In January we announced that we were awarded approximately 18 to 20 million of additional business that we originally anticipated to complete during Q4 fiscal 2020 in Q1 fiscal 2021.
This was expected to be approximately 130 locations.
After completing approximately 30 locations through bid March fiscal 2020.
Project was temporarily suspended by our customer due to the coal that 19 situation.
Cumulatively through March 31, 2020, we have completed approximately 880 locations and provided certain other products and services to this customer resulting in total revenues of approximately 125.4 billion.
Total revenues during fiscal 2020 for this customer were approximately 111.8 million.
In addition to the temporarily suspended 100 patients under contract.
We estimate that our customer has approximately 500 additional locations remaining.
We generally expect the remaining approximately 600 locations to be retrofitted during Q4 fiscal 2021 and throughout fiscal 2022.
We also expect to provide additional products and services.
To this customer.
Next I will provide an overview of our business in our strategic direction.
Ryan provides led lighting systems, and turnkey project implementation, including installation and commissioning of fixtures controls and I O T systems ongoing system maintenance and program management, helping customers to digitize their business and reduce their carbon footprint.
Alright currently has three pads to the market.
The first is the Orion engineered systems channel, where we focus on deepening our penetration of large national accounts with turnkey led lighting it controls solutions customized for each customers unique needs.
Industrial led lighting systems penetrating less than 25% of the total market the opportunities still many billions of dollars, thus, providing a very ample runway for orion's growth.
Our confidence is borne out in our success advancing opportunities, particularly in the areas of large national retailers distribution centers logistics companies and public sector entities.
For example in February we secured a 4.8 billion dollar project for warehouse and distribution facilities under new construction for a global online retailer.
Having recently completed the initial scope. The project has been extended two additional facilities increasing the current project size to over 6 million with significant long term growth potential from this new customer relationship.
We also expect to see additional opportunities with long standing public sector customers, including the U.S. military veterans administration in the U.S postal service it with new opportunities in the logistics sector, principally in support of ecommerce related facilities.
Our second path to the market is the U.S. markets channel, which primarily cells to energy service companies or Escos.
Our ESCO channel achieved solid revenue growth in fiscal 2020 over the prior year and we continue to believe this channel will provide significant long term opportunities for us.
The ESCO orientation toward delivering energy savings for their customers is well aligned with the rights focus on energy efficiency and quality initiatives to reduce long term cost of ownership. We saw the benefit of these relationships in our fiscal 2020 results.
Our third passed to the market is the Orion distribution services channel, which sells through manufacturer representative agencies in a network of broad line North American distributors.
During fiscal 2020.
We experienced some challenges in this agent driven distribution channel, which had a revenue decline in fiscal 2020 versus the prior year.
However, we.
We are confident that this channel will be a source of growth.
Last fall, we migrated to a hybrid approach to selling in this channel, where we work more directly with distributors and electrical contractors in partnership with our rep agencies and it is showing much promise.
Having competitively priced product that is available for timely shipment is also putting us in a strong competitive position.
In addition, we're now getting traction, bringing our technical expertise and turnkey services through this channel again working closely with our rep agencies.
In fiscal 2021.
We are launching a fourth path to the market.
Ryan maintenance services, where we will provide lighting and electrical maintenance and other services, specifically targeted to large national customers utilizing our turnkey one point of contact approach.
Underscoring our services capabilities is at 37.5 million or approximately 25% of our fiscal 2020 revenue was derived from services, thus far prince principally for installations completed within our design build installed retrofit programs.
Our existing customers have experienced our ability to very effectively managed projects and we view this as a natural extension of our business along with the opportunity to build significant recurring revenue streams.
We have made some initial progress providing lighting and electrical maintenance services to our national accounts.
We have also hired a senior leader with significant recurring maintenance services experience to build our a ride maintenance services business.
We will have more to say about this business in future quarters as activities develop.
I will now turn to an overview of our strategic direction.
Ryan's strategic direction has five initiatives.
First we will focus on larger opportunities in all four of our market channels.
Our turnkey project and program management capabilities are our most valued differentiators in the marketplace. We have strong credentials and have the people systems and processes in place to be successful.
In addition, there remains significant market opportunity.
Second.
We will build our new Orion maintenance services Division, we have strong credentials in place it provides us with the opportunity to build significant recurring revenue streams with the possibility of multiyear contracts.
Third we will expand our smart controls and aiotv capabilities, enabling a path to digit station for our customers.
We are well positioned to own the entire system, including facility audits system design engineering installation of lighting fixtures and controls commissioning controls integrating aiotv technology linking lighting energy management and operational controls into management dashboard systems.
And providing ongoing service.
We are positioning a ride free leadership role in the substantial long term growth, we anticipate from the increased digitization of business via Aiotv systems.
To accomplish this goal, we're combining our lighting and electrical systems knowledge in our service an installation capabilities to complement the growing array of technology driven systems being developed to enhance efficiency safety and overall business performance.
Ryan I O T experience.
And then expertise should provide increased value while further differentiating our company as customers look to deploy aiotv applications, along with energy efficiency initiatives.
In this role we intend to remain technology agnostic and qualified to work with many of the leading Aiotv solutions in the market.
We believe this strategy is a competitive advantage as our customers can utilize different technologies at different locations, where they may have a specific solution preference or where they simply seek and impartial introduction to possible new solutions.
We have the opportunity to own the sealing technology landscape.
We can play a vital role in supporting our customers as they navigate the path to digitize the operational information of their companies.
Fourth we will expand our current successful new product development to focus on developing high margin niche products.
We recently launched our new Harris Star line led high Bay fixture, which is based on some tremendous work in innovation on the part of our engineering and design teams.
This product is targeted at our largest market segment of industrial and other other high Bay applications.
Star line is very competitive in price, while also delivering a substantial improvement in energy efficiency and other features versus competitive product.
Addition, it as Manny manufactured in our U.S. based operations.
Given its performance and features the Star line has received very positive responses and we think it could be up big winner for us.
We're also excited about the potential of our new IP rate. It round Harris Ltd, you will fall high Bay fixture.
It is a cost effective and efficient fixture, providing an excellent choice to customers that prefer a round hi be fixture.
Due to the unfortunate cobot 19th situation, we are relaunching, our lead the retrofit fixtures incorporating violent white light technology to combat bacteria fungus mold and Bill do you.
Used for high traffic areas, such as schools healthcare food service and fitness facilities as well as in other high risk public spaces.
Our fixtures Combiner rides bright text anti microbial fixture coating with violent white light in the 400 to 430 nanometer wavelengths.
This product is available today, and we are experiencing significantly increased interest from the market.
We're also beginning to work on incorporating ultraviolet light into some of our products.
Certain you'd be light has been shown to kill bacteria into inactivate viruses. In addition, we are working with a business partner to incorporate you'd be technology into an air movement product.
While these initiatives will take some time, we see great potential.
Given rising customer focus on environmental dangers health risks and the desire to provide safe work environments in their facilities. We think these solutions are well positioned to me, but we believe will be strong market interest.
Finally, another product category and our new product development roadmap is horticultural lighting.
We expect the market potential for vertical farming and other horticultural lighting opportunities to grow significantly.
The fifth and final initiative of our strategic direction results from our recent success in our current market conditions.
In addition to organically expanding the nature in scope of our products and services offered to our customers. We are actively exploring potential business acquisitions, which would more quickly add expanded different capabilities to our product and services offerings.
We believe the current business climate in our industry could create attractive acquisition opportunities.
Finally, I will touch on our financial performance from a high level.
In fiscal 2020, even with the Cobot 19 revenue impact discussed earlier, we achieved the lower end of our revenue goal of 150 to 155 billion, along with EBITDA of 14.7 million or 9%, 0.7% of revenue substantial improvements over the prior year.
Our EBITDA margin was slightly below our 10% goal largely due to the impact of cobot 19 related project delays that occurred starting in March.
We estimate approximately 5 billion in product and service revenue slated for the fourth quarter fiscal 2020 was deferred and is now likely to be completed in the second half of fiscal 2021.
We also incurred approximately 400000 of onetime costs for overhead and operating cost reduction initiatives in the fourth quarter fiscal 2020, as we've made proactive expense reductions to adjust or operations for the expected business impact of the pandemic.
Excluding these impacts our revenues would have been at the high end, where exceeded our revenue goal and we would have achieved our EBITDA margin goal for fiscal 2020.
Under normal circumstances, the timing of customer activity is subject to sudden changes that can impact the quarter or you're you're into which revenues fall.
Until the economy fully reopens and our customers can return to a more normal state of operations. He will be even more difficult to provide visibility on our expected financial performance.
Based on our recent customer discussions in our market intelligence. We currently anticipate that our revenue will build on a sequential basis through fiscal 2021 from a very challenging first quarter as customer activity moves toward more normalized levels over the course of the year.
We also anticipate the likelihood of operating losses in the first and second quarters, but remain optimistic that our business would return to profitability in the third or fourth quarter.
Much more importantly, we believe that a ride is very well positioned for fiscal 2022 financial results to be at least at the levels achieved in fiscal 2020.
With that overview, let me turn the call over to Bill Hall for additional financial perspective on our fourth quarter fiscal 2020 results.
Thank you Mike.
Clients fourth quarter revenue increased 15% 25.9 million compared to 22.4 million in Q4 2019.
It's primarily due to increased product sales and services related to turnkey L.D. lighting controls installations.
And your national account customer.
Product revenue rose, 9% to 19.6 million and service revenue increased 39% to 6.3 million.
Fourth quarter gross margin increased to 22.3% compared to 19.5 person in Q4 2019.
It was below our Q3 of 2020 gross margin 24.2%.
Q4, 20 gross margin was positively impacted by revenue mix and volume compared to Q4 2019 declined versus.
Third quarter, mainly due to the margin impact.
Lower revenue relative to our fixed manufacturing costs.
Operating expenses were 6.1 million in Q4 of 20 compared to 5.8 million third quarter 5.19 in the fourth quarter 2019.
The year over year increase reflects higher sales and marketing expenses, including increased commissions based on higher sales volume.
Reflecting higher revenue.
Higher gross profit in operating leverage Lyons fourth quarter net loss improved.
Half a million or two cents per share versus a net loss of 900003 cents per share in Q4 19.
For the full year, a lions revenue rose, 129% to 150.8 million.
Compared to fiscal 2019.
Also primarily due to the increase in national account retrofit activity.
In fiscal 2020, net income improved to 12.5 million or 40 cents per diluted share versus a loss of 6.7 million was 23 cents per share in fiscal 2019.
Ryan generated EBITDA of 14.7 million in fiscal 2020 compared to an EBITDA loss of 4.39 in fiscal 2019 and improvement of 19 million.
Cash from operating activities increased 20.3 million in fiscal 2020 versus a use of 5.19 in fiscal 2019.
Simply due to higher sales increased gross margin and then as well as higher receivable collections.
At fiscal year end Lyons cash and cash equivalents were 28.8.
Up from 13.8 million at December 30, Onest 2019.
8.7 million fiscal 2019, yet.
The improvement reflected strong cash flow from operations this year and our ability to drawn or 20 moved our credit facility.
Net working capital increased to 27.8 million from 14 million in March 31st 2019, and shareholders equity also improved to 31.
Versus 18 million the previous year.
Total debt outstanding primarily from borrowings under our revolving credit facility was 10.1 man at March 30, Onest 2020 versus 9.4 million at March 31st 2019.
We believe our cash on hand, and expected future cash receipts combined with our borrowing capacity provides a strong financial base for our company current environment.
Finally, I want to highlight the cash flow benefit we realized as result of substantial net operating loss carryforwards that provide a short of current operating income and cash flows from federal and state taxes.
As a result, our fiscal 2020 pretax income of 12.6 million resulted in net income the 12.5 million.
As of our fiscal year end, we had net operating loss carry forwards of approximately 75 man for federal tax purposes. It 62 million per state tax purposes, what could easily represent several years worth of additional tax and cash flow benefits to the company.
And with that let's open the call to questions operator.
Thank you.
As a reminder, just a question you need to press star one of your telephone into enjoy your question. Please press the pound key please stand by weak spot Kuni roster.
Your first question comes from the line the Mark Weisenberger with B. Riley FBR. Your line is now open.
Good morning, Thank you for taking my question.
Yes, good morning, Mark about thinking can you talk about your exposure throughout the U.S. remind us maybe kind of where the primary activity.
Taking place and kind of the different trends you're seeing across the country.
Sure. There certainly are differences across the country, obviously without different states are local communities are reacting in taking actions in putting procedures and restrictions in place.
We're really very broadly.
Impacted across the United States because of our activities with national accounts.
And so it's been different in different areas of the country.
A lot of it is really beginning to open back up which is optimistic and so we had certain situations, where there may have been some short term closures or perhaps a facility. We were working in had a Copa 19 situation, which closed at temporarily so I'd say generally things are opening backup mark, but we do operate across North America and.
So there is impactful little bit, Canada, Mexico, but mostly within the United States.
Got it.
With a number of schools and government facilities empty as a result of co that have you seen any increase demand to retrofit. These types of facilities and maybe are there any factors that are preventing you from executing on those types of projects.
We have seen some limited activity, where because facilities are now available as you mentioned that you gave the opportunity to go in and do additional retrofit activity.
Or things that previously been approved and they might move timelines forward.
We have not had any issues being able to supply product in our installation teams where that has.
Opportunity is presented itself it has not been overwhelmingly substantial mark but there have been some situations, where we have been able to do that.
Understood. Thank you and just one more for me can you talk about the type of investments that are going to be needed to build deal Ryan's service and maintenance division and how much of this will be taking care of kind of in house vertically integrated and how much are you looking to partner with outside providers.
Sure we're still.
You are working through our final business plan as we launch this new division and we currently believe that the investments needed in this are very.
Able to be achieved and financeable from the standpoint of the financial strength there were sitting at right now.
It's a fair amount of people additions as business volume grows and as things develop some additional capital, but we don't see as being overly material for us from a.
Execution standpoint, it really would probably be a mixed approach that you know for maintenance companies, sometimes you might self perform sometimes we might use some of the great partners, who have had the pass that manage installations for us in a nation wide basis. So we'll probably be doing so much of both but overtime, we would most likely migrating towards.
You know more and more performance on our own mark as the business grows.
Good part as we've already done some of this work with existing National accounts, it's not a big part of our services business right now, but we know how to do would have done it and can either do some self performance or some.
Leveraging of our AR.
Supply chain that we have.
Understood. Thank you very much.
Thank you.
And our next question comes from the line of Craig Irwin with Roth Capital Partners. Your line is now.
Hi, good morning, and thanks for taking my questions.
Good morning, Craig.
I really appreciated the significant amount of detailed we gave us.
Now I guess, you first major customer.
That we avoid naming I guess.
Thanks.
Detail just more detail in the you know the revenue split that they did.
Basically put a pause on installs resolve very helpful to understand the mechanics in the quarter.
I was pleasantly surprised to see that the remaining 500 stores that.
I had not been now.
Previously.
Contracted right that you Didnt you didn't already have scope awarded for yes. Thank you.
Very confident that this will get done over the next number quarters can you maybe describe for us.
What gives you that confidence you're going to do these.
The.
Customer communicated this directly.
And.
He will the revenue per store be very similar to what the 880, it's been so far.
Sure. Thanks, Greg Great question first of all we just felt there was appropriate given that we recognized.
Like many companies, providing nearer term financial visibility is very very challenging and so what we wanted to do was provide people with as much information as we can have the longer term vision of potential strategy and business operations to help all of our investors understand our business and the great optimism, we see going forward and we see this this temporary pause.
As in our success.
So for that particular customers.
What I can explain for you first maybe no particular order we would expect the average location.
Revenues to be about the same on those future 600 locations as they have been the past location. So I think you could look at that for estimates of where we think the revenue potential lives from a customer standpoint.
Set into my comments in in our press release, the 100 remaining from the outside we did back in January or our contracted relationships that we expect to do at some point.
We have a high level of confidence in the additional 500 locations our customers not contractually obligated, but we believe the performance we have performed for them the very significant energy savings they've achieved in the service levels. We've given them that we feel a high level of confidence that when they choose and decide to move forward with additional retrofits.
Those last remaining locations that we have a very high probability of doing that business.
Excellent. Thank you for that so another another detail from your press release mentions your global Internet retailer customer, where I guess, you had about $7 million in orders to date.
Yes.
You say, specifically you expect a meaningful revenue contribution going forward.
How meaningful whats your definition of meaningful.
See as big as the the other anchor customer out there you probably acutely aware I'm I'm talking about it a customer that may be worth $150 million year.
That that I've heard you.
Had me very significant progress with I mean is this something that's similar to.
Your lead customer now.
But let me kind of talk about this customer a little bit first I would say Craig I don't know.
I don't think you would be appropriate for us to infer that that this new customer relationship.
He is going to be of the magnitude of the the large customer relationships that we talked about quite a bit today.
So I think I would look at it more that what we are seeing today for that customer what we've announced its something that could go on for some additional years.
I I don't want to imply it should not that it's going to be like the first one why we are excited about is number one it is a new customer relationship number two is in a new construction and my comments today. If you as you listen to them. These are new warehouse distribution centers being.
Built for that.
Global online retailer as things continue to expand so one thing that we.
Theres certainly lots of reasons to be.
Sir and about the economy, and what's going on but when you step back and looked at our customer base.
We have.
I think some great verticals in that we are in.
Some big box retailers that we think our.
Surviving this very well we've always been heavily continue to be heavily involved in distribution centers, where health centers logistics companies, which are doing very strong during.
This situation and probably will continue in the future and our automotive continues to be strong for us, even though I didn't talk about a.
A lot today, we see some good promise for that during our fiscal later fiscal 21 and going forward and finally, the public sector. We are very bullish about and we expect to have continued good news in that area that we can cheer as things become.
More definitive for us and so.
We think the verticals we are in.
Our are going to do well even through this difficult period, we have right now.
Excellent excellent. So just if I could ask another question about this this customer.
You mentioned that you would be.
Currently serving their new construction.
What you expect to.
Maybe be.
Share of the business there right.
I'm assuming that your.
Improved supplier there but.
Sometimes they're similar fixtures being offered by others.
Would it be kind of an all all or nothing.
Situation for each facility as far as as far as your fixtures or is it possible.
Fixtures can represent a portion of.
The related high base.
New distribution center or warehouse.
Hi.
I'm not sure we totally no the answer to that yet.
Craig I think that.
The projects that we are doing we are.
And I hope I understand your question correctly, but the projects we are doing for them. We are doing all of the.
Yeah, the high Bay type lighting in those facilities for them and certain other pieces of some of the offices and things.
I think that given the nature of that business and the global nature, we're not saying that we expect to be the sole provider of lighting fixtures that entity going forward.
But frankly, because it's such a large global entity.
Having some piece of their business could be quite substantial for us going forward.
Excellent excellent. That's that's really good to hear so another element so talk to us little bit about the other elephant in the graph. So you've got some some very high profile customers onboard already.
I think is very well understood by people in the lighting market, maybe not the equity markets as well.
[music].
But.
You've got a couple really.
Attractive, saying that you could point too.
Are you seeing many more upbeat elephants sort of migrating our direction.
There has to be something special at around four.
These manner customers to be.
Doing business I mean.
Why what's going on on the bit side.
Sure.
We it's we feel confident and encouraged by the pipeline of activity that we are seeing.
Across our business and it's not only our larger national accounts, but also in.
Some of our other bread and butter business of the activity that we're seeing and it.
The sales cycle always takes some time and in some respects. This current environment in some situations has spread things up because people have had time to focus on some of these activities in some cases it might slow it down.
So I think what I would say is.
Not to be two repetitive is that we do see some tremendous opportunity in the public sector side of things.
Because those projects take a really long time to mature and so often they continue to move forward even through difficult periods of time, maybe some delays, but as they keep going they get more and more momentum. So we do think we will have.
Some positive situations there.
Also.
As I stated in my comments, we had.
Several other.
Opportunities that we're very close are ready to launch with some.
National scale type operations that just were somewhat delayed or suspended what I really would like to emphasize is that we have not had any significant cancellations of business and so that has been some encouragement in a difficult period and that things have been to slate. This.
Delayed or postpone for a little period of time, but we have not seen a significant cancellations of projects and so we think as the country continues to open back up and it's primarily come at axis situation, and perhaps companies being careful from a capital standpoint, but as those.
Two things start to clear up we do feel confident that we'll be able to announce and talk about some other significant wins for the company.
Thank you.
Thank you Craig.
Thank you and our next question comes from the line of Eric Stine, Craig. Your line is now open.
Hi, Mike Bill.
Good morning here.
Good morning.
So wondering if we could just talk about the new sales hires I know this is.
Undertaken a couple of quarters ago, and I understand the code that it may be a little difficult to tell but how do you feel like that's progressed I know your goal has been to feel like you you're getting a full look at the opportunities out there.
So as best you can tell in light of the current situation as you think longer term I mean, how do you think thats developing today.
I feel really good about how it's developing so far Eric.
Got it some talented people who are making progress you kind of hit the nail and ahead it gets a little bit difficult because some of their progress I literally was starting to kind of here and it was postponed some water delayed somewhat because of the cobot 19 situation. So we do think we're getting a broader look at more opportunities and particularly larger.
Opportunities take quite a while to develop and they tend to be somewhat.
Hi, I'm going to say cyclical and that they're tied into companies annual.
Capex budgets and so it takes a little time for these relationships to fully developed but.
We feel good about where we are at with not only are great existing sales team, but the people that we added to help build.
Build that part of our business to give us more opportunities. So we feel very good about it.
Good good.
Maybe just starting to the maintenance and services side.
I mean, presumably you're doing this in part because of.
Stations in feedback you've gotten from customers.
So just curious how you think about that in weather co bid.
Is it something that potentially help that business longer term as as your customers think about.
A single point of contact or limiting the number of people in their facility.
Right at all times, when things normalize going forward.
Great Great question, I think it I really can't stress too much that we do.
Feel very strongly that our most significant.
Differentiator from a capability standpoint is that one point of contact.
Turnkey capability to handle a larger project for a.
The company and so it may not just be the installation services, but it's really that just program management and the people processes and systems you needed to that very very well I believe a field if.
Like many of you had the opportunity to sit with some of our largest customers and ask US asked them you know why to use Ryan I think that they would say that we make life easy for them and that's.
The top statement, but behind behind that is.
Great fixtures high quality fixtures, which is the whole implementation process commissioning controls everything that we can do so.
So with that it just seemed to us because we have with some of our larger accounts gotten appropriately pulled into doing some maintenance services for them. It's an area we never.
Really fully put our attention to to expand our our our services side of our business and so it seems like a very natural extension, we understand the ceiling, we understand the electrical side, we understand the lighting side and and I think companies will continue to evolve into having more and more.
CAPL want more capabilities and more preventative maintenance and we think we're really.
Set up well to have some nice opportunities in that area. So we're very optimistic that it's something that could bring.
Some nice revenues for us.
The next couple of years.
Okay. That's helpful. I guess I'll take the rest topline and let others ask questions. Thanks, Alright. Thank you Eric.
Thank you.
And again, ladies and gentlemen, if you would like to ask a question. Please press Star then one key on your touched on top of them to withdraw your question. Please press the pound key.
Our next question comes from the line of Amit Die out with H.C. Wainwright. Your line is now.
Thank you good morning build my Mike.
Good morning idling the.
In a strong fashion.
These large customer you know the when you have a 100.
Fusions, meaning that customer do you have any maintenance contracts in place already.
And get into that.
That.
Sort of agreement with them in the Neogen.
We do not currently have maintenance contracts in place with that customer, but it's a natural opportunity for us to provide these types of services and we would expect to have conversations with that customer.
Understood.
You know with so the weakness expected over the next.
Learners.
What kind of impact on the gross margin front should we be looking at I mean, do we see the loans we saw in the fourth quarter honor soon.
What we should expect.
The next few quarters, and then see some improvements was that.
Hi, I think on the.
Gross margin side.
Let me kind of covered at a little bit of a higher level, and but bill add a little bit more color to that but.
I think.
Part of what we saw happened last year, which we indicated would happen is that.
Because.
We've chosen strategically to have a significant us based manufacturing operations.
Each allows us to do some great things for our customers with customized product on a very short.
Alright timeframe.
That does create some fixed costs. So during fiscal 2021, you could see that in certain quarters, where our volumes went up significantly and much of that volume was manufacturing.
Going through our facilities you get that incremental impact. So likewise as we go into next couple of quarters, we're likely going to see that impacting gross margin and the other direction as you have the reality of a.
Great.
Skilled.
Workforce and.
And assembly facility, that's not going to be used up to its capacity, but we kind of view this kind of short term in nature and as we go through that we've scaled appropriately where we should and those things what kind of come back around about all that kind of build may be just add a little bit more to that answer for you.
Yes.
As we mentioned in the call.
We took on about a 400000 dollar charge.
Based on.
Some cutbacks we had to make so we.
You did some deep cuts and.
Some of those came out of asked DNA and some of those came out of our.
On a cost of product or cost of goods sold.
And it's all happened during a pandemic in March.
Yeah, I quickly to get our cost were.
But so that'll help us out however.
Volume play such a significant warm.
Past periods, we've had lower sales volumes and the impact that has on a gross margins.
But as also as Mike said, we view that as temporary and.
You know who get back to the second half a year or so.
See strength.
[music].
Understood. Thank you for that make you mentioned.
Since we entered into an article drew lightning speed is by the end of the next fiscal year, we already have product. So you working on developing products for that market.
We are in the product development phase right now.
Have.
Some product that is close that was.
Related more specifically to our customers needs, but we expect to build off of that.
Over the rest of the year and it will help product available as we continue through fiscal 2021, we just think that.
Frankly, everyone gets maybe appropriate excited about.
What could be from a cannabis side, but it's really much broader than cannabis. We just think there's going to be future and horticultural.
Vertical farming and other applications that again, it seems like a natural extension.
To to move into this product line and we think it's now getting mature enough of an industry, but still a lot of opportunity in the United States that it makes sense for us too.
To enter that market.
Just one last one from me.
From an M&A perspective are you looking for more distribution type of opportunities on the technology and product type opportunities.
You know.
The product side from a from a distribution standpoint is.
Certainly.
It's important and we feel really good about the product.
Our pipeline, we have right down into product development as I talked a little bit on the call and we're just.
We have the ability internally to develop really really good product, but we also.
Look globally for products that we think are going to meet the needs of our customers and our of high quality and and.
At the right competitive price for our customers. So we.
We're not myopic about it we think about both are you a space manufacturer, but also sourcing product on a global base, where it makes sense for us.
The.
Developed to start line product talked about earlier, we're very optimistic about as well as our IP rated you'll fall high Bay, though we didn't talk about a lot.
On the questions I do think the area of both the violent white light and the UBI area is going to have some huge potentials for this industry over the coming years, and we're well positioned we think to participate in that we've been.
Active in the Violet White light area for several years inhale product ready to go and the you beside has additional potential for different types of uses with customers.
So we feel good about that so I think from from a.
Standpoint of looking internally, we're probably.
Well positioned come up for a product standpoint.
Yes.
And that's on our guys. Thanks, so much.
Alright, thank you on it.
Thank you.
And this concludes today's question and answer session I will now during the call back to Mike.
Okay shameful for closing remarks.
Great. Thank you Chris once again I want to thank the Orion team for their hard work and dedication that you'll get a tremendous performance for our business in fiscal 2020.
I also would like to thank our shareholders, who continue to support us.
While it is unfortunate that the covert nights 19th situation will be a temporary interruption towards success I'm confident your company will regain its momentum.
During the current period of social distancing and travel constraints, we have not been able to visit face to face with our investors, but if he would like to ask questions are scheduled call with management. Please contact our IR team, whose contact information is on todays release.
Thank you again for your time today, we look forward to updating investors and our fiscal 2021 Q1 call in August. Thank you everybody have a good day.
This concludes today's conference call you for attending today's presentation. You may now disconnect your lines.
[noise].