Q3 2021 Orion Energy Systems Inc Earnings Call
And.
Good day, ladies and gentlemen, and welcome to the Orion Energy systems fiscal 2021 third quarter conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, today's call.
For instance, being recorded I would now like to turn the call over to Bill Challenge, Sir you may begin.
Thank you and good morning, everyone.
And CEO, Mike All critical will open today's call with third quarter highlights and an update on the business outlook.
And CFO Pierre <unk> will then review additional financial items, after which we will open the call to questions and archived replay of this call will be available later today and the Investor Relations section of Orion's corporate website.
This call is taking place on Thursday February 11.
'twenty one.
Remarks that follow and answers to questions include statements that the company believes to be forward looking within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements generally include words, such as believe anticipate expect or words of similar import likewise statements that describe future plans objectives or goals are also forward looking statements.
These forward looking statements are subject to risks that could cause actual results to be materially different than expected.
Such risks include among other matters that the company has described and its press release issued this morning, and its filings with the Securities and Exchange Commission.
As described and these filings the company disclaims any obligation to update forward looking statements.
With that let me turn the call over to Mike.
Thanks, Bill good morning, everyone and thank you for joining today's call.
And as we expected our rides business improved substantially in fiscal Q3, as our customers return to stronger levels of activity. Following the COVID-19 related slowdown.
Revenue rebounded sharply to $44 3 million and Q3, 'twenty, one from $26 3 million and Q2 'twenty one.
Our third quarter performance reflected continued significant turnkey led lighting and controls retrofit work for our major national retail customer.
The third quarter also benefited from the start of led lighting retrofits for a new national specialty retailer during the period.
Our customers have been very pleased with the results to date.
Inefficiencies, which are not uncommon for projects of this scale did.
Did negatively impact our overall gross margin percentage. However, we do expect margins to improve over the balance of the project.
Product development continues to play an important role in Orion's success as we are seeing very solid demand for new product lines, such as our Star line next generation High Bay led fixtures.
Exterior lighting fixtures that expand our offerings and the outdoor market with a highly competitive product design and energy efficiency.
As well as several linear led fixtures, which we plan to introduce later this month.
Product innovation is at the core of our strategy as we work to develop designs that deliver improved performance safer work environments higher quality lighting and customized solutions to meet the evolving needs of our customers. While also working to enhance our overall margin profile.
I will talk about some exciting new products a bit later.
Our third quarter performance also reflected certain SG&A costs for our new Orion maintenance services business as we build the team and create the operational infrastructure.
This investment will continue for the next quarter or two as we work to build a base of contracts with new and existing lighting customers.
We should begin generating some revenue during the fourth quarter and we are optimistic regarding our long term revenue potential and synergy of this natural extension of our single point of contact service offerings for customers.
Our entry into the maintenance services field is a natural extension of our growing participation and turnkey programs, where we install and commission and led lighting systems and internet of things controls.
We developed our lighting and controls installation capabilities to execute nationwide turnkey programs and and the process, we learned from customers and prospects that there was a real need for high quality lighting electrical and other maintenance service solutions that could be delivered on a nationwide basis.
Primarily due to our strong top line Orion delivered net income of $4 3 million or 14 cents per share that well exceeded our Q3, 'twenty and our Q2 'twenty one performances.
Q3, 'twenty, one EBITDA similarly improved to 4.9 million as compared to 2.8 million and the year ago period, and $2 3 million and Q2 'twenty one.
We are very fortunate to have experienced no significant COVID-19 disruptions in our business in recent months.
This has been largely a result of stringent COVID-19 protocols that we have developed and maintained at our offices, our manufacturing facility and at customer sites. So the risk of potential COVID-19 business impact remains high.
I'm grateful to our team members and partners for their strict adherence to our safety protocols and we remain committed to these important guidelines, while the COVID-19 threat remains.
As we have indicated a growing number of large national account customers are recognizing the value of Orion is unique customized turnkey led lighting capabilities and our proven track record in executing large national installation programs with efficient high quality one source solution services.
Our sales team is very active and leveraging these capabilities to the lot.
And to develop new large customer prospects and it is this progress supports our outlook for our next fiscal year.
Turning to our fiscal 'twenty two outlook, we are encouraged by customer sentiment around energy efficient led lighting retrofit and new construction projects. We continue to see strong demand for proposals for led lighting projects contemplated over the next 12 to 24 months we.
We believe that large customers are moving towards a more normalized business posture and are particularly focused on ways to drive energy savings and improved operating efficiency and increased safety in their facilities.
For example, a company could use sensor technology located at the fixture level and spread throughout a facility to obtain and digitize operational data for their own analysis and to make continuous improvements.
The value proposition of new led lighting systems is expanding to include the added capabilities that can be easily incorporated into the network and the ceiling that we can provide.
Of equal importance are the increased safety operational improvements and customer experience, we can deliver in the workplace or retail environment with a higher quality of light, which in addition to energy savings are expected to support demand for our solutions going forward.
We anticipate continued revenue from our large national retail customers retrofit project as well as other opportunities with this customer we.
We expect this customer to represent roughly one third of our fiscal 'twenty two revenue as the relationship matures and we continue to expand our base of large national accounts and sales through our other channels.
We also expect to continue the L. A day lighting retrofits for a national specialty retail customers stores in fiscal 'twenty two.
Additionally, we anticipate a growing base of project work with two large national warehousing and logistics customers along with continued strength from our automotive customers the public sector and health care facilities.
The sales cycles, maybe longer for larger opportunities, we feel confident and our ability to help our customers achieve savings with healthy safe and sustainable solutions that enable them to reduce their carbon footprint and digitize their business.
We are also excited by the business potential with the addition of new products and the air movement space, including Air moving products that incorporate UBC and light as well as our existing anti microbial technologies. These solutions are targeted to meet growing customer demand to find solutions that address environmental safety concerns around <unk>.
Germs bacteria and viruses as well as comfort.
This week, we announced a licensing and exclusive manufacturing agreement with a business partner.
Orion will incorporate their patented air movement, and UBC related technologies into air moving products and lighting fixtures.
Orion expects to launch a family of ice and branded air moving products with this technology during Q4 fiscal 'twenty one.
UPC has been proven to kill viruses, including the COVID-19 virus.
These new products will join Orion existing products, which utilize anti microbial Leds and the four or five nanometer wavelength to combat bacteria fungus mold and mildew and will build on Orion healthy safe and sustainable product solutions.
Obviously, there's significant attention on environmental dangers and health risks today with an increasing desire by employers to provide safer work environments. We see this as an area of opportunity that fits naturally with the products and services that we provide for our customers.
In addition to the introduction of higher margin products, including niche products and our efforts to drive sourcing and manufacturing efficiencies and we also expect to benefit from our recently announced 6% price increase that will begin to benefit our results as we enter fiscal 'twenty two.
Our price increase is a result of certain cost increases the industry is experiencing.
We believe that we can remain very competitive and some of our larger industry competitive competitors have announced greater price increases.
We continue to expect $80 million of revenue in the second half of fiscal 'twenty, one somewhat more weighted to the third quarter with full year revenue of at least 117 million for fiscal 'twenty. One. We believe we are well positioned and expect to achieve financial results and fiscal 'twenty two that should at least match.
Those delivered in fiscal 'twenty.
In fiscal 'twenty, we achieved record revenue of $151 million and net income of $12 5 million or <unk> 40 per diluted share.
This outlook is based on a number of factors outlined in todays release, which I will summarize.
One <unk>.
Revenue from an existing large national retail customer for the retrofit of additional locations new construction outdoor lighting and other projects. We expect this customer to represent roughly one third of fiscal 'twenty two revenue down from roughly 50% expected in fiscal 'twenty, one and 74% in fiscal 'twenty.
Two ongoing revenue from the custom led lighting solution for a global online retailers new facilities.
Three revenue from two global warehousing and logistics industry customers expected on a project by project basis, which offer substantial revenue potential.
These two customers combined with our existing customers and this space could result in the rapidly growing warehousing and logistics sector emerging as one of our largest sources of revenue as early as fiscal 'twenty two.
For continuation of turnkey led lighting retrofit solutions for a national specialty tea retailers' stores.
Five ongoing retrofit work for major automotive customers six significant opportunities and the health care and hospital market seven continued steady demand from public sector customers, including the U S. Military the V E and the U S Postal service.
Eight expected strengthening in activity with the energy service company or ESCO and electrical contractor channels.
Nine anticipated demand for several new and planned led lighting products, including our planned air movement with UBC family of products and our existing antimicrobial products that are on target with the market's demand for healthy safe and sustainable solutions and 10 per.
Progress on building out Orion maintenance services, which we expect will provide modest revenue contributions in the near term with the potential for significant and synergistic growth over time.
In summary, we are seeing business activity levels remained strong and Q4 and expect that to continue and fiscal 'twenty two.
Customer decision, making along with access to customer facilities remain a critical factor for our business pace and volume and as a result, COVID-19 remains a potential threat to our business outlook.
So we have put in place rigorous safety protocols to reduce the risks of COVID-19 impacts to our business much as outside of our control and therefore, we feel it prudent to highlight.
We continue to believe Orion remains well positioned for fiscal 'twenty, two and beyond our view is based on the strength of our new and existing product offerings. Our turnkey design build install capabilities are expanding engagement and various Iot monitoring and control solutions and the growth potential for Orion and maintenance services business.
In addition to our organic growth potential. We are also seeking to identify and review potential acquisition opportunities to strengthen and expand our base of business.
With that let me turn the call over to payer Bradeen Orion's CFO for additional perspective on our financial results per.
Thank you Mike.
Brian's third quarter fiscal 'twenty, one revenue increased to $44 3 million from $34 $2 million and Q3 fiscal 'twenty and sequentially from $26 3 million and Q2 fiscal 'twenty one.
The growth reflects a full quarter of healthy business activity. Following COVID-19 related disruptions that began last March and continued to significantly impact our business through mid August.
Revenue for the quarter included work and and L. E D. Retrofit project for a major national account that recommenced in early August as well as a significant revenue contribution from another national retrofit project for a specialty retail customer.
Q3 fiscal 'twenty, one product revenue increased 23% and service revenue grew 47%, reflecting the installation and other service contributions principally from these two national product projects.
Third quarter fiscal 21 gross profit percentage improved to 24, 9% for.
Versus 24, 2% and Q3 fiscal 'twenty, primarily because of improvement and product margin, partially offset by increased service revenues at lower margin rates.
But declined sequentially from 27, 6% and Q2, principally because of a change and customer mix and inefficiencies and startup costs related to the national specialty retail project.
Q3 fiscal 'twenty, one operating expenses increased to $6 5 million versus $5 8 million and Q3 fiscal 'twenty.
And $5 2 million and Q2 fiscal 'twenty, one mainly because of higher sales commissions and.
Higher sales volumes other.
Other incremental costs necessary to support higher revenue.
And as well as startup costs related to launching Orion maintenance services business.
Given the flow through on higher revenues Orion generated Q3 fiscal 'twenty, one net income of $4 3 million or <unk> 14 per share compared to net income of $2 3 million or seven cents per share and Q3 fiscal 'twenty and <unk>.
Net income of $1 9 million for <unk> per share and Q2 fiscal 'twenty one.
We recognized a very small level of income tax expense and each period discussed because we have a full valuation allowance recorded on our net deferred tax assets.
And the past the company generated significant tax loss carry forwards, which were approximately $75 million for federal and $62 million for state taxes at the start of the year.
Those NOL carryforwards will continue to shield Orion income from meaningful cash taxes and future periods.
<unk> liquidity position is strong with $12.3 million of cash and cash equivalents as of December and full availability with no amounts outstanding and our new expanded $25 million credit facility with bank of America.
We are very pleased and we were able to secure a new credit facility that not only has an increased commitment, but also has a more robust borrowing base and longer tenor.
We believe our current liquidity and access to capital will allow us to fund our current operations as well as our growth objectives, both organic and inorganic.
And with that and I'll turn the call back over to the operator for the Q&A session.
Yeah.
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First question, we had Sameer Joshi from H C. Wainwright your line is open.
Good morning, Thanks for taking my call and congratulations and a strong quarter.
And thank you Samir good morning. Good morning. The first question is about this <unk> product.
And 275 nanometer got it.
Revenue was introduced in the fourth fiscal quarter.
Do you have any sense of what kind of demand you expect and part two of that question is are you looking for your existing national customers under retailer.
To add this product to the orders that we already have with you.
Sure.
We're very excited about the product for Sameer. So thanks for asking and the product itself is going to be a.
A troffer products, so think of a dropped ceiling grid product and either to buy two or two by four foot grid and their product has air movement capabilities. So that it can help to moderate the air temperature throughout a room, but in addition, as the air is being brought through that fixture there will be a U V. C. Kill Chamber, if you will that will treat.
The air as it's moving through the fixture. So we're very excited about it it's a little bit early to say what the demand will be we certainly have had conversations and we expect them to be good demand for this product and it fits very well into the need in the industry and in.
The environment for healthy and safe solutions, So, we'll probably know more about that and the future, but we're very encouraged and we're ready to manufacture and talk with our customers about it and yes. It is a product that we could take back to our existing customers as an add on to what we've done for them currently.
And their environments, and we see that as a possibility.
Okay and.
And I understand you already had a flow to five nanometer debt.
Uh huh.
During Covid did you see any increase in demand for that.
Alright.
Just.
Forward looking.
Prospects for that too.
We have had the for a five nanometer product, which is a product that does attack.
Mold and fungus and bacteria and and if you think about for O five what four or five does it it really is addressing on contacts or on the surfaces. So it is a light that is showing on surfaces to attack those bacteria, we have seen and increased interest during the COVID-19 situation.
We have not experienced significant additional revenues from that product at this time, but we still think there is opportunity going forward for their product and having the two combined we could envision where customers might want a combination of product like the four or five which is continuously.
Attacking bacteria on a surface contact which can be used while people are in a room and then having that matched up with UBC product, where the UPC is completely contained within this fixture. So that is not exposed outside so it can be continuously operating.
Ian and occupied space because it is not shining outside of fixtures. So we see some combination of the two perhaps having some possibilities.
Understood Yes.
Thanks for that.
And just moving on to the maintenance and services.
And when launched.
And then.
I'm trying to figure out the margin.
We could get some of these services.
And I looked at the margin profile and.
Quarter over quarter for the fluids margins, even though revenue service revenues and fees around 40 Sun and the margin essentially.
And they would.
Moving from 23% and 19, one club and close.
And so how does that.
Profitability profile.
And look for maintenance and services.
That's the other launch and the.
Net other operating expenses and that also could continue to be higher.
And for that.
Going forward.
Thanks for that question.
Sameer I think.
If you think about the sequential change in margin over the quarter.
As we mentioned during the prepared remarks.
And some of that decrease was attributable to startup costs and inefficiencies associated with.
A particular project.
And we expect to see those improve as we move forward I think that.
Could expect that day Ooma service product will be.
Be in.
Our historical range for service revenues. So, it's you know plus or minus a little bit I think it'll be in that range and that significantly lower and that significantly higher.
And then with respect to your question on expenses.
We have built started to build the base of a.
And our infrastructure for that business and think we have that we're getting there.
And the Q3.
Operating expenses include certainly some expenses related to that investment that will continue to build somewhat.
More into 'twenty.
Fiscal 2022, as we attempt to build that business. We think we have a good core to launch that business for the time being and then.
Based on success and building that business.
And so they need more infrastructure as we move forward.
Thank you next question.
Eric Stine from Craig Hallum. Your line is open.
And Mike Hi per.
Hey, good morning, Eric.
Hey, and so I guess quite the change when you've got 10 plus items impacting.
And the physical and the upcoming fiscal year versus in the past for us, whereas a little bit more narrow I guess and keeping with that could you just talk about your new logistics customer.
And it sounds like an AD and the corridor will impact next fiscal year I mean, just details whether this is a new are these new facilities and are they retrofit and maybe magnitude versus your existing logistics customer.
Sure.
We are very excited about the addition of another customer to this this sector of our portfolio as I kind of mentioned, we think warehousing and logistics will continue is continuing to grow and we think it can be a very substantial part of our business going forward and as it has been in the past. So we were fortunate to start doing business with.
<unk>.
Our second large warehousing and logistics company.
And the.
Projects for them will be as we've talked about for the.
Previously announced warehousing and logistics company, they're gonna be and a project by project basis, and it's gonna be a mixture, Eric and I would say most of the business is likely to be retrofit.
Situations as they go back through their existing portfolio of properties and either upon turnover or on an interim basis with their customers upgrade to led lighting, but in addition, they may at times build to do facilities and we would have an opportunity to work with them on those projects also so I think it's a mixture, but I <unk>.
We would say, it's gonna be heavily weighted towards a retrofit activity.
Got it and then just a follow up on that.
You mentioned that and you expect are a very possibly logistics is.
One of or the largest component of fiscal 'twenty two.
And when you think about that since this is project a project for both customers is that commentary and based on the acceleration you see with what you currently have in hand or does that also include the expectation that there are others out there and just curious what type of.
You know what type of look you're getting it all the logistics for a business that's potentially out there.
It's a combination and the fact that we've been and the warehousing and logistics space for a number of years, we have always done and worked well and have great customers and cold storage and distribution facilities. So this really is not a new area for us and our our product line is very well suited for these and including some of the new <unk>.
<unk> that we've launched over the past year.
So when we are saying when I am saying that we think fiscal 'twenty two could start to have that warehousing and logistics area of our business be one of our largest revenue segments. It's our existing customer base with the addition of these two.
Larger.
Global warehousing and logistics companies that those all combined we think could become a very significant part of our revenue stream going forward.
Got it so not necessarily new new targets you have out there it's more adding these more penetration to what you already have and hand, yes.
Yes.
Okay, and then last one for me and just I know you've talked about no real impact from Covid at least and the third quarter, just curious on and some potential supply chain issues are or how you see the health of your supply chain and any steps you're taking there.
Proactively.
Sure from a supply chain standpoint, with respect specifically to COVID-19, there certainly have been certain little gaps or.
Aspects that have come up that we've had to work with we routinely work hard to have backup suppliers and non high volume items have multiple suppliers, but I will say there has been more activity of us having to move.
Move things around and and find alternatives to make sure the supply chain stays in good shape on the COVID-19 front a more significant area today that we are seeing and others and our industry is that the logistics aspects both domestically and internationally are rather strained right now.
And with volume.
And particularly where we do source a certain product out of China. There are some challenges of getting things out of the ports in China. There are challenges getting things through the ports on the west coast and.
And so those are probably causing more.
Stress on the supply chain right now and then that linked a little bit with the fact that there is a global supply issue with respect to semiconductors, which I think will filter down somewhat so we I think we're managing it very well we have not had any significant impact to our customer base, but we do think ourselves as well as others and our.
Industry and other industries are going to be dealing with some supply chain challenges from a logistics standpoint over the next perhaps couple of quarters.
Thank you Sir next question.
Craig Irwin from Roth Capital Partners. Your line is open.
Hi, good morning, and thanks for taking my questions, Yes, good morning.
Mike I wanted to ask you about the guidance right 117, plus for the fiscal year, China points too.
Fairly significant sequential contraction.
You know, it's $1 17, plus.
Thank you guided to but can you can you maybe scope out for us.
The range of things that might.
Might cause that number to be higher or possibly lower.
Given given that we are.
And what.
Five six weeks into the quarter.
Basically stop and hand that you can ship over the next two weeks, but then there is there is quite a lot of business that happens and the very last two three weeks for the quarter.
How much how much variance can we see around that number.
Well I think if I.
Go back a little bit to our last quarterly release and call where we in somewhat of an unusual position decided.
To provide pretty specific.
Our guidance and what we thought the second half for the fiscal year would be and if you go back and look at that we're staying very similar to that of saying we thought the second half for the year was going to be $80 million and that would be at least a 117 million for the year.
We certainly had a very strong Q3 with the revenue that we had and as we look at our current.
Our pipeline.
And our backlog, which was actually was quite strong at the end of the quarter.
We still feel that we're at that same level. So we really have not changed our view for the whole fiscal year and.
And so right now.
Greg, Yes things can happen in the last few weeks of the fiscal year.
And move things around a little bit but at this point, we think it's best for us to be.
Consistent and of what we had said earlier that we think the full year is likely to be.
Somewhat in excess of $117 million.
Understood understood that makes sense. So then as we look at 'twenty two and you were also pretty clear about you know.
And then something similar to 2020, maybe better as well.
You didn't say third and the revenue is going to come from your home center customer.
That's clear obviously share their plans with you and you've done a great job for them.
The logistics customer the anchor logistics customer that you brought on.
And most of those new beds build facilities that would kind of expect that those would be planned six months nine months, even a year ahead of us.
The actual completion for the lighting. So can you talk about you know.
The new logistics customer and the whole logistics customer.
And not sold.
Yes.
These contribute to the visibility that you have I mean.
Have you changed your assumptions for term business at all in the year.
And there are a few other customers where.
There are potentially some chunky orders I was just wondering if and how your how you're handicapping.
And different things to get to your sort of 150, plus that youre pointing to.
Sure you got it so first of all we continue to feel confident about the $1 50, which starting a couple of quarters ago. We thought it was important just to have people and investors and the market and understand that we feel very confident of getting back at that level going forward, and we think having likely $80 million and the second half for.
This year demonstrates or at that pace. We also think it's important that we understand too much concentration is not a good thing for many businesses and we think between this three year period of fiscal 'twenty 'twenty, one and 'twenty two of having that great large customer of ours get down to a one third of our revenue but still.
<unk> maintained the $150 million of revenue is a good sign for us so that visibility is helpful and we and it's also expanded with that customer. So it's not just the retrofit in the retail stores, but a variety of projects that we're doing for them and so we see that as being healthy for the business for the second part of your question I.
I would break and into two different buckets and first would talk about the fact that we have a.
This project that has been ongoing which we talk about as a global online retailers and new facilities, So and that part of our business, which was the second item I talked about of the things that give us visibility to fiscal 'twenty. Two that is actually we have a fair amount of visibility into that because those are new construction. They are.
Planned and there are timelines and so that gives us comfort of the the amount of revenue that we're predicting for that particular piece of business.
The third element, which are these two now and now two global warehousing logistics industry customers. The one that we had announced some time back and the one that were just recently talking about those for us while we see them as having significant opportunity the projects will be on a facility by facility.
And most cases, where they pick facilities that they want to retrofit we work with them on those and provide them with the project.
Proposal for those and then those get awarded and you move forward. So it's it.
The negative part is it's not quite as visible as a rollout of national stores or the rollout of new construction, but the magnitude we think could be six no significant. So those are estimates that we when we think about the 150, we're trying to put our best.
Estimates and place of what we have talked about with that customer and we think the potential could be our opportunity to get those and and and last I would just say Greg we've been talking about the first one for a while.
The relationship with that customer is excellent and it has developed a little more slowly than we anticipated, we think partly because of the COVID-19 and their access to facilities and their customers, making decisions through retrofits, but we're still very encouraged by the opportunity for both of these going forward.
Excellent excellent.
Last question if I may.
Orion is one some of the <unk> business from some of the very largest.
Customers' largest customers and the lighting market right. The most attractive customers to do business with.
And.
I would assume that it's getting quite a lot of attention from from all of the large buyers of fixtures out there.
As you gain traction and the.
Logistics and warehousing, thanks, Bob Big box retail spaces.
Can you maybe talk a little bit about the <unk> and use that.
And you might need to add thank you might need to to produce and Orion that might make you competitive for.
For the next wave of customers I mean is it is it necessary for Orion two mainly diversified and Jessica you mentioned at the moment is it something that would be.
Organic and maybe upside if it happens but not material.
How should we look at that.
No. It's a great great question, Craig I think first and in our and our.
Historically strong area of high Bay product, so products that can't be and 20 to 40, sometimes 60 foot ceilings, but also is often used in the REIT retail environment, particularly big box retail environment, we feel very well positioned with our product line. There that we talk about our next generation <unk>.
And which is a linear product for higher ceilings, which has been very well received very price competitive and we're seeing great traction with that product. It is the product that we are using and this.
Specialty retailers and stores and we expect it to be a big part of the warehousing and logistic customers that we have.
In addition, we have also introduced products that are what people call. It a round or U F. O type style of light fixture for higher ceilings and there are certain customers that prefer the round look and we now have a very robust product line that we've introduced this past year to cover that area. We have also introduced additional outdoor light.
Adding two for parking lots garages.
Aerial lighting in and.
Areas for for for.
For parking lots or a retail areas and likewise, we felt and I have found that product to be well received I think from and expansion standpoint.
We certainly want to continue to look at both the UPC side and the air movement product potential out there the anti microbial that we talked about and the other area that we are actively investigating is the horticultural area. We think the combination of the.
Likely future increase and vertical farming that getting the growing of produce and other.
Other products closer to the and user and the consumer is a trend that we think is going to be strong.
And there's the obvious opportunity and the cannabis.
Market and so we are exploring and expansion more into the horticultural side, we've always been strong and I'll see the farming.
Dairy farm with some and closed washable product that can be and and harsher environments and so we think that is another area. Also so we're always looking to expand products, we have and are very very extensive.
SKU portfolio right now, but we will keep our eye open to expand where we need to.
<unk> the question.
Thank you Sir.
If you have a question at this time please press the star and then the number one key on your touch tone telephone.
Next we have Mark Weisenberger from B Riley Securities. Your line is open.
Hey, Thanks for taking my question. This is actually a modest jumping in for Mark.
But I wanted to ask can you talk about the set for sex success and progress.
And your construction work and how should we think about the traction and expanding work there a medium term aspiration is for how much that could represent.
Yeah. We are you know why we think you might appreciate you joining us today, while historically, a pretty large percentage of our business has been in the retrofit market and we continue to believe there is significant.
Market opportunity and retrofit given the.
And the studies that have been done that of how many building space is still need to be converted to Leds, but we have our product has always performed well and new construction also so we do think new construction can play a.
Strong role for US going forward commented a couple of times that the work we've been doing last year and we expect to do.
This year and into fiscal 'twenty two for it a global online retailer has been new construction based with our existing.
Product line of fixtures and or some specially designed custom fixtures for those applications.
So we feel confident that our product line is is.
Very versatile and can be used in new construction and so part of it for US is that we need to continue to work.
At the market channels that get to new construction, which can be somewhat different than us going.
After retrofits. So that's part of our sales strategy of making sure we are getting an opportunity to look and new construction.
That's helpful. And then can you talk about total liquidity environment and its potential impact on <unk>.
S Seo channel.
Okay.
Well.
The ESCO channel is the.
And the energy service Company Channel is one that again, we have been in that channel for for many many years and we are seeing it.
And it has been somewhat impacted by COVID-19, but again, we're seeing.
Good strengthening and that market and again, we feel we other products and we understand that market very very well those S goes are buying our product and and installing it for their customers and they're called energy service companies because they may do some HVAC C or other time type of energy solutions for their customers.
At the and they are a day.
Installer as usually and of <unk>.
Product and their customer sites and so we understand that very very well and can support them with very very good product from a liquidity standpoint, we do think there is substantial financing available in the marketplace for energy products projects I'm, sorry, and so to the extent we have <unk> that are working with larger companies that have large.
<unk>, we believe there is.
Ample financing available for energy products projects, where companies want to have things off their balance sheet through leases or or other types of energy savings arrangements.
Understood.
Last question for me can you just talk about the pricing environment.
And we're hearing and seeing that debt some commodity prices are signed and the increase so how quickly and easily will you be able to pass that onto your customers and how much of an impact will that have on gross margin in this quarter.
There certainly is some inflation I believe coming through the supply chain with respect to certain.
Components and commodities.
We are.
Seeing some price increases from our suppliers and in the power supply area and.
And somewhat and metal and and some other areas and as I mentioned earlier on the call there is a.
And you know are growing.
Reality of some global.
Semiconductor shortages, which.
Our sub components of things that we purchased so we don't buy semiconductors directly but the power supplies, we purchase will be using semiconductors.
And to react to that we recently announced to our customer base that we would have a generally across the board and 6% price increase on our products and the impact of that will start to rollout in fiscal <unk>.
22, and so its been announced it keeps going and going into effect over the next few weeks as we kind of work off the existing orders. It doesn't have a immediate impact and that we certainly have projects that have been ongoing that will continue before they turn over to a next phase or get re propose.
Those are the higher prices, but the other type of business that is coming in any of the new business would be price at these new levels.
So we believe that that price increase which as I mentioned in my prepared remarks.
We believe is lower than many of our larger competitors, who have announced some pretty significant price increases will remain competitive, but we think that will allow us to keep the margins and the ranges that we have been and what we have talked about going forward.
Yeah.
Thank you Sir that concludes the Q&A session I will now turn the call over to Mike Shaffer for closing remarks.
Thank you Katrina and want to thank the Orion team for their hard work and operational excellence that has allowed us to bounce back from the COVID-19 related delays and put us and a great position for a return to higher revenue and profitability going forward.
During this continued period of social distancing, we have participated in several virtual conferences. The most recent of which is recorded and available on our website. We are planning to participate in a virtual Roth conference in March.
You can also contact our IR team with any questions or to schedule a call with management and the IR contact information is included on today's press release. So thank you all again for joining our call today, we look forward to updating investors and our fiscal 'twenty, one Q4 call.
Have a good day. Thank you.
Today's conference call is now concluded. Thank you for attending this presentation. You may now disconnect your lines have a great day.
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