Q2 2022 Orion Energy Systems Inc Earnings Call
Ladies and gentlemen, and welcome to Orion Energy systems fiscal 2022nd 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 conference is being recorded.
I would like to turn the call over to Bill Jones, Sir you may begin.
Thank you and good morning, everyone.
Mike I'll cheerful Orion's CEO and board Chair will open today's call to provide highlights and discuss the current business outlook.
<unk> CFO.
Dean will then review additional items after which we will open the call to questions. An archived replay of this call will be available. After today in the Investor Relations section of Orion's corporate website.
This call is taking place on Tuesday November 9th 2021.
Marks 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 $19 95.
These forward looking statements generally include words, such as anticipate believe expect or words of similar import likewise statements that describe future plans objectives or goals are also forward. Looking these forward looking statements are subject to various risks that could cause actual results to be mature.
Really different unexpected such risks include among others matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission, except as described in these filings the company disclaims any obligation to update forward looking statements, which are made as of today's date.
Reconciliations of certain non-GAAP financial metrics to the corresponding GAAP measures are also provided in today's press release, which will be available on orion's website at www Orion lighting dot com with that let me turn the call over to Mike Akshay for Mike.
Thanks Bill.
Good morning, and thank you all for joining us today.
Today, I will touch on a few areas of importance related to our second quarter, the current business environment and our expectations moving forward through the balance of our fiscal 'twenty two.
We provided a detailed overview of our strategy market positioning and outlook and our year end call in June which you can access on our investor page.
We had another good quarter with our fiscal Q2, 'twenty two revenues improving substantially over last year versus Q2, 'twenty, one and sequentially versus Q1 'twenty. Two we were also pleased with the gross margin performance. We achieved both in Q2 and year to date, despite supply chain headwinds, we referenced in our press release.
<unk>.
The strength of our performance to date reflects the resourcefulness hard work and nimbleness of our talented experienced team and responding to business challenges and opportunities in a fluid marketplace.
Certainly the global supply chain is represented the greatest source of challenges both for our customers and Orion.
Our team has been developing a variety of proactive strategies to navigate supply chain issues, including proactive supplier management, expanding sourcing for key materials components and shipping and advanced components and finished goods purchasing all designed to position Orion to deliver on customer requirements.
All these efforts have been successful they have required substantial time and attention from our team. Fortunately given the success of our strategies. We believe Orion is generally well positioned to substantially achieve our production goals for the balance of the year assuming conditions do not deteriorate further.
Importantly, as a U S based manufacturer of most of our led fixtures Orion has a significant advantage over many of our larger competitors that have experienced significant delays and challenges in sourcing fixtures from Asia.
As a result of these supply issues, we have been able to pick up some business from competitors, who were not able to deliver product and we expect there could be more of these opportunities going forward.
The Orion does import certain components and finished goods active sourcing management and proactive planning have enabled us to largely mitigate many procurement delays to date, including power supplies, which is where we have faced the greatest supply challenges.
The decision, making in project Timeframes over customers have had the greatest impact on our business, so far with respect to supply chain challenges.
Some customers have slowed or delayed projects as they manage through their own supply and sourcing issues. These delays had a modest impact on our Q2 top line and do represent a potential headwind for the balance of the fiscal year. However, our customer dialogues. So far confirmed that while the timeline of certain projects could slide due to issues outside of our control the projects.
Remain hours to complete when the customer is ready.
Our outlook is supported by expected customer projects across the business, particularly from customers in retail logistics public sector health care academic institutions automotive and are developing turnkey lighting installation and maintenance services business.
To address inflationary pressures from raw materials components labor and logistics, we recently implemented our second price increase of the year.
We believe our price increases were in line with similar moves we have observed in the industry and will allow our value proposition to remain very competitive in the market.
Our senior sales team continues to work on expanding our customer base and revenue sources with some solid progress on several large opportunities as.
As we have noted in the past large national account opportunities generally develop slowly over the course of several quarters to a year or more in step with their unique design requirements review and budgeting processes.
With the added complexity posed by supply chain challenges. These dialogues are generally progressing more slowly as projected project timelines to extend.
Fortunately Orion has a strong and growing track record executing customized large scale turnkey led lighting project solutions that deliver compelling returns on investment and achieve important ESG goals, such as reducing carbon emissions and creating better more safe work environments.
In addition to large national account revenue opportunities, we are achieving solid growth in our ESCO and electrical contractor channel revenues, which are up over 100% year to date.
Given the industry, leading energy efficiency and high quality of products, our customer service focus and U S manufacturing, we feel that Orion is well situated to grow our market penetration in this channel.
For example, last month, we announced new led lighting retrofit projects for two New York area School districts in partnership with one of our ESCO customers. We have now supplied fixtures for a total of four school districts for led retrofit projects with our customer.
We are confident in the potential to build upon this partnership and in the public education sector, particularly with the additional funding for school safety and improvement projects available through the cares act as well as part of refreshed programs within the education stabilization fund.
We also see the potential for cares funding for education facilities to create opportunities for our pure motion UBC Air movement solutions, which are designed to sanitize air and eliminate airborne viruses, including COVID-19, and variance. In addition to led fixture sales.
We are seeing a growing base of interest dialogues and product evaluation for our pure motion product line, although sales have been modest so far.
Based on pure motions unique ability to create healthier indoor environments for schools medical facilities offices and other shared spaces, we see significant potential for this product line.
With any new product there is typically a four to six month process from introduction to beginning to see a sales ramp.
However, because this is a new product category for Orion and our customers and we are focusing on academic institutions and medical facilities with extensive review approval and budgeting processes. The sales cycle has proven to be a bit more extended.
Last week, we announced that we have combined our new Orion maintenance services business with our existing Orion engineered systems business to create the Orion services group.
The Orion services group includes turnkey lighting installation and maintenance services. We are pleased with the steady progress in customer engagement that is being achieved so far in fiscal 'twenty two for the lighting maintenance component of this business.
The Orion services group now has the capability to serve as a customer's needs through the complete lifecycle of initial project engineering product design lighting fixture installation commissioning control systems and ongoing maintenance services.
We have begun to provide maintenance services to a few customers, including our largest national retail customer as well as one of our specialty retail customers results. So far confirm our optimism for the potential of this business and the customer synergies and its ability to provide a meaningful and recurring contribution to our results in fiscal <unk>.
'twenty three and beyond.
To support the long term growth and expansion of our business. We also continued to build out our executive management team.
Last week, we announced the appointment of Mike Jenkins as our new Chief Operating Officer, Mike has over 25 years of operations sales and marketing experience in an accomplishment with industrial focused companies. We think he has the ideal skill set to help us achieve our growth and profitability goals.
In a related move our prior C O O. Scott Green has been promoted to president of Orion services group, focusing on turnkey lighting installation and maintenance services as well as his continued leadership of our new product development team.
Earlier this year lighting industry veteran Tim Rooney joined us to lead all of our sales functions in the newly created position of executive Vice President of sales.
These executive additions and changes are designed to support our goal to build a ryan into a company generating $500 million in annual revenue over approximately the next five years. This plan assumes internal growth of at least 10% annually supplemented by acquisitions and new business partnerships.
With respect to our current fiscal year outlook as referenced in today's announcement Orion remains committed to its goal of achieving fiscal 'twenty two full year revenue of at least $150 million.
However achievement of this goal has become increasingly less certain because of the broad based supply chain challenges impacting all aspects of the economy, including us our customers and our vendors.
And with that I'll turn the call over to pair to review financial performance highlights and insights before we proceed to take investor questions. There.
Thanks, Mike.
<unk> second quarter fiscal 'twenty, two revenue grew by $10 2 million to $36 5 million on continued strong business activity for national accounts.
This compares to sales levels in Q2, 'twenty, one that were significantly impacted by Covid related disruptions, but represented the period in which customers began to restart their projects.
Q2, 'twenty two sales also increased sequentially from the Q1 'twenty two level of $35 1 million.
Revenue for the first half of fiscal 'twenty, two increased $34 5 million to 71 6 million as our business rebounded since the onset of the pandemic.
Our gross margin improved to 29, 5% in Q2 'twenty two from 27, 6% in Q2, 'twenty, one with Q2 'twenty two benefiting benefiting by $800000 for the recognition of an employee retention tax credit under the American rest.
Planned act an element of COVID-19 stimulus legislation.
Excluding the credit gross margin would've been 27, 4%.
Which we consider a good result in a challenging environment and saw some impact from product mix shifts compared to the first quarter. This year.
We recently implemented our second price increase of the year to mitigate the impact of component logistics labor and other cost increases going forward.
We believe our pricing moves were in line with actions enacted throughout the industry.
Our gross margin percentage typically fluctuates quarterly due to changes in our revenue mix the timing of larger projects and other factors in the current environment. We are working to focus our product offerings and the most compelling and popular solutions that provide production and margin efficiencies.
Second quarter fiscal 'twenty, two operating expenses increased to $5 8 million versus $5 4 million in Q2, 'twenty, one due to ramping business volume offset by $800000 in worker retention tax credits.
To be clear.
The total worker retention tax credit was $1 $6 million half of which benefited cost of sales and half of which reduced operating expenses.
Orion generated EBITDA of $5 4 million in the second quarter of fiscal 'twenty, two compared to $2 3 million in the second quarter of fiscal 'twenty, one with the improvement due to flow through on higher revenue and the retention tax credit.
Q2, 'twenty two net income improved to $3 7 million from $1 9 million in Q2 'twenty one.
Net income for the first six months of fiscal 'twenty two grew to $6 2 million from a net loss of 300000 in the first half of fiscal 2021.
Ryan its effective rate.
<unk> tax rate was 26, 8% in Q2, 22, and 26, 4% for the first half of fiscal year 2022.
However, we do not expect to pay meaningful cash taxes for several years because of net operating loss carryforwards of nearly $70 million as of the prior fiscal year end.
Also as Mike mentioned Orion remains in a strong financial position Orion ended Q2, 'twenty, two with approximately $40 million of liquidity, including $14 $7 million of cash and cash equivalents and a full $25 million available on our credit facility.
Net working capital improved to $34 7 million at September 32021, compared to $26 2 million at our fiscal year end March 31 2021.
Ryan used $4 million of cash in operating activities in the first half of fiscal 'twenty, two as compared to a use of $14 1 million in the first half of fiscal 'twenty one.
Improvement is attributable to greater business volume and improve bottom line performance in the current year period.
And with that I will turn the call back over to the operator for the Q&A session.
As a reminder to ask a question you will need to press star one on your telephone to be throwing a question press. The pound key will have three maximum questions per participant if you wish to ask my please press star one again to be on Q.
Our first question comes from the line of <unk> Joshi from H C. Wainwright.
Yeah, Hey, Mike.
Thanks for taking my questions.
Yes, good morning, Sir.
Good morning.
So you mentioned about supplies is one of the items that you.
Dependent on for that.
The supply chain.
The supply chain issues.
Yes, and your inventory how much.
Paul supplies out there and what level of revenues.
Would they be able to support going forward.
Well I'm not sure I'm going to be able to be specific on an initial your initial question. Some you're willing to kind of give a little backdrop to it so for power supplies or two primary electronic components through all of the fixtures the power supplies and the led chips and modules and many of our power supplies are.
Supplied to us by suppliers based out of Mexico, and we have certain power supplies, we do purchase from.
Suppliers in Asia, and so it's in those.
Pliers have had some impacts from the well.
<unk> chip shortages in the world.
So certain of those suppliers might have some allocations going on and then in addition from an Asia standpoint, you have some logistical issues to date, we feel that we have had very minimal impact to our revenues from some of those we actively manage it with additional suppliers and we had built up our inventory of those.
As we could throughout the spring and the summer.
So we just wanted to mention that it probably has been one of the more.
Noticeable supply chain challenges for us, but so far we've been able to manage it very well and in some respects, it's probably starting on the drivers to get a little bit better. So we feel okay about it.
Got it okay.
And then.
You mentioned you have implemented the second pricing increases.
Recently when should the destock.
Getting in revenues.
I think it wouldn't be selling now.
Revenues from.
From the previous prices swing.
Yes, yes, so for us our price increase was for the most part effective for shipments that we make after December 15th 2021. So we will begin seeing those impacts very modestly in Q2 and more significantly in quarter number I am sorry of quarter three.
Somewhat a little bit in quarter, three and more significantly in quarter number for our fiscal 2022.
And for US, there's kind of a variety of rollouts those.
Orders that come in from one off projects and from <unk> and electrical contractors those price increases start immediately and then we have some project based business, which will it might take a little time for either the next <unk>.
<unk> come up or in certain projects, we have a period of time, where our pricing was being held so it'll kind of role in impacting very modestly in Q3 more significantly in quarter number four and certainly fully implemented by Q1 of 2022 and our price increases were in a range of five to <unk>.
14% across our product categories, just depending on.
Our costs were what the logistics were and what we felt was competitive in the industry.
Understood Thanks for that color.
One last one.
You highlighted.
Contribution from maintenance services, and you can actually see quarter over quarter.
And the overall services revenues by around 45%.
This almost all of these increased quarter over quarter attributable to increases in maintenance services.
While our services line in our public reporting in our Qs and K.
Includes both our installation services as well as our maintenance services at this time, but you are correct. It is very had very nice growth.
This quarter.
Sequentially, our service revenue grew about 27% and year over year grew 44%, what we're really excited about some errors that.
A portion of that growth did come from our large national retail customer, which where we are beginning to provide.
Quite a bit of of services to them from a maintenance standpoint, and we think that has a lot of potential for US next couple of years, we are getting our systems.
Lined with theirs and rolling things out and we'll certainly have more to say about that in our February timeframe, but we're making good progress with that as well as other customers. So our goal has all along has been to build recurring revenues through bolt, a preventative and reactive maintenance services and we feel like we're on track with where we are.
Wanted to be this year.
And really see the ability for substantial growth going forward.
Got it Samir maybe just correct, yes, yes, just for slightly more color on that.
Based on your question it would not be fair to characterize the sequential quarter growth solely to the maintenance services business. It is a component of that sequential increase but there's also other installation service business included in that sequential growth.
Thanks for that color.
Thank you.
Samir.
Our next question comes from the line of Alex <unk> from B Riley.
Yeah.
Thank you good morning, gentlemen.
Good morning, Alex.
Can you expand upon the negative product mix shift in the quarter a little bit more.
Yes, I think we touched on this a little bit in the first quarter.
From the opposite angle and that the benefit we got in the first quarter.
<unk>.
If you.
Look at the components of our sales for the quarter.
We did have a shift.
Out of some of our distribution services business, which tends to be at a higher margin. So it was a <unk>.
Shift in the type.
Literally a type of product as well as it so happens that channel.
To which we sell that product.
That is helpful and then.
Can you remind us what your price increase was earlier in the year and in conjunction with the December price increase do you think we're at a point, where we're fully offsetting the ryzen and.
And costs.
Well as we mentioned this is our second price increase of the year and the first price increase in the year was kind of in a similar range as it was in high higher single digits a little more.
We were able at that point to kind of have it flow across most of our product, whereas this time, we would have this range of 5% to 14%. So when you probably average in the both out youll, probably get too worried about the same level of the high single digits.
We feel that we are taking the right steps at the right time, and we think that our margins that we are seeing internally.
And with our quarterly results and we see ongoing that we are staying in line with the some of the inflationary pressures that we're seeing Alex. So we continue to feel confident that we can keep our margins where they are and hopefully continue to boost them as we.
Increased volume improve on mix improve on pricing et cetera. So so far we feel like we've taken the steps at the right time to stay with the price increases that we have been seeing.
That's great. Thank you very much.
Thank you Alex.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Bill <unk> from Titan capital.
Hi, Thank you two questions first of all would you discuss the challenges that your customers are experiencing where they are slowing down.
Question, you slowdown implementation.
I absolutely builds great question, So I'll give you kind of a.
Relatively specific answer without mentioning names, but we have certain business that might be in the new construction area and part of what is happening is and let's assume it's in the distribution center Fillman centers, our customers are having trouble getting steel or theyre, having trouble of getting the systems in place.
Within that facility and therefore that has caused them to us.
Sometimes slow down their process and timing for the light fixtures, which obviously tend to come in towards the end of a project. So it's the <unk>.
Fly chain challenges that our customers might be having in new construction.
Probably a little less so.
With respect to retrofit applications, but that would kind of be an example of what is causing it to flow down to us and it's also why we comment that it's not we've not lost those projects. They are still going to do those projects, but there is some possibility that some of them just end up getting moved out a little bit until they can get caught up with their own supply chains.
Great. Thank you and.
And then how about 10% customers how many of those that you have in the quarter.
We had one during the quarter.
Thank you both.
Thank you Alright, Bill Thank you for your questions.
That concludes the Q&A session I will now turn the call over to Mike <unk> for closing remarks.
Thank you Margery and thanks again to everyone, who joined US today for your interest in Orion.
We will be participating in the Craig Hallum Alpha Select conference, which will be held virtually on November 16th in recent months. We have participated in several other virtual conferences all of which are recorded and available on our website.
And you can also contact our IR team with any questions or to schedule a call with management.
Our contact information is included in today's press release. So thanks again, we look forward to updating investors on our fiscal 'twenty to Q3 call have a great day.
Today's conference call is now concluded. Thank you you may now disconnect your lines.
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Good day, ladies and gentlemen, and welcome to Orion Energy systems fiscal 2022 second quarter Conference call.
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 conference is being recorded I wish I would like to turn the call over to Bill Jones, Sir you may begin.
Thank you and good morning, everyone.
Mike I'll cheerful, Ryan CEO and Board Chair will open today's call to provide highlights and discuss the current business outlook.
Ryan CFO pair broke Dean will then review additional items after which we will open the call to questions. An archived replay of this call will be available. After today in the Investor Relations section of Orion's corporate website.
This call is taking place on Tuesday November nine 2021.
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 $19 95.
These forward looking statements generally include words, such as anticipate believe expect or words of similar import likewise statements that describe future plans objectives or goals are also forward. Looking these forward looking statements are subject to various risks that could cause actual results to be materially.
Unexpected such risks include among others matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission, except as described in these filings the company disclaims any obligation to update forward looking statements, which are made as of today's date rec.
Reconciliations of certain non-GAAP financial metrics to their corresponding GAAP measures are also provided in today's press release, which will be available on orion's website at www Orion lighting dot com with that let me turn the call over to Mike Akshay for Mike.
Thanks Bill.
Good morning, and thank you all for joining us today.
Today, I will touch on a few areas of importance are related to our second quarter, the current business environment and our expectations moving forward through the balance of our fiscal 'twenty two.
We provided a detailed overview of our strategy market positioning and outlook and our year end call in June which you can access on our investor page.
We had another good quarter with our fiscal Q2, 'twenty two revenues improving substantially over last year versus Q2, 'twenty, one and sequentially versus Q1 'twenty. Two we're also pleased with the gross margin performance. We achieved at both in Q2 and year to date, despite supply chain headwinds, we referenced in our press release.
The strength of our performance to date reflects the resourcefulness hard work and nimbleness of our talented experienced team and responding to business challenges and opportunities in a fluid marketplace.
Certainly the global supply chain is represented the greatest source of challenges both for our customers and Orion.
Our team has been developing a variety of proactive strategies to navigate supply chain issues, including proactive supplier management, expanding sourcing for key materials components and shipping and advanced components and finished goods purchasing all designed to position Orion to deliver on customer requirements.
All these efforts have been successful they have required substantial time and attention from our team. Fortunately given the success of our strategies. We believe Orion is generally well positioned to substantially achieve our production goals for the balance of the year assuming conditions do not deteriorate further.
Importantly, as a U S based manufacturer of most of our led fixtures Orion has a significant advantage over many of our larger competitors that have experienced significant delays and challenges in sourcing fixtures from Asia.
As a result of the supply issues, we have been able to pick up some business from competitors, who were not able to deliver product and we expect there could be more of these opportunities going forward.
The Orion does import certain components and finished goods active sourcing management and proactive planning have enabled us to largely mitigate many procurement delays to date, including power supplies, which is where we have faced the greatest supply challenges.
The decision, making in project Timeframes of our customers have had the greatest impact on our business. So far with respect to supply chain challenges some customers have slowed or delayed projects as they manage through their own supply and sourcing issues. These delays had a modest impact on our Q2 top line and do represent a potential headwind for the balance of.
For the fiscal year, however, our customer dialogues, so far confirmed that while the timeline of certain projects could slide due to issues outside of our control the projects remain hours to complete when the customer is ready.
Our outlook is supported by expected customer projects across the business, particularly from customers in retail logistics public sector healthcare academic institutions automotive and are developing turnkey lighting installation and maintenance services business.
To address inflationary pressures from raw materials components labor logistics, we recently implemented our second price increase of the year.
We believe our price increases were in line with similar moves we have observed in the industry and will allow our value proposition to remain very competitive in the market.
Our senior sales team continues to work on expanding our customer base and revenue sources with some solid progress on several large opportunities as.
As we have noted in the past large national account opportunities generally develop slowly over the course of several quarters to a year or more in step with our unique design requirements review and budgeting processes.
With the added complexity posed by supply chain challenges. These dialogues are generally progressing more slowly as projected project timelines do extend.
Fortunately Orion has a strong and growing track record executing customized large scale turnkey led lighting project solutions that deliver compelling returns on investment and achieve important ESG goals, such as reducing carbon emissions and creating better more safe work environments.
In addition to large national account revenue opportunities, we are achieving solid growth in our ESCO and electrical contractor channel revenues, which are up over 100% year to date.
Given the industry, leading energy efficiency and high quality of products, our customer service focus and U S manufacturing, we feel that Orion is well situated to grow our market penetration in this channel.
For example, last month, we announced new led lighting retrofit projects for two New York area School districts in partnership with one of our ESCO customers. We have now supplied fixtures for a total of four school districts for led retrofit projects with our customer we are confident in the potential to build upon this partnership and in the public edge.
Acacia sector, particularly with the additional funding for school safety and improvement projects available through the cares act as well as part of refreshed programs within the education stabilization fund.
We also see the potential for cares funding for education facilities to create opportunities for our pure motion UBC Air movement solutions, which are designed to sanitize air and eliminate airborne viruses, including COVID-19, and variance. In addition to led fixture sales.
We are seeing a growing base of interest dialogues and product evaluation for our pure motion product line, although sales have been modest so far.
Based on pure motions unique ability to create healthier indoor environments for schools medical facilities offices and other shared spaces, we see significant potential for this product line with.
With any new product there is typically a four to six month process from introduction to beginning to see a sales ramp.
However, because this is a new product category for Orion and our customers and we are focusing on academic institutions and medical facilities with extensive review approval and budgeting processes. The sales cycle has proven to be a bit more extended.
Last week, we announced that we have combined our new Orion maintenance services business with our existing Orion engineered systems business to create the Orion services group.
The Orion services group includes turnkey lighting installation and maintenance services. We are pleased with the steady progress in customer engagement that is being achieved so far in fiscal 'twenty two for the lighting maintenance component of this business.
The Orion services group now has the capability to serve as a customer's needs through the complete lifecycle of initial project engineering product design lighting fixture installation commissioning.
Troll systems and ongoing maintenance services.
We have begun to provide maintenance services to a few customers, including our largest national retail customer as well as one of our specialty retail customers.
<unk>, so far confirm our optimism for the potential of this business and the customer synergies and its ability to provide a meaningful and recurring contribution to our results in fiscal 'twenty three and beyond.
To support the long term growth and expansion of our business. We also continued to build out our executive management team.
Last week, we announced the appointment of Mike Jenkins as our new Chief Operating Officer, Mike has over 25 years of operations sales and marketing experience in an accomplishment with industrial focused companies. We think he has the ideal skill set to help us achieve our growth and profitability goals.
In a related move our prior CEO Scott Green has been promoted to president of Orion services group, focusing on turnkey lighting installation and maintenance services as well as his continued leadership of our new product development team.
Earlier this year lighting industry veteran Tim Rooney joined us to lead all of our sales functions in the newly created position of executive Vice President of sales.
These executive additions and changes are designed to support our goal to build a ryan into a company generating $500 million in annual revenue over approximately the next five years. This plan assumes internal growth of at least 10% annually supplemented by acquisitions and new business partnerships.
With respect to our current fiscal year outlook as referenced in today's announcement Orion remains committed to its goal of achieving fiscal 'twenty two full year revenue of at least $150 million.
However achievement of this goal has become increasingly less certain because of the broad based supply chain challenges impacting all aspects of the economy, including us our customers and our vendors.
And with that I'll turn the call over to pair to review financial performance highlights and insights before we proceed to take investor questions. There.
Thanks, Mike.
Ryan second quarter fiscal 'twenty, two revenue grew by $10 2 million to $36 5 million on continued strong business activity for national accounts.
This compares to sales levels in Q2, 'twenty, one that were significantly impacted by Covid related disruptions, but represented the period in which customers began to restart their projects.
Q2, 'twenty two sales also increased sequentially from the Q1 'twenty two level of $35 1 million.
Revenue for the first half of fiscal 'twenty, two increased $34 5 million to 71 6 million as our business rebounded since the onset of the pandemic.
Our gross margin improved to 29, 5% in Q2 'twenty two from 27, 6% in Q2, 'twenty, one with Q2 'twenty to benefit benefiting by $800000 for the recognition of an employee retention tax credit under the American <unk>.
SKU plan Act, an element of COVID-19 stimulus legislation.
Excluding the credit.
Gross margin would've been 27, 4%.
Which we consider a good result in a challenging environment and saw some impact from product mix shifts compared to the first quarter. This year.
We recently implemented our second price increase of the year to mitigate the impact of component logistics labor and other cost increases going forward.
I'll leave our pricing moves.
In line with actions enacted throughout the industry.
Our gross margin percentage typically fluctuates quarterly due to changes in our revenue mix the timing of larger projects and other factors in the current environment. We are working to focus our product offerings and the most compelling and popular solutions that provide production and margin efficiencies.
Second quarter fiscal 'twenty, two operating expenses increased to $5 8 million versus $5 4 million in Q2, 'twenty, one due to ramping business volume offset by $800000 in worker retention tax credits.
To be clear.
The total worker retention tax credit was $1 $6 million half of which benefited cost of sales and half of which reduced operating expenses.
Orion generated EBITDA of $5 4 million in the second quarter of fiscal 'twenty, two compared to $2 3 million in the second quarter of fiscal 'twenty, one with the improvement due to flow through on higher revenue and the retention tax credit.
Q2, 'twenty two net income improved to $3 7 million from $1 9 million in Q2 'twenty one.
Net income for the first six months of fiscal 'twenty two grew to $6 2 million from a net loss of 300000 in the first half of fiscal 2021.
Ryan's effective rate effective tax rate was 26, 8% in Q2, 22, and 26, 4% for the first half of fiscal year 2022.
However, we do not expect to pay meaningful cash taxes for several years because of net operating loss carryforwards of nearly $70 million as of the prior fiscal year end.
Also as Mike mentioned Orion remains in a strong financial position Orion ended Q2, 'twenty, two with approximately $40 million of liquidity, including $14 $7 million of cash and cash equivalents and a full $25 million available on our credit facility.
Net working capital improved to $34 7 million at September 32021, compared to $26 2 million at our fiscal year end March 31 2021.
Ryan used $4 million of cash in operating activities in the first half of fiscal 'twenty, two as compared to a use of $14 1 million in the first half of fiscal 'twenty one.
The improvement is attributable to greater business volume and improve bottom line performance in the current year period.
And with that I will turn the call back over to the operator for the Q&A session.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The party will have three maximum question per participant if you wish to ask my please press star one again to be on Q.
Our first question comes from the line of Dmitry, Josh <unk> from H C. Wainwright.
Yeah, Hey, Mike.
Thanks for taking my questions.
Yes, good morning, Sir.
Good morning.
So you mentioned about supplies is one of the items that you.
Dependent on for that.
On the supply chain.
The supply chain issues.
Yes, and your inventory how much.
Of all supplies out there and what level of revenues.
Would they be able to support going forward.
Well I'm not sure I'm going to be able to be specific on an initial.
Your initial question some you're willing to kind of give a little backdrop to it. So for power supplies are two primary electronic components reality fixtures, the power supplies and the led chips and modules and many of our power supplies are.
Supplied to us by suppliers based out of Mexico, and we have certain power supplies, we do purchase from.
Suppliers in Asia, and so and those suppliers have had some impacts from the well.
Just chip shortages in the world.
So certain of those suppliers might have some allocations going on and then in addition from an Asia standpoint, you have some logistical issues to date, we feel that we have had very minimal impact to our revenues from some of those we actively manage it with additional suppliers and we had built up our inventory of those.
As we could throughout the spring and the summer. So we just wanted to mention that it probably has been one of the more.
Noticeable supply chain challenges for us, but so far we've been able to manage it very well and in some respects, it's probably starting on the drivers to get a little bit better. So we feel okay about it.
Got it okay.
And then you mentioned you have implemented the second pricing increases.
Recently when should we start.
Reflecting in revenues, because I think it wouldn't be selling now.
Revenues.
From the PBS prices swing.
Yes, yes, so for us our price increase was for the most part effective for shipments that we make after December 15th two.
<unk> 2021, so we will begin seeing those impacts very modestly in Q2 and more significantly in quarter number I am sorry, a quarter three somewhat little bit in quarter, three and more significantly in quarter number for fiscal 2022.
And for US, there's kind of a variety of rollouts those.
Orders that come in.
From one off projects and from <unk> and electrical contractors those price increases start immediately and then we have some project based business, which will it might take a little time for either the next <unk>.
<unk> come up or in certain projects, we have a period of time, where our pricing was being held so it'll kind of role in impacting very modestly in Q3 more significantly in quarter number four and certainly fully implemented by Q1 of 2022 and our price increases were in a range of five to <unk>.
14% across our product categories, just depending on where our costs were what the logistics were and what we felt was competitive in the industry.
Understood. Thanks for that color one last one.
You highlighted.
Contribution from maintenance services, and we can actually see quarter over quarter.
And the overall services revenue as bad on slightly high percent.
This almost all of these increased quarter over quarter attributable to increases in maintenance services.
While our services line in our public reporting in our Qs and K.
Includes both our installation services as well as our maintenance services at this time, but you are correct. It is very had very nice growth.
This quarter.
Sequentially, our service revenue grew about 27% and year over year grew 44%, what we're really excited about some errors that.
A portion of that growth did come from our large national retail customer, which where we are beginning to provide a quite a bit of of services to them from a maintenance standpoint.
And we think that has a lot of potential for US next couple of years, we are getting our systems aligned with theirs and rolling things out and we'll certainly have more to say about that in our February timeframe, but we're making good progress with that as well as other customers. So.
Our goal has all along has been to build recurring revenues through bolt, a preventative and reactive maintenance services and we feel like we're on track with where we want it to be this year.
And really see the ability for substantial growth going forward.
Got it maybe just correct, yes, yes.
Lately more color on that.
Based on your question it would not be fair to characterize the sequential quarter growth solely to the maintenance services business. It is a component of that sequential increase but there's also other installation service business included in that sequential growth.
Thanks for that color, but I was thinking back in queue. Thanks, Okay.
Thank you Samir.
Our next question comes from the line of Alex Rygiel from B Riley.
Got it.
Thank you good morning, gentlemen.
Alex.
Can you expand upon the negative product mix shift in the quarter a little bit more.
Yes, I think we touched on this a little bit in the first quarter.
From the opposite angle and that benefit we got in the first quarter.
A few minutes.
Look at the components of our sales for the quarter.
We did have a shift.
Out of some of our distribution services business, which tends to be at a higher margin. So it was a <unk>.
<unk> in the type.
What are the type of product as well as it so happens that channel into which we sell that product.
That is helpful and then.
Can you remind us what your price increase was earlier in the year and in conjunction with the December price increase do you think we're at a point, where we're fully offsetting the ryzen.
And it costs.
Well as we mentioned this is our second price increase of the year and the first price increase in the year was kind of in a similar range as it was in high higher single digits a little more.
Okay.
We were able at that point to kind of have it flow across most of our product, whereas this time, we would have this range of 5% to 14%. So when you probably average in the both out you probably get to about the same level.
High single digits.
We feel that we are taking the right steps at the right time, and we think that our margins that we are seeing internally.
And with our quarterly results and we see ongoing that we are staying in line with the some of the inflationary pressures that we're seeing Alex. So we continue to feel confident that we can keep our margins where they are and hopefully continue to boost them as we.
Increased volume improve on mix improve on pricing et cetera. So so far if we feel like we've taken the steps at the right time to stay with the price increases that we have been seeing.
That's great. Thank you very much.
Thank you Alex.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Bill design from Titan capital.
Hi, Thank you two questions first of all would you discuss the challenges that your customers are experiencing where they are slowing down.
Question, you slowdown implementation.
Absolutely Bill it's great question, So I'll give you kind of a.
Relatively specific answer without mentioning names, but we have certain business that might be in the new construction area and part of what is happening is and let's assume it's in the distribution center Philmont centers, our customers are having trouble getting steel or theyre, having trouble of getting the systems in place.
Within that facility and therefore that is causing them to us.
Sometimes slow down their process and timing for the light fixtures, which obviously tend to come in towards the end of a project. So it's the <unk>.
Supply chain challenges that our customers might be having in new construction.
Probably a little less so.
With respect to retrofit applications, but that would kind of be an example of what is causing it to flow down to us and it's also why we comment that it's not we've not lost those projects. They are still going to do those projects, but there is some possibility that some of them just end up getting moved out a little bit until they can get caught up with their own supply chains.
Great. Thank you and.
And then how about 10% customers how many of those did you have any quarter.
We had one during the quarter.
Thank you both.
Thank you Alright, Bill Thank you for your questions.
That concludes the Q&A session I will now turn the call over to Mike <unk> for closing remarks.
Thank you Margery and thanks again to everyone, who joined US today for your interest in Orion.
We will be participating in the Craig Hallum Alpha Select conference, which will be held virtually on November 16th in recent months. We have participated in several other virtual conferences all of which are recorded and available on our website.
And you can also contact our IR team with any questions or to schedule a call with management.
Our contact information is included in today's press release. So thanks again, we look forward to updating investors on our fiscal 'twenty to Q3 call have a great day.
Today's conference call is now concluded. Thank you you may now disconnect your lines.