Orion Energy Systems (OESX) Q3 2021 Earnings Call Transcript

Orion Energy Systems (NASDAQ: OESX)
Q3 2021 Earnings Call
Feb 11, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Orion Energy Systems fiscal 2021 third-quarter conference call. [Operator instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Bill Jones. Sir, you may begin.

Bill Jones -- Investor Relations

Thank you and good morning, everyone. Orion's CEO, Mike Altschaefl will open today's call with third-quarter highlights and an update on the business outlook. Orion's CFO Per Rodin will then review additional financial items, after which we will open the call to questions. An archived replay of this call will be available later today in the Investor Relations section of Orion's corporate website.

This call is taking place on Thursday, February 11, 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 1995. These forward-looking statements generally include words such as believe, anticipate, expect, or words of similar input. 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 in its press release issued this morning and its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements. With that, let me turn the call over to Mike.

Mike Altschaefl -- Chief Executive Officer

Thanks, Bill. Good morning, everyone, and thank you for joining today's call. As we expected, Orion's business improved substantially in fiscal Q3 as our customers returned to stronger levels of activity following the COVID-19 related slowdown. Revenue rebounded sharply to $44.3 million in Q3 '21 from $26.3 million in Q2 '21.

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. The start-up inefficiencies which are not uncommon for projects of this scale 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 in 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 the 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 in turnkey programs where we installed and commissioned LED lighting systems and Internet of Things controls.

We developed our lighting and controls installation capabilities to -- to execute nationwide turnkey programs, and in 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 $0.14 per share that well exceeded our Q3 '20 and our Q2 '21 performances. Q3 '21 EBITDA similarly improved to $4.9 million, as compared to $2.8 million in the year-ago period and $2.3 million in Q2 '21. 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 though the risk of potential COVID-19 business impact remains high. I am 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's 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 in leveraging these capabilities to do a lot -- to -- to develop new large customer prospects.

And as this progresses, this supports our outlook for our next fiscal year. Turning to our fiscal '22 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 believe that large customers are moving toward a more normalized business posture and are particularly focused on ways to drive energy savings, 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 in 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 expect this customer to represent roughly one-third of our fiscal '22 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 LED lighting retrofits for a national specialty retail customers' stores in fiscal '22. 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 healthcare facilities. Though the sales cycles may be longer for larger opportunities, we feel confident in 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 in the Air Movement space including Air Movement products that incorporate UVC 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 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 UVC-related technologies into Air Movement products and lighting fixtures.

Orion expects to launch a family of ISON-branded Air Movement products with this technology during Q4 fiscal '21. UVC has been proven to kill viruses including the COVID-19 virus. These new products will join Orion's existing products which utilize anti-microbial LEDs in the 405-nanometer wavelength to combat bacteria, fungus, mold, and mildew and will build on Orion's 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, we also expect to benefit from a recently announced 6% price increase that will begin to benefit our results as we enter fiscal '22. Our price increase is a result of certain cost increases the industry is experiencing. We believe that we can remain very competitive as some of our larger industry competitors have announced greater price increases.

We continue to expect $80 million of revenue in the second half of fiscal '21, somewhat more weighted to the third quarter with full-year revenue of at least $117 million for fiscal '21. We believe we are well-positioned and expect to achieve financial results in fiscal '22 that should at least match those delivered in fiscal '20. In fiscal '20, we achieved record revenue of $151 million and net income of $12.5 million or $0.40 per diluted share. This outlook is based on a number of factors outlined in today's release which I will summarize.

One, 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 '22 revenue, down from roughly 50% expected in fiscal '21 and 74% in fiscal '20. Two, ongoing revenue from the custom LED lighting solution for a global online retailer's new facilities. Three, revenue from two global warehousing and logistics industry customers expected on a project-by-project basis which offers substantial revenue potential.

These two customers, combined with our existing customers in 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 '22. Four, continuation of turnkey LED lighting retrofit solutions for a national specialty retailer's stores. Five, ongoing retrofit work for major automotive customers. Six, significant opportunities in the healthcare and hospital market.

Seven, continued steady demand from public-sector customers including the U.S. military, the VA, 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 UVC family of products in our existing anti-microbial products that are on target with the market's demand for healthy, safe, and sustainable solutions. And 10, 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 remain strong in Q4 and expect that to continue in fiscal '22. Customer decision making, along with access to customer facilities, remains a critical factor for our business' pace and volume.

And as a result, COVID-19 remains a potential threat to our business outlook. Though we have put in place rigorous safety protocols to reduce the risks of COVID-19 impacts to our business, much is outside of our control, and therefore, we feel it prudent to highlight. We continue to believe Orion remains well-positioned for fiscal '22 and beyond. Our view is based on the strength of our new and existing product offerings, our turnkey design-build-install capabilities, our expanding engagement at various IoT monitoring and control solutions, and the growth potential for Orion 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 Per Brodin, Orion's CFO, for additional perspective on our financial results. Per?

Per Brodin -- Chief Financial Officer

Thank you, Mike. Orion's third-quarter fiscal '21 revenue increased to $44.3 million from $34.2 million in Q3 fiscal '20, and sequentially from $26.3 million in Q2 fiscal '21. The growth reflects a full quarter of healthy business activity following COVID-related disruptions that began last March and continued to significantly impact our business through mid-August. Revenue for the quarter included work on an LED 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 '21 product revenue increased 23% and service revenue grew 47%, reflecting the installation and other service contributions principally from these two national products -- projects. Third-quarter fiscal '21 gross profit percentage improved to 24.9% versus 24.2% in Q3 fiscal '20 primarily because of improvement in product margin, partially offset by increased service revenues at lower margin rates, but declined sequentially from 27.6% in Q2 principally because of a change in customer mix and inefficiencies and start-up costs related to the national specialty retail project. Q3 fiscal '21 operating expenses increased to $6.5 million versus $5.8 million in Q3 fiscal '20 and $5.2 million in Q2 fiscal '21, mainly because of higher sales commissions and higher sales volumes, other incremental costs necessary to support higher revenue, as well as start-up costs related to launching Orion's maintenance services business. Given the flowthrough on higher revenues, Orion generated Q3 fiscal '21 net income of $4.3 million, or $0.14 per share, compared to net income of $2.3 million, or $0.07 per share, in Q3 fiscal '20, and net income of $1.9 million, or $0.06 per share, in Q2 fiscal '21.

We recognized a very small level of income tax expense in each period discussed because we have a full valuation allowance recorded on our net deferred tax assets. In the past, the company generated significant tax-loss carryforwards, 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's income from meaningful cash taxes in future periods. Orion's liquidity position is strong with $12.3 million of cash and cash equivalents as of December and full availability with no amount outstanding on our new expanded $25 million credit facility with Bank of America.

We are very pleased that 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 tenure. 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, I will turn the call back over to the operator for the Q&A session.

Questions & Answers:

Operator

[Operator instructions] First question, we have Sameer Joshi from H.C. Wainwright. Your line is open.

Sameer Joshi -- H.C. Wainwright -- Analyst

Good morning. Thanks for taking my call and congratulations on a -- a strong quarter.

Mike Altschaefl -- Chief Executive Officer

Thank you, Sameer. Good morning.

Sameer Joshi -- H.C. Wainwright -- Analyst

Good morning. The first question is about this UV product the four -- 275-nanometer product that you probably will introduce in the fourth fiscal quarter. Do -- 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 or the retailer customers to add this product to -- to the orders that they already have with you?

Mike Altschaefl -- Chief Executive Officer

Sure. Yeah, we're -- we're very excited about the product first, Sameer. So thanks for asking. And the product, itself, is -- is going to be a -- a -- a trough for products.

So think of a trough-to-ceiling-grid product and either two-by-two or two-by-four-foot grid. And that product has air movement capability 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 UVC 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 -- it's a little bit early to say what the demand will be. We certainly have had conversations and we expected there'd 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 in the future, but we're very encouraged and we're ready to -- to -- 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 in their environment.

We see that as -- as a possibility.

Sameer Joshi -- H.C. Wainwright -- Analyst

OK. And as I understand, you already had a 405-nanometer product. During COVID, did you see an increase in demand for that? Or -- or it's just a forward-looking prospect for that, too?

Mike Altschaefl -- Chief Executive Officer

Yeah. We have had the 405-nanometer product, which is a product that does attack mold, and fungus, and bacteria. And -- and if you think about 405-nanometer, what 405-nanometer does it -- it really is addressing on contact, so on the surfaces. So it -- it is a light that is showing on surfaces to attack those bacteria.

We have seen an increased interest during the COVID-19 situation. We have not experienced significant additional revenues from that product 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 405-nanometer, 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 UVC product, where the UVC is completely contained within this fixture, so that is not exposed outside, so it can be continuously operating in an occupied space because it is not shining outside of the fixtures. So we see some combination of the two perhaps having some possibilities.

Sameer Joshi -- H.C. Wainwright -- Analyst

Understood. Yeah. Thanks for that. Just moving on to the maintenance services that are being launched and then trying to figure out the margins that you could get from these services.

I looked at your margin profile, and quarter over quarter, the service margins even though revenues -- service revenues increased around 47%, the margins actually decreased relatively from around 23% to around 19.5% levels. So how does that profitability profile looked for maintenance services that you are launching? And are there other operating expenses that also could continue to be higher for that going forward?

Per Brodin -- Chief Financial Officer

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, that some of that decrease was attributable to start-up costs and inefficiencies associated with a particular project and we expect to see those improve as we move forward. I think that you could expect that the OMS service products will be in our historical range for service revenues. So it's plus or minus a little bit.

I think it'll be in that range, not significantly lower and not significantly higher. And then in -- with respect to your question on expenses, we have built -- started to build the base of infrastructure for that business. I don't 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 '20 -- fiscal 2022 as we attempt to build that business.

We think we have a -- a good core to launch that business for the time being. And then based on success in building that business, we'd potentially need more infrastructure as we move forward.

Operator

Thank you. Next question, we have Eric Stine from Craig-Hallum. Your line is open.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hi, Mike. Hi, Per.

Mike Altschaefl -- Chief Executive Officer

Hey, good morning, Eric.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hey. So I guess quite the change when you've got 10-plus items impacting the fiscal -- the upcoming fiscal year versus the past, or -- or is a little bit more narrow. I guess in keeping with that, could you just talk about your new logistics customer? Sounds like an add in the quarter will impact next fiscal year. I mean just details whether this is a new -- are these new facilities, are they retrofit, and maybe magnitude versus your existing logistics customer?

Mike Altschaefl -- Chief Executive Officer

Sure. We are very excited about the addition of another customer to this -- this sector of -- of our portfolio. As I kind of mentioned, we think warehousing and logistics will continue -- is continuing to grow and we think it could 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 a second large warehousing logistics company.

And the projects for them will be, as we've talked about for the previously announced warehousing logistics company, they're going to be on a project by project basis. And it's going to be a mixture, Eric. 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 new facilities and we would have an opportunity to work with them on those projects also.

So I think it's a mixture but I probably would say it's going to be heavily weighted toward retrofit activity.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Got it. And then just a follow-up on that. You mentioned that you expect or very possibly logistics is one of or the largest component of fiscal '22. I mean when you think about that since this is project to project for both customers, is that commentary 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? Just curious what type of -- what type of -- of look you're getting in all the logistics your business that's potentially out there?

Mike Altschaefl -- Chief Executive Officer

It's a combination of the fact that we -- we've been in the warehousing logistics space for a number of years. We have always done and worked well and have great customers in 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 the these, in -- including some of the new products that we've launched over the past year. So when we are saying -- when I am saying that we think fiscal '22 could start to have that warehousing 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 logistics companies, that -- those all combined we think could become a very significant part of our revenue stream going forward.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Got it. So not necessarily new -- new targets you have out there. It's more adding these more penetration to what you already have in hand?

Mike Altschaefl -- Chief Executive Officer

Yes.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

OK. And then last one for me. Just I know you've talked about no real impact from COVID at least in the third quarter. Just curious on -- on some potential supply chain issues or -- or how you see the health of your supply chain, and -- and any steps you're taking there proactively?

Mike Altschaefl -- Chief Executive Officer

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 on high volume items, have multiple suppliers.

But I will say there has been more activity of us having to move things around and -- and find alternatives to make sure the supply chain -- chain stays in good shape on the COVID-19 front. A more significant area today that we are seeing and others in our industry is that the logistics aspects, both domestically and internationally, are rather strained right now with volume, and particularly where we do source 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 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 in our industry and other industries, are going to be dealing with some supply chain challenges from a logistics standpoint over the next perhaps a couple of quarters.

Operator

Thank you, sir. Next question, we have Craig Irwin from ROTH Capital Partners. Your line is open.

Craig Irwin -- ROTH Capital Partners -- Analyst

Good morning and thanks for taking my question.

Mike Altschaefl -- Chief Executive Officer

Yes, good morning.

Craig Irwin -- ROTH Capital Partners -- Analyst

Mike, I wanted -- want to ask you about the guidance, right? 117 plus for the fiscal year, kind of points to a fairly significant sequential contraction. You know, it's 117 plus that -- that -- that you guided to, but can you -- can you maybe scope out for us the range of things that might -- might cause that -- that number to be higher or possibly lower, you know, given that we are, you know, what, five, six weeks into the quarter?

Mike Altschaefl -- Chief Executive Officer

Right.

Craig Irwin -- ROTH Capital Partners -- Analyst

You will have basically stuff in hand that you're going to ship over the next two weeks, but there is -- there is quite a lot of business that happens in the very last two, three weeks of a quarter. How much -- how much variance can we see around that number?

Mike Altschaefl -- Chief Executive Officer

Well, I think I -- 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 guidance on what we thought the second half of the fiscal year would be. And if you go back and look at that, we're seeing very similar to that of saying we thought the second half of the year was going to be $80 million, and that would be at least $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 pipeline in our backlog, which 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 so, right now, you know, Craig, 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 what we had said earlier that we think the full year is likely to be somewhat in excess of $117 million.

Craig Irwin -- ROTH Capital Partners -- Analyst

Understood. Understood. That makes sense. So then, you know, as we look at 2022, you were also pretty clear about, you know, doing something similar to 2020, maybe better as well.

You did say a third -- third of the revenue is going to come from your home center customer. That's clear. They 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, you know, most of those new-build facilities, I would kind of expect that those would be planned six months, nine months, even a year ahead of the -- of the actual completion for the lighting.

So, can you talk about the new logistics customer and the old logistics customer? Not so old. How these contribute to the visibility that you have? I mean, have you changed your assumptions for turn business at all in the year? And you know, there are a few other customers where, you know, there potentially are some chunky orders. I was just wondering sort of how you -- how you're handicapping different things to get to -- to your sort of 150-plus that you're pointing to?

Mike Altschaefl -- Chief Executive Officer

Sure. You got it. So first of all, we continue to feel confident about the 150, which starting a couple of quarters ago, we thought it was important just to have people and investors and the market understand that we feel very confident getting back at that level going forward. And we think, having likely $80 million in the second half of this year demonstrates that we're at that pace.

We also think it's important that we understand, you know, too much concentration is not a good thing for many businesses. And we think, between this three-year period of fiscal 2021 and 2022 of having that great, large customer of ours get down to a one-third of our revenue, but still, maintain 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.

We see those being healthy for the business. To the second part of your question, I would break it into two different buckets. And first would talk about the fact that we have this project that has been ongoing, which we talk about as global online retailers, new facilities. So on that part of our business, which was the second item, I talked about of the things that give us visibility to fiscal 2022.

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 amount of revenue that we are predicting for that particular piece of business. The third element, which are these two now -- now two global warehousing logistics industry customers. The one that we had announced some time back and the one that we're just recently talking about.

Those, for us, while we see them as having a significant opportunity, the projects will be on a facility by facility basis in 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, 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 significant. So those are estimates that we -- when we think about the $150 million, we're trying to put our best estimates in place of what we have talked about with that customer.

We think the potential could be our opportunity to get those. And -- and lastly, I would just say, Craig, you know, we've been talking about the first one for a while. We think the relationship with that customer is excellent. It has developed a little more slowly than we anticipated, we think, partly because of the COVID and their access to facilities and their customers making decisions to retrofits but we're still very encouraged by the opportunity for both of these going forward.

Craig Irwin -- ROTH Capital Partners -- Analyst

Excellent. Excellent. Last question, if I may. Orion's won some of the -- won business from some of the very largest customers -- largest customers in the lighting market, right, the most attractive customers to do business with.

And you know, I would assume that it's getting quite a lot of attention from all of the large buyers of fixtures out there. As you gain traction in the logistics, warehousing, big-box retail spaces. You know, can you maybe talk a little bit about the -- the SKU's that -- that you might need to add. that you might need to produce at Orion, that might make you competitive for the next wave of customers? I mean, is it necessary for Orion to maybe diversify its SKU mix at the moment? Is this something that would be organic and maybe upside if it happens, but not material, a, how should we look at that?

Mike Altschaefl -- Chief Executive Officer

It's a great question, Craig. I think, first, in our -- in our -- historically strong area of High Bay products, so product that can be in 20 to 40, sometimes 60-foot ceilings, but also is often used in the ret -- retail environment, particularly big-box retail environment, we feel very well positioned with our product line there. We talk about our next-generation Star Line, 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 in these specialty retailers' stores, and we expect it to be a big part of the warehousing logistics customers that we have.

In addition, we have also introduced products that are what people call a round or UFO-type style of light fixture for higher ceilings. 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 lighting to -- for parking lots, garages, area lighting in -- in areas for -- for parking lots or retail areas.

And likewise, we have found that product to be well received. I think from an expansion standpoint, we certainly want to continue to look at both the UVC side and the air movement product potential out there, the antimicrobial 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 in vertical farming that getting the growing of produce and other products closer to the end-user and the consumer is a trend that we think is going to be strong.

There's the obvious opportunity in the cannabis market. And so we are exploring an expansion more into the horticultural side. We've always been strong, in I'll say, the farming, dairy farm, with some enclosed washable product that -- that can be in harsher environments. And so that we think that is another area also.

So we're always looking to expand products. We have a very, very extensive SKU portfolio right now, but we will keep our eye open to expand where we need to. Appreciate the question.

Operator

Thank you, sir. [Operator instructions]. Next, we have Marc Wiesenberger from B. Riley Securities.

Unknown Speaker

Hey, thanks for taking my question. This is actually Ahmad, jumping in for Marc. But I wanted to ask, can you talk about the success and progress with your new construction work? And how should we think about the traction in expanding work there? Any medium-term aspirations for how much that business could represent?

Mike Altschaefl -- Chief Executive Officer

Yeah, we've, you know, we -- thank you, Amad, I 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 in retrofit, given the -- the studies that have been done that -- of how many building spaces still need to be converted to LED. But we have -- our product has always performed well in 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 '22 for 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 -- 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 going after retrofit. So, that's part of a sales strategy of making sure we are getting an opportunity to look at new construction.

Unknown Speaker

That's helpful. And then can you talk about the liquidity environment and its potential impact on the ESCO channel?

Mike Altschaefl -- Chief Executive Officer

Well, the -- the ESCO channel is, you know, 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, you know, it has been somewhat impacted by COVID-19. But again, we're seeing a good strengthening in that market. And again, we feel we have the products, and we understand that market very, very well.

Those ESCOs are buying our product and then installing it for their customers. And they're called energy service companies because they may do some HVAC or other time -- type of energy solutions for their customers. At the end, they are a, you know, they are installers usually and -- and -- of -- of product in their customer sites. And so, we understand that very, very well and can support them with very, very good product.

From a liquidity standpoint, you know, 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 ESCOs that are working with larger companies that have large projects. 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 -- of energy savings arrangements.

Unknown Speaker

Understood. Last question from me. Can you just talk about the pricing environment? We're hearing and seeing that -- that some commodity prices are starting to increase. So, how quickly and easily will you be able to pass that on to your customers? And how much of an impact will that have on gross margins in this quarter?

Mike Altschaefl -- Chief Executive Officer

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 in the power supply area and somewhat in metal and in some other areas. And as I mentioned earlier in the call, there is a, you know, growing reality of some global semiconductor shortages, which are subcomponents of things that we purchase. So, we don't buy semiconductors directly but the power supplies we purchase will be using semiconductors.

To react to that, we recently announced to our customer base that we would have a, generally across the board, a 6% price increase on our products, and that impact of that will start to roll out in fiscal '22. And so it's been announced, it's going in -- going into effect over the next few weeks as we kind of work off existing orders. It doesn't have an immediate impact in that we certainly have projects that have been ongoing that will continue before they turn over to a next phase or get reproposed at the higher prices. But the other type of business that is coming in, any of the new business would be priced at those 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 in the ranges that we have been and what we have talked about going forward.

Operator

Thank you, sir. That concludes the Q&A session. I will now turn the call over to Mike Altschaefl for closing remarks.

Mike Altschaefl -- Chief Executive Officer

Thank you, Katrina. I 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 in 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 in today's press release. So, thank you all again for joining our call today. We look forward to updating investors on our fiscal '21 Q4 call. Have a good day.

Thank you.

Duration: 47 minutes

Call participants:

Bill Jones -- Investor Relations

Mike Altschaefl -- Chief Executive Officer

Per Brodin -- Chief Financial Officer

Sameer Joshi -- H.C. Wainwright -- Analyst

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Craig Irwin -- ROTH Capital Partners -- Analyst

Unknown Speaker

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