Orion Energy Systems (OESX) Q3 2022 Earnings Call Transcript

Orion Energy Systems (OESX 4.00%)
Q3 2022 Earnings Call
Feb 09, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to Orion Energy Systems fiscal '22 third quarter conference call. [Operator instructions] As a reminder, today's conference is being recorded. I would like to turn the call over to Bill Jones.

Sir, you may begin.

Bill Jones -- Investor Relations

Thank you, and good morning. Mike Altschaefl, Orion's CEO and board Chair, will open today's call to provide third quarter highlights and to discuss the current business outlook. Orion's CFO, Per Brodin, will then review additional financial 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 Wednesday, February 9, 2022. 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 anticipate, believe, expect or words of similar importance. 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 different than expected. 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 metrics are also provided in today's press release, which will be available in the investor relations section of Orion's corporate website at www.orionlighting.com.

With that, let me turn the call over to Mike Altschaefl.

Mike Altschaefl -- Chief Executive Officer

Thanks, Bill, and good morning, and thank you all for joining us on today's call. Last month, we announced our expected fiscal '22 third quarter revenue and revised our revenue outlook for the full fiscal year '22. Today's press release provides our actual complete financial results for the third quarter and first nine months of fiscal '22. I'm very proud of how the Orion team has managed through a challenging period, enabling us to achieve solid top and bottom-line growth in the first nine months of fiscal '22 versus the same period last year.

We continue to expect full year fiscal '22 revenue to increase approximately 11% to about $130 million. Turning to our third quarter results. As anticipated, Orion's Q3 '22 revenue decreased to $30.7 million versus $44.3 million in Q3 '21, which had benefited from a rapid rebound in activity following initial COVID-19 disruptions, particularly from our largest customer. As we discussed last month, our current operating performance is being impacted by customer LED lighting project delays due to supply chain disruptions and COVID-19-related impacts to their businesses.

Nonetheless, our revenue for the first nine months of fiscal '22 increased to $102.3 million versus $81.3 million a year ago, an increase of 25.8% and we are also able to improve our gross profit percentage in the first nine months of fiscal '22. Despite supply chain and COVID-19-related challenges impacting most companies, our team has been very successful navigating these issues within our own business. This includes proactive supplier management, expanding sourcing for key materials and components, and advance purchasing of certain materials, components and finished goods to enable Orion to meet customer requirements with only limited impacts. Further, we believe Orion is well positioned for an expected rebound in customer activity as business conditions normalize and customers launch delayed projects and as we pursue new projects.

We also believe Orion's U.S.-based manufacturing focus represents an important advantage for us as it enables us to respond quickly to customer needs, usually within two weeks. Many of our competitors who source products from Asia faced lead times of six to 12 weeks in the best of circumstances. This performance advantage has enabled Orion to pick up some LED lighting fixture opportunities from competitors that were unable to deliver product. And we believe our quick production and turnaround times could provide additional opportunities going forward.

In terms of our national account project business, our largest customer has been and remains very active. While we expect to complete the nationwide LED retrofit of the retail stores during Q4 '22, we continue to be awarded a range of retrofit and other LED lighting projects, including new construction, parking lot retrofits and lighting reconfigurations inside their retail locations. More recently, we have expanded the scope of our work with this customer to include lighting maintenance services, which we expect to provide a growing source of recurring revenues in future years. It is important to note some bright spots in our growth this year.

For example, excluding revenues from our largest customer, our revenues grew $12 million or 33.2% year to date, demonstrating progress in diversifying our revenue base. We also achieved solid growth in our Energy Services Company, or ESCO channel, where revenue is up $7.2 million or 91.5% year to date. Industry-leading energy efficiency and the high quality of our products make Orion well suited for this channel which is focused on delivering energy conservation and related cost savings to their customers. For example, we have had good success this year with several East Coast school districts supporting an ESCO partner.

We are excited about the potential to build upon the success and believe that federal programs such as CARES funding may create further opportunities to upgrade educational facilities including potentially with our PUREMOTION UV-C air movement solutions. The innovative PUREMOTION product line is designed to sanitize air and eliminate airborne viruses, including COVID-19 in shared spaces, such as schools, medical facilities, offices and other public spaces. We see significant opportunity in the ESCO channel, and it will continue to be an important focus for our company. Our distribution channel also experienced growth with revenue up $2.2 million or 13.7% year to date.

This channel focuses on selling lighting products through broadline electrical distributors and continues to be an important path to the market for us. The solid performance in these two sales channels is testament to the underlying strength of our products, performance, customer service and our sales and marketing efforts. Turning to our lighting maintenance service business. We are making good progress on this strategic business expansion, which provides both an attractive opportunity for growth as well as the potential to build a solid base of recurring revenue.

To date, our customer base primarily consists of our major international retail customer and a national specialty retail customer. To accelerate our growth, in early January, we acquired Stay-Lite Lighting, a provider of lighting, electrical and maintenance services, primarily for retail companies as well as for industrial and commercial facilities. Stay-Lite Lighting provides Orion with a nationwide maintenance service network, an experienced in-house team of people and equipment that enables us to self-perform services in 15 states, primarily in the Midwest and Mid-Atlantic regions. Stay-Lite Lighting brings to Orion an annual revenue base of approximately $9 million, primarily providing services to national retail companies.

A number of their customers are companies that are not currently customers of Orion, including their two largest national retail customers. Based on the expanded scope of our combined businesses, we believe Orion has the potential for over $20 million of maintenance services revenue in our fiscal year '23, which begins April 1. We are also confident that this business has the potential to deliver gross profit margins that are approximately in line with our overall historical performance to make a solid ongoing contribution to our bottom-line results. Maintenance services fit well with the holistic approach we are taking to serve our customers with the ability to provide them a complete solution from design and engineering to manufacturing, installation and now lighting and electrical maintenance.

The maintenance business also provides us with more regular customer touch points, something we expect to enable and enhance the deepening of customer relationships while also providing additional sales opportunities for our LED lighting and controls solutions. As we've discussed in prior calls, Orion is developing a strong and growing reputation for executing large-scale turnkey LED lighting project solutions on time and on budget and with excellent customer service. Further, our LED lighting solutions delivered compelling returns on investment and important environmental benefits for our customers, including reduced carbon emissions and healthier and safer work environments. These factors are resonating with larger customer prospects and underlie our optimism for Orion's long-term growth potential.

We are proud to announce that we were one of four winners out of 29 submissions in the concept category of the American-Made Challenges L-Prize competition sponsored by the U.S. Department of Energy, NREL and Pacific Northwest National Laboratory for our sustainable and connected LED Troffer Retrofit fixture. In the concept category, manufacturers were invited to create next-generation LED lighting concepts designed to advance the U.S. clean energy economy resulting in transformative designs, products and beneficial environmental impact within the commercial lighting sector.

Our sustainable and connected troffer retrofit accomplished those concepts by offering a high efficacy networked LED luminaire with advanced controls that include LiFi technology that can be retrofitted in less than two minutes to an existing fluorescent luminaire. Now, looking to the balance of fiscal '22. We are maintaining our revenue expectation of approximately $130 million, which represents growth of 11% versus fiscal '21 revenue of $116.8 million. This outlook implies expected revenue of approximately $28 million for our fiscal fourth quarter ending March 31.

While current market conditions limit our visibility into fiscal '23, we do remain confident in our long-term strategic plan of building a $500 million annualized revenue business over about a five-year period, capitalizing on average organic growth of at least 10% per year, supplemented with external growth through acquisitions, partnerships and other initiatives. Our confidence in our organic growth goal is based on the strength of Orion's product and service portfolio, a growing base of customers, our unique build, design, install, maintain capabilities in our commitment to delivering a high-quality customer experience and compelling ROI. We are also confident in our ability to achieve external growth as evidenced by the acquisition of Stay-Lite Lighting. In addition, our comprehensive external growth process has allowed us to build a growing pipeline of potential partners, supported by our financial strength to execute on opportunities that fit our growth plans and financial metrics.

So now I'd like to turn the call over to Per to discuss financial highlights and insights before we take your questions. Per?

Per Brodin -- Chief Financial Officer

Thanks, Mike. Orion's third quarter fiscal '22 revenue of $30.7 million compares to $44.3 million in Q3 '21, a period in which we generated significant revenue from our largest customer as we were able to regain momentum on projects that had been postponed due to the original onset of the COVID-19 pandemic. In addition to a $14 million year-over-year decrease in revenue from our largest customer, Q3 '22 revenue was also impacted by LED project delays as our customers responded to supply chain disruptions and new COVID-19 variant impacts to their businesses. However, through the first nine months of fiscal '22, revenue grew by $21 million to $102.3 million compared to the first nine months of fiscal '21, which was more affected by COVID-19.

Orion's gross profit percentage remained level at 24.9% in Q3 '22 versus Q3 '21, which is notable considering lower revenue and higher component, logistics, labor and other cost pressures. In the current environment, we are focusing product offerings on the most compelling and popular solutions that provide production and margin efficiencies. Through the first nine months of fiscal '22, our gross profit percentage improved to 28% versus 25.7% in comparable to the prior-year period. Our Q3 '22 operating expenses decreased to $6.3 million versus $6.5 million through Q3 '21 due to lower compensation costs in the current year quarter offset somewhat by $200,000 of acquisition-related costs.  I'm sorry, operator, are you able to mute that person? Thank you.

Q3 '22 net income declined to $1.1 million from $4.3 million in Q3 '21 mainly due to reduced volume in the current year. However, year-to-date net income improved to $7.3 million from $4 million in the first nine months of fiscal '21, reflecting higher year-to-date business volume and margins. Orion's effective tax rate is 24.9% through the first nine months of fiscal '22, although 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 close of fiscal 2021. Orion generated EBITDA of $1.7 million in the third quarter compared to EBITDA of $4.9 million in Q3 '21.

For the first nine months of fiscal '22, Orion's EBITDA improved to $10.9 million compared to $5.5 million for the first nine months of fiscal '21. We continue to expect full year fiscal '22 revenue to increase approximately 11% to about $130 million. Based on this revenue performance, we would also expect to show a year-over-year net income improvement in fiscal '22 after excluding a nonrecurring, noncash income tax benefit of $20.9 million or $0.66 per diluted share in fiscal '21. Looking beyond fiscal '22, we remain very confident in the company's long-term strategic growth plan and potential.

As Mike mentioned, Orion remains in a strong financial position. We ended Q3 '22 with over $41 million of liquidity, including $17 million of cash and cash equivalents and $24 million available on our credit facility with no debt outstanding. Also of note, we prefunded our acquisition of Stay-Lite Lighting on December 31, which had an effective date of January 1, 2022. That funding of $3.7 million is included in other long-term assets on our December 31, 2021 balance sheet.

Net working capital improved to $32 million on December 31, '21 compared to $26.2 million as of our fiscal year-end March 2021 and $23.3 million at December 31, 2020. And with that, we'll turn the call back over to the operator for the Q&A session. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question comes from the line of Eric Stine with Craig-Hallum. Your line is open. Please go ahead.

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

Hi, Mike. Hi, Per.

Mike Altschaefl -- Chief Executive Officer

Good morning, Eric.

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

Good morning. Hey, so just to confirm, I know it was a couple of weeks ago when you preannounced. But I mean, just confirming, I guess, one that you still view this as just pushed revenues rather than lost revenues. And then curious, do you have any more visibility.

And I know this is not your supply chain, it's your customer's supply chain and COVID issues. But do you have any visibility into when those may start up? And I know you had a number of buckets that caused the preannouncement.

Mike Altschaefl -- Chief Executive Officer

Right. Right. First of all, yes, Eric, we have not lost any of this business or lost any of these customers and we expect the business to flow in, in forward quarters as we head into our fiscal 2023. Each one of them is unique of what caused it currently and what the delay might be, but we're quite confident that all of it will come forward for us.

So it is not lost business. We've seen some improvements, I'd say, from a customer standpoint on some of the supply chain matters as some things are starting back up but it's mixed across them. And each one is an individual situation. And so we're confident they are going to happen.

It's just taking a little longer than what we expected.

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

OK. Got it. That's helpful. I am interested in your commentary about picking up business, given your ability to respond in 2-week lead times.

Just wondering, is that something you're able to quantify? I mean do you view that today as kind of more one-off business or do you think that this is actually a business that you're getting now, but can turn into something larger?

Mike Altschaefl -- Chief Executive Officer

Sure. It's hard to absolutely quantify it, but I'll go back to our strategy. As we were looking back about a year ago, even plus, and we saw the supply chain situation coming forward. We've started taking specific actions of having some broader supply chain avenues of increasing our orders of actually taking physical delivery and even in some situations, if you will, prefunding or buying key components for some of our suppliers so they would be able to supply us.

And those things have worked out for us. And so as I've said during the call earlier, we are -- we do feel very confident that we have not lost very much business due to our inability to deliver product to our customers. And so I'm proud of our supply chain team and our engineering team for working our way through all of that. We have specific situations where we have been told that we picked up business because others were not able to supply product.

And often, and particularly in new construction, some of the lighting comes in toward the end of the project. And things can't be held up, and so time lines get very tight. I do think it gives us some opportunity to build new customers because sometimes when these things happen and you get somebody out of a tough situation, you are likely going to be rewarded with more opportunities down the road. So we would expect some of this could end up being some additional repeat business for us going forward.

So we try to take advantage of when we can and we continue to have significant inventory levels on hand to take advantage of these situations as well as service our own customers.

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

OK. Got it. Maybe just last question for me. And I know that this goes back a bit, but I guess a couple of years ago, you made some key hires because you didn't feel like you're getting a full look at the opportunity out there.

And I know, I mean, a huge market, but any thoughts on where you stand on that? How much of the market do you feel that you are getting a look at now? And are there any additions that are needed going forward?

Mike Altschaefl -- Chief Executive Officer

We feel very good and I feel very good about the progress we have made with the buildup on both our sales and marketing teams as a company. And I think part of it is demonstrated by one of the metrics I commented on earlier in that our the revenue nine months year to date, excluding our largest customer, has grown by 33%, and part of that has been our strategy of adding to our sales team and also reinvigorating some of our marketing efforts. Even more specifically, as I mentioned, our one market with ESCO, which has been a strategy of ours, is up over 90% year to date. So we do think it's having an impact.

We continue to build our sales team and look for people that can help us, and we also have increased our investment in our marketing activities to get us additional opportunities for projects. So we think it's having an impact. Some of those things take a little bit of time. But I think we're seeing it already in fiscal '22, and we're optimistic we'll see more of the impact from those initiatives as we head into fiscal '23.

So thanks, Eric.

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

OK, thanks.

Operator

Thank you. And our next question comes from the line of Amit Dayal with H.C. Wainwright. Your line is open.

Please go ahead.

Amit Dayal -- H.C. Wainwright and Company -- Analyst

Thank you. Good morning, everyone. 

Mike Altschaefl -- Chief Executive Officer

Good morning. 

Amit Dayal -- H.C. Wainwright and Company -- Analyst

My questions are on sort of the margin side of the story. And growth on the service side and how that can help you potentially on the margin side. So you're expecting around 10% growth, trying to get to the $500 million target in a few years from now. What role does the service side of the business play in that? And can the service segment grow faster than 10% potentially for you?

Mike Altschaefl -- Chief Executive Officer

Well, I'll start with the service side. And I would first expand a little bit that what we view as service today would be two different components. One, we have had for our 25-year history, the installation services that we provide to our customers on a turnkey basis as well as other miscellaneous engineering type services for them. And that has been our historical service business, and now we are expanding that with the lighting and electrical maintenance services business.

And I think given the numbers that I laid out this morning that in combination with the acquisition we made in our existing customer base and our expected growth that we believe we can build that maintenance business into a plus $20 million business in fiscal '23. And so we feel that's very nice progress of demonstrating the ability to both acquire a situation, but also our own organic growth. So I would say that it's likely the maintenance side of the business could possibly grow faster than 10% going forward. From a margin standpoint, we have consistently commented that we think the margins that can be achieved on the maintenance business would not be dilutive to the margin aspirations we've had as a company.

We do generally find that product margins are somewhat stronger than service margins, but we find that the maintenance margins from lighting and electrical maintenance will fit well within that group of those two. In some respects, they are somewhat symbiotic and that they really do help each other as you go forward.

Per Brodin -- Chief Financial Officer

And if I may just add a little bit to that, Amit. If you look at our service margin in the current quarter from a year-over-year basis were up over 200 basis points year over year. And year to date, we're up about 150 basis points just on the service margin line. So I think that speaks to our continued diligence on trying to improve those margins and would expect to try to achieve that as we move forward.

Mike Altschaefl -- Chief Executive Officer

I also -- one last quick comment to Amit is that we're very pleased with the 28% gross profit percentage on a year-to-date basis, particularly in this inflationary period. So it really has told us that our early actions with respect to managing our supply chain efficiencies, operational efficiencies and price increases has helped us maintain our margins during a tough inflation year for many industries.

Amit Dayal -- H.C. Wainwright and Company -- Analyst

Yes. That's kind of where I was going next, Mike. I was just trying to see what the future gross margin opportunities are. I know this year could be a little bit -- variants coming into play depending on how some of the supply chain issues play out.

But once these get normalized, do we see a little bit of a step improvement in the margin profile for the company?

Mike Altschaefl -- Chief Executive Officer

I think in the past, we have commented that we felt the range of margins for us in a normalized period should be between 25% and 30%, in that we would think more midterm, we should be able to move beyond 30% with our gross margins. And given that our current nine-month year to date is 28%, and there's been some quarters where the revenues are -- it's not a real even year for us, which is not uncommon for a project-based business. We're very pleased with hitting the 28%, particularly with the inflationary pressures that we have seen and been able to manage our way through. So I would stay with where we are at, that we think near term being in those mid- to high 20% range is certainly achievable for us, and we think longer term to be up above 30% is realistic.

Amit Dayal -- H.C. Wainwright and Company -- Analyst

OK, thank you for that, Mike, and that's all I have. Appreciate it. Thank you.

Mike Altschaefl -- Chief Executive Officer

Yeah. Thank you, Amit.

Operator

Thank you. And our next question comes from the line of Alex Rygiel with B. Riley. Your line is open.

Please go ahead.

Alex Rygiel -- B. Riley Financial Inc. -- Analyst

Good morning and thank you. I know it's a little early, obviously, to talk about fiscal year '23, but maybe you could just kind of shed some light on some of my thoughts or assumptions. So incrementally, you're targeting 10-plus-percent organic growth. So that would be, call it, $13 million or so.

Incrementally, you'll probably get another $6 million, $7 million from the Stay-Lite acquisition's contribution for a full year. So that gets you to sort of $20 million which takes your full year kind of revenue number to $150 million for fiscal 2023. I'm not asking you to confirm that or anything, but what are some of the -- is there any upside to that number from pushouts in 2022?

Mike Altschaefl -- Chief Executive Officer

I appreciate the question. Thank you very much. And I think, I understand the way you're looking at it and we truly wish we were at a point where we could give more broader outlook going into fiscal '23, and we just continue to feel that there are a number of moving pieces going on of all the things we've been talking about. So I won't repeat them.

But that we just think it's more prudent to wait until we have a better handle on it, to have that discussed. I think the way you're looking at it from a base standpoint makes some sense. We do think there's some upside. I think there's upside in that the projects that have -- are likely pushing forward is somewhat there.

I would put a little bit of caution on that, in that, as I mentioned on the call back in January, because a company has to move a capital project from their x year to the following year. It doesn't necessarily mean they're going to double up on their capital projects. But there could be something in between there to give you some upside. But I also feel most of my upside view that I see is that, just we are seeing the activity level, the request for quotations, our proposal activity metrics have been strong.

And we think that as supply chains continue to normalize, our comments have been, we saw it kind of well into '23 -- I'm sorry, well in the calendar '22. And so we're kind of charging a way through that. Hopefully, by midyear, it's a little bit more normalized. And hopefully, for our customers, they solve some of their issues that you could see some upside, too.

So we're very optimistic about the future. I just unfortunately would say that the visibility and predictability right now is a bit challenging.

Alex Rygiel -- B. Riley Financial Inc. -- Analyst

Understood. And then as it relates to M&A, can you maybe address the status of your M&A backlog and then talk a little bit about sort of total capital allocation toward M&A in calendar year 2022?

Mike Altschaefl -- Chief Executive Officer

Sure. We some time ago started a very formal process using some outside assistance to identify potential companies to have conversations with. And we have found it to be very productive for us. We have talked with a large number of companies and have identified a much larger universe to think through.

And our focus, as we've commented in the past, has been to think about several categories. One, we knew we wanted to grow our maintenance business as it has started out to give it a jump start and add more resources and capabilities and experience in customers. And so we've taken that first step. But we could certainly see additional opportunities in that area as we've identified prospects.

We also are really intrigued in the area of opportunities in EV charging stations, battery storage and solar. And so we continue to look at possibilities that could be in those areas for us to think about. Technology has been of interest to us from a control standpoint and other type of technology applications and the products. So it kind of rounds out everything but those are things that we're looking at very key.

I feel that the progress we've made on our pipeline would hopefully allow us to do additional transactions, certainly during fiscal '23, perhaps calendar '22. From a capital allocation standpoint, it's a tough one to answer because we're looking at very small companies that are very intriguing to us, and we're talking at times with some companies that are quite large. And so the whole capital structure is a difficult one to answer today, but we feel good about, obviously, the cash we have on hand. We are substantially debt-free right now, which provides some debt opportunity for consideration.

And in the right situation, perhaps our stock also from a currency standpoint. So we feel we have the financial wherewithal to do many things. But the size range has been all the way from looking at some things that are tuck-in to things that could be transformative for us if we think it is a good opportunity and a high value for our shareholders to do something larger.

Alex Rygiel -- B. Riley Financial Inc. -- Analyst

Very helpful. Thank you.

Mike Altschaefl -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Andrew Shapiro with Lawndale Capital Management. Your line is open. Please go ahead.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Hi. Thank you. I have a question following up on the Craig-Hallum analyst questions. I just need a clarification.

To what extent was this quarter's shortfall from your expectations, the result of delays by the customer, which sounds like most of it is, but I don't know if it is all of it versus the any supply chain delays that you experienced on your own?

Mike Altschaefl -- Chief Executive Officer

We feel and have concluded that most of the shortfall, I will call it, for fiscal '22 of our move to telling you, we feel we're going to be in the $130 million range is caused by our customers' supply chain and/or COVID challenges. So we feel most of it has been external. We feel that internally, we have lost very little business this fiscal year of not being able to supply product to people.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

OK. And of the instances when it's, we'll call it, COVID-caused versus supply chain, on those instances and those are all deferrals? Or is your definition of COVID cause some customers have had financial challenges that they've decided to cancel or scale back their capital expenditures?

Mike Altschaefl -- Chief Executive Officer

It has been more of the first. So we think it's more deferrals. An example might be, we've had situations where we were working in hospital systems and due to the flare up of the last round of Omicron, they may have said, we need to slow down the project or delay the project for a few months to let things settle down, if you will. So when we say COVID impacts, it's those types of things, it's usually access to facilities, either where we are providing product or we are providing both product and installation services.

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Excellent. Thank you very much.

Mike Altschaefl -- Chief Executive Officer

Thank you for your questions.

Operator

Thank you. [Operator instructions] And our next question comes from the line of Bill Dezellem with Tieton Capital Management. Your line is open. Please go ahead.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. Mike, would you please expand on comments that you made in your opening remarks relative to some early signs that the supply chain might be improving slightly.

Mike Altschaefl -- Chief Executive Officer

Sure. It's just -- there are just subtle different things that we are seeing. We're seeing from a supply chain standpoint, sometimes the timeframe that it takes to get product to our facilities is starting to come down somewhat. Some of the costs related to transportation have moderated somewhat in certain areas and just other types of things that we see where the difficulty of getting the components and the supplies that we need have moderated to a certain extent.

And so we are assuming that also has some impact on the -- our customers and potential customers where things just seem to be getting somewhat better. I still think we have a period of time overall for things to get a little bit more normalized and -- but we're seeing things improve somewhat.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. And then a balance sheet question. The accounts receivable dropped from, gosh, nearly $24 million last quarter down to the $12 million or so this quarter. Is that primarily a function of your largest customer revenue slowing down? And therefore, basically, their outstanding bills have been paid and are reduced or is there something more going on there?

Per Brodin -- Chief Financial Officer

No, I think, Bill, it's a reflection of the level of our business volume based on collections relative to the terms that we have on the related revenues. Nothing else unusual going on.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you, both.

Per Brodin -- Chief Financial Officer

Thank you, Bill.

Mike Altschaefl -- Chief Executive Officer

Thank you, Bill.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mike Altschaefl for any further remarks.

Mike Altschaefl -- Chief Executive Officer

Thank you very much, Michelle. I do want to apologize for some of the noise background we had earlier in the call. It was coming from outside the speaker group, but we worked our way through it. So thanks for your patience.

I also want to thank everyone who joined us for today and join us today and for your interest in Orion. We have, over the past fiscal year, participated in a number of virtual conferences and all of those have been recorded and are available in the IR section of our website. And also feel free to contact our IR team, if you'd like to have a meeting with management or have additional questions. And their information is in the release today.

So thanks again for your time, and we look forward to updating you in June with our fiscal '22 fourth quarter call. Thanks, everybody, and have a great day.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Bill Jones -- Investor Relations

Mike Altschaefl -- Chief Executive Officer

Per Brodin -- Chief Financial Officer

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

Amit Dayal -- H.C. Wainwright and Company -- Analyst

Alex Rygiel -- B. Riley Financial Inc. -- Analyst

Andrew Shapiro -- Lawndale Capital Management -- Analyst

Bill Dezellem -- Tieton Capital Management -- Analyst

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