Orion Energy Systems Inc (OESX) 2010 Q1 法說會逐字稿

Good afternoon and thank you for standing by. Welcome to the Orion Energy Systems first quarter 2010 earnings conference call. Your lines have been placed in a listen-only mode until the question-and-answer segment of today's call. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the conference over to Erik Birkerts, Executive Vice President. Erik, you may begin.

Thank you, Amy. And thank you for joining for Orion Energy Systems fiscal 2010 first quarter conference call. With me on the call today are Neal Verfuerth, CEO, Scott Jensen, CFO. On the call we will also introduce Jim Kackley, our new President and COO.

Before we begin I'll read the Safe Harbor statement. Our remarks that follow, including answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified as such because the context of such statements will include words such as believe, anticipate, expect, or words of similar import.

Similarly, 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. Those risks include, among others, matters that we have described in our press release issued this afternoon and in our filings with the Securities and Exchange Commission.

Except as described in these filings, we disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. Now I'd like to turn the call over to Neal.

Thanks, Erik. I'd like to welcome everyone to Orion Energy System's fiscal 2010 first quarter conference call. As you all saw in our press release issued this afternoon, we reported revenues of $12.6 million for our quarter -- for our first quarter of fiscal year 2010, which is in line with our previously issued guidance. In spite of the continuing pressure experienced by our end market customers due to the economy.

In addition, we also captured 16 customer opportunities under the Orion Virtual Power Plant financing structure. If these deals would have been structured as cash transactions and recognized fully, we would have reported an incremental $1.1 million in revenues and a $378,000 contribution margin within the quarter and reduced loss per share by approximately $0.02.

Our net loss for the quarter was $2.8 million or $0.13 per diluted share. While we met the operating cost targets upon which we based our earnings guidance, this loss was greater than forecasted due to non-operating factors tied to tax accounting in which our effective tax was smaller than expected. Our tax benefit was smaller than expected.

Given the lower demand levels we continue to see in the marketplace, we remain focused on managing our cost structure and continue to be on track to achieve over $3.2 million of cost reductions over the course of fiscal 2010. Scott will comment in more detail on these initiatives shortly.

That said we had some key accomplishments during the quarter that I would like to highlight to demonstrate that our core business strategy is sound.

To remind everyone, we consider ourselves to be the leading provider of energy management systems and solutions to the commercial industrial sector. Our core product line is our integrated energy management platform, which can be deployed in three individual phases or as an integrated solution. Phase one of the Orion Integrated Energy Management Platform is represented by our compact modular high intensity fluorescent light fixture. This is our customer acquisition engine. The compact modular produces more light under our 50/50 value proposition. 50% more light with 50% less cost. Typical ROIs witnessed in our retrofit projects averaged 18 to 24 months.

Within the quarter, we added 223 facilities representing over 25 million square feet to our installed base of -- which now totals 4,796 facilities. We now do business with 119 Fortune 500 companies.

Phase two of our Integrated Platform is a compromise of our InteLite wireless control system. Our wireless control allows Orion to add intelligence onto the light fixture to further drive energy savings for our customers. The addition of the wireless transceivers onto the fixtures creates a wireless communication grid on the ceiling. This grid allows us to control other end use devices such as HVAC systems, peripheral fans, and air compress systems. It's important to note that our wireless controls not only work on Orion's product but also on those of our competitors.

The quarter witnessed solid traction also in our phase two products. We deployed our intellect control systems at 24 customer locations resulting in 2,525 transceiver shipments. Total shipments or total deployments now number 64 customer locations and over 4,000 transceivers installed.

Phase three of the Integrated system is represented by our Apollo Light Pipe, which allow customers to take their lighting needs off the grid during the peak hours of the day by harnessing renewable sunlight. The first quarter also witnessed excellent traction for our phase three products. We shipped 640 Apollo Solar Light Pipes during the first quarter and total units installed in the marketplace now number 2,282.

And exciting win for the phase three Apollo Light Pipe was on July 10th we received a purchase order for over 1,000 units at one location, our largest sale of the Light Pipes ever.

We find that once you've saved a customer thousands if not millions of dollars, you're very well positioned to discuss other energy management solutions and technologies. Our longer-term strategy is to push our innovation, product development, and corporate development initiatives to build our portfolio with additional energy efficiency and readable technologies.

One such technology that we've discussed on earlier calls is our exterior lighting product line. These products demonstrate the logical extension of our core competency in what -- which is maximizing white output per energy input. We're participating in numerous street lighting pilot projects and third-party feedback to date is very favorable as compared to other technologies they're looking at.

The first quarter also witnessed a successful sale of our outdoor lighting unit to a (inaudible) owner and operator of parking facilities across the US. Although the initial order was for less than 100 units, we see this as a significant validation of that technology in this application.

Ultimately our long-term objective is to deliver end-to-end energy management solutions to our customers. As I mentioned previously, successful execution on our phase one projects have established us as energy experts in the eyes of our customers. We look to build upon this over time.

The keys to making this vision come to fruition are continued customer acquisition and exceptional operational execution. To this end, we are thrilled that Jim Kackley has decided to join us as our full-time President and COO. Jim will assume responsibility for Orion's day-to-day operations to ensure flawless execution. By handling the operational range over to Jim, I'll be free to play to my strengths and work to acquire more customers and develop additional technologies for the future.

It's a perfect match and a terrific development for a young Company such as Orion to attract a seasoned and experienced executive such as Jim. I'm looking forward to collaborating with Jim as well as learning from Jim as we take this Company to the next level.

With that, let me turn the call over to Jim so he can introduce himself.

Thanks, Neal. I appreciate having a moment of everyone's time to introduce myself. I also look forward to speaking with you on future calls when I'll have the opportunity to assume a greater role in discussing our progress and opportunities.

As most of you know, I've been on Orion's Board for four years. During this time, I've had the pleasure of working with Neal and his management team to help transform Orion from a small private Company with $12 million in sales to where it stands today with 119 Fortune 500 customers, over 47 other facilities retrofitted, representing in excess of 780 million square feet of space.

I would tell you that I am impressed with the vision, drive, entrepreneurialism and perseverance of this management team. During my time on the Board, I've also learned much about Orion's business, which has allowed me to hit the ground running. I agreed to join Orion full time as President and COO. My goal is to help Neal and his team re-ignite Orion's growth trajectory.

Assuming responsibility over Orion's day-to-day operations will free Neal to do what he does best, sell. Neal will be able to devote his attention to working with large customers, partners, shareholders, utilities, government agencies, and in developing new products.

My near-term focus will be on helping Orion mature as a Company by implementing the structure and processes that will support our future growth. We have a terrific manufacturing asset run by an experienced and capable operational team. Many plant efficiencies have already been implemented through lean processes and the team is focused on continual improvement. I am confident that our manufacturing operations are well positioned to support growth.

Given this, my initial focus will be directed towards organizational structure and human capital. I see opportunity in making sure we have the right people on the bus and sitting in the right seats. I see opportunity in making sure everybody has a clear understanding of their roles, responsibilities, and deliverables. To ensure operational execution, I will also work with the management team to more clearly define operational metrics and targets so we can track our progress to enable us to more nimbly react to changing market environments. To ensure financial execution, I'll be managing costs very closely.

Orion is blessed in that it is presented with a wealth of opportunities to pursue. I will also work with the management team to evaluate ideas and opportunities so that we pursue those that create the most shareholder value while ensuring we remain focused on our core business.

Let me conclude by speaking briefly to the relevant aspects of my background and qualifications that I bring to this job. As you've seen in the press release, I spent most of my career as a partner at Arthur Anderson. During my 35 years of firm, I was managing partner of the Northern Florida practice, the Chicago office, the firm's largest office, the Midwest region, and finally I served as Chief Financial Officer of Anderson Worldwide.

In these roles I was managing people, teams, and processes to achieve positive outcomes with exceptional financial and operating results both domestically and internationally. And through economic expansions and downturns. I had complete P&L responsibility in these positions and as CFO of Anderson Worldwide; I was responsible for $16 billion operations spanning 100 companies -- or countries.

Since then, I've served on four public company boards. Two of my current assignments, Herman Miller and Pepsi Americas, are superb operators and have given me a number of cues in operating management. Board service has also educated me on life in a public company.

Finally, I'm very excited about Orion's future prospects and certain in my ability to collaborate with Neal and have a positive impact on the Company.

Equally important, Orion's broader mission and contribution to the greater good is something I believe in. Our technology benefits the environment and our technology saves our customers money, which in turn enhances their competitiveness. As I like to say, at Orion we're on the side of angels.

Thank you. I look forward to speaking with you on future earnings calls. Erik?

Thanks, Jim. As Neal mentioned up front, the first quarter witnessed strong customer adoption of our Orion Virtual Power Plant financing structure. And to remind everyone, the Orion Virtual Power Plant is an energy supply contract in which Orion commits to deliver a defined amount of energy savings -- megawatts -- at a fixed rate that is lower than the customer's existing rate to acquire power from the utility.

As it is structured to qualify as an operating expense for customers, Orion's customers benefit from cost savings, incremental cash flows, and Orion's technology without having to make upfront investments or capital outlays.

Orion benefits as the structure allows our sales people to capture deals that otherwise would not have occurred due to capital constraints or budget issues.

During the first quarter, we secured 16 new projects under the Orion Virtual Power Plant structure that will deliver $2.3 million of gross revenue streams to Orion over the term of the agreement. As Neal highlighted, if these projects had been structured as cash transactions, Orion would have recognized an incremental $1.1 million in quarter legal revenues, $378,000 in contribution margin, and our loss per share would have been improved by approximately $0.02.

As of June 30th, we have a total of 36 customer contracts representing over 94 million-kilowatt hours of megawatts and $3.6 million in gross income streams. As you can see, the first quarter represented 63% of this total amount, demonstrating a significant ramp up in financing activity.

We continue to hold these contracts on our books and have not yet elected to sell these contracts to a third party. Accordingly, we recognize a fraction of revenue each month, essentially one-sixtieth, versus the full amount up front as we would if we sold the contracts.

As we are currently using our capital to finance these transactions, our intent is to sell these contracts to a third quarter once we have built critical mass.

Moving to our sales force, we finished the quarter with 71 people on the team. As we discussed in our last earnings call, we believe we have the resources currently in place to build our pipeline of opportunities and to position Orion to sell into the market upturn. We do not anticipate any meaningful expansion of the team at this time.

On our last earnings call, we highlighted delays that we experienced with three significant national account opportunities. One delay involved a $2 million series of facility rollouts for a Fortune 500 customer. We have received $1.3 million in purchase orders from this customer and expect to capture the remainder this year.

The second delay involved $1 million of follow on business with another major account. We have now secured this business. Unfortunately, we are still working to secure $5 million in facility rollouts to the third national account customer that underwent significant headcount reductions following an acquisition. We have received some purchase orders, but the majority of this opportunity is still in process of being resold to new decision makers at this company.

As we have discussed on previous calls, we are making a strong push to strengthen our wholesale network of partners. This network provides us the geographic sales region and market coverage required to capture the wealth of opportunities that exist in small and midsize customers across the United States. Moreover, our top partners serviced valuable project management and installation partners on our direct sales.

In terms of expanding our partner network, we added 31 new contractor partners in the first quarter bringing our total network of contractors who have conducted business with Orion to over 476. Within the quarter we also held a partner's summit with over 110 attendees and conducted three Orion universities with over 87 attendees from 48 companies. These events help us to better train our partners to sell and support Orion technology and help to foster stronger relationships between Orion and the partner network.

It also deserves mention that we launched our first partnership with a Mexican contracting organization in the first quarter with 15 sales people. This local market partner helps us expand our sales and deployment reach in this vibrant market.

With respect to sales contribution, our partners have also suffered from the impact of the economic downturn. This can be witnessed by the fact that our wholesale business is down by 26% year-over-year. However, on a percentage basis, our wholesale business is held relatively constant. It contributed 32% of total revenues in the first quarter of fiscal 2010 compared to 35% in Q1 of fiscal 2009. As we have discussed before, we expect overall wholesale contribution to normalize around 40% of revenues for the year.

Finally, our national account sales contributed approximately 41% of Q1 revenues and the balance of revenues came primarily from non-national account direct sales.

With that, let me turn the call over to Scott to discuss the financial results in more detail.

Thank you, Erik.

Our reported revenues for the first quarter of fiscal 2010 were $12.6 million compared to $16.1 million for the first quarter of fiscal 2009, which represents a decrease of 21%. This decline was primarily driven by the continued impact of the overall economy on both our wholesale and retail customers. Orion has impacted, through reduced capital spending by our customers, facility rationalization, conservatism around managing liquidity, and difficulties in accessing credit markets.

As mentioned earlier in the call, our financing deals are gaining traction. And $1.1 million of revenue has been deferred into future periods. Service revenues accounted for 15.4% of our total revenues for the first quarter.

Our blended gross margin for the first quarter was 27.7%, down from 32.3% in the comparable prior year period. Our gross profit dollars decreased $1.7 million to $3.5 million for the first quarter of fiscal 2010 compared to $5.2 million in the first quarter of fiscal 2009.

Our product margins for the quarter were 26.3%. This margin decline was driven by the underutilization of our manufacturing facility. In prior periods, we have taken our trained workforce and focused on opportunities to implement efficiencies within our production processes. In May, we made the difficult decision to lay off 35 production members of our workforce, scheduled a two-week shutdown period, and continued to implement lean manufacturing principles within our operations.

Recently, we separated with 23 of the previously laid off workforce as a result of the significant improvements made. We expect that these changes will benefit our product gross margins in the future.

Our service margins for the quarter were solid at 35.7%. While we benefitted slightly from a favorable customer mix, we've continued to make strides in driving margin improvement through product improvements that allow for more efficient installation and through managing our internal service costs.

G&A expenses for the first quarter were $3.2 million or 25% of revenue versus $2.7 million in the first quarter of fiscal 2009 or 16% of revenues. In the prior year first quarter, G&A expenses were positively impacted from a one-time $360,000 gain from the sale of an investment.

For the quarter ended June 30, 2009, we incurred additional occupancy costs related to our new corporate technology center of $370,000, which included $100,000 of one-time initial occupancy costs. We also incurred $154,000 in severance costs resulting from our cost reduction efforts.

Finally as a result of these cost reduction initiatives, we were able to reduce other costs year-over-year by $400,000 through headcounts and work hour reductions, and discretionary spending reductions.

Build to marketing expenses for the first quarter of fiscal 2010 were $3.2 million or 25% of revenues compared to $2.7 million or 16.5% of revenues in the prior year period. The increase in expenses was due to compensation costs as a result of our increase in headcount as we focused on new opportunities in the utility, governmental, and outdoor lighting markets, and added sales resources to our in-market efforts.

R&D expenses for the first quarter were $419,000 or 3.3% of revenues, up slightly from $418,000 or 2.6% of revenues in first quarter of fiscal 2009. We incurred costs within the quarter to continue developing our exterior lighting products and to continue innovation within our wireless control product line.

Our loss from operations for the first quarter of fiscal 2010 was $3.2 million, increasing $2.7 million from an operating loss of $488,000 in the prior year period. Interest expense for the first quarter was $56,000 versus $67,000 in the first quarter of fiscal 2009. And interest income from the first quarter fiscal 2010 was $123,000 versus $617,000 in the first quarter of fiscal 2009.

The reduction in interest income was due to declines in market rates and also due to the change in cash balances over the last 12 months resulting from the execution of our share repurchase program and the construction of our technology center.

Our income tax benefit for the first quarter of fiscal 2010 was $393,000 versus income tax expense of $28,000 in the prior year first quarter. Our effective tax rate for the quarter was 12.4%. As mentioned, we had anticipated a higher benefit rate, which was impacted by a reduction in state tax benefits, a reduction in federal tax credits, and the continued impact of our non-deductible stock option expense.

Our fully diluted loss per share for the first quarter of fiscal 2010 was $0.13 on a weighted average fully diluted shares outstanding of 21.6 million shares. That compares to breakeven earnings for the prior year period based on weighted average fully diluted shares outstanding of 30 million shares.

As of June 30th, we had 21.7 million common shares outstanding. In addition, we have warrants and options totaling 4.1 million shares outstanding.

Turn to the balance sheet. We finished the quarter with $34.1 million in cash and equivalents in short-term investments on hand compared to $42.6 million at the end of our fiscal year ended March 31, 2009. We continued to maintain our investments in short-term highly liquid vehicles to provide for maximum liquidity.

Our inventory balance as of June 30, 2009 was $21 million, an increase of $800,000 from our fiscal year end March 31, 2009. The increase in inventory was due to $2.8 million investment in our phase two wireless control products, which remain a key component of our growth strategy. Due to supply side contraction and product availability out of Asia, these electrical and computer components currently have lead times stretching into the nine- to 12-month range. Additionally, these suppliers require cash deposits at time of purchase.

On a positive note, we were able to reduce existing inventories of our phase one products by approximately $2 million through concerted efforts to manage inventory supplies and decrease safety stock levels.

For the first quarter, cash use for operating activities was $6.3 million driven primarily by our net loss of $2.7 million and a reduction in our accounts payable balance of $3.4 million. The accounts payable balance change is viewed as an aberration and was impacted by the reduction in inventory levels of phase one products.

Additionally we used $1.8 million for capital expenditures in the quarter to complete our corporate technology center, continue investment in our ERP system project and to other manufacturing projects resulting from our lean initiatives. Finally, we used $700,000 in the quarter for product and service costs related to completed and in process Orion Virtual Power Plant projects.

We are tracking with our previously announced cost reduction initiatives. For the quarter, we were able to benefit operating results by approximately $500,000 and are on pace to deliver the remaining $2.7 million over the remainder of fiscal 2010.

We've had a lot of moving parts related to our cost structure during this recent quarter. To summarize, we are tracking to realize the previously announced $3.2 million in annualized cost reduction savings. Additionally, we anticipate that we will incur an additional $1 million in occupancy costs related to our technology center, and we expect to incur approximately $250,000 in one-time severance expenses in the year.

We expect the net change will provide an annual net cost reduction benefit to Orion of just under $2 million. We are also continuing to evaluate our business opportunities and manage and align our cost structure appropriately.

Finally, looking ahead to the second quarter of fiscal 2010, we expect only modest quarter-over-quarter improvement given the continuing difficulties experienced by our end market customers. As such, second quarter of fiscal 2010 revenues are anticipated to be between $13.2 million and $14.5 million. Loss per share for the second quarter of fiscal 2010 is estimated to be between $0.07 and $0.11 per share.

Neal?

Thanks, Scott. As Scott just mentioned, we expect only modest improvement next quarter. Although we've seen some loosening of the CapEx budgets primarily in the food, food service, and beverage industries, we continue to see the manufacturing sector facing challenges. We believe fiscal stimulus spending will be a positive force but we have yet to see any meaningful dollars hitting the marketplaces in which we compete.

However, as I've always communicated, we view our business through a long-term lens and we remain bullish about Orion's prospects across a three- to five-year time horizon. The elements that support our optimism about the long-term include we deliver clean, low-cost, and distributed part of the -- which is part of the linchpin to the nation's future competitiveness. And President Obama and his administration fully recognize the fact that clean energy solutions and energy efficiency in particular are top policy items.

The energy bill that passed the House and is currently working its way through the Senate will also benefit Orion in numerous ways no matter what form it takes ultimately. We are clearly in the sweet spot to take advantage of this. We consider Orion to be the leading provider of energy management systems to the very large commercial industrial market as well as some of the smaller markets as they push out to our channel partners.

The lighting and retrofit opportunity alone, a market we have been successful in over 10 years, is estimated to be larger than $9 billion. Our customer wins and track record demonstrates our leadership in this arena. Moreover, our successful projects establish us as an energy expert in the eyes of our customers that open the opportunity for additional future sales of complementary solutions.

We believe we have the best products to sell in this market opportunity. Our customers recognize that we have -- offer more than just phase one retrofit solutions. That we are seeing accelerated adoption of our wireless controls, our renewable Apollo Solar Light Pipes, and other lighting products. We also have the engineered -- engineering and project management expertise to ensure that customers' projects unfold on a schedule as promised.

We provide turnkey solutions whether required or not at a single facility or across hundreds of facilities across the customers' North American real estate footprint. We have a world class vertically integrated manufacturing capacity here in Manitowoc, Wisconsin, that is a key competitive advantage in that on average we can produce and ship a product in less than two weeks. In the business of energy efficiency, time is money and we are poised to support our business expansion.

We believe our proven sales methodologies and sales practices allow us to compete very effectively. Time and time again in direct competition, our sales people are better able to both demonstrate the superior performance of our product and to intelligently discuss energy efficient solutions with our prospective customers.

Finally, Orion's strong balance sheet with over $34 million in cash and short-term investments will enable us to continue to drive towards realizing more and more of this opportunity. We feel we have sufficient capital to support our future growth.

I would now like to turn the call back to the operator to open the call up for questions.

(Operator instructions) We'll go first to Glen Wortman with Sidoti & Company.

Yes, good evening, everyone. Looks like your sequential revenue guidance implies that your revenue will be increasing in the coming quarter. Can you just give us a sense of where that higher revenue's coming from? And then, do you think this first quarter will likely mark the low point for quarterly sales?

Well, when we look at -- Glen, this is Erik by the way. When we're looking at Q2, the majority of that revenue is tied to what we saw in July as well as purchase orders we have in house. And then the remaining piece is the go get in looking at our pipeline and evaluating where deals stand in terms of the sales cycles. We have confidence that Q2 is an achievable number.

Okay. And do you then think that this first quarter will likely be the low point?

That's a tough question. We certainly would not want to revisit a quarter like the first quarter, but given what the environment is like and I hear people talking about double-dipped recessions, I'm cautious. But I would say based on what we're seeing that we definitely feel better about our business today than we did three months ago.

We're seeing -- if you look at our daily order volume, there's more consistency day-to-day. We -- a few months ago when you looked at our daily order volume there would be several days running with low orders and then there'd be one big deal that would hit. Today we're seeing just consistent orders day in, day out that suggest that there's more of a broad-based pattern in deals coming in. So, we're feeling better today than we were three months ago.

Okay. And then just looking to the competitive landscape, can you just maybe describe that for us and how do you think you're faring against your competition?

This is Neal. We continue to go up against the typical competitors we've seen over the last several years. And without fail, our technology will outperform them on an input versus throughput standpoint. And then given the overall value proposition Orion brings to the table, is how we're still getting the customer wins we're getting. I think customers are now looking for not just a lighting solution, but they're looking for a longer-term energy solutions go-to person to advise them well into the future. How should they be taking their business operations and making them more energy efficient? And then even reducing their carbon footprint? And this has been in Orion's wheelhouse since day one. So, we're very well positioned into the future.

Okay. And then just finally, do you think you'll be cash flow positive in the second quarter?

Glen, this is Scott. I'm not anticipating that we'll be cash flow positive based on the loss that we're forecasting. We still have some CapEx projects in place related to our ERP system. I can tell you it's not going to be as significant as the cash burned in this quarter. Significantly we had that $3.4 million decrease in payables. I don't anticipate that to reset.

We'll continue to manage the working capital side aggressively and try to work down inventory. But we've made some investments in our wireless product and I wouldn't expect that cash flow will be positive or breakeven in Q2.

Okay. All right, thank you very much guys.

And we'll go next to Eric Prouty with Canaccord Adams.

Great, thanks. Just a follow-up. Scott, you mentioned inventory levels. Knowing that you need to keep a certain level of inventory on hand for your customers, what is an inventory level that you're comfortable with given the current environment?

Good question, Eric. On our regular phase one inventory, we ended the quarter about $13.5 million. I believe we still have opportunity there. And that we can manage customer orders to I guess what I would call key components and manage some of the customization that might be inherent in some of the projects by being more creative with our inventory components. And that we have the opportunity to manage that downwards.

Great. And then on the guidance, you had a bit of an aberration in the tax rate in Q1. Is that something that's going to carry forward to these permanent changes? Or was that more of a mark to market in the quarter that won't repeat itself?

No, that -- our expectation on that effective tax rate is that that will be the rate that we'll carry forward into the next quarter. And we've taken somewhat of a conservative approach as it relates to state tax benefits. We've accumulated quite an inventory of tax credits within the state of Wisconsin here. And so, to record any additional benefit there, we essentially would be reserving for that benefit, Eric, because of the concern of the quantity and the dollar amount that we're accumulating. And our ability to actually generate them over a longer period within the space, specifically as we do more and more business nationally.

Great. And then also on the CapEx you mentioned, could you just give an estimate of what your CapEx might be for the remainder of the year?

Yes. Right now we spent a little under $1.8 million in the first quarter on CapEx spending. We've got certainly the completion of our ERP system, which we'll be rolling out later in the fiscal year. Some other technology projects related to software development and wireless controls programming. We're expecting right now, Eric, in a range of about $2.8 million to $3.2 million.

Great. And then finally, Neal, maybe you could comment as you grow the business out from say a focus on lighting to kind of leading with lighting and having a larger portfolio of products top selling to your client base. How do you see your own internal sales force changing either in structure or in nature? Or does it need to change at all how you're selling the package as opposed to a product?

We've been over the last year-and-a-half or so working towards more of a -- much like manufacturing a division of labor strategy. And bringing certain expertise in certain disciplines. And then having our sales force be dispatched based on really talent required and geography. And then, when it comes to real technical issues, Eric, just have the technical bench here to support those sales activities.

At the end of the day, most of our sales regarding what we are selling today or what we plan to sell in the future, it really is still a financial sell. So, our guys are talking to financial people about payback and return on investments. And the technology part of the conversation is really not a big part of the actual -- the close itself. It's about the money.

So, we feel having the technical bench to bring in these various expertise is on line as we expand the technology portfolio will be -- suit us very nicely as we expand into other channels and other technologies.

Great. Okay, guys. Thanks a lot.

We'll go next to Scott Reynolds with Thomas Weisel Partners.

Hey, guys. This is Scott calling in for Jeff. Just a couple of questions for you. We think the outdoor lighting opportunity that you guys are starting to get in to is pretty interesting. For the other market that you're in you did a really good job from the beginning quantifying how large that is, units, ASPs, with the square foot and everything like that. Do you guys have any type of market sizing for the street lighting opportunity similarly?

There's not real good data out there yet, but what I tell customers is just anybody that flies just look out the window at night and there's the market. It's almost -- I think it's so large that nobody's really got their arms around it yet, Scott. To be honest with you.

So, it's somewhere between huge and big?

Yes, I just think as more and more people get into this thing and you're going to see something starting to show up as to what people are estimating the market to be.

Yes, okay. Fair enough.

And Scott, this is Erik. I mean the products -- it has applications as a streetlight or a roadway light. It has applications for parking lots. It could be mounted on walls as wall washers; it could be used to illuminate facades of buildings. So, that also makes it hard to really put a fine point for market size because it's so versatile from an applications standpoint.

So, are you guys working on any other trials besides the Pittsburgh one?

We've got a pretty substantial pipeline built up. It's probably oh, I'd say something greater than a dozen communities in and around the Midwest here certainly. And in other parts of the country as well. Really from coast-to-coast. We've got certain pockets that are hotter than others.

Okay.

And just what's interesting is the way these projects unfold is they usually start as pilots where the communities mount our fixtures up against some of the alternatives they're looking at whether it's LED, high pressure sodium or induction lighting. And the early feedback we're getting from those pilots in the late measurement readings and so forth is that our fluorescent product is performing exceedingly well.

Quite frankly much like what we've experienced on the interior of the building.

Excellent. And one thing that we've seen with many of our companies is -- especially with all the government funding floating around that the actual government projects, the ones in government buildings, are flowing a lot quicker because they don't have to submit proposals in the same way. Are you guys moving into doing government contracting in any way? Is that something you're looking into?

Probably as it relates to the partnerships with some of -- what's known as super ESCOs. So, we've had some real preliminary discussions with a couple of them and I suspect as time goes on we'll try to embed ourselves further in their organizations.

Much of the federal government work is going to be split up amongst a dozen or so what they call super ESCOs. And so, we're already -- on top of that we've already done in the past project with these folks and I suspect, as you pointed out these fiscal dollars seem to be flowing the easiest, at least at this point in time, to the federal agencies. So, we're going to be out there trying to our piece of it.

Yes, Scott, as you know I mean the super ESCOs essentially act as general contractors. And then they look to tap companies with particular expertise is in whatever area of the energy puzzle they're trying to solve. So, that leads itself to a logical partnership.

I think we're going to be in a unique position, unlike many other equipment providers, in that we can do the whole turnkey solution. With these companies acting as essentially GCs and financiers, they're looking for a turnkey solution as opposed to just being equipment providers. I think we may be uniquely positioned to help them fit that need as these fiscal dollars start to flow.

Great. And then just a housekeeping question I guess. Are we still at 25 VAR partners?

Yes. I mean we're actually -- we've been -- I mean that's a good question because we've added contractors that have capabilities that technically that could -- they meet our definition of VAR. So, if you include those contracting organizations that have a deep venture strength and they're not just pure play electrical contractors, we're north of that number.

Okay. So, thanks guys.

And with no further questions in the queue, that does conclude today's conference. And we thank you for your participation.