Orion Energy Systems Inc (OESX) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Orion Energy's second quarter fiscal 2012 conference call. At this time all participants are in a listen-only mode. Later we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host for today, Mr. Scott Jensen, Chief Financial Officer. Sir, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us for the Orion Energy Systems second quarter fiscal 2012 conference call.

Once again, my name is Scott Jensen, Chief Financial Officer of Orion. With me on the call today is Neal Verfuerth, Chief Executive Officer. As a reminder, the earnings press release issued today once again includes a section that briefly discusses the supplemental information document that was posted to the Company's website. This supplemental information provides additional details and analysis on Orion's financial performance for the second year and year-to-date period of fiscal year 2012.

I will now 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 importance. 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.

And now I'd like to turn the call over to Neal Verfuerth, Chief Executive Officer of Orion Energy Systems. Neal?

Thank you, Scott. Good afternoon, everybody, and welcome to the Orion Energy Systems second quarter fiscal 2012 conference call. I'm extremely pleased today with our operating results for the reporting periods remain bullish on our annual forecast for 2012. My comments today will be succinct as it relates to some of the highlights where I see the future for Orion.

Since announcing earlier this year, our decision to provide only annual guidance, we've established internally operating metrics and KPIs or Key Performance Indicators accordingly. Having said that, our actual performance through the reporting period or up through October is tracking consistent with, if not slightly ahead of our internal model. Some of the highlights for the reporting period end up through October are as follows.

A real standard of my mind is what I've been seeing in our exterior product category. All indicators are that October 2012, just a month, what I see in bookings, will actually exceed our second quarter from fiscal year 2011 by more than 50% in unit volume.

On the LED front, although, by some accounts, we were late to the game, our conservative and methodical approach has delivered to the market a product offering that is continually outperforming the first-to-market competitors and head-to-head competition.

The sales for the second quarter have more than doubled first quarter's unit sales and the Orion product is now the standard in new construction projects for two national cold-storage companies.

On the customer front, one of our largest and longest-standing national accounts has now proceeded with a roll out of our other technologies with several facilities, implementing the entire suite of Orion products and services to include the InteLite controls, the Apollo Solar Light Pipe and even photovoltaic solar. This customer is delighted with the ability [on and some other] facilities has gone through the whole system to actually go off the grid on some days, if the conditions are right.

We expect this follow-on strategy to gain traction throughout all of our installed base in the near future. Another account worth mentioning is an account that we started back within 2005. This is a longstanding national account and this year, we plan to receive commitments to complete the last of the facilities not yet retrofitted.

As I stated, the interesting fact with this account is, they understand their value of proposition and appreciate and have realized all the savings as promised, but yet we started retrofitting back in 2005 and here we are now in 2011 to finally completing to balance of the facilities. This customer exemplify the ongoing challenge we face with capital budgeting.

This last reporting period, I actually recall reading numerous articles during this period that a number of companies many of who are Orion customers had actually more cash on hand than the US Treasury itself. Despite this, the Orion value proposition earns the budget allocation of our customers' CapEx dollars and we continue to gain momentum.

On a go-forward basis, even with these economic headwinds that exist, our go-forward strategy will remain the same remained customer centric, [going-to-market] superior product and make sure our product is represented by well-trained aggressive specialists that are out on the streets every day that dedicates to delivering Orion and vandalizing Orion story.

We are going to continue to make the ongoing tactical adjustments necessary to build our sales pipeline faster, compress the gestation period and increase our closing ratio.

Overall, the Company is at, what I would consider it a very exciting inflection point. We've been planning for it for some time, which is to exceed $100 million in revenue. Orion, it was built not for where we've been, but where we were, but where we're going and $100 million in revenue is really that point that we've been looking for to for some time.

We are uniquely and well positioned with the following pieces in place that will help propel us now into the future. We have a very complete suite of proprietary products that provide sustainable differentiation in the marketplace. We have a world class vertically integrated manufacturing plant that is something less than 20% utilized to date. We have a well-defined and refined scalable and sustainable sales process, we have a dedicated and knowledgeable staff at all levels throughout the organization, a strong balance sheet and an overall macro driver situation that includes energy and the need for new energy sources, environmental issues and economics. Our customers are continuing to look for ways to reduce our operating cost.

So with that, I'm going to turn the call over to Scott Jensen, our Chief Financial Officer.

Thank you, Neal. I'm going to focus my comments this afternoon on some of our financial highlights. As a reminder, the earnings press release issued this afternoon combined with the supplemental information posted on our website provided a significant amount of details regarding our second quarter and year-to-date results. So accordingly, I'll touch on the highlights in the second quarter year-to-date, including the recent OTA credit agreement completed with JPMorgan Chase.

I'll also talk about our recent share repurchase announcement issued in a press release this afternoon. And finally, I'll wrap up by discussing our guidance for the remainder of fiscal 2012.

Revenues in the second quarter of $19.3 million increased by 21% over the previous year's second quarter and revenues for the first half of the year were $42 million, a 28% increase over the previous year first-half. The increase was driven by $2 million of revenue in Q2 from sales of renewable solar PV systems through our Orion Engineered Systems division. This brings year-to-date fiscal 2012 solar PV revenues to $7.4 million, a $6.7 million increase from the first half of our prior year.

During the quarter, we recognized $3.6 million of revenue from completed OTA contracts, a 24% increase over the first quarter of fiscal 2012. Our wholesale channels contributed 61.3% of our total revenue in the quarter consistent with our first quarter, excluding the impact of sales of renewable solar products.

Total overall gross margin during the second quarter of fiscal 2012 was 35.4%, which was equal to the gross margin during the second quarter of our prior year.

Gross margin from our HIF integrated systems revenue was 38.6%. We are very pleased with our performance on gross margins related to our manufactured product through efforts to continue to streamline our manufacturing process drive costs out, manage over time and premium costs and still deliver quality products to our customers.

We did not recognize any renewable service revenue during the second quarter. As a reminder, we provide limited value add through the sale of solar panels, inverters and other solar components, which is why as we've mentioned on previous earnings calls, we're working towards changing our contracts for new solar opportunities, so that we contract for project services only.

We expect some of our recently booked Q2 solar contracts to deliver gross margins of approximately 30%. During the second quarter, we continued to invest in headcount focused on revenue generation through additions to our direct sales force and lead generation efforts. Additionally, we were able to reduce some G&A expenses in the quarter through headcount reductions and discretionary spending cuts.

Our operating loss decreased for Q2 of fiscal 2012 by $1 million versus the prior year Q2, on higher revenue and reduced G&A expenses. And for the first half of fiscal 2012, our operating losses decreased by $2 million from the prior year on higher revenues. Our effective tax rate for the first half of fiscal 2012 was 40.3%, and following the conversion of our incentive stock options or ISOs in March 2011 continues to remain steadily in the high 30s to 40% range.

Due to the impact of deferred deductible expenses for tax purposes for prior year ISOs and our relatively low earnings expectations during fiscal 2011, our effective income tax rate for the first half of fiscal 2011 was 100.2%, and remained very volatile through the balance of fiscal 2011 year-end.

Due to this higher benefit rates in the prior year, our improved operating results are not yet translating to earnings per share when comparing year-over-year performance. However, our prior year back half effective tax rate was 58.8%. So we expect to pickup earnings per share power in the back half of our current fiscal year due to a more favorable and predictable tax landscape.

With regards to the balance sheet, our current and long-term accounts receivable declined by $8.3 million from the June quarter on strong cash collections. Inventories remained relatively flat versus the June quarter. We currently have approximately $2.6 million in solar panel inventory of which we expect the vast majority to ship during our third quarter.

We generated $2.7 million of cash flow during the second quarter from operating activities, and through managing working capital, bringing our year-to-date cash flow from operations to $1.9 million. We're very pleased with the improvement in that performance and generating cash flow.

A few comments on liquidity. We finished the quarter with $16.5 million in cash and short-term investments, a $4 million increase compared to March 31 of 2011. There were no borrowings outstanding under our revolving credit facility, which has availability of $13.3 million.

In September, we completed a $10 million credit agreement with JPMorgan Chase bank to provide debt capital for OTA projects. $5 million was immediately available to us, and we expect that the remaining $5 million will be available to us at the end of our December quarter.

During the second quarter we borrowed $1.8 million on the OTA credit facility to fund internally held OTA contracts. And an interest rate of LIBOR plus 4, we believe this is a very profitable means for us to continue to gain customer adoption of our products in the marketplace through our finance offerings and provide a solid return back to us.

The combination of third-party finance companies purchasing our OTA contract outright, along with low-cost debt capital providers will allow us to be more aggressive in providing finance program opportunities to the marketplace.

As announced in our press release this afternoon, our Board of Directors has approved a $1 million repurchase of Orion common stock. We intend to be very selective in how we execute this repurchase plan providing support to the market as necessary. We continue to contend that Orion remains a very attractive value in the market.

Finally, we are reaffirming our previously provided annual guidance for fiscal 2012.

Orion currently expects GAAP revenue for fiscal 2012 to be between $112 million and $118 million. Our expectation for GAAP earnings per share is between $0.18 and $0.22 per share. We're extremely pleased by the record backlog heading into the back half of the year.

Additionally, customer order patterns continue to be very encouraging. Last year, our first half revenues were 35.5% of our full fiscal year revenue. And based upon the mid-point of our revenue guidance range of $115 million, our current first year half revenues were ahead of last year's percentage at 36.5% of our full year targets.

This concludes our prepared remarks. I would now like to turn the call over to the operator for the question-and-answer portion of the call.

(Operator Instructions). Eric Prouty, Canaccord.

Thanks a lot. Hi, Scott and Neal. How are you doing tonight?

Great, Eric, and how are you?

Great.

Great, doing fine. Thanks. Question on the sour side of things. With all the issues with Solyndra going to bankruptcy et cetera. Could you maybe talk about since they were a firm that you used pretty heavily in the past? Going forward are you looking at new systems and qualifying new people, maybe give us an update with what you are doing in the solar side?

Sure, Eric. This is Neal. We've actually for some time been really running several parallel paths looking at other equipment suppliers on the panel side and on the inverter side. And actually we have done some jobs of some flat panels. I attended the large solar show in Dallas, a couple of weeks ago with Scribante and expanded those relationships even further.

We've been actually positioning ourselves with our customers as the experts in technology integration and letting the technology itself kind of take the back seat with us taking the marquee billing, if you will. So, other than the fact that we still like Solyndra and we think the product is great, nothing wrong with the product, nothing wrong with their overall value prop. I think it's just a matter of timing and politics more than anything else unfortunate. But it was little [household] for us, of course, to put together some deals that we already had going with Solyndra. But overall, we really haven't missed a beat. And we've got several different options at our disposal right now. And it's just a matter of seeing actually -- we probably have several depending on what the application calls for.

Great. And then, Scott, for you again on the solar side of things. If and when you'd start moving towards, basically passing through the hardware side and recognizing a service oriented higher margin fee. Is that going to change, say, your revenue, kind of margin guidance going forward. Is that enough to kind of move the needle of the Company where obviously you'd be recognizing much less revenue, but much higher profit or is that baked into your current guidance?

Eric, that's backed into our current guidance. We've been proactively planning and changing the contracts for a period of time and certainly getting the new contracts into the pipeline. Does they take some time? We did close some contracts in the second quarter. That were services only and directing customers to procure panels either directly from the suppliers or through a third-party. So we've got all of the shift in terms of a decrease on the topline and an increase in our expected margins already baked into our annual guidance.

Great. And then Neal, with the strength we've seen, you had some good quarters here for the last year of year-over-year growth. Is there any markets, customer types or geographies you can point to with the strength that's coming from or is it fairly broad-based?

I think it's very broad-based, Eric. What we are starting to see probably the more significant momentum in is the follow-on sales are existing in national account base, which is something we've looked forward to for some time, because we don't have near the kind of sales cost, once they know us and they've seen us deliver the goods, the first around. So what -- the Coca-Cola, as an example, [that's what I talked about] in the call. And now we've done a presentation to them, it was last summer and now they're starting to roll through systematically in all the facilities and we are starting to prioritize them and outdoor lighting, light pipes and even solar. And I see ultimately that going through the entire footprint.

One of the -- we had a couple of little (inaudible) is going to be interesting CCE was the -- our actual customer, they were the largest independent bottler, then [Kayo bought] them back up. We had a delay in getting the thing rolling, because they couldn't find the budget dollars in their expansive budget with big [Coke]. It was actually embedded in the sustainability line item.

So we got a little slow start, but we got the first orders and substantial business and we plan on rolling through like we did last time, probably over the next three to five year depending on budgets, [everyone of their] facilities in the national footprint again with all the other products and services.

Great. And then, finally, I guess, a bit of a longer-term structural question. You got the good new large factory there. Given the utilization rates that you are running at kind of one fifth of the capacity. Is there any way to better utilize that, the space et cetera whether it be to sub it out or manufacture for others etcetera. Have you guys kicked around anything to better utilize and get more value out of that good space you have?

Yes, as a matter of fact, we've been in discussions. And I think, I identified some talent at to sell out some of our capacity in the fab area and the paint line. And that was something we booked out probably a couple of years ago, but needless to say with when on the economy in last two years, Eric, it was really been kind of feudal to go out there and when you have everybody else, idle plants to go and sell them this ability to do fabrication and painting for them on an outsourced basis, really it's kind of pointless.

So, we are looking at now resurrecting that back again, because we can see again we're -- despite what you read in the paper and see in the TV, we're seeing a lot of positive momentum back in the market. And I think that there are some folks now that are getting capacity constraints. So I think there might be some, some opportunities to go out there with some decent profits and sell this excess capacity.

Right, that's all from me. Thanks a lot.

Thank you.

Thank you, Eric.

Michael Legg, Rodman.

Thanks. Good afternoon. I wanted to touch a little more, now you mentioned that's Coca-Cola on that contract and its impact on backlog. I thought in your initial comments, Neal, you mentioned that it was being rolled out of -- all your products are now being rolled out to their facilities. Obviously, you just mentioned it's a three to five year timeframe on that. How formal is that and how much of that can we see that will turn into backlog in the near-term?

It's not really formal. We've got a long-standing relationship with the folks at Coca-Cola and this is how we've done things over the last five plus years with them. And it's somewhat of a moving target, because we're opening facilities, closing it, et cetera. We are looking at rebates, cost per kilowatt hour, and it's really more of a collaborative thing deciding on which projects we're going to do and see what kind of budget hours are there.

Make no mistake about it, CapEx dollars are still precious and very tight and it's by no means what it was three years ago as far as getting projects through the approval process. There's a awful lot of projects chasing the money and very limited amount of money being released, no matter what corporation you are talking about and really it seems, no matter how profitable or how much cash they have, people are still hoarding cash as you well know.

Yes. Okay. One other question related to renewables. Compared to my revenue estimate, you were a little bit light and when you look at the revenue from renewables [those aren't being] $2 million for the quarter, it appears to me that that would be the difference [through] my numbers and your margin obviously was very strong, still going to meet mostly HIF product. And when you look at the backlog you see that your backlog went up significantly due to the solar and when you look at the lighting backlog, it's pretty much apples-to-apples with the first quarter backlog. So it seems to me that solar may have been pushed back three months or something. Was there any delay there that we're now seeing some pent-up demand or how does that all play out?

I mean I think a fair portion of that, Mike, was simply as we were working through the Solyndra issues and making sure that we could transition customers to different panel providers, different solar options. So, we certainly had some delays during the quarter related to the timing of execution. We're pleased we didn't lose any business and we were able to work through all the contracts that have been signed, working with customers, working with Solyndras. But to your point, there certainly was less revenue recognized just based upon some projects being pushed out.

Well, and make no mistake about it, there was a setback. I don't think in history there's ever been a more well-publicized bankruptcy filing. And not only did we have to go back and re-put together deals that were already signed, but of course, we had other deals that people were trying to extract some value out of the whole thing et cetera.

So, there is -- everything was in our pipeline, some of the project underway. It's just a lot of different dynamics at play and there's a lot of extra time that unfortunately you can't be in two places at one time. So a lot of new deals we even maybe [like to have doing] after. We couldn't, because we're also working in just putting -- re-putting together what we had in hand. But like Scott said, the good news is we didn't lose anything.

Okay. No, I mean, and obviously it makes sense that with that type of bankruptcy things are going to happen. The last question, if your headcount now in the sales and marking side is up to 93, where do you see that going, or are you comfortable with it there?

We're supplementing that as we speak with more of our own internal direct retail sales, where we don't have many partners on the ground. And that seems to be the prudent thing to do today, given the fact that we're always looking for partners. But if they're not out there, rather than growing your own with somebody on the outside, we know how to sell these things ourselves, to end user direct. So, we're putting our focus on that in certain pockets.

Texas as an example. We've got an office on the ground now in Houston. We're looking to put something in Ohio. We've already got a couple of people on the ground there. There's certain pockets that there's great rebates, high cost per kilowatt hour, and we know how to go out and get this done. And the good news for us is we have a lot bigger top line contribution and a bigger margin to work with. So, that's what we're looking to do as we're always still looking for other partners.

Okay. Thank you.

Jeff Osborne, Stifel Nicolaus.

Hey, good evening. Most of the questions were answered. I think I missed the solar gross margins in the quarter. I heard the lighting at 38.6%, but I missed the solar piece.

Yes, Jeff, as I mentioned, we didn't recognize any service revenue. So it was all product panel, was about 8.5%. So again, very little value add there when we're talking about just reselling panels.

Got you. But the deals that you signed in the quarter are 30%. If I heard that right?

That is correct.

Okay. And then what's -- of the backlog that you have, what's the composition today of solar versus lighting? And then is there any kind of sense it sounds like Coke has come back to the well, and is buying some of the advanced products. Is there a way in the future you could kind of parcel out backlog between kind of [Classic Lights], new products, the old Phase 2, 3 type stuff and then solar, that would just be helpful to see the cross selling kind of penetration that you're seeing?

Let me answer the backlog at the end of summer question first. The solar projects in the backlog were $16.5 million, and then the efficiency was [$7.1 million]. Again, some of the earlier comments we made about solar deals being pushed back and actually a very nice quarter in terms of bookings as well.

As it relates to breaking down the detail on the efficiency side, I don't want to make any promises. We'll take a look at it. We may not publish that externally. I don't know that we want to get too granular as to specific product revenues.

Well, the other thing there, Jeff, too is, keep in mind as we get more partners. A lot of these data points is -- may not be ours to share. So it's the double-edge sword here, you get more partners out there and then you're somewhat limited as to just to how much data you can share, because one could argue that some of the relationship is theirs with the end user, not necessarily ours. We're just merely providing the product.

I got you. Maybe another way of parting it out without sharing too much would be then of the 7,368 facilities you have, how many are taking more than one service? Or is it 1.15 services per customer, something like that but --?

We're looking at doing that. And one of the things about getting a newer ERP system, the Microsoft Dynamics AX has been online now since the start of the fiscal year, and we're just now actually looking at now that we're comfortable with just the everyday operations and using it to a more sophisticated business intelligence and report generation, et cetera.

Got you. And just two other quick ones. What are your thoughts on the cash grant in the US? I think most people don't expect it to be extended for solar. But are you seeing any pull-in of orders for solar ahead of that expiration, given that you need to spend 5% of the cost this year?

Jeff, I expected to see a lot more of it. I think one of the new dynamics is we've -- over the course of time, have partnered up with some capital sources that offered to bring to the table more patient, more recently priced capital. And it is amazing how that has a more positive long-term effect than getting the cash on, because you still get the -- if you got a tax liability you can still get based on the same dollars, you're just not going to get the cash. And I'm kind of looking forward to it. I think you're going to get a lot of people that are just kind of opportunist, if you will, getting out of the business again.

Right. That should help the competitive dynamics, I'd agree. And maybe the last point on just what are your thoughts on seasonality for your core lighting business, the efficiency business for kind of your -- the calendar Q4 versus calendar Q1 period?

I think we're going to see the excessive use it or lose it budget flushing this year. So, as we would historically see, the last quarter, the calendar quarter and then the first, you've got people that are flushing for their December -- before it's December 31 then the ones that they see have approval for the start of the year. So I expect to see, and we're planning for it here with our ramp up of production et cetera accordingly.

So, for Scott, the inventory level should go down pretty sharply on the non-solar piece as well in Q4, and then Q1 might be a bit softer. Is that fair?

Well, we're always working hard to reduce inventory, Jeff, but we've always been very clear that we want to make sure we have inventory. We've had concerns historically about supply side and electric components. So absolutely we're trying to manage working capital. I think we've been successful for the first half of the year. We're going to continue to try to work inventory down as best we can, but not sacrifice service for customers.

And right now, Jeff, you may not be aware of this, but there's actually a global shortage of rare earth phosphor right now. So, there is impending shortages and radical price fluctuations expected in fluorescent tubes.

I was unaware of that. Thanks for passing that on --

Pardon me.

I said I was unaware of that. So thanks for passing that on. It makes sense. Probably we'd add some of that in inventory then.

Yes, and the Chinese control like 95% of all the known deposits of these rare earth phosphor. So we've been, again, trying to get on front of that. So that, a) we're not subject to volatile swings in pricing and more importantly just availability.

It makes sense. I appreciate all the detail guys. Thanks.

Thank you, Jeff. Good talking to you.

Thank you, Jeff.

(Operator Instructions). Philip Shen, Roth Capital.

Hey, Neal and Scott. Forgive me, but I'm actually just joining the call now. So if I ask a question that has been asked before, thanks for taking it again. My first question is about just the general economic conditions out there, and how -- if you're seeing -- or are you guys actually seeing an impact on your overall business? What are your customers saying? Are they holding on to cash more tightly? How is your pipeline building? I know that [you announced] seasonality here in Q4 and a burst of activity. But beyond that, what kind of color can you give us?

Well, I think that kind of at a macro level, once again, there's unprecedented amounts of cash sitting in corporate treasury across all American business. CapEx budgets are tight and we're still successful in breaking [news] some of it and getting our project implemented. But we've actually had long-standing customers, as an example, I've had the deal, we had commitments POs and they basically pulled back their POs for everything that wasn't surveyed, because they were getting pressure for their quarterly numbers.

And so make no mistake about it, it's not like it was three years ago, and before it's still tight, but we are out there doing what we need to do in adjusting our tactics to being consistent with what the customer. What we are seeing on the other side of -- on the line with the customers. So whether it's bringing OTA financing, smaller deals, maybe dividing the project up into smaller chunks, whatever it takes to continue to build business.

Great. And I'm sure you guys haven't discussed this already, but in terms of the Solyndra bankruptcy. Can you give me a quick update on what is your current strategy with the solar business. Have you identified additional or other panel suppliers and if so are there any public names that you can share. And I know historically, I think your target gross margins on the project business to be just shy of 20% or so. Do you expect that to be maintained or with panel prices compressing so dramatically over the past year, are you seeing some degree of margin improvement?

Let me start with -- Solyndra was certainly a setback to us, because they were our primary supplier. But we have been for some time really positioning ourselves as kind of the main marquee billing as the technology integrator and letting the technology that we decide to be -- to have second billing. Just because that seem prudent, we've had ongoing discussions over the last year with other panel manufacturers.

So there are some places Solyndra just wouldn't work. And we've actually installed other manufacturer's products. [Yen Lee] as an example, was one of them, probably we've done some stuff with ConEdison. I was just at the big solar show down in Dallas last week and met people from Sony, and a lot of the big consumer electronics giants. I was really pleased to see actually at that show just that the solar space is alive and well.

We have got several lines in the water with some interesting technology both here domestically. Suniva is a company based on in Atlanta, they've got an interesting product, they've got a higher efficiency rating, it's something that came out of Georgia Tech that were in discussions with them. We've got a company in Germany that we're in discussions with. So we've got a lot of lines in the water and we continue to do projects, our pipeline is strong and our margins, as we've been talking about on the previous calls continue to be enhanced.

Unfortunately, all of the buzz and the media buzz, solar panels and Solyndra, well, generally speaking that brings the overall price down. So, the customers themselves have an expectation. They think based on what they are reading in the paper, the panel should be free.

But nonetheless, we continue to -- I'm excited about what's going on in this space, because I think what's going to happen is going to be consolidation and a lot of the easy money, fast money guys, [ever thinking the] integrators are already getting out of the business. And it just makes it better for us that are in this for the long haul.

We've established relationships and built further relationships with capital providers that are more long-term and patient and reasonably priced than some of the other early money in the solar business. And that in itself makes solar very competitive with the grid. And even with the tax credit, the actual rebate, if you will, look like that's going to go way at the end of the year. I think it's going to just further consolidate it and I don't see that really affecting our business. So I'm feeling good about the solar business and a lot of our customers want to do the whole package with us.

Great. And just a quick follow-up on the solar business. You talked about financing partners, did you guys offer a solar lease product at this point?

We've done --.

We have one -- we have one.

We've done some PPAs. We look to find partners, but we just closed PPA deal in the second quarter. Again, we're selling the panels off, but yes, we have done some deals financed.

Okay. Good. And then one quick housekeeping question. In terms of OpEx, how do you expect OpEx to trend in your fiscal Q3 and Q4? You guys came, I think, you managed your OpEx quite well in Q2. So would love to get your sense for what you expect going forward?

Yes. We're going to continue to hold the line on G&A. And as Neal mentioned on the call, Phil, we're still looking at putting sales people in markets where it make sense, where we don't have good representation from wholesale partner distribution where there are great incentive programs.

So, we're expecting the selling line to continue to ramp up a little bit, as we get more feet on the street and put people in market. And then, we've been kind of holding the line on the R&D, that may trend up a little bit, but not as significantly as our current initiatives to add more headcount for sales.

Great. Thanks very much.

Thanks, Phil.

I'm showing no other questions in the queue, I would like to turn the conference back to Mr. Scott Jensen for closing remarks.

Thank you. Thank you, everyone for joining us today. We look forward to speaking with you again in a few months regarding our third quarter fiscal 2012 results. Good bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect at this time.