Welcome to Orion Energy Systems First Quarter 2010 Earnings Conference Call. (Operator Instructions). This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Victoria Zebras. Victoria, you may begin.

Thank you JJ, and thank you for joining us for Orion Energy Systems fiscal 2010 first quarter conference call. With me today on the call today are Neal Verfuerth, Chairman and CEO and Scott Jensen, CFO. Please note a copy of the presentation used on today's call is available in the investor relations section of Orion's website at www.oriones.com. Before we begin, I will read the Safe Harbor statement. Our remarks that follow including answers to your questions include statements that we believe to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally 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 or 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. These 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.

Thank you Victoria. Welcome everybody to the Orion Energy Systems' fiscal 2011 first quarter conference call. As you saw on the press release we issued this afternoon, we are pleased to report first quarter contracted revenues or bookings of 18.8 million, up 22% from the 15.4 million in the prior year's period. First quarter contracted revenues or bookings included 14.7 million in cash deals and 4.1 million in finance deals from OTA and PPA technology contracts. Given that there has been some confusion in the past around the term bookings, I wanted to spend a few minutes redefining the term going forward as contracted revenues. To be clear, these are deals that are under contract. The design and engineering work has been completed. The product has been built and are purchased and are typically producing megawatts and/or kilowatts to our customers and recurring revenue to Orion within 90 to 180 days. Given the execution of our strategy to increase the adoption of our supply agreements, the OTA and PPA, we truly believe that contracted revenues are a key performance metric that more accurately reflects the traction we continue to make with our customers. During the quarter we recorded a GAAP loss of $0.05. Scott will go into more detail on that momentarily but again, given the increasing number of deals being completed through our financing solutions we believe that providing a non-GAAP reconciliation for EPS more properly reflects the financial impact of these contracts, particularly as it relates to the cost associated with the customer acquisitions. Thus in combination with reported of our bookings or contracted revenues going forward, we will also provide you a non-GAAP EPS number which should give you a more meaningful accurate way of evaluating our current and future business performance. As such during the quarter…

Thank you Neal. Our reported revenues for the first quarter of fiscal 2011 were $14.7 million compared to $12.6 million for the first quarter of fiscal 2010, representing an increase of 17%. This increase was driven by increased order volume in our partner and retail channels on a slightly improving purchasing environment within the market. Our customers are reengaging in discussions around energy savings opportunities as they continue to shift their focus from evaluating the need for a facility to managing operating costs within those facilities. As Neal mentioned partner revenues for the quarter were 53% of our total revenue up from 27% of total revenues in our most recent fourth quarter. The increase in contribution from our partner channel was driven by increased momentum gained in our partner expansion efforts, increased partner deal closings and improved market conditions. Contracted revenues or bookings for the quarter were $18.8 million, including 2.2 million for Orion throughput agreements and 1.9 million for solar purchased power agreements. That compares to the 15.4 million in the prior first year quarter, which included $2.3 million for OTA contracts. As a reminder on how we define contracted revenues, let me briefly review. Our reported contracted revenues have three components. First our cash component is based upon customer purchase orders received in hand. Second, our Orion throughput agreements are based upon the gross future revenue streams over the expected life of the agreement. We consider an OTA as contracted revenue upon the customer's execution of the contract agreement. In most cases we expect that our OTA contracts will be generating monthly revenue within 90 days from the contract signing. With regard to our solar power purchase agreements which are generally in excess of 10 years, we have defined PPA contracted revenues as the discounted value of revenues…

(Operator Instructions). Our first question comes from Glenn Wortman. You may proceed. Glenn Wortman - Sidoti & Company: Yeah, good evening everyone.

Hey Glenn.

Hey Glenn. Glenn Wortman - Sidoti & Company: Okay, a couple of questions. First on the cash position, I say that decreased $7 million. Where do you see that cash balance going as you move that to fiscal year.

That's good question Glenn, it certainly will be highly dependent upon the continued expected increase in our financed solutions and offerings to our customers and as Neal mentioned a key driver for our desire to go out and raise some debt capital to support that program. Our spend on inventory has stabilized as we near the completion of our initial purchases around our wireless product offering and the very lengthening lead times right now for any electronic components coming out of Asia. So, we are feeling more optimistic on our operating cash flow changes and paying very close attention to being able to support our growth within the financed product sales. Glenn Wortman - Sidoti & Company: Okay and just looking at the gross margin, it seems to jump around a lot; it showed a significant sequential improvement this quarter on lower sales. Can you just help us understand that results and how should we think about that?

Yeah I think as you recall on a quarterly basis if you look back to mid-last year second and third quarters as a result of the cost reduction projects and opportunities that we put into place to really help reduce headcounts and stabilize some of the premium costs that we have referred to in the past which, when you have a short lead time delivery really can impact your business to get products to the customer up on your promise. We are encouraged Glenn by the results again on lower revenue product volumes that we were in access of 36% product margin and we believe that we have got the staffing levels and the process efficiency improvements in place to support that level of gross margin and improve up on it as revenue volumes increase. Glenn Wortman - Sidoti & Company: Okay and then just I don't know, what is your difference in your OVPP and the OTA agreements?

It's really, this is Neal, it's a branding issue. Just as we have had this program in place for many years we are drilling down, what's the best way to package it and it's started all that way actually as a customer kind of stated early contracts this is kind of like a power plant and it just seem to add clarity and just simplify it and allow for customers to get their arms around the concept more readily by going to the throughput agreement. And there is actually little more tie end with the PPA. Glenn Wortman - Sidoti & Company: Okay and just kind of focusing on the OTA and OVPP agreements, do you think either sales that you otherwise will not get; you think they are cannibalizing otherwise more conventional sales?

Absolutely not. I think its allowing customers; again they are the same thing. It's allowing customers to forego the typical CapEx budgeting requirement and get the technology deployed and just take advantage of the cash flow that they provide and the other thing that we like about it is I think it helps us retain the margins that we are looking for here because the customers are not buying anything and even inclined to try to get you down in price because again they are not buying anything. The key here is getting the system installed as quickly as possible so realizing the cash flow. Glenn Wortman - Sidoti & Company: Okay. Thank you for your time.

Thank you.

Thank you Glenn.

Thank you. Our next question comes from Brian Kremer. You may proceed.

Can you hear me?

Hello Brian.

Hey Brian.

Hi. You're continue on the OTA I guess and the PPA. In previous calls you would normally comment on if we hadn't sold these through those financing mechanism, this is how much revenue we would have recognized. I'm assuming that number is slightly different than the number that shows up now and bookings, contracted revenues versus, the bookings versus the contracted revenues with OVPP and PPA, is that or?

Yeah Brian, let me answer that question. It is slightly different; call it on the revenue side. What we've tried to really accommodate now is be consistent with the bookings or contracted revenues, definition and account for that in terms of deal contract volume but think about the impact of the OVPP and the OTA on a non-GAAP basis. Again that too, all of the costs related to sell that product, administer the contract are going through our P&L and our operating lines as incurred but the revenue being deferred over a longer time, we felt that the real benefit of a non-GAAP exercise to that or the way to look at it was to discount the revenue opportunities of the contribution margin backwards.

Okay, and now towards the end of the call you talked about 26 new throughput representing 2.6 million in revenue over the next 24 to 62 months. Is the 4.1 million that you provide in the non-GAAP versus the 2.6, is that existing throughput contracts?

Its all new contracts. So its $2.2 million. So throughput contracts closed or contracts signed within the quarter and 1.9 million of our purchase agreements signed within the quarter and we've taken those revenues and discounted them back. Again if you think about it, almost treating them as if they were a cash sale on a discounted basis.

Got it. Okay. And what, you're forecast 20 to 25% of sales or of the contracted revenues from the financing part of our business. If we look back for us and then investors trying to compare apples to apples and I think it would be, I think the reason you're moving this direction obviously is because a larger percentage is moving into financing which could skew potentially the top line a little bit. Year-over-year, where do you think that number has moved up from? If we look at last year, fiscal year 2010, on a percentage basis when we look at the 20 to 25% this year graded is on a larger top line as well.

Correct, so if you just look at the first quarter Brian with the 41 on the 18.8, that's almost 22%. Last year on an annualized basis related to our contracted revenues or bookings number we were a little below 15% I believe. I don't have that right in front of me but its continuing to grow and we expect that based upon the behaviors we're seeing and the customers very strong interest in that as a solution for them and in lieu of no capital budget existing for some of our customers that's a great way to get our product technologies adopted into an initial facility and set the stage for rollouts and expansion of new technologies.

And then obviously you have talked in the past about still trying to inside internally strategically how you deal with these. You have sold some already and I assume that might be part of the strategy going forward. Could you talk a little bit about that as well as what happens at the end of the life of this contract. I forgot now, does the ownership is it transferred?

So I will start, so your second question Brian the asset ownership transfers to the customer, but we are encouraged by the opportunities that once maybe, once they have adopted the lightning technologies through a retrofit and we reach the end of that first OTA contract. We now the opportunity to go back and introduce wireless or outdoor or continue to almost extend that contract with new technologies and extend the term of the recurring revenue opportunity and then your first question really from I think a strategic standpoint what are we thinking about in terms of near term and long-term. As Neal mentioned we have engaged a party to go out and raise some money to help support these. Along the lines of really equipment finance we would have that capital available to us and we would deploy it on a project basis and we think that has a better earnings potential than selling these often at a significant discounted rate. So, that would be our first choice and our primary strategy right now as we look at the opportunity. We still reserve the right to bundle these if we think it makes sense and the financial makes sense.

And maybe the last one on this is you obviously have a small number of these out right now but as you go out over the next year or two the number of pieces of equipment out there that you guys own under these programs and you will get to the end of life I guess actually it will be a few more years out. Still I am just curious where you then seem as with other companies doing something similar, will you take deprecation at that point. How does the depreciation work?

We are depreciating these assets over the life of the contract.

Equally?

Equally, we have capitalized the asset on our books since we own it and we are depreciating it over whatever the term of the contract is, so if it's a 24 month contract the depreciation is 24 months.

Okay and then real quick just from the operating expenses. I know you have said, you have made some investments here. The G&A it has bounced up, it bounced up last quarter and now it has back down. I mean are these specific cuts, is it just one time items, how do we look at that going forward?

Yeah the fourth quarter as a point of reference we had some significant one time type charges in there related to the legal settlement and the accrual that we set aside for that along with some severance costs. It has we did it in the first quarter had some staffing changes and some head count reductions and related to that there was a small component of severance about a half a penny of severance cost in the quarter. I'm expecting Brian that that's going to settle and come down a little bit from the first quarter results.

Okay. And then R&D, obviously it looks like that's not one where -- you can that kind of maintaining these levels. I don't expect you guys to keep bringing that in too much from the sound of things.

No we actually went out and increased our staffing around R&D product -- both the product development group and the engineering group as a function of all of the new product offerings that we've got in place right now and the technology offerings that we have as it's expanded outside of energy efficiency and management solutions to renewable.

All right, great. Appreciate it.

Thanks Brian.

Our next question comes from Jeff Osborne. You may proceed with your question.

Great, good evening. Most of my questions have been answered. Just two quick ones. How should we be thinking about what type of interest rate you guys would be exposed to with the partners that you've hired on that side?

We're still; we're targeting Jeff, less than double digits.

Okay. I think for your GAAP accounting you had a 7.5% cost of capital. I wasn't sure if that would be kind of consistent with what you're seeing or not.

Yeah, it's in that range. It's in that range. We just want to make sure we know what our cost of capital embedded in the deal and we want to protect profitability and make the best use of capital that would be coming in to help fund these.

Understand. And sort of on the same lines, its just at the board level, is there any type of limit in terms of exposure that the company or the sales force is allowed to have to OVPP and PPA, that delta on contract revenue versus recording revenue and how much capital you want to tie up. I guess what I'm asking, is there a bit of a pause or a maximum limit that is in place until this financing is secured?

We have really the right reviews on one off basis any deal for a wide variety of reasons. Obviously the first almost the credit approval but also just to see that it makes sense and we're very proactive on the front end, just business we're really soliciting that would fit into the profile for this. We've got a lot of lines in the water Jeff right now as it relates to raising capital and we do still have the old traditional options in selling these deals out as we've done in the past but it's just the cost of selling these things out, given today's credit environment it's expensive. So, that's always our fall back position.

Understand. Thanks so much.

Thank you Jeff.

Thank you. I'm showing no further questions at this time.

Okay, thanks operator.

You're welcome. Ladies and gentlemen, we thank you for participating in today's conference. This concludes the call. You may now disconnect. Have a good day.