第一太陽能 (FSLR) 2013 Q2 法說會逐字稿

Good afternoon everyone and welcome to First Solar's second-quarter 2013 earnings call.

This call is being webcast live on the Investor section of the First Solar's website at firstsolar.com.

At this time, all participants are in a listen-only mode.

As a reminder, today's call is being recorded.

I would now like to turn the call over to David Brady, Vice President of Treasury and Investor Relations for First Solar.

Mr. Brady, you may begin.

Good afternoon, everyone, and thank you for joining us.

Today the Company issued a press release announcing its financial results for the second quarter.

A copy of the press release and the presentation are available on the Investor section of First Solar's website at firstsolar.com.

With me today are Jim Hughes, Chief Executive Officer, and Mark Widmar, Chief Financial Officer.

Jim will provide an update on significant business and technology developments, and then Mark will discuss our second-quarter results and provide updated guidance for 2013.

We will then open up the call for questions.

Most of the financial numbers reported and discussed on today's call are based on US Generally Accepted Accounting Principles and the few cases where we report non-GAAP measures, we have provided a reconciliation to GAAP equivalents at the back of our presentation.

Please note that during the course of this call, the Company will make projections and other comments that are forward-looking statements within the meaning of the Federal Securities laws.

The forward-looking statements in this call are based on current information and expectations, are subject to uncertainties and changes in circumstances and do not constitute guarantees of future performance.

Those statements involve a number of factors that could cause actual results to differ materially from those statements including the risks as described in the Company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.

First Solar assumes no obligation to update any forward-looking information contained in this call or with respect to the announcements described herein.

It is now my pleasure to introduce Jim Hughes, Chief Executive Officer.

Jim?

Thanks, David.

Good afternoon and thanks for joining us for our second-quarter 2013 earnings call.

Today, we announced a new technology and commercial collaboration agreement with General Electric with the intent to advance cadmium telluride thin-film solar cells and modules.

Under the agreement, we acquire all of GE's cadmium telluride solar intellectual property and they receive 1.75 million shares of First Solar stock, making GE one of our top 10 shareholders.

GE currently holds the efficiency record for cad tell research cell at 19.6%, which eclipsed the recent First Solar cell record at 18.7%.

GE's high-efficiency cells employ technologies which are quite distinct from those being developed at First Solar, and yet are consistent with our manufacturing platform.

This is why we are excited to purchase their IP in this transaction.

GE has over 450 issued patents and pending applications on their cad tell technology, which effectively doubles our patent position.

The combination of the Companies' complementary technologies and First Solar's existing manufacturing capabilities are expected to accelerate the development of cad tell solar module performance and create significant improvements in efficiency at full manufacturing scale.

GE Global Research and First Solar Research and Development will also collaborate on future technology development to further advance cadmium telluride solar technology.

This transaction builds upon our existing commercial relationship on solar inverter technology.

GE will provide us with the new GE Pro Solar 4-Megawatt 1,500-volt inverter optimized for large utility scale systems.

In addition, First Solar will continue to purchase advanced inverters from GE Energy Management for use in First Solar's global solar deployments.

By combining complementary technologies, the collaboration is expected to lead to an improvement in solar grid integration, more competitive cost structures, and create a roadmap for combined electrical equipment.

GE, which has 34 Gigawatts of renewable energy installed globally, will also enhance its presence in solar by buying GE-branded modules from First Solar at agreed upon pricing for future global GE deployments, in addition to its investment in inverters, controls, balance of plant, ownership of utility scale systems.

As a result, GE will discontinue the build-out of its Aurora, Colorado solar manufacturing facility.

In summary, having a company of GE's stature invest and partner with us is a tremendous validation of cad tell solar technology and First Solar 's manufacturing expertise and we are excited about the potential benefits this will mean for the future development of our technology and the prospects for our Business.

Moving to Slide 5, Mark will walk you through the improvements in our efficiency and cost per Watt later, but I wanted to mention some significant, tangible improvements we are already seeing in our own cad tell technology.

We are pleased to announce our Series 3 Black module is the first thin-film module in the world to pass two of the most difficult and strenuous independent tests of module durability and reliability, the Thresher test and the even more harsh Long Term Sequential Test, both evaluated by TUV Rheinland.

The traditional IEC solar module standardized test used accelerated lab testing to evaluate a module's ability to safely withstand the harshest of weather conditions over a period of time while ensuring a basic acceptable level of performance.

The Thresher and Long Term Sequential Tests extend that period of time and the accelerated life test's stress factors by 2 to 4 times the basic IEC test to identify those modules with truly differentiated long-term reliability and performance.

First Solar's success in these tests places us among an exclusive list of only four other module manufacturers to demonstrate this market-leading capability.

It also emphasizes that while we continue to make significant investments in the redesign of our modules to increase efficiency and reduce costs, we don't sacrifice quality and performance in order to do so.

Instead we are creating a unique market offering that maximizes value while minimizing risk.

A key contributor to our efficiency roadmap this year is the introduction of the new Back Contact technology onto the module.

This technology is remarkable in more ways than just increasing efficiency.

All solar panels gradually reduce in power over their operational life time of 25 years or more in the form of long-term degradation.

Our testing shows that modules produced with our new Back Contact technology demonstrated significantly reduced degradation profile.

This means that the efficiency of the module degrades at a slower pace, which increases the amount of energy produced by our modules over their lifetime, one of the primary drivers of solar project economics.

This reduces the levelized cost of electricity and increases demand for our projects in the marketplace.

And while we are covering the subject of technology, a brief update on TetraSun.

We are very pleased with the technology developments to date with cell efficiencies and reliability assessments meeting our original expectation.

The low-cost profile of the product has been validated through our supply chain and is in line with our initial expectations.

Given the progress to-date, we have moved into the planning stage for our first cell manufacturing line and expect to have product and line qualification in the second half of 2014 with initial shipments commencing at that time.

Given our recent follow-on equity offering, we have ample capital available to invest in this exciting new product and we will detail the capital requirements on the next earnings call.

We believe that the combination of the two technologies will allow us to cover the full spectrum of the solar photovoltaic market, both the utility scale and distributed generation segments.

Now turning to our book-to-bill performance.

Slide 6 shows the total outstanding bookings in Gigawatts and the change in those bookings that occurred year-to-date.

This data represents our total business, which includes a relatively small percentage of third-party modules sales, in addition to our advanced systems project pipeline.

Total outstanding bookings fell from 2.6 Gigawatts to 2.2 Gigawatts year-to-date.

Although our shipments at the end of the second quarter were higher than our new bookings we have several large long-cycle project sales in process that we expect to get across the finish line by the end of the year and cumulatively we are pursuing 1.3 Gigawatts of potential bookings in the next six months.

We still expect to achieve at least a 1-to-1 book to bill ratio for 2013.

Since our first-quarter earnings call, we have closed an additional 198 Megawatts of bookings year-to-date, including the three PNM projects that we won recently.

We announced an agreement with the Public Service Company of New Mexico to provide our EPC services and modules to construct three solar power plants totaling 23 Megawatts AC.

These new projects are in addition to five plants completed in 2011 and then an additional 22 Megawatts of solar PV to be completed this year all totaling 67 Megawatts AC that First Solar has contracted or is expected to construct with PNM by the end of 2014.

The balance of the bookings are primarily module-only shipments to Europe and to GE as part of the transaction that we announced earlier.

We also announced last quarter the construction of the Phase One demonstration plant in Ordos was planning to commence in the third quarter of this year but that has been delayed until further notice pending receipt of regulatory approvals.

On Slide 7, outstanding bookings fell $400 million from the first quarter, but as stated earlier we still expect to achieve at least a 1-to-1 book-to-bill ratio for the year based on shipment volumes and project sales currently in progress.

In addition, we have 8 Gigawatts in near-term opportunities, which is an increase in total market activity of 2.5 Gigawatts in just three months.

This is discussed in detail on Slide 8. The purpose of the metric on Slide 8 is to provide useful indicator of the overall level of activity that we're seen in the marketplace, which remains strong.

Today, we announced that we purchased a 1.5 Gigawatt portfolio of US and Mexico assets in various stages of development from Element power.

Strategic interconnection and land positions facilitate accelerated competitive positioning in several emerging US markets such as Georgia, North Carolina, Texas, Colorado, and Illinois, and optimize our pipeline in established markets such as California and Nevada.

The portfolio includes projects with secured site options and interconnect queue positions and are at various stages of environmental screening and permitting.

The Mexico project pipeline also strategically positions First Solar for our entering into that market.

We are excited by the opportunity to explore new relationships with commercial and industrial customers there and to establish a strong, initial presence in the region.

The purchase development is also an example of the use of proceeds for pipeline acquisitions, which we indicated in connection with the recent equity offering.

We continue to see similar opportunities in sustainable markets around the world, including Japan, Europe, and India.

Including the Element transaction our total number of potential bookings has increased to 8 Gigawatts.

You can see the breakdown on Slide 8 based on each perspective booking's current stage of completion.

This also includes approximately 1 Gigawatt of module-only sales.

We have close to 1.5 Gigawatts of the mid and late-stage deals with a moderate to high probability of success.

The largest portion, about 6.6 Gigawatts is early stage, which means that the majority of these projects will have a development cycle of 12 to 24 months and consist primarily of our own captive project assets.

This reflects the fact that we have lower demand requirements in the short-term and that we are focusing on replenishing our pipeline primarily in 2014 and beyond.

We believe that the ratio of mid to late-stage deals to early-stage opportunities has a healthy proportional distribution.

Slide 9 shows the breakdown of demand by geography, with a large and increasing portion of it continuing to come from North America, but a significant portion from the new, sustainable markets that we are targeting.

Our opportunity set outside the US is now 4.1 Gigawatts and represents 51% of the total.

The total also includes 853 Megawatts of potential bookings in Southern Africa, a significant increase on the prior quarter.

This is perhaps the best illustration to date in the progress that we are making in creating demand in sustainable markets and gives us confidence in our ability to replenish our pipeline going out to 2016 and beyond.

Now, I will turn it over to Mark who will provide detail on our Q2 financial results and an update to our 2013 full-year guidance.

All right.

Thanks, Jim, and good afternoon.

Turning to Slide 11, I would like to begin by highlighting second-quarter operational performance.

Production in the quarter was 389 Megawatts DC, up 5% both on a sequential basis and on year-on-year comparison.

When comparing production year-over-year, excluding the German manufacturing volume in the second quarter of 2012, production in Q2 2013 was up 23%, based on improved module efficiency and utilization on the same number of production lines.

On a sequential basis, the increase in production volume is reflective of the commencement of reramping production lines that have undergone planned equipment upgrades, which, when completed, is expected to enable the achievement of near-term targets on our module costs and efficiency improvement roadmaps.

In the second quarter, we ran our factories at approximately 75% capacity utilization, flat to the prior quarter, and up 12 percentage points compared to the second quarter of 2012.

Our module manufacturing costs per Watt for the second quarter fell to $0.67.

On a comparable basis, cost per Watt decreased $0.02 quarter-over-quarter, or approximately 3%, and is reflective of higher throughput, increased [modulate] efficiency, and lower core manufacturing costs.

Excluding the impact of underutilization, our core manufacturing cost per Watt fell to $0.63, a $0.01 improvement compared to the prior quarter.

During Q2, our best plant manufacturing costs at full utilization remained at $0.62 per Watt and is reflective of the fact that this lead-line at KLM has yet to receive the line upgrades that are currently being rolled out.

When the upgrades are completed, though, we anticipate the lead-line module cost to be approximately $0.57 per Watt.

This assumes our current module manufacturing cost at our KLM lead-line with 14% efficiency.

Conversion efficiency for the quarter increased to 13% and is expected to make an increasing rate improvement over the next four quarters as the impact of our current line upgrades roll out through the entire production fleet.

As mentioned on our first-quarter earnings call and during Analyst Day, we are in the midst of rolling out two major efficiency improvement programs.

The first was commenced in Q1 and is expected to be completed this month, and the second program, commencing now, as Jim referenced, drastically improves Back Contact performance and resulting module efficiency, is expected to be completed by the first half of 2014.

Effective in August, the impact of the first program has moved our current best line efficiency of 13.3% to the fleet average efficiency.

In Q3, we expect to complete the install and qualification of our first high-volume tool on our lead-line, which will enable our new improved Back Contact manufacturing process, is expected to increase our lead-line efficiency to approximately 14% by year-end.

Now moving to the P&L portion of the presentation on Slide 12.

Second-quarter net sales were $520 million compared to $755 million in the prior quarter.

The sequential decrease in net sales was primarily attributed to lower systems business project revenues as well as lower module-only volumes to third parties.

As Q1 benefited from the sale recognition of 128 Megawatt AC of module volume used in the construction of the largest thin-film PV power plant in Europe, the sequentially lower project revenue was primarily attributed to lower revenue recognition of AVSR and Imperial Valley.

Regarding AVSR, activity at the project trended lower during the second quarter due to delayed approvals from the local county related to materials used for our tracker technology.

The Imperial Valley project was sequentially lower as the project is nearing completion.

Comparing it to the second quarter of 2012, the decrease in net sales was primarily attributed to lower systems business project revenue, as initial revenue recognition for AVSR and the sale of Silver State North were both achieved in the second quarter 2012, partially offset by higher sales volume to third-party module-only customers in the second quarter of 2013.

Also, as stated in the earnings press release today, the sale of the ABW project is now expected to occur in the second half of the year.

As a percent of total net sales, our solar power systems revenue, which includes both our EPC revenue and solar modules used in systems projects, increased from 74% of total sales in the prior quarter to 84% of sales in the second quarter.

The sequential mix shift in product sales was primarily driven by lower module-only sales in Q2 as Q1 benefited from the large European project previously mentioned.

Gross margin in the second quarter was 27%, up from 22.4% in the prior quarter.

The sequential gross margin increase is primarily attributed to variable systems project mix, lower module-only sales, and lower manufacturing costs per Watt.

Second-quarter operating expenses including restructuring and start up, decreased $7 million quarter-over-quarter, to $101 million and is reflective of labor savings related to our previously announced restructuring activities, partially offset by higher R&D spending primarily associated with TetraSun and legal and transaction-related expenses.

As disclosed on our prior Q1 earnings call, during the second-quarter, we instituted a reduction in force, which is expected to result in annual labor savings of approximately $30 million, split evenly between cost of sales and selling, general, and administrative expenses.

These actions are consistent with our stated strategy to focus on lower general and administrative expenses in order to prioritize and internally fund R&D sales and marketing activities to facilitate market-enabling growth.

On a reported basis, second-quarter operating income was $39 million compared to operating income of $61 million in the first quarter.

The decrease is primarily reflective of lower revenue recognition for our systems business and lower module-only sales to third-party customers, partially offset by higher gross margin and lower operating expenses.

Including restructuring, second-quarter operating income was $42 million compared to $64 million the prior quarter.

Second-quarter GAAP net income was $34 million or $0.37 per fully diluted share, including $0.02 of restructuring charges compared to $0.66 per fully diluted share in the first quarter and $1.27 in the second quarter of 2012.

The year-over-year decline is attributed to lower systems business project revenue, partially offset by higher sales volumes to third-party module-only customers in the second quarter of 2013.

Excluding the restructuring charge of $0.02, on our Q2 non-GAAP earnings per fully diluted share was $0.39.

Now, turning to Slide 13, I'll review the balance sheet and cash flow summary.

Cash and marketable securities increased by approximately $273 million, to $1.3 billion.

The increase was driven primarily by net proceeds received from our recent equity offering in June and cash received from customers from the continued build-out of our captive advanced stage systems projects and module sales, partially offset by a $306 million reduction in outstanding debt which we paid down during the quarter.

With these balance sheet strengthening actions, our industry-leading net cash position increased by approximately $579 million to a total of just over $1 billion in net cash.

As we've stated at the Analyst Day, we continue to see projects fail or offered to us because developers have difficulty either finding investors or attracting financing due to the insolvency and execution risk associated with other EPC and module buyers.

Having the leading fortressed balance sheet in the industry is a key and increasingly significant competitive advantage as it ensures customers and investors have a truly bankable long-term partner that stands as the industry's strongest fully-integrated PV solution provider.

Accounts receivable trade balance decreased by approximately $86 million quarter-over-quarter to $193 million and is due primarily to the collection from higher module-only sales in Q1 and continued collections related to several of our systems projects.

Unbilled accounts receivable balance decreased by $20 million primarily due to decreases in unbilled balances for AVSR solar pads in Imperial Valley, partially offset by an increase in Agua Caliente retainage, which is expected to be collected over the next few quarters.

Inventories, including balance in system parts, decreased $62 million sequentially, due to greater insulation of Modules and Systems business.

Project assets decreased $19 million primarily due to the sale of the Campo Verde project to the Southern Company, which was partially offset by an increase related to project acquisitions, including the North Star project, and due to an increase in construction activity on a portfolio of unsold systems projects.

Deferred project cost increased by $391 million, principally due to the sale of commensurate construction activity of the Campo Verde project and also due to the continued ramp of construction on Desert Sunlight.

To date, we have not recognized any revenue for Desert Sunlight; however, as disclosed during our Analyst Day event, we currently expect revenue recognition criteria under GAAP to initially be met in 2013, and to begin recognizing revenue for Desert Sunlight project in the second half of 2013 through the 2014 time period.

Nonrecurring retainage increased by $49 million versus the prior quarter of $238 million, and was driven primarily by increases in the Desert Sunlight and Topaz projects.

Such retainage amount relate to construction work already performed.

Quarter-over-quarter, total debt decreased to $256 million, a sequential decline of approximately $306 million.

Operating cash flow for the second quarter was $222 million, compared to $66 million in the first quarter.

Free cash flow was $168 million compared to $20 million in the prior quarter.

Capital expenditures totaled approximately $85 million for the quarter and were primarily related to production upgrades, which are expected to increase module efficiency and throughput.

Depreciation for the quarter was flat compared to last quarter at $58 million.

Now I'll provide an update on the full-year 2013 guidance outlook.

Turning to the Slide 14.

With the exception of a slight change in mix between shipping volumes for module-only versus system project volume, the fundamental underlying assumptions in our 2013 guidance remain intact.

The production plan, including expected improvements in module efficiency and cost targets, the total shipments volume, and Desert Sunlight revenue recognition assumptions all remain unchanged.

Regarding the Desert Sunlight project, we anticipate achieving revenue recognition criteria under US GAAP in the second half of this year.

The total amount expected to be recognized will be approximately one-third of the total project volume.

Turning to the next slide, beyond the underlying assumptions just mentioned, we are updating and narrowing some of the key guidance ranges based on our latest assessment of the Business.

Beginning with net sales, we have decided to delay the project sales for both Solar Gen and Macho Springs projects, as we expect to be able to capture incremental project economics by holding these projects through construction and then sell down at or after construction is completed.

Note, this decision, to be patient in order to maximize project economics, is consistent with previous communications and is one of the reasons we stated for the use of proceeds in the June equity offering.

As a result, we are adjusting full-year 2013 revenue guidance from our previous range of $3.8 billion to $4 billion to a new range of $3.6 billion to $3.8 billion.

Regarding gross margin, on a percentage basis, the expected range increased due to improved expected mix of remaining projects in the forecast, including expected improvements at the Imperial Valley, Campo Verde, and ABW.

Partially offsetting this is incremental cost and expected construction delays associated with AVSR.

Next, we have increased our operating expense range by $10 million to account for higher expected R&D expenses, including amortization associated with the acquired IP related to the joint technology cooperation agreement with GE, and higher project development expenses associated with our Elements project portfolio acquisition.

Our new range is $390 million to $410 million versus the prior range of $380 million to $400 million.

The operating income range is being updated to a new range of $405 million to $435 million, down from the prior range of $430 million to $460 million.

The change is reflective of the change in timing of the Macho Springs and Solar Gen projects, the incremental cost due to delayed experience at AVSR, the higher operating expenses, all partially offset by expected improved project economics and Campo Verde, Imperial Valley, and ABW.

The expected tax rate range is moving up to a range of 15% to 17% versus the previous range of 12% to 14%, and that's due to a change in jurisdictional project economics with more taxable income coming from the US that stems primarily from a higher portion of model shipments to Desert Sunlight from our US manufacturing facility.

The increase in expected tax rate is partially offset by year-to-date interest income, which is expected to continue to be positively impact net income as we do not expect to draw on our revolver and our marketable securities balance remains high throughout the year.

Based on these changes and excluding the impact of equity offering and the shares issued to GE, our new earnings per share guidance is $3.75 to $4.25 per share versus the previous range of $4 to $4.50 per share with the mid-point down $0.25 versus prior guidance.

Expected operating cash flow, capital expenditures, and working capital ranges all remain unchanged from prior guidance.

Moving to the right, the next two columns in the slide show the per-share impact of the recently completed equity offerings and the shares issued to GE and the connection with the IP acquisition.

Please note as a result of the quarterly fiscal period have a materially different amount of shares outstanding, the expected annual earnings per share range will not equal the sum of each stand-alone quarterly earnings per share amount.

Going forward we will guide based on the new fully diluted share count estimates as reflected post the impact of the June equity offering and the shares issuance to GE.

The full-year earnings per share guidance, including the impact of the recently issued shares is $3.50 to $4 per share.

Now, I'll comment on Q3.

Specific to the third quarter, there are a number of items which could have a material impact on the quarter.

These items include the initial revenue recognition on Desert Sunlight, the completion and revenue recognition of Campo Verde, the potential AVSR project delays pending the required county approvals to complete Phase III of the project.

It is important to note, though, these items are essentially all timing issues.

However, if we do not achieve revenue recognition on Desert Sunlight and/or Campo Verde in Q3, and we experience further delays in the build-out of AVSR, then sequentially we could see a material decline in Q3 earnings.

If these delays were to occur, we could see a materially higher fourth-quarter for the year, net-net of no impact on the full year.

Now, moving to Slide 16, I'd like to summarize the quarter.

Q2 was a solid quarter and the sale of ABW is expected to occur in the second half of 2013 with improved economics.

As Jim and I have highlighted, we continue to show progress on many fronts, including a growing opportunity set, advancement of our technology competitiveness, and the execution of our operating plan.

We continue to strengthen our balance sheet and resulting bankability with the intent of developing a well-balanced foundation that ensures our customers have a reliable, long-term solar PV solution provider.

We remain on track for the year, maintaining our focus on execution of our roadmap and strategic imperatives outlined during the April Analyst Day event.

With this, we have concluded our prepared remarks and we'll open up the call for questions.

Operator?

(Operator Instructions)

Patrick Jobin, Credit Suisse.

This is Brandon Heiken speaking on behalf of Patrick Jobin.

Thanks for taking the question, guys.

I was wondering if you could quantify each of the different factors that are contributing to the changing guidance, specifically how much do you think of pricing benefit do you expect from holding some of these projects to completion and the other contributions as well?

Please?

So, the impact on Macho and Solar Gen of holding those assets through COD is not reflected obviously in the current year, it has had adverse impact on the current year because we pushed the revenue and the associated earnings out into 2014.

But what I would say is that if you look at ABW, if you're trying to understand the impact of selling down at a notice to proceed versus COD, ABW is a great example of where we've been able to achieve upside economics by being patient and actually selling an asset that is up and operational.

When you look to the impact -- to the changing guidance around operating income we came down about $25 million, $10 million of that is the associated impact of the two acquisitions so we have incremental R&D expenses for Apollo and as well as incremental costs associated with the Element acquisition, so that's $10 million.

And then $15 million of it was the net impact of movement out of Solar Gen, Macho, offseting by improved economics on a handful of projects plus cost pressures that we're experiencing on AVSR.

Brian Lee, Goldman Sachs.

So, on the two projects you're holding through completion, can you quantify the specific impact that it had to lowering the 2013 EPS outlook?

And is it fair to assume these projects are now going to be fully recognized in 2014 and if so, what's the incremental EPS benefit for the delayed sale?

Yes.

So they will all -- they both will be recognized in 2014.

So it is just moving out of '13 into '14 so no issue from that standpoint.

We are not quantifying the exact impact of movement of those projects out of the year.

However, as I indicated, the aggregate impact of a number of movement of projects, whether it's the impact of Solar Gen and Macho moving out plus the incremental AVSR cost that we are incurring because of delays in that project, offsetted by those improved economics on ABW, improved cost performance on Campolo, improved performance on Imperial Valley, all that net is $15 million.

So I'm not going to give you each of the pieces that add up to the $15 million but net-net, you lost $200 million of revenue.

It fell out of the year.

That, when you incorporate the whole mix of the portfolio items that I just referenced to you changed our number by about $15 million.

Sanjay Shrestha, Lazard Capital Markets.

It's a two-part question, real quick.

First on this module supply agreement with GE, wondering if you guys can actually give any more color on that as to if there's any firm commitment of volume or timing and things along those lines?

And two, on the Element Power, can you give us a sense of the state of that 1.5 Gigawatt pipeline that you guys bought and how much of that is actually something that could contribute to P&L in 2014?

With respect to the GE transaction, there is a specific commitment purchase obligation, and then there is a larger commitment that has agreed pricing and extends over extended period of years.

I don't think we have detailed in the press release the exact numbers.

If so, we will get back to you with them.

I don't want to get into more details than we've put out in the press release.

But it does involve a specific commitment, and we contemplate that we will see near-term benefit from access to the GE sales force, particularly on hybrid installations of both wind and thermal assets where they believe they have the ability to market puttable tech assets alongside.

And then what was the second half of the question?

Element?

Element.

Oh, on the Element transaction, it's a mix of early, mid, and late-stage projects, but there are indeed some opportunities that are far enough along that we believe they would be a be a contributor in 2014.

Vishal Shah, Deutsche Bank.

On the Element transaction, given that you have not disclosed the amount, I'm assuming it's not a big number?

Curious to understand what the current rate of projects sales would be in terms of the acquisition cost of new assets?

Are we still looking in the $0.10 to $0.15 range, that was the number that some of the other transactions were happening.

And then on the GE transaction, I'm wondering what targets you have now that you've acquired this technology?

Do you plan to update your long-term costs and efficiency targets and the $75 million transaction, wondering what that would mean in terms of your R&D roadmap going forward?

Sure let me start with the second question.

In terms of cost and technology roadmap, we certainly expect over time to update that roadmap once we have an opportunity to fully determine how we best integrate their technology into our roadmap, determine the proper sequencing in terms of upgrading of equipment and what it means in terms of our processes; that will take time.

I would guess that you could probably look towards next year's Analyst Day as the time at which we would be able to provide a specifics around what we think the results of acquisition will be, but we based the transaction and based the value that we attributed to it upon a belief that there will be specific and tangible improvements both in terms of timing and in terms of absolute outcome of the technology roadmap.

So, we in fact do believe that it is additive in that regard.

On the Element transaction, the $0.10 to $0.15, that tends to be the kind of value you see paid for, fully mature opportunities that include a PPA.

Most of the Element transaction is strategic site positions and the interconnect positions and does not include a PPA.

We see values in portfolio acquisitions all over the map depending upon exactly how strategic the positions are, and I think it's very difficult to generalize, and we haven't provided a specific number on this transaction.

The one other thing I would just comment, just about -- and we've referenced this before, when you think about the benefit of the efficiency gains that you can capture and we highlighted this before, about 100 basis points benefit across the module and across the BoS on an installed system basis is somewhere around $0.08 to $0.10.

So when you think about the capability that we now have with leveraging the knowledge in the IP that we've acquired, if we can capture even a small percentage of that 100 basis points, that's incremental when you take it across $0.08 to $0.10 a Watt and two to three Gigawatts of production capability install is major, it's very significant.

So that's the way you need to think that and keep it perspective around relative to the acquisition price.

Yes, we certainly believe that at our current production rate, any meaningful increase in the overall efficiency acceleration of the timetable would have a very short payback period, as a result of that leverage that Mark refers to.

Shahriar Pourreza, Citi.

Just one question, with the -- obviously with you potentially holding some of the assets, I'm wondering whether the equity offering, some of the proceeds could be used to contract, build, and develop on the assets and potentially doing some sort of a yield code transaction.

Is that something that you're seeing potentially with Macho Springs and additional assets?

We clearly indicated in discussing the equity offering and on prior conference calls that we are watching in the marketplace the outcome of the various efforts to create yield codes with respect to renewable assets.

We think it's going to be a meaningful capital structure for the industry going forward and we are actively evaluating how we should participate, whether we should view them as customers that could pay higher value or whether we should have a captive vehicle.

But as we retain assets in order to maximize the value of those assets upon monetization, clearly one of the alternatives that we will be evaluating as we move forward is a yield code.

No decision has been made, no specific effort to -- we're not specifically headed in that direction, but we are looking hard and evaluating the results of the recent NRG transaction.

There are other representative transactions in the marketplace.

There are similar vehicles traded in the UK.

All of that provide market data for us to look and compare that to what we think the financial results of monetizing our captive portfolio would be.

It gives us a nice comparison.

So it's something we are actively considering but not something we're prepared to say we're definitively doing at this point.

Stephen Chin, UBS.

Just a question on the cost per Watt improvements.

Jim, I was just wondering if you could talk about what gains here you're thinking can be achieved with the TetraSun technology and if you could maybe elaborate on any other additional capabilities that you see could come from GE's cad tell portfolio that could help drop those costs lower?

Well the TetraSun portfolio, that is a basic high-efficiency, low-cost technology in and of itself that primarily will deliver a benefit in the distributed or constrained space market.

It will be at a higher cost per Watt level than our cadmium telluride technology, but will be at a much higher efficiency.

So the benefit of that higher efficiency will be derived out of circumstances where you have a high balance of the system cost, primarily constrained spaces such as rooftops or tight commercial and industrial locations.

We provided guidance as to some of the cost expectations at the Analyst Day.

We have not updated that, but we have said here that our work today has validated those expectations.

With respect to the cad tell, we have an existing roadmap that's out there.

GE has been working on the technology in parallel to us.

We have been leapfrogging one another in terms of record cells, but we've been doing so with distinctly different approaches.

When we chose to take a look at their technology, what we found much to our happiness was that the approaches they are not using inconsistent with ours.

In other words, they can be additive to our roadmap and that's the reason for the acquisition.

We have not committed to specific result in terms of how it affects the roadmap, because that will require work in the laboratory and will require integrating their technologies into our existing technology, and we simply don't have data yet.

But we strongly believe that it will be additive, but we're not prepared to quantify that at this time.

Krish Sankar, Bank of America Merrill Lynch.

This is Andrew Hughes for Krish.

Quick question on the Element transaction.

The portion of that pipeline that you've characterized as late-stage, wondering if that means those projects have PPAs?

And then with the broader 8 Gigawatt long-term opportunity, just a little more color perhaps around what a moderate chance of conversion is on those mid to late-stages, and if all of the 1 Gigawatts of module-only sales are included in that figure or spread between the mid and early?

In terms of where the module-only sales fall between the spread between the categories, I don't know that off the top of my head and I'm not sure that is a level of detail we would be willing to provide.

In terms of the rest of it, in terms of conversion rates, we've not provided a specific number in terms of conversion rate, but I would say that with respect to the mid and late-stage projects, we believe that those are all projects that have a significant -- a meaningful probability of coming into existence as a sale, as opposed to merely a specifically identified opportunity.

Much of the early-stage consists of specifically identified opportunities.

They are a volume, they are a customer or a captive opportunity.

They have an identified market into which the electricity would be sold, but they may not have all of the elements that yet give rise to a meaningful probability.

The things that we would characterize as mid to late-stage are all projects that have sufficient elements in place, whether that's permitting, whether that's near-term, off-pay, whatever it may be that leads us to believe that there is a meaningful probability that those opportunities will be converted.

So it's a -- obviously it's a continuum, there's no one bright line, but that's how we would characterize those that fall into the early-stage versus the mid to late-stage.

Daniel Ries, Maxim Group.

With your team out there discussing projects all over the world, do you have an estimate at this point for the size of the utility scale market in say 2016?

Perhaps both with and without China?

And you say, what portion of that are you targeting?

Are there areas where you're not targeting for one reason or another?

Sure, if you step out to 2016, when we look at all of the various estimates that are out there in terms of our own analysis of the market, as well as research organizations and investment banks, you will see numbers that vary from probably mid-40s on the low-end to 60 or 65 Gigawatts on the high-end in the terms of solar market.

In the split of that market between utility scale and non-utility scale, you will see estimates that vary anywhere from something approaching 50%, 50% to something that looks more like 60%, 40% or 65%, 35%.

I'm not sure -- directionally we feel like those are probably the mid-points and those are probably as good a proxy as anything.

One of the things I've said that we continue to believe is the outcome in terms of total market size may be heavily influenced by overall levels of economic activity.

So you could easily see a 10- or 15- Gigawatt swing in the total market size based on different economics scenarios and the related commodity price impacts of those scenarios.

So that those bands are less difference of opinion than probably the spectrum of outcomes that could happen.

In terms of how much of that is China, I don't know off the top of my head.

I know that a lot of the recent additions to the domestic program that the Chinese have announced have not been factored into those estimates and I don't think we would have factored them fully into the estimates so there's probably upside to those numbers in terms of how much of it is China.

I also think that one of the things we will see over time is as markets -- as utilities and markets and people begin to see the impact of capacity factor on grids, that people may revisit their estimation of distributed generation versus utility scale generation, given that you will have significantly higher capacity factors on the utility scale side.

So for a given investment and for given space within the dispatch order for solar to contribute to reducing the peak, you will get more total electricity out of facilities with a higher capacity factor and we think over time you may see that split revisited as that impact becomes clearer to planners.

Jagadish Iyer, Piper Jaffray.

Just a question on the GE situation, I just wanted to get an understanding of would you foresee at some point of time using some kind of a GE process in your existing processes, maybe two years out, given that in your prepared remarks you did say that GE did certainly have a higher efficiency?

And as a second part to that question I was wondering whether does GE have a Back Contact solution that you have described in your presentation in today's earnings?

We won't be discussing any of the specifics of the technologies, but what we had intended by the statements that we made is yes, we do anticipate sooner than two years that we will be incorporating some of the GE technologies into the product -- very specifically into the product and that incorporating those technologies into the product will be additive to our current technology roadmap.

So, that's specifically what we anticipate as a result of the acquisition.

Paul Coster, JPMorgan.

Really it is a combined question.

First up, the 8 Gigawatt of opportunity that you've now assembled.

1.5 came from the acquisition this quarter, but what was the rest?

And by geography or project type, to the extent you can share that?

And secondly, what is the net effect of this build in both the pipeline and the timing shifts that you've described in terms of the shape of your revenue and earnings through 2015?

Has it smoothed out that anticipated dip in 2014 a bit?

It's, with respect to some of the larger acquisitions, it's probably still too early for us to be able to prognosticate what the timing looks like.

We will take over the development and implementation of the asset, so we will gain a greater sense of the timing once we do that.

In terms of the shape and content, the information that we've provided in the presentation is the level of detail that we're willing to provide at this time, and historically we've not provided any further detail beyond that.

Okay.

Colin Rusch, Northland Capital Markets.

You guys have laid out an impressive R&D roadmap as you've brought things into commercialization.

Can you just give us an update on where you're at in context of what you had talked about at your Analyst Day in terms of implementing some of the newer technologies in the presentation?

You're identifying the peak line as flat quarter-over-quarter at 14%.

Just love to see where you're at in terms of implementing some of those solutions?

Well we highlighted that a little bit in the release, right?

So as Jim indicated, we are in the process of rolling out the improved Back Contact process across all of our lines.

Once we implement that, we will drive our fleet efficiency up to 14%.

So if you think about where we are right now on an average, at 13% as we execute to, when we sit at the -- four quarters from now we will have fleet average that at least will be at 14%, and potentially could be higher than that.

So we are starting to see a step function improvement in terms of the efficiency benefit.

Just as we began August, as we indicated as well in the script and some of the comments, we are now running a fleet average of 13.3%, which increased from the 13% that we exited as of June.

So we're 13.3% now, and we're on our way to 14%.

So I would say we're progressing in line with all of our expectations and the commitments that we made in the Analyst Day around the roadmap.

We feel confident with our capability to deliver against that.

When you incorporate the learnings now that we will capture from the IP with the -- from GE, we feel that we'll be able to accelerate that roadmap and potentially even take the destination above the 17% or so that we highlighted during Analyst Day.

So, from a technology capability standpoint, I think we feel very good about where we are and the opportunities that are in front of us.

And that is all the time we have for questions today.

At this time that will conclude today's conference and we thank you all for joining us.