第一太陽能 (FSLR) 2014 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to First Solar's first-quarter 2014 earnings call.

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

(Operator Instructions)

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

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

Mr. Brady, you may begin.

Thank you.

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

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

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

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

Jim will provide a brief overview of our Q1 results and a review of our project bookings and opportunities year-to-date.

And Mark will discuss our first-quarter results in detail and provide an update to 2014 guidance.

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.

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 10K 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 thank you for joining us for our first-quarter 2014 earnings call.

First off I would like to thank everyone who attended our analyst day in March, be it in person or via webcast.

We appreciated the opportunity to share with you our outlook for the Company and the industry at large with particularly the tremendous response the event received.

Now turning to our performance in Q1.

I will begin by taking a moment to recognize some of this quarter's achievements.

We had earnings per share of $1.10 on a GAAP basis on revenue of $950 million, both significantly above prior guidance and consensus expectations.

Although it is early days, our business development team booked 404 megawatts DC of new business year-to-date compared to shipments of 312 megawatts in the quarter resulting in a book to bill ratio of greater than one.

Our opportunity set increased from 10.6 gigawatts to 12.2 gigawatts providing us with the project volumes necessary to replenish our pipeline backlog.

And finally our best line produced modules with an average efficiency of 14.2% up from 13.9% in Q4 and 13% in Q1 2013.

This lowers our costs, increases are potential margins, opens up new business segments and increases our total addressable market.

These results are an impressive validation of our technology and business development efforts in our ability to continue to execute against the targets that we have set for ourselves.

Slides 5 and 6 show the total outstanding bookings in gigawatts and revenue and the change in those bookings that occurred in the first quarter.

This data represents our total business, which includes third-party module sales.

Total outstanding bookings rose from 2.7 gigawatts DC to 2.8 gigawatts DC.

The 404 megawatts DC and new bookings includes the previously announced Shams Ma'an project for 53 megawatts AC in the Kingdom of Jordan, for which we will provide EPC and operations and maintenance services.

We also won a 150 megawatt AC EPC agreement to design and build a project in California.

Construction is forecast to begin later this year with full commercial operation anticipated in mid 2016.

We will also be providing operations and maintenance services for the power plant once it is commissioned.

Further details will be disclosed at a later date.

In addition we signed EPC agreements for 43 megawatts AC with EDF Renewable Energy to build projects on three sites in California.

Construction is expected to begin on the projects this quarter with completion of all three by Q1 2015.

We also anticipate announcing in the near future our first diesel PV hybrid agreement for 5 megawatts AC with a major international mining company in Australia.

Working with our local partner Ingenero we will build a solar power plant to complement the existing diesel generation at the mining site.

This will provide economic and environmental benefits through the reduction of the amount of diesel fuel used at times of peak demand.

As we stated at our recent analyst day, we see the hybrid market as an emerging business opportunity, and this marks just the beginning of our expansion plans into this high growth potential sector.

The remainder of the bookings consist of module sales.

These bookings include locations such as Chile, Germany, India, Israel and Puerto Rico.

The geographical dispersion of these entries illustrates the breadth of demand for our product and is testament to our success in penetrating new markets globally.

This also shows that our module is becoming increasingly competitive in our target markets, and based on our technology road map will only become more so in the future.

Turning to outstanding bookings in revenue terms, given the greater number of module only deals in Q1, our bookings fell to $7.1 billion.

As we stated in our analyst day we are less focused on revenue as a metric and more focused on margin per watt of production.

Module prices are stabilizing, and our costs continue to fall.

Switching to our opportunity set on slide 7, in addition to the 2.8 gigawatts of backlog, we now have 12.2 gigawatts of near-term opportunities up from 10.6 gigawatts at the end of the year.

There were 600 megawatts of new opportunities in the US with a significant portion of that coming from the Southeast.

We continue to see strong utility scale growth across the country, driven by a more widespread adoption of solar technology, increasing demand ahead of the expiration of the current IPC structure in 2016, and improvements in our relative competitiveness, both from an energy density and cost perspective and backed by credible warranty and guarantee provisions.

We are also seeing increasing sustainable demand outside of the US, particularly in Latin America and Africa.

The size of our mid-to-late-stage deals has also increased by 250 megawatts to 1.35 gigawatts with a moderate to high probability of success.

Slide 8 shows the breakdown of demand by geography.

Our opportunity set outside of North America is now 6.9 gigawatts and represents 57% of the total.

This illustrates the increasing competitiveness of our product and services globally and the progress that we are making in penetrating our target markets.

This continues to give us confidence in our ability to replenish our pipeline going out to 2016 and beyond.

Now I'll turn it over to Mark who will provide detail on our Q1 financial results and our updated guidance for 2014.

Thanks, Jim, and good afternoon.

Turning to slide 10 I would like to begin by highlighting the first quarter operational performance.

Production in the quarter was 441 megawatts DC down 1% on a sequential basis, but 19% higher year-over-year with improved plant utilization, higher module efficiency and throughput improvement on the same number of production lines.

In the first quarter we ran our factories at approximately 82% capacity utilization, down 1 percentage point from the prior quarter.

Factory utilization was down sequentially due to planned line down time to implement our latest high-efficiency flat content material change.

We are now operating all lines under the upgraded flat content material change.

The average conversion efficiency of our module was 13.5% in the first quarter, which was up 10 basis points quarter-over-quarter and 60 basis points higher year-over-year.

Excluding the limited number of series 2 modules produced for standard warranty replacements, the average fleet efficiency would've been 13.6%.

Additionally, with the completed rollout of our back contact program, over the last few days nearly all 24 of our lines have been running at 14% efficiency or better.

Our best line produced modules in Q1 at an average efficiency at 14.2%, a 30 basis point improvement compared to the prior quarter and 120 basis points higher than the prior year.

We are encouraged by our recent progress and remain on track to meet the efficiency improvements outlined at our analyst day.

Regarding our technology roll back, while we have completed the rollout of our back contact program, there are two remaining efficiency improvement programs schedule for the third and fourth quarters of this year.

It should be kept in mind that as a result of the timing of these program implementation efficiency improvements on our lead line will be lumpy and nonlinear throughout the year.

Efficiency improvements on our fleet -- full fleet average will be more linear and will continue to improve during Q2, while lead line improvements will be more modest until the second half of this year.

Also while we no longer disclose our cost per watt for commercial reasons our core costs declined quarter-on-quarter.

Now moving to the P&L portion of the presentation on slide 11, first quarter net sales were $950 million compared to $760 million last quarter.

The increase in net sales was primarily related to meeting all revenue recognition criteria on our Campo Verde project.

This was partially offset by lower revenue recognition on our Desert Sunlight project related to fewer blocks scheduled be turned over in the first quarter as compared to the prior period.

Note that related to our Campo Verde project we recognize 100% of the project revenue in the first quarter while substantially all the cash has been received in prior periods.

As a percentage of total net sales our systems revenue, which includes both our EPC revenue and solar modules use and assistance project was 96%, an increase of 1 percentage point from the prior quarter.

Gross margin for the first quarter was 24.9%, an increase of 30 basis points from the prior quarter, due to lower balances system and module manufacturing costs.

Our manufacturing and EPC teams continue to demonstrate operational excellence as we build out our project portfolio.

Note: relative to the expectations for the quarter gross margin was favorably impacted by higher sales volume, EPC and O&M bonuses related to the operating performance of our plant, EPC cost reductions and a potential litigation ruling related to Campo Verde.

First-quarter operating expenses decreased $32 million quarter-over-quarter to $97 million.

This decrease is primarily attributed it to a lower pre-tax asset impairment charge of $25 million, related to the fourth-quarter write-down of our Company's idle facility in Vietnam.

In addition operating expenses decreased due to lower personal costs and relocation expenses associated with the sale of our Mesa Arizona facility in Q4 2013.

The quarter-over-quarter decline is reflective of our ongoing efforts to lower general administrative expenses while continuing to fund R&D and sales and marketing.

On a reported basis first-quarter operating income was $139 million, compared to $60 million in Q4.

The increase was due to recognizing revenue on our Campo Verde project, improved O&M margins, reduction in balance and system costs and lower operating expenses.

First-quarter net income was $112 million, or $1.10 per fully diluted share, compared to $0.64 per fully diluted share in the fourth quarter.

The effective tax rate in Q1 was 21%, compared to a full-year 2013 tax rate of 7%.

The increased tax rate is due to the difference in expected jurisdictional mix of income resulting in increased profits in higher tax jurisdictions.

Additionally, restructuring and asset impairment charges in the prior year contributed to the lower tax rate.

Turning to slide 12, I'll review the balance sheet and cash flow summary.

Cash and marketable securities decreased by approximately $385 million to $1.4 billion.

The decrease, as communicated during last quarter's call, was due to the ongoing construction of projects on balance sheet, which will improve project economics and sell at or near commercial operation.

It was also due to the investment in global project development and the timing of some payments from Q4.

Our net cash position decreased by $361 million to approximately $1.2 billion.

Our not working capital, excluding cash and marketable securities, increased by approximately $218 million from the prior quarter.

The change resulted from recognizing 100% of the deferred revenue and project costs related to Campo Verde in the quarter.

In addition accounts receivable trade balances increased $98 million due to the billing and receipts timing in our systems business.

Partially offsetting these items was a $53 million decrease in modules and BoS inventory related to the build out of projects, which has not yet been sold.

Quarter-over-quarter total debt decreased by $24 million to $199 million.

Capital used in operations was $318 million in Q1 compared to positive operating cash flow of $192 million in the fourth quarter.

Free cash flow was a negative $356 million compared to a positive $137 million in the prior quarter.

Note: both operating and free cash flow results were consistent with our Q1 guidance.

Capital expenditures totalled approximately $51 million for the quarter related to the investments in our technology road map and TetraSun equipment.

Depreciation for the quarter was $61 million, compared to $62 million in the prior quarter.

Turning to slide 13 we are providing an update to our 2014 annual guidance as follows: net sales of $3.7 billion to $4 billion is unchanged from the prior guidance; next, we are raising the low end of our gross margin guidance from 16% percent to 17% while keeping the high end at 18%.

The increase is reflective of the improved margin realization on the Campo Verde sale and other operational and project margin improvement from our strong Q1 performance.

As a result of the increase in our gross margin guidance, we are also raising our operating income range to $290 million to $340 million and our earnings per share range from $2.40 to $2.80 per share, an increase of $0.20 compared to our prior guidance.

While we exceeded our first quarter earnings guidance by approximately $0.55, this does not correspond to a one to one increase in our guidance for 2014.

It should be anticipated a portion of our better-than-expected Q1 results is related to timing of earnings already considered in the guidance provided on analyst day.

However, it is also important to note that the better than anticipated Q1 results continues to afford us the opportunity to be patient when evaluating our options to maximize the value our contracted project pipeline.

Our range of operating expense and tax rate remains unchanged.

Turning to operating cash flow guidance, we are increasing the midpoint of the range by $50 million to a revise target of $300 million to $500 million.

The increase is due to higher net income guidance for the year and the results of operating cash flow in the first quarter.

Capital expenditures are unchanged from our prior guidance.

Finally, while we do not provide discrete quarterly guidance, it is noteworthy that our second quarter 2013 earnings will be significantly lower than the current incentive estimate of approximately $0.60 due to the expected timing of certain project sales.

This implies that the remainder of the earnings for the year will largely be reflected in the second half of the year, and we'll exceed consensus estimates for those periods.

Now moving to slide 14, I'd like to summarize our progress so far this year.

The first quarter was a strong start to the year across all operating and financial metrics.

First we achieved 14.2% average efficiency on our lead line and remain on track to the efficiency roadmap communicated at the analyst day.

Next we continue to implement our pipeline with geographically dispersed bookings of over 400 megawatts DC.

We continue to build out our project pipeline and increase our global opportunity set to over 12 gigawatts.

From a financial standpoint we exceeded our Q1 guidance in both earnings and cash flow.

Additionally we have increased our full year earnings and operating cash flow guidance.

With that we conclude our prepared remarks and open up the call for questions.

(Operator Instructions)

Shahriar Pourreza, Citibank.

Hello, Jim and Mark.

How are you.

Just let me -- just one question and just a quick follow-up.

Jim you've been very calculated when it comes to a decision on whether you would commit to doing a yield co or not.

Recently we've seen several participants on the solar and utility side commit to forming an alternative financing vehicle.

So market is starting to develop.

Given the sheer number of yield cos that are likely to form over the next several months, has your approach changed, is the first question.

And then the second question is are you now more incentivized to take on the construction risks and capture higher economics by selling to an existing yield co?

Let me start with the second, because it's easiest.

I've been indicating for at least a year and a half now that we are more than willing to take on construction period risk, because as we believe the increase in the value of our assets more than justifies that risk.

That viewpoint, that philosophy was instilled into our business planning before anybody was really talking about yield cos, quite frankly.

That managing the risks during that time period should be a core competency of the Company.

You should take on risk that is your core competency and capture the value that it represents.

We've been perfectly willing to take those risks on.

We will continue to be willing to take those risks on irrespective of whatever decision might be reached with respect to a yield co.

Turning specifically to yield cos, we note all of the filings and all of the announcements.

Some of those announcements are by customers or other companies that we've had extensive dealings with.

We continue to talk continuously with a lot of market participants, financial advisors about the trends in the market, how investors are viewing these vehicles.

We tend to monitor developments in Washington and look as best we can into our crystal ball with respect to what overall tax policy for North America and the US market looks like.

And all of those things factor in to the attractiveness or lack thereof of a yield co.

I don't think our viewpoints are philosophies have shifted significantly since the comments that I made at analyst day.

It is something that we continue to actively look at.

But it is not something that we feel compelled to make any sort of imminent or urgent decision.

I think we feel like we have full optionality to take advantage of market attitudes towards such a vehicle if it looks like it's interesting.

We have full optionality to market assets to yield cos that either are already in existence today or come into existence in the future, or we can market and sell assets to our traditional customers in the same manner that we have.

One of the things that I think we have learned through our year or so of investigating is that we've been pretty good at monetizing our assets pretty efficiently.

We have not left a lot of value or money on the table historically.

We will continue to be rigorous and make sure we're not leaving any money on the table in the future, and I don't think that we really -- there's nothing that has changed our viewpoint since the comments -- the extensive comments that I made on analyst day.

Brian Lee, Goldman Sachs.

Hey, guys, thanks for taking the questions.

If I look at your bookings run rate versus last year, it seems like you're a bit behind last year's trajectory at the same time.

And so my question is if you had in the updated thoughts on book to bill for 2014.

I think you loosely called out a 2 gigawatts bookings target for the year at the analyst day.

And then as a follow-up on costs, utilization was down a percentage point; conversion efficiency was up 10 basis points versus Q4.

So, I guess I'm wondering if you can elaborate on a few of the drivers that impacted the cost per watt for it to decline sequentially?

Sure.

I'll take the first and then I'll hand off to Mark for the second.

From a bookings momentum standpoint I'm -- we can go look at the exact numbers, but I don't think there's a material difference between this year and last year.

And there's certainly nothing in the -- that's happened today that would change our viewpoints on the year that were expressed at the analyst day.

We feel pretty good about them -- what we've gotten over the finish line in the first quarter, and we feel pretty good about the backlog of opportunities that we've got available to us to fill out what we've targeted for the rest of the year.

Generally pretty happy and pleased with the job that our teams are doing, and I'll let Mark comment on the cost issues.

The only thing I'll say on that, as well, is just look at the total pipeline opportunity set.

From what we talked about in the analyst day, which was the first few weeks of or so of March to where it is now, we've added a gig and a half so -- more than that actually of new opportunity.

So the activity that's happening on a global basis is very robust, and I would argue it's consistent with our ability to achieve our book to bill ratio for the year.

On the standpoint, on the cost per watt -- consistent, Brian, we've said this for the last two quarters we've been very good at getting momentum across all vectors that impact the cost per watt.

Efficiency was up sequentially, our throughput has improved, and the variable costs that we continue to drive down costs around billing material and other material costs has all been favorable that drives down the cost per watt.

And again just the utilization rate sequentially was a nominal change, and as I indicated was planned downtime to capture that utilization -- or excuse me that efficiency benefit, which we now have all of our lines up and operational with our latest back contact material, which has given us an entitlement that we should running to all of our lines at least 14% efficiency or better.

Brian, on the bookings with regard to megawatts we're slightly ahead of where we were a year ago.

We're lower in revenue terms.

That's mainly due to the module bookings that we had this quarter.

Patrick Jobin, Credit Suisse.

This is Brandon Heiken on for Patrick.

Thanks for taking the question.

I was wondering if you could clarify on the improvement in gross margin.

It sounds like it's from the project side.

I just wanted to double check that.

And then for the $50 million improvement in operating cash flow how much of that is from higher margins or other factors?

Thank you.

On the first one on the operating -- or the margin improvement it is -- a lot of it is that the team continues to perform very well as it relates to the buildup of our projects and driving costs down.

We're getting better at overall productivity, velocity of the projects.

All that helps to drive down the cost of delivering the project.

So that's a big chunk of it, but the other thing that I said what in my comments, which it think are important to note, is that we received benefits and then the quarter around energy, one year energy tests around our EPC project.

So we've actually out on the energy for the first year and even our O&M business we've got examples of where we've achieved bonuses because our plants have over-performed the energy production.

So both cases that our plants are producing at a very, very high level and, obviously, driving upside in terms of bonuses and pull straight through to the bottom line performance for the Company.

Sorry remind me of the second half a question.

For the operating cash flow for the year with that increase of $50 million, how much is that from the higher gross margin or what other factors contributed to that.

I would argue -- think of it as half of it is associated with the gross margin movement.

And then the balance of it is driven by better working capital management.

Vishal Shah the Deutsche Bank.

Hello, thanks for taking my question.

I wanted to check in on the yield co argument you mentioned, what percentage of your projects today are yield co ready?

The question, I believe, is what percentage of our projects are yield co ready?

Yes.

[Sergeco] yield co or use to former yield co.

Assume is indicating we continue to construct a lot of our assets on balance sheet, and we're trying to capture improved economics as a sell down closer to COD.

So we have three projects right now that would total a little over 200 megawatts that effectively are at or near COD.

And then you look at the balance of the year, other projects coming on, you can check our pipeline that we reported in our K -- or excuse me Q. We have more than sufficient volumes if we chose, and we said this at the analysts day.

I think we showed a slide on this, as well.

We chose to go a yield co route, whether we didn't on our own, or we leveraged the opportunity of capturing potentially better value for the projects and sell down to a yield co.

Paul Coster, JPMorgan.

Thanks for taking my question.

Two unrelated ones actually.

The first one is Mark -- or Jim, you mentioned in your prepared remarks that something like 600 megawatts have been added to the pipeline in the US.

Can you give us some sense -- clearly you identify some demand.

Where is the demand coming from regionally, size of project, type of account?

The other question is from Mark and it relates to your comment around the upside in the first quarter yield to some sort of flexibility, some patience What are you referring to there?

Is it more ability to hold brings through the COD?

In terms of the North American demand, we're seeing pretty robust and broad demand across a broad set of regions as well as a broad set of project types and sizes.

We've seen demand through the year in the 100 megawatt plus class in the Western United States serving the California market which is very typical of our traditional US utility scale projects.

We've seen demand in the Southeastern United States.

We've seen demand in the upper Midwest.

We've seen demand in the Southwest, and those have been down to very, very small projects of a more -- more consistent with a commercial and industrial scale size up to reasonable utility scale projects.

So right now we're seeing a more diverse demand picture in the United States than we've seen at least at any time since I've been involved with the business.

My comment, Paul at the end, I think we tried to highlight this during the analyst day, is that we will continue to be patient and will make what we think are the right long-term decisions as we operate and manage the business and then trying to capture the best economics and keeping all options available for whatever path we want to go down.

By having a strong quarter, strong results, it allows us that flexibility and optionality to continue to evaluate how we want to -- what decisions we make as we close out this year and what decisions we make as we move into 2015, how fast or not can we build out a project.

What path will we go down in terms of when we sell a projects, how long we hold projects?

So having that strong foothold underneath us in the first quarter I think enhances our opportunity to manage business and to be very patient.

Krish Sankar, Bank of America Merrill Lynch.

Good afternoon, guys.

Andrew Hughes on for Krish.

Congratulations on the strong quarter.

Thank you.

Jim, I'm wondering either qualitative -- qualitatively or quantitatively can you give us a sense of how you've seen valuations for fully developed assets change over the last even three to six months as yield co demand elsewhere has picked up.

Have you seen what people are willing to pay on the EBITDA basis or on a yield basis increase or decrease respectively?

Let me extend the comment back to the last two years.

So one of the things that was most notable to me when I joined the Company and came into the industry was that the cost of capital appeared to be significantly higher for solar assets than for other generation assets, both wind and traditional thermal assets, that were similarly fully contracted.

My own perspective was that solar assets were lower risk than those assets, be it a more reliable resource, and we had the absence of commodity price risk and less operational risk than other classes of assets.

And so that delta in cost of capital felt like an arbitrage opportunity to me.

And I have said fairly consistently for at least a year and a half that I felt like we were going to see a consistent and steady drop in the cost of capital for renewable solar projects, particularly in the North American market.

That's exactly what we've seen.

It has continued up including the last six months.

Yield cos has been a part of that, but they have not been the sole source of that.

We can look at the required return of our traditional customers going back 18, 24 months and look at the required return today, and there's a significant delta between the two.

It's not solely as a result of yield cos.

It's been a more broad adjustment in the market's perception of these assets, and I said then, and I continue to say today that I don't see any reason that these assets should not trade at least at par with competitive forms of generation, similarly situated, if not at a premium.

It's really not -- what we're seeing is not unexpected.

It's what I thought was going to happen in the market.

How much more do we have to run, I don't know.

The gap has been closed quite considerably compared to what it looked 18, 24 months ago.

I think that you'll see the lower cost of capital extend to a broader segment of the market.

We now see stratification or differentiation, depending upon size of project and quality and the credit of the off take.

That's a rational way for the market to look at it.

But I think we may see lower cost of capital come into other segments of the market as more product becomes available and as investors get comfortable with it.

So, it's been a consistent aspect to our industry that we've observed and watched for the last 18 to 24 months.

Rob Stone, Cowen and Company.

Hello.

A couple questions, if I may.

The first one was back to the big out-performance in Q1, what was the biggest thing that changed from the time you gave the guidance to five weeks in the quarter, and I think you said something, Mark, about a lawsuit related to Campo Verde.

Was there something that allows you to pull in that revenue related to that?

Thanks, and then I have --

As I tried to highlight during the script was the primary drivers would be top line revenue relative to the midpoint we're about $100 million over.

We received annual bonuses for a couple of our EPC projects, as well as for O&M projects that we have.

And again those are one year type of energy test performance test, availability test, and we got the results of those here in the third month of the quarter.

So, we were able to benefit from that.

We've seen a continued improvement as a relates to our ability to construct our project pipeline and do that in a very efficient way to continue to drive up costs.

So that's helped us, as well.

And then we did have a potential reserves set aside for litigation risk on Campo.

That has been resolved successfully, and so as we released the overall -- recognized the revenue on Campo Verde, we were able to reduce the cost plan, because we didn't have to deal with that litigation.

I want to make sure it's clear, that was a relatively small portion of the overall piece.

So I wanted to highlight that it did impact the quarter, but the majority of the results were more operationally driven and a little bit of timing because of the revenue pull forward.

Aditya Satghare.

I had two questions on your pipeline.

The total potential bookings continue to grow nicely.

You're up to 12 gigawatts here.

How should we think about overall conversion rates on this pipeline even though (technical difficulty) diversify externally.

What you're going to see, is there's still a handful of large projects that are in that pipeline that will carry out multiple quarters, Stateline being one, Silver Face Out being another.

But you're going to start to see a greater velocity, because the average project size is going to be quicker.

If you even look at what we announced with EDF today -- the project we highlighted there, a portion of that volume will be constructed by the end of this year, and then the balance will be constructed in 2015.

So you're going to start to see greater velocity and a better churn against that backlog.

We won't see again the four major projects that we had that have almost 2 plus gigawatts DC of volume, that type of long build out schedule that lasted multiple years.

We will see less and less of that, and we will see more projects with greater velocity.

And our final question comes from Tyler Frank at Robert Baird.

Hello.

Thanks for taking the question.

I was wondering if you could just touch on how we should think about efficiencies for the rest of the year.

And also, what you're seeing in the C&I market and the potential for increased rooftop deployments?

I'll take the last one, and then I'll let Mark talk about the efficiency.

As we are surveying the North American market space and talking to potential channel partners on the C&I product.

One, I think you will remember we presented on analyst day we really divide C&I into two distinct categories.

The grid side of the meter and behind the meter.

The grid side of the meter is really executed by our traditional project development group.

And that doesn't look or feel terribly different from all of the activity that we've been doing historically.

Those are typically ground mount systems.

It's typically an RFO or RFP process that doesn't look terribly different from a utility process.

That element of it is pretty straightforward and looks feels the same.

The behind the meter, which can be ground mount, but often is also rooftop, I don't think that we're looking to directly execute.

We will build channel partnerships, and at this stage what we're seeing is a highly fragmented market with lots of potential channel partners.

And I'd say we're spending a lot of our time trying to vet and analyze those partners who we think the right partners are going to be as we push into that market segment.

But we certainly see lots of volume and opportunity.

Obviously it will be much, much smaller highly repetitive transactions.

That's why we think we need to execute through channel partners, and we will have to -- it will take some time for us to build the model with each one of those partners to the point that it becomes repetitive and begins to be a significant contributor.

So, I would think that it's going to be towards the end of the year before we really begin to see significant contributions, but it's not -- there's no shortage of activity.

It's us getting our feet wet and getting our own processes and partners in place that will allow us to pursue that pretty aggressively.

And relative to the efficiency, I tried to highlight a little bit in the script, too, that we've seen a significant improvement.

We had a major rollout here over the last few quarters, as it relates to our back content material change, and you're seeing the benefit of that as we indicated in the call.

In fact we have all the lines that are operating now running at 15%, or excuse 14% entitlement.

We will see that -- Q2 will see the balance of the fleet start to approach the lead line number that we referenced, which was kind of around 14.2%.

And then you'll see more in the second half of the year as we roll out two new efficiency campaigns that you'll see the bump in Q3 and a bump in Q4.

On the lead line in particular, and you'll start to see the fleet move up as well.

But all that is consistent with the information and the guidance that we provided during the analyst day.

So everything we're seeing right now we are highly encouraged, and we feel will move in the right direction to do as well if not better than what we provided in the analyst day.

And we have a follow-up question from Vishal Shah at Deutsche Bank.

Thanks for taking my question.

Mark and Jim, I wanted to find out if there's any change in the competitive landscape as you bid for some of the utilities relative in the US, especially in light of some of the recent trade investigations.

Are you seeing less competition from the Chinese?

And have you been also seeing any changing in pricing, given that the competitive pricing environment is getting better.

Thank you.

What I would say around the competitive landscape is that it still very, very competitive.

I would say that our differentiation and our capabilities and is being -- continues to be more and more appreciated.

And I also think that where we are with our road maps, and where we're going to go with our installed cost is being very well received.

And we're generally continuing to be identified as a partner of choice.

Pricing, again, is competitive.

It's very competitive.

It is in some cases -- it's moderating a little bit -- we may say it's starting to move up in certain situation, but I don't want anyone to walk away from the discussion that prices are moving rapidly in an upward direction.

But they are no longer following and are no longer s aggressive as we have seen them being in the past.

I think there's also a number of whether utilities, right to Ps, or others are concerned about people's ability to construct the asset in the face of the IPP expiration, and so they are looking to a proven partner like First Solar to step into that.

And there's more of a premium associated with our ability to execute and deliver on time.

So I think all of that is helpful for us in the market.

And ladies and gentlemen that does conclude today's conference.

We thank you for your participation.