第一太陽能 (FSLR) 2014 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the First Solar second-quarter 2014 earnings call.

This call is being webcast live on the investor section of 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, Inc.

Mr. Brady, you may begin.

Thank you, Operator.

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 a technology update and a review of our project bookings and opportunities year-to-date and Mark will discuss our second quarter results in detail and provide an update to the 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 principals.

Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.

We encourage to you review the Safe Harbor statement contained in the press release and the slides published today for more complete description.

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 second-quarter 2014 earnings call.

Today, we announced the new world record for CdTe cell efficiency of 21%, a milestone certified at the Newport Lab and documented in NREL's Best Research Cell Efficiencies.

This is a fantastic achievement on the part of Raffi Garabedian and his R&D team.

This breaks our previous record of 20.4% that we announced in February and represents the seventh update to CdTe record efficiency since 2011.

It also exceeds the multi-crystalline silicon record of 20.4% set ten years ago and the current CIGS record at 20.9%.

We stated at our recent analyst day that our target research cell efficiency by the end of 2015 is 22%, and this new record puts us well on our way to meeting this goal.

Switching to the module, in Q2 our average efficiency increased 0.5% to 14%, our biggest increase in efficiency in a single quarter since becoming a public company.

To put the extent of this achievement in perspective, the total increase in our module efficiency last year was 0.5% and we achieved this in a single quarter.

Furthermore, early in Q4 we expect our lead line efficiency to be 14.6%.

It is this acceleration in efficiency improvements that enables us to begin penetrating base-constrained markets such as distributed C&I, including rooftop.

Although easy to compare, conversion efficiency is a narrow measure of module performance.

Energy yield produced is a superior metric.

We introduced the concept of energy density at the analyst day, which is energy yield per meter squared, and in addition to the conversion efficiency, this incorporates several other factors that drive the energy produced by the module, including temperature, humidity, and shade tolerance.

As Raffi explained previously, CdTe technology has advantages in each of these areas, which currently offsets our efficiency disadvantage and in the future will add to the efficiency advantage we expect to have over our multi-crystalline competitors.

Slide 5 shows our energy density trends relative to multi-crystalline silicone.

Based on our lead line at the end of Q2, our energy density disadvantage stands at about 12%.

By the end of this year we expect to trim that deficit to only 5% and then have an energy density advantage at some point next year.

We will continue to monitor and periodically report on this metric, as it is a key measure of our competitiveness and highlights the tremendous progress we are making.

Next, I would like to highlight the ongoing progress in our O&M business.

As we have stated previously, we intend to evolve this business into a global third party provider of services.

With our recent acquisition of Skytron Energy, we are moving forward in that direction.

Skytron has installed monitoring and control systems in more than 600 plants across 27 countries with a total installed capacity of 5 gigawatts.

This acquisition more than doubles First Solar's global portfolio of monitored assets and provides strategic positioning in the European O&M market, which is expected to grow to 35 gigawatts by 2017.

In addition to this Skytron acquisition, our core O&M business continues to demonstrate tremendous growth with year-to-date bookings of over 800 megawatts.

With another 1 gigawatt of late-stage opportunities, we expect this O&M bookings number to continue to grow.

Slides 7 and 8 show the total outstanding bookings in gigawatts and revenue and the change in those bookings that occur in the second quarter.

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

Total outstanding bookings increased from 2.7 gigawatts DC to 3.2 gigawatts DC.

Total bookings since the last earnings call were over 800 megawatts DC against shipments of around 400 megawatts DC during the same time and period.

The single largest booking in the quarter was a 310 megawatt AC PPA that we were awarded by SoCal Edison with a commercial operation date of 2019.

In addition, we signed an EPC agreement to construct 175 megawatt AC project in California with a commercial operation date of 2016.

These wins highlight our continued strength in the Southwestern United States and are significant additions to our pipeline.

Or bookings also continue to show increased geographical diversity.

In India we have reached a new milestone with the announcement of our first self-development projects in that country.

We will begin construction on multiple projects this year totalling 45 megawatts AC.

These projects provide an opportunity to gain valuable development and EPC experience which we will be able to leverage as the solar market in India continues to grow.

In Asia, we recently announced the establishment of a supply agreement with ExSol, a leading distributor and integrator of solar systems in Japan.

The agreement targets installation of 100 megawatts DC per year of First Solar's CdTel thin film modules in Japan.

We believe there is tremendous growth potential for CdTel modules in Japan and this agreement adds to our momentum in this market.

Turning to outstanding bookings in revenue terms, our expected revenue increased from the $7.5 billion to $7.6 billion, reflecting the strong bookings number.

Our focus remains on maximizing margin per watt of production, whether that comes in the form of a module-only sale, constructing a photovoltaic power plant, or some other offering.

Turning to slide 9, I will now cover our potential bookings opportunities which now stands at 12.7 gigawatts DC, an increase from 12.2 gigawatts in the prior quarter.

The approximately 500 megawatt increase in new opportunities is primarily related to continued growth in the US, but also driven by new opportunities in Latin America.

In the US the growth is not only from projects in the Southwest but also continued strong utility scale demand across the country, driven in part by the exploration of the investment tax credit in 2016.

In Latin America, the number of opportunities in Chile, as well as Brazil, continues to grow.

The size of our mid and late stage deals, which have a moderate to high probability of success, was about flat at 1.3 gigawatts.

Included in our late stage opportunities is the 141 megawatts AC Luz del Norte project in Chile, which has been recently announced has received Board approval from OPIC and IFC for construction financing.

The project remains on track to financial close and will be included as a booking in our pipeline after reaching that milestone.

Slide 10 shows the breakdown of demand by geography.

Our opportunity set outside of North America remains robust at 6.8 gigawatts, or 54% of the total.

We are encouraged by the recent aforementioned project wins in various countries, and given the size of our potential international opportunities, we see this momentum continuing.

Finally, I would like to provide a brief update on our position with respect to a yield co.

As we have stated previously, this is an issue we felt needed careful consideration.

We did not believe we needed to rush into a decision, but rather take into account the evolving industry dynamics and make the best long-term decision for our shareholders.

With that in mind, we are nearing the end of our decision-making process and subject to market conditions we expect to make a final decision near term by the next earnings call at the latest.

In the event that we decide to proceed ahead of that time, we will have a separate conference call to make that announcement.

Now, I will turn it over to Mark who will provide detail on our Q2 financial results and discuss guidance for 2014.

Thanks, Jim, and good afternoon.

Turning to slide 12, I will begin by highlighting our operational performance for the second quarter.

Production in the quarter was 447 megawatts DC, an increase of 1% on a sequential basis and 15% year-over-year due to higher module efficiency and throughput improvements on the same number of production lines.

Our factory capacity utilization was 80%, down 2 percentage points from the prior quarter.

Factory utilization was down sequentially as we finished the fleet-wide rollout of our new Series 3 Black module and back contact technology, which facilitated the record quarterly efficiency gains Jim referenced.

The average [coers] efficiency of our module was 14% in the second quarter, which is up 50 basis points quarter-over-quarter and 100 basis points higher year-over-year.

Continuing the trend over the last several quarters, our efficiency improvements remain steadfast in July with our lead line and fleet average increase from our June exit.

Furthermore, as a reference point, our road map for the end of Q3/the first part of October, we'll have our lead line operating at 14.6% efficiency, which is the primary driver of the sequential improvement in energy density Jim referenced.

Lastly, our module cost per watt continues to decline driven by both efficiency and material cost improvements.

Now, moving to the P&L portion of the presentation on slide 13, second quarter net sales were $544 million compared to $950 million last year quarter.

The decrease is due primarily to revenue recognition on the Campo Verde project in the prior quarter.

Partially offsetting the 139 megawatt AC Campo Verde project was the sale of the 50 megawatt AC Macho Springs project in Q2.

Note: the revenue recognition for both of these projects was on a completed contract basis.

Relative to projects with ongoing revenue recognition, AVSR and Desert Sunlight revenue was lower quarter-over-quarter.

AVSR declined as the project nears completion and was anticipated.

In contrast, Desert Sunlight experienced an unexpected inverter system integration issue, which will defer revenue from Q2 into the second half of the year.

Note: it is important to highlight a remediation plan is in place and the project remains on plan for the year.

As a percent of total net sales our system revenue, which includes both our EPC revenue and solar modules used in the systems project, was 88%, a decrease of 8 percentage points from the prior quarter, reflecting the lower systems revenue and increase in third party module sales.

Gross margin in the second quarter was 17%, down from 24.9% in the prior quarter.

The decrease in gross margin was affected by the higher mix of module business in Q2, the mix of system projects between the quarters, and the deferral of revenue from Desert Sunlight to the second half of the year.

Second quarter operating expenses decreased $7 million quarter-over-quarter to $90 million.

The decrease is primarily attributed to reductions in R&D spending related to the rollout of our back contact program, which primarily impacted the first quarter.

This reduction in R&D expense is expected to be temporary as we continue to roll out additional efficiency improvement programs in the second half of the year.

On a reported basis, second quarter operating income was $2 million compared to $139 million in Q1.

The decrease was due to lower sales and gross margin, partially offset by lower operating expenses.

The second quarter GAAP net income was $5 million, or $0.04 per fully diluted share compared to $1.10 for fully diluted share in the first quarter.

In Q2 we had a small tax benefit due to the impact of certain discrete items.

Turning to slide 14, I'll review the balance sheet and cash flow summary.

Cash and marketable securities decreased by approximately $30 million to $1.35 billion.

Our net cash position decreased slightly, but remained at $1.2 million.

This minor decrease includes the impact of approximately $73 million of cash used to collateralize and significantly reduce the cost of certain letters of credit.

These restricted LCs remain highly liquid and can be converted back into cash in five days.

If not for this transaction, our cash position would have increased from the prior quarter.

Our net working capital, excluding cash and marketable securities, decreased by approximately $49 million from the prior quarter.

The decrease was driven by the increase in revenue for Desert Sunlight and Silver State South, partially offset by an increase in project assets as we continue to construct some projects which are not yet sold.

Cash flow from operations $118 million compared to use of cash in Q1 of $318 million.

Pre-cash flow was $60 million compared to negative $357 million in the prior quarter.

Operating cash flow was strong for the quarter, especially considering we continue to build certain projects on the balance sheet in order to capture greater value.

Capital expenditures totaled approximately $62 million, an increase from $51 million in the prior quarter as we purchase more equipment related to the TetraSun ramp.

Depreciation for the quarter was $63 million, compared to $61 million in the prior quarter.

Turning to slide 15, I'll now discuss our guidance for the remainder of 2014.

First, and most importantly, we are reaffirming our earnings per share guidance of $2.40 to $2.80 and operating cash flow of $300 million to $500 million.

We are updating certain guidance targets as follows: for gross margin, we are raising the high and low end of the guidance range by 1 percentage point to 18% to 19%, reflecting improved visibility into self-developed project margins in the second half of the year.

Largely offsetting the gross margin improvement is an increase in our operating expenses to a range of $380 million to $395 million.

This increase is primarily to support ongoing technology and growth initiatives, as well as to develop new markets.

Additionally, we are revising down our expected production by 100 megawatts to a range of 1.8 to 1.9 gigawatts.

The reduction is due to down time as we roll out production of our Series 4 modules.

All other guidance ranges remain the same.

Reaffirming our guidance, it is important to highlight a couple of key items.

First, these ranges assume continuation of the current business model and, therefore, do not reflect the impact of the potential pursuit of the yieldco strategy.

Any decision to pursue a yieldco may significantly impact our ability to meet the earnings and operating cash flow guidance shown.

Second, the balance of the year revenue and earnings is highly dependant on our systems business and some key projects such as Solar Gen, Desert Sunlight, and Topaz.

Our guidance is based on the current assessment of the respective project status and understanding the dependency to deliver the anticipated revenue, earnings, and cash flow.

However, given the size of these projects, the inherent risk, and potential impact they can have on our 2014 guidance, it is prudent that we highlight this.

As we have stated previously, the project business can be lumpy relative to timing.

Now, moving to slide 16, I'd like to summarize our progress so far this year.

First, we reached a new record cell efficiency of 21%, an average efficiency -- average fleet wide efficiency of 14%.

The rate of improvement continues to increase and remain on track to our road map.

Next, with 812 megawatts DC of new bookings, our year-to-date bookings now stand at 1.2 gigawatts DC.

These bookings combined with 1.3 gigawatts DC of mid to late stage opportunities in our pipeline give us confidence in our ability to meet our one-to-one book-to-bill ratio for the year and replenish our pipeline.

Finally, from a financial standpoint we are reiterating our full-year earnings per share and cash flow guidance.

Now with this we conclude our prepared remarks and open up the call for questions.

Operator.

Ben Kallo.

First of all, as far as the guidance goes in the back half, could you discuss your visibility there even though the lumpiness of the business?

And then, second, you talked about the yieldco and market conditions.

Can you just talk about what the decision process is right now with the successful yieldcos we've seen?

I will stop there.

Thanks, guys.

Yes, I'll do the guidance discussion.

So, Ben, really there is not any real significant unknown dependency from the second half of the year.

So, if you look at it from a book and bill perspective, we don't have a high dependency of new orders that have to be booked and billed between now and the end of the year.

There is really no significant dependency from that perspective.

The only dependency is just the timing associated with a couple of the key projects that I mentioned.

As we see each of those projects right now, we are comfortable with the time line of recognizing the completion of those projects and the associated revenue earnings and cash flows, but we just wanted to highlight it as such so that, as you know, the business can be lumpy in unanticipated events could occur, so we thought it was prudent to highlight that.

In terms of the yieldco, I'll let Jim make some comments around that.

I think the statement fairly stands on its own.

The reference to market conditions is just really acknowledging that were there to be dramatic changes in market conditions, investor appetite, obviously that could impact us narrowing, closing in on a final decision, but the statement is pretty clear as to the timing of us getting to the finish line on the decision-making process.

Patrick Jobin with Credit Suisse.

A few quick questions.

Firstly, you mentioned the inverter issue causing the slip to Q3.

Just want a little more color around that and any cost associated with that.

And then secondly back on the yieldco question, how are you thinking about, not necessarily the decision go or no go, but the amount of projects that you could put into a yieldco looking out over the next few years?

Thank you.

Well, first on the Desert Sunlight inverter issue, it is a very esoteric engineering issue that manifested itself only when the plant came up to full power.

There is an engineering solution that can be implemented.

It is not material to the company as a whole.

The delay was primarily in agreeing documentation to cover it with the customer and it's not something that we're particularly alarmed about.

It's a -- sometimes when you bring these very large plants up to full power, you have issues of almost resonance between the inverters that manifest themselves.

We've seen it with other classes of inverters in the past.

It just requires some engineering hours and it's not something we're particularly concerned about.

And on the yieldco in terms of details, one, we haven't reached a decision and, two, I don't think we're prepared to discuss details other than to say we're obviously close observers of the marketplace.

We know what characteristic it takes to have a successful offering in a company that trades successfully in the marketplace and it is not something we would even be considering unless we felt we had the capability to deliver those characteristics.

And I think Jim referenced this even at our analyst day, when you look at our project pipeline, it is not a question of the capability of having the projects in the pipeline.

As we just highlighted, we've added more into the pipeline over this last quarter.

So, the capability there is in completing our analysis and conclusion around the strategic fit and the direction we want to go.

Shahriar Pourreza with Citigroup.

Hey, Jim and Mark.

Just a quick two-part question here outside from asking a question on the yieldco.

The efficiencies on your cells are increasing at a real rapid pace.

I am sort of wondering if you can just give us a refreshed view on you can take the average efficiencies for crystalline silicon panels.

Where does the LCOE stand when you compare yourself to crystalline silicon and thin film.

And then the second part of my question is clearly we're starting to see the end of some very large RFP announcements in states like the Carolinas, Georgia, several states, non-traditional coal burning states.

Can you maybe just give a little bit of an update if possible and if you're gaining any traction on some of these other state that is should be announcing large scale utility RFPs?

Let me start with the second half of your question and then I'll hand off to Mark for the first part.

In terms of the activities in primarily the southeastern United States, I think we're in the heat of the battle right now and we'll begin to have a little more visibility as we move over the next probably 60 to 120 days, but we're certainly very active.

As with any new market, we have a lot of learning to do in terms of what the winning combination is going to be and we have very good partnerships and deep relationships that we're working in that region, so we're cautiously optimistic, but I think a lot of detail will play out over the next 60 to 120 days.

And we often get two opportunities to look at the business.

One, during the sort of developer RFP stage and then, two, as a module and EPC supplier on the back end, so we expect to be busy with all of those activities for an extended period of time.

On the efficiency and the relative impact to kind of our cell technology, as Jim indicated in his comments, our cell efficiency now is above both CIGS as well as crystalline silicon.

And, as you know, Shahriar, the relative advantage of our temperature co-efficient creates even greater separation from that standpoint.

So, if you look at the entitlement from the cell level, couple that with our advantage in temperature co-efficient as well as other aspects such as humidity and other environments, where we perform better than our competition, we clearly will be at an entitlement level that is superior to our competitor relative to LCOE capability.

The slide that we have in the presentation that talks to energy density is probably the best near-term proxy to where we are.

And as that slide shows, Jim indicated we stuck from 12%, 13% disadvantage as we sit today and we exit the year around 5% energy density, and then that starts to expand beyond that where we become advantaged as we move beyond 2015.

That is directly correlated to all the improvement that we have been talking about.

We haven't given a specific LCOE entitlement relative to that road map, but it's clearly an understanding of our capability and competitiveness of our technology.

James Medvedeff with Cowen and Company.

Good afternoon and congratulations on the conversion efficiency.

That's a big number.

Thank you.

Let's see here.

Can you say how much revenue was deferred or was not recognized that maybe had originally been expected to be recognized?

No.

We haven't given revenue guidance and obviously we're not going to say how much was deferred, but clearly it was a meaningful amount.

If you want to look at it as percentage relative to expectation, we realized about one-third of what we were anticipating to recognize, less than one-third of what we anticipated to recognize in the quarter, and that drove a meaningful impact around earnings but, again, it's a timing issue.

There is no lost economics.

It's a matter of revenue and earnings falling out of the second quarter and we'll see that realization in the third quarter.

Paul Coster with JPMorgan.

Hi, this is Mark Strouse on for Paul.

Thanks for taking our questions.

Just wanted to see if you could comment on -- I understand it's pretty early, but any changes in the competitive environment in the US just given some of the preliminary tariffs that have put on the Chinese guys?

I think it's way too early to say that we have even any changes in the competitive environment.

As you probably know, we were not a party to the trade case and have not focused on it as being a particularly strong driver of our business.

The last imposition our competition found efficient ways to work around the duties fairly quickly and it's not clear to me that they won't find ways to work around [these].

So, we continue to believe that we have to be prepared to compete on a fairly unassisted straight-up basis and that is how we run the business still.

I can't really say that we've seen an impact to date.

Steven Chin with UBS.

Congrats on the strong bookings for the quarter.

Thank you.

I think the first question is kind of around margin expansion.

So, it's good to see margins ticking higher.

Was the impetus of this higher ASPs due to kind of lower cost of capital that you're seeing in the project finance equity purchase market?

And how does that differentiate between your self-developed projects and your third party bookings?

Are you also seeing margins expand there or stay stable?

Kind of what is your outlook for the two going forward?

Yes.

So, when you take it, there are two pieces to that, right?

And so clearly when you think about our self-developed projects, we even highlighted a little bit of this in the analyst days.

Cost-to-capital clearly has become more competitive.

The strategics are getting more comfortable with the risk profile of the PV assets and therefore becoming more competitive as they think about their willingness to acquire projects which therefore reflects on the cost of capital assumption.

So, we're seeing that for certain and we're continuing to see now even with some of the yieldcos that are hitting the market or others concerned potentially that the yieldcos will be alternative avenues to monetize those projects, you are seeing others become more competitive, particularly for large utility scale projects that people want to acquire.

On the EPC side, we don't really necessarily see, when we compete on a third party we see that the cost of capital accretion largely goes to the owner, developer of the project.

But our technology and the overall competitiveness in our technology has increased, highlighted in kind of the [in density] slide that we showed.

So, as we price forward third party [EPC] agreements, we are seeing better margin realization which is more indicative of the capability and the strength of the technology and cost curve that we have been able to achieve versus cost of capital advantages that an EPC provider may capture in the marketplace.

Brian Lee with Goldman Sachs.

Hey, guys.

Thanks for taking the questions.

First off, Mark, you mentioned during your prepared remarks growing more assets on the balance sheet.

How many megawatts does that comprise today that are completed and how much would you expect that to be by the end of 2014?

And then my followup would be just generally on yieldcos.

You sort of alluded to this, but wondering how you guys are thinking about the emergence of yieldcos impacting pricing in the project acquisition environment and then in what sort of time frame if you're not already seeing it today you might expect to see that impact?

Thanks.

So, the way I would look at it, Brian, if you look at it across our portfolio of project opportunities that have not been sold yet, it's approximately 1.5 gigawatts of opportunities that we have that go across various timelines.

Some of that is near-term and actively either completed, held on balance sheet or in some form of construction or development and I would say look at about -- 600 megawatts would fall into that category.

The others would have [COD] dates that are in kind of the 2016 timeline, and then we have a couple hundred megawatts that go beyond that.

So, when you look across that portfolio of assets and the inherent cash flows that are embedded in those assets, you have more than robust cash flows to not only do your initial launch, but to have a pretty attractive development pipeline that sits behind those assets and we are continuing to compete and win on a day-to-day basis to add to that pipeline of opportunities.

So, if the question is do we have the capability?

I think, again, we highlighted that in the analyst day last year, or this year I should say, that we clearly do.

When you see our filing that comes tomorrow, you'll see the summery of the projects that add up to about call it a gig-and-a-half.

So, yes, the capability is clearly there.

It is more or less our own internal assessment of what the right strategic fit and direction we want to go.

Sven Eenmaa with Stifel.

Just wanted to ask about reduced production guidance, introduction of new modules this year.

Do you guys expect to increase your efficiency road map next year and forward based on the mix change here?

I don't -- the reduction in guidance this year is due to down time associated with the implementation of some of the elements of the road map that were provided to investors at our recent analyst day.

Some of it is because we have accelerated or broadened the rollout programs beyond what we originally would have anticipated.

It isn't a change to the overall technology road map.

The numbers we presented at the last analyst day remain our most recent guidance in terms of our technology road map going forward.

It's really more just a change, a subtle change, in the timing of some of the rollout that in fact impacted the total production for this year.

As you begin to roll the technology across your production lines, you may see opportunities to perhaps do things a little more simultaneously and the tradeoff is you get the efficiency benefit earlier, but you lose a little bit of production in the process.

And we're constantly doing a cost benefit analysis to compare the various ways to roll that technology across our production line and the net impact for this year was a reduction of 100 megawatts, but it's not any big change.

It's basically on schedule with what we disclosed at the last analyst day and doesn't reflect any sort of major deviation from that plan.

Aditya Satghare with FBR Capital Markets.

Thank you.

Two questions please from my side.

Could you talk about the market environment in two international markets which you are active in, Japan and Chile, and maybe sort of contrast it between the environments for self developed projects versus third party modules?

Sure.

Let's start with Chile.

It's a little bit simpler.

The only thing wrong with the Chilean market is transmission constraints and overall market size, otherwise it's a very robust market.

So, we've staked an early position in the market with the projects that we're currently pursuing.

Most of that activity for us is self developed.

We do have some third-party negotiations that are under way, but the largest percentage is self developed.

The market will continue to grow but at a measured pace primarily because the overall size of the electricity system is modest and you are reaching a point where you will hit transmission constraints.

Ultimately, those constraint will be relieved, but that requires the investment in and construction of additional infrastructures.

So, it's a nice little market, but it is constrained in terms of its total impact by the overall size of the market, but we're very happy with what we've accomplished and we'll continue to have a presence in that market.

Japan is a more complicated and dramatically larger market.

There are multiple channels that we can pursue.

You have the so-called mega solar or large utility scale projects, you have the smaller scale distributed projects, and then you have the very small scale distributed rooftop projects spanning both residential, commercial and industrial, and then the mega solar.

We have multiple efforts under way.

On the mega solar, we're both pursuing our own development efforts.

We're also working alongside of third-party developers on a partnership basis and there are multiple of those partnerships that we're pursuing or are actively engaged in.

On the more distributed side, we have been looking to work with channel partners, the most notable of which is the XSOL announcement that we recently made signing a distribution deal with them for a total of 100 megawatts with 20 megawatts of that being take or pay, so we're beginning to penetrate the various channels that are available to us.

We also have a commitment with JX Nippon on the TetraSun product which is commencing production this year out of Malaysia.

So, we have a multitude of efforts under way in the Japanese market and that is a very large market that we expect to see strong growth out of for many years to come.

There are certainly steps being taken to rein in the FIT.

That's not unexpected.

It has served its purpose in terms of generating early activity.

We've taken a long-term view of the market and believe that photovoltaic solar is going to be an important part of the energy mix long after FIT fades away simply because it is very competitive with their alternative forms of energy.

So, we see it as a very steady growth opportunity for many years into the future and that's kind of how we think about Japan.

Colin Rusch with Northland Capital Markets.

Great.

Thanks so much.

Can you just help us reconcile slides 7 and 8?

It looks like you had some nice bookings post 2Q with 700 megawatts or so, but when you go to slide 8 we are looking at the year-to-date additions not really changing so much post 2Q.

So, can you just walk us through, are there some de-bookings that are happening?

Is there some pricing dynamics there?

And then as a followup, I'd love to get an update of the combined solar and diesel generation sell through.

How that's looking at this point?

On the combined solar and diesel sell through, we continue to have lots of good activity talking to a large number of potential customers, also talking to the technology partners on the diesel side because we don't anticipate getting into the diesel business.

We'll want to have a partner for that aspect of it.

Those sales are a very long cycle sale because generally you're dealing with a customer that has an electric -- self-generation of electricity as a critical component of some industrial or production process, i.e.

mining companies or remote industrial locations.

And we think the sales cycle will include small pilot projects that demonstrate the technology and demonstrate the reliability and availability of the technology and that you will be able to grow the business as you move forward.

We've moved from conversations and theoretical discussions to beginning to discuss specific pilots.

And we remain pretty confident that it's going to be an attractive business, but it is a very long sales cycle and we're still at the early stages of that cycle.

And on the other question, slide 7 versus slide 8, really what we did in slide 7 is we just showed discretely, because I think people have asked the question before about the total bookings that we show because we do take the bookings up until the time of the earnings call, how much of that was in the specific quarter and how much was after the quarter.

So, slide 7 just says, okay, within the boundaries of Q2, we booked 500 megawatts, and then after that we booked another 700 megawatts, so those two are broken out.

On slide 8 we just didn't break it out.

We just showed the combined 1.2 gigawatts translates to $1.6 billion of revenue.

So, it's just a slightly different way of presentation, but the way you should look at it if you want to compare the two is add the 0.5 and 0.7, that in aggregate adds up to $1.6 billion of revenue that was added to the pipeline.

And we did 400 megawatts in Q1.

So, the 500 you see includes that 400 megawatts.

Yes.

Ben Kallo with Robert W. Baird.

Thanks for the follow up.

I think this is probably one of the best periods you've had for bookings.

Could you just update us?

Is this something we should expect going forward?

Is there an acceleration in your pipeline as you guys develop these things parallel, or how should we think about it going forward?

I think you should think it's a very good period and we certainly hope it's representative of a trend, but we've seen quarter-to-quarter variability in the activity and it's not always easy to predict.

We tend to look at the combination of metrics that we provide to you guys to gather a feel for how the business is trending.

And as you've seen over the last year-and-a-half that opportunities pipeline has grown, I think it's doubled over the last 18 months or so, and I think we're beginning to see as the full cycle flows out that much larger set of opportunities is beginning to translate into bookings, which is what you should expect.

I don't want to promise a steady rhythm because it's simply not the nature of the business, but I think it is indicative of that we are beginning to convert that very large pipeline that's beginning to filter through down to the finish line and we're seeing higher activity levels as a result.

It's also in part generated by we're broadening our applicable market.

As our technology evolves and as conversion efficiency increases, opportunities that would have been -- where we would not have been competitive because of space constraints or other elements that required a greater efficiency we're beginning to compete effectively in that addressable market.

That also generates an overall higher level of activity, some of which translates through into bookings.

Krish Sankar with BofA Merrill Lynch.

Thanks for taking my question.

I have a couple of them.

First, congrats on the great cell efficiency improvement.

Along with that, as the CadTel technology improves, I'm kind of curious, do you have any updated on TetraSun, and what are your plans for the technology?

And then my second question is not to bore with you another yieldco question, but if you do decide to go down the path, would you consider non-First Solar projects or look outside solar?

Thank you very much.

First on TetraSun.

TetraSun remains on track as per the kind of the business plan that we outlined for investors at our analyst day.

We're working on commencing production in Malaysia.

The initial market remains Japan through -- along with JX Nippon.

We are looking at opportunities across a variety of other markets.

We continue to see a roll in opportunity for TetraSun in highly spaced constrained circumstances or very high BLS circumstances where the very high efficiencies are worth the incrementally higher costs associated with TetraSun, but there's no doubt that the success that we've had on the CadTel front has taken pressure off the need to move TetraSun at a very rapid pace.

So, it remains on track and is continuing to be pursued along the business plan that we outlined, but the distance between the two technologies has unquestionably narrowed and that takes a little bit of the sense of urgency out of it, quite frankly.

But we're fully committed and spending lots of time and R&D dollars and marketing dollars not only developing the technology but finding the appropriate channels and partners where we can take advantage of the unique characteristics of that product.

And then on the yieldco, it's way too early to comment on assets other than our own and assets outside of solar.

We need to get to the finish line on whether we want to consider it with our core assets before we address those questions.

Vishal Shah with Deutsche Bank.

Thanks for taking my question.

As you are evaluating your yieldco decision, I am assuming you have been approached by other yieldco companies to take a look at some of these projects you have on balance sheet.

Just relative to say six months ago, where do you think pricing is today for some of these projects?

Is it up 20%, 30%?

And has that changed the outlook for developers looking at some of these projects over the next two or three years?

Are you seeing an increasing risk appetite and, as a result of that, a greater amount of activity in the US and global markets?

And secondly when you think about the 21% efficiency cell, what kind of cost, what would that translate into and when can you start manufacturing that technology?

Thank you very much.

Let me start with the last first.

With respect to the 21% technology, as I referenced in my opening comment, it's right on the glide slope that we laid out in our last analyst day with respect to our technology road map and all the comment that we're going to provide about cost per watt is contained in that analyst day presentation, so I would reference you to that presentation.

There is nothing unexpected in the announcement.

It's merely confirmation that we are executing the road map that we set forth earlier this year.

And then with respect to other yieldcos and impact on pricing in the marketplace, those that have been following the company since I joined, I've been talking about yieldcos and the cost of capital within the sector relative to other competing forms of generation for nearly two years now and everything that has played out has been pretty much as I expected.

There is no reason that an investor should or would differentiate between the cash flows coming off of a fully contracted photovoltaic power plant versus a wind plant versus a thermal plant.

In many respects it's actually a safer and more stable class of assets than those others.

So, we have seen a steady and consistent reduction in capital cost for the sector for completed projects.

That obviously increases the value of any project.

Cash flows were contracted at one given level of cost of capital and it certainly has allowed developers in the marketplace that are bidding for PPAs to bid a more aggressive cost of capital and assume that they can maintain a development margin for themselves given that cost of capital.

So, it translates through the entire value chain all the way and a great deal, if not all the benefit, ultimately ends up in the hands of the customers, ultimately the customers of the utilities that contract for the power.

So, it has resulted in a steady lowering of the end cost of photovoltaic generated solar power for the customer and that's is not a surprise.

That's something that we've been talking about for a year-and-a-half and we think that it's appropriate and puts solar in the best position to compete as a mainstream participant in the overall generation mix, particularly in North America.

We will take our final question from Edwin Mok from Needham and Company.

Thanks for squeezing me in.

So, my question is on your mid to late-stage option as you laid out there.

How much of that was international versus US?

And then my quick followup just on the question regarding the Chinese tariff, the tariff on the Chinese module and how that has impacted market.

We've heard from some other companies talking about EPCTA project construction as a result of those tariffs.

Have you seen that in the marketplace?

Would that create opportunity for you to bid on some of those projects?

We have not seen any evidence of that in the marketplace, and whether we will I simply don't know.

We will just have to see what happens.

And then on the first one, in terms of mid to late stage and then what is the mix of that by geography, we don't break that out per se but I think the best way to look at it is it's a relatively diverse mix.

I think one of the things we did highlight in the call was that included in that mid to late stage of 1.3 gigawatts was our Luz del Norte project in Chile which is 141 megawatts AC, so that is again an example of a large scale project that sits in the mid to late stage project portfolio and one which we anticipate to have a booking here in the near term.

So, it's a good mix, it's a great thing.

We've been adding to our BD capacity and PD capacity on a global basis.

We've been able to penetrate a number of new markets and the pipelines are being very robust in those markets, and you're starting to see some of that come to fruition in that mid to late stage pipeline that we referenced.

That does conclude our conference.

We thank you for your participation.

You may now disconnect.