第一太陽能 (FSLR) 2014 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to the First Solar's third 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 Stephen Haymore, Manager of Investor Relations and Corporate Treasury for First Solar, Inc.

Mr. Haymore, 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 third quarter.

A copy of the Press Release and the presentation are available on the Investor's 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.

Then Mark will discuss our third-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 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 you to review the Safe Harbor statement contained in the Press Release and the slides published today for a more complete description.

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

Jim?

Thanks, Steve.

Good afternoon and thank you for joining us for our third-quarter 2014 earnings call.

Let me begin by providing an update on the progress we have made on our manufacturing and technology road maps.

First, with expectations for robust demand next year, we have recently begun restarting the four idle lines of capacity at our Malaysia facility.

The restart of these lines will add over 360 megawatts of capacity in 2015.

Additionally, we have started deploying existing toolsets to add two new lines of capacity in our Perrysburg, Ohio facility.

The additional lines will be operational around midyear 2015 and provide over 100 megawatts of output next year.

Combined with improved throughput on existing lines, our manufacturing capacity, not including TetraSun, has the potential to increase up to 46% next year depending upon demand levels.

Turning to efficiency, our full fleet average conversion efficiency for the quarter was 14.2%, a 20 basis point improvement from the prior quarter.

In the fourth quarter we expect our full fleet to average 14.4% conversion efficiency.

Compared to the 14.9% Q4 fleet average efficiency we communicated at Analyst Day, the difference is not technology related but primarily due to a change in assumed product mix.

Currently based on customer requirements, we are producing more Series 3 modules, and our transition to Series 4 upgraded with our anti-reflective technology coating has been delayed as a result.

In addition, we have made certain enhancements which do not increase the conversion efficiency but improve the overall stability and energy density of our modules, and which increased the energy yield at the system level.

Taken together, these items account for the difference in our current forecast versus what we communicated earlier this year.

We continue to be encouraged by the progress of our CadTel technology.

For example, recent pre-production runs of significant volume incorporating our latest device improvements have resulted in conversion efficiencies of up to 15.9%.

While these improvements are not scheduled to roll out across the fleet until next year, this is an example of the progress we continue to make on our technology road map.

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

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

Total outstanding bookings stands at 3.3 gigawatts DC, an increase of 100 megawatts from the prior quarter.

We have added new bookings of over 500 megawatts.

And our year-to-date bookings as of today's call are now above 1.7 gigawatts.

Bookings through the end of September were 1.6 gigawatts compared to shipments of 1.1 gigawatts during that time period, resulting in a book-to-bill ratio for the first three quarters of the year of about 1.5.

Our goal is to achieve a greater than 1 to 1 book-to-bill ratio.

And with our recent progress we are on track to meet or exceed this target.

The single largest booking in the quarter was the 141 megawatt AC Luz del Norte project located in Chile, which had not been included in our bookings numbers prior to this point.

Since the update we provided last quarter, the project has now reached financial close and construction is underway.

In the UK we announced earlier today, along with BELECTRIC, the groundbreaking of a 46-megawatt DC utility scale power plant in southern England.

This is the fourth project to be executed in the UK under the First Solar and BELECTRIC joint venture that we announced last year.

In addition, this past quarter our bookings have demonstrated progress in the southeastern United States, with two project announcements in North Carolina as part of the Duke Energy RFP.

First, we have signed an EPC agreement to construct the 40-megawatt AC Elm City project.

Additionally, First Solar was announced as the module provider to the 65-megawatt AC Warsaw solar project, which will be the largest solar power plant east of the Mississippi River once completed.

Both projects will be owned and operated by Duke Energy.

Our bookings in the quarter also showed ongoing geographical diversity with about 42% of bookings from outside the United States.

In addition to the projects in Chile and the UK already mentioned, we also recorded bookings in other parts of Europe, Israel and India.

Turning to outstanding bookings in revenue terms, our expected revenue decreased from $7.5 billion to $7.4 billion, reflecting a higher mix of module and module-plus volume booked in the quarter.

We are seeing increasing demand for our module-plus offering, which combines a module with a mounting solution and component warranty.

While some offerings may generate less revenue than a full system, we will continue to provide the best solution that meets the customers' needs while maximizing the gross margin dollars from each sale.

Turning to slide 7, I will now cover our potential bookings opportunities which now stands at 13.7 gigawatts DC, an increase from 12.7 in the prior quarter.

The approximately 1 gigawatt increase in new opportunities is due to continued growth in the US, Latin America and India.

In the US the growth continues to be driven by strong demand across the country, driven in part by the expiration of the investment tax credit in 2016.

The size of our mid- and late-stage deals, which have a moderate to high probability of success, was down slightly to 1 gigawatt, resulting from the bookings recorded in the quarter.

Slide 8 shows the breakdown of demand by geography.

Our opportunity set outside of North America has increased to 7.7 gigawatts, or 56% of the total.

Included in our international opportunity and late-stage deals is the recently announced 80-megawatt AC project awarded in Andhra Pradesh, India.

Once the PPA is signed on this project, it will be counted as a booking.

This project highlights the momentum we continue to see in our international bookings opportunities.

Finally, turning to the oft-asked question of a yieldco, the Company has determined that we are not prepared to file a registration statement and pursue a listed yield vehicle at this time.

However, we have also determined that the ownership and operation of whole or partial interest in select solar-generating assets does have a role as a component part of our overall business model.

We will continue to develop generation assets in the US and select other markets.

And at times we will retain either a whole or partial interest in such assets.

As with any asset class, we will continue to evaluate our options for the capitalization and governance of such assets.

We feel that opportunities for maturation of the marketplace and further optimization of such retained interest remain, and have decided to exercise patience.

We likely will begin providing greater visibility into our retained ownership interest by reporting it as a separate segment commencing in 2015, as it will have become a material contributor by such time.

You can anticipate that we will provide a more detailed financial overview at our traditional Analyst Day in early 2015.

Now I will turn it over to Mark who will provide detail on our Q3 financial results and discuss guidance for 2014.

Thanks, Jim.

And good afternoon.

Turning to slide 10, I will begin by highlighting the operational performance for the third quarter.

Production in the quarter was 449 megawatts DC, which was essentially unchanged from the prior quarter, and 5% higher year over year due to higher module efficiency on the same number of production lines.

Our factory capacity utilization was 77%, down 3 percentage points from the prior quarter.

Factory utilization was down sequentially due to the rollout of our anti-reflective coating technology.

The average conversion efficiency of our modules was 14.2% in the third quarter, which is up 20 basis points quarter over quarter, and 90 basis points higher year over year.

Our best line ran at 14.3% efficiency during the quarter, an increase of approximately 20 basis points from the prior quarter.

In line with what we communicated on our last quarter's call, our lead line efficiency has continued to rapidly improve.

During the month of October our lead line efficiency averaged 14.6%, an improvement of 70 basis points over October of last year.

Lastly, our module manufacturing cost per watt declined again this quarter due to both efficiency and material cost improvements.

During Q3 we achieved a milestone with our fleet average cost per watt, excluding underutilization, below [$0.50 per watt] (corrected by company after the call).

Note, this includes freight, warranty and EOL costs, as well.

Moving to the P&L portion of the presentation on slide 11, net sales in the third quarter were $889 million compared to $544 million last quarter.

The increase is due to higher revenue recognition on our Desert Sunlight project and various other systems projects under construction.

As highlighted last quarter, an unexpected inverter system integration issue resulted in the revenue recognition delay on Desert Sunlight.

This integration issue has been resolved and the project is on track for completion in the fourth quarter.

Partially offsetting the revenue increase from the Desert Sunlight project was the sale of the 50-megawatt AC Macho Spring project in Q3, which was accounted for on a completed contract basis.

In addition, revenue recognition on our Topaz project was lower quarter over quarter, as the project nears completion.

As a percentage of total net sales, our systems revenue, which includes both our EPC revenue and solar modules used in the systems project, was 95%, an increase of 7 percentage points from the prior quarter, reflecting lower third-party module sales.

Gross margin in the third quarter was 21.3%, a sequential increase of 430 basis points.

The increase in gross margin percent was due to the higher revenue recognition on the Desert Sunlight project and a lower mix of module business in Q3.

Third-quarter operating expenses increased $15 million quarter over quarter to $106 million.

The increase is mainly a result of higher R&D spending related to the ongoing rollout of the efficiency improvement program, TetraSun startup costs, and higher project development costs as we work to develop international market opportunities.

On a reported basis, third-quarter operating income was $84 million compared to $2 million in Q2.

The increase was due to higher sales and gross margin, partially offset by higher operating expenses.

Third-quarter GAAP net income was $88 million or $0.87 per fully diluted share, compared to $0.04 per fully diluted share in the second quarter.

The third-quarter results included a one-time tax benefit of $0.26 per share associated with the exploration of the statute of limitations on a discrete uncertain tax position.

Adjusted for this one-time item, earnings per share for the quarter would have been $0.61.

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

Cash and marketable securities decreased by approximately $234 million to $1.1 billion.

Our net cash position decreased to just under $900 million.

The decrease in cash was expected as we continue to build Solar Gen 2 and other self-developed projects on balance sheet in the third quarter.

Consistent with our prior communications, we will continue to build projects through substantial completion on balance sheet, which will increase our options to optimize the value of the project.

Our net working capital, including the change in non-current project assets, and excluding cash and marketable securities, increased by approximately $234 million from the prior quarter.

The increase was due to a reduction in current liabilities resulting from revenue recognition on Desert Sunlight and an increase in inventory.

Our debt increased by $23 million in the third quarter, with $56 million of the increase related to the funding of the construction of our 141-megawatt AC Luz del Norte project.

As a reminder, in Q2 the OPIC board approved a loan of up to $230 million, and the IFC board approved a $60 million loan to support construction of Luz del Norte.

The financing closed in Q3 and we received the initial funding under these loans.

The increase was partially offset by payments on our related debt facilities.

Our restricted cash, including both current and non-current, increased $118 million sequentially, primarily from the debt procedure related to the Luz del Norte construction, and from an approximately $61 million First Solar equity contribution to the project.

While the $61 million will be used over time to construct the project, it has an immediate impact in our ending third-quarter cash balance of $1.1 billion.

Also, as we communicated on last quarter's call, our restricted cash balance includes $73 million of cash used to collateralize and significantly reduce the cost of certain letters of credit.

This restricted cash remained highly liquid and can be converted back to unrestricted cash in five days.

Cash flow used in operations was $47 million compared to cash flow from operations of $118 million in Q2.

Free cash flow was a negative $107 million compared to positive free cash flow of $60 million in the prior quarter.

While operating cash flow was negative for the quarter, we continue to build certain projects on balance sheet, recognizing the higher return potential and optionality this provides to our investors.

Capital expenditures totaled approximately $71 million, an increase from $62 million in the prior quarter as we purchased more equipment needed for efficiency programs, the TetraSun product ramp, and our Perrysburg manufacturing capacity expansion.

Depreciation for the quarter was $60 million compared to $63 million in the prior quarter.

Turning to slide 13, I will now discuss our guidance for the remainder of 2014.

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

Other guidance targets are updated as follows.

First, we are lowering our net sales range $100 million to $3.6 billion to $3.9 billion.

The revised range reflects a delay in revenue on certain self-developed projects, as we have elected to hold them longer than originally anticipated in order to capture incremental value.

For gross margin, we are raising the high and low end of our guidance range by 1 percentage point to 19% to 20%, reflecting the improved pricing environment for self-developed projects, and especially as it relates to our Solar Gen 2 project which was sold in the fourth quarter.

Partially offsetting the gross margin improvement is an increase in our operating expenses to a range of $390 million to $400 million.

This increase captures the higher OpEx in our third-quarter results, and reflects greater investment in our technology and new markets.

The low end of our operating income guidance is increased by $10 million to $300 million to $340 million, reflecting the improvements in gross margin, which is partially offset by the higher operating expenses.

The expected tax rate is being narrowed to 18% to 20% based on improved visibility into the mix of jurisdictional income for the full year.

Note that this tax rate does not reflect the one-time tax benefit of $0.26 per share recognized in Q3.

Lastly, we are lowering our capital expenditures range to $250 million to $300 million, resulting from the timing of some equipment purchases falling into next year.

Relative to our operating cash flow guidance, it is noteworthy to highlight an important dependency.

As noted previously, our Topaz and Desert Sunlight projects are nearing completion.

We anticipate reaching substantial completion on both of these projects in Q4, at which point we will invoice the amounts retained by our customers as a form of security until the project is completed.

These payments are expected to be received late in Q4.

If we're unable to collect these funds in a timely manner, we may not be able to achieve the cash flow guidance range of $300 million to $500 million.

However, note, it is important to highlight this is just a timing issue between Q4 of 2014 and Q1 of 2015.

Finally, our guidance assumes we sell 100% of the interest of Solar Gen.

As communicated in the announcement on the sale to Southern, subject to certain terms and conditions we may retain a minority interest in the project.

If we elect to do this, it will most likely result in achieving the low end, or potentially slightly below, the revenue, earnings and cash flow guidance.

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

First, in terms of efficiency, we continue to demonstrate a consistent rate of improvement.

Our lead line averaging 14.6% in October and pre-production volume using our latest efficiency programs running at 15.9%, we are demonstrating our ability to execute this road map.

Next, with our bookings of 521 megawatts DC, our year-to-date bookings now stand at over 1.7 gigawatts DC.

These bookings, combined with 1 gigawatt of mid- to late-stage opportunities in our pipeline give us confidence in our ability to meet or even exceed our 1 to 1 book ratio for the year and replenish our pipeline.

From a financial standpoint, we are confirming our full-year earnings per share and cash flow guidance.

With this, we conclude our prepared remarks and open the call for questions.

Operator?

(Operator instructions)

Paul Coster JPMorgan.

That's for taking my question.

Jim, the flexibility that you are giving yourselves in terms of production capacity next year is quite dramatic really, isn't it?

What is it that you are seeing that makes you want to have this potential capacity available for next year?

I think it's not a mystery to everybody that the potential expiration, or actually step down, of the investment tax credit in the United States market at the end of 2016 continues to pull demand forward.

And so we want to maximize our ability to capture some of that demand.

In addition, a number of our international markets are performing very well.

And we continue to see demand to begin to emerge and manifest itself in those markets.

Again, we want to be in a position to capture that demand to the extent the early signs we are seeing today continue to develop.

So, it is basically just reflective of a bottoms up view of what we're seeing in the market over, really, the next 18 months.

Next, Ben Kallo, Robert W. Baird & Company.

Just quickly finishing on that thought, and thanks for taking my question.

How do you view the overall market with capacity expansions versus you guys expanding capacity, and how you are weighing that?

And then could you just touch on the yieldco decision and what factored into postponing that, if it is postponing it, or just not doing it altogether?

Thanks so much.

In terms of overall capacity, there is quite a bit of capacity that is being added to the marketplace right now.

I think our general view is you continue to see a bit of imbalance between supply and demand from an overall capacity standpoint.

Having said that, I think the market clearly tiers into the higher-quality, higher-level producers and the lower-level producers, and different parts of the market have different levels of imbalance.

I will say, that I think we do have a note of caution about the overall market position as we exit 2016 and move into 2017.

The demand that we're pulling forward into 2016 broadly will, we think, result in the slowdown in 2017.

Now, from our standpoint, when we do a bottoms-up analysis of our opportunities, we have more than enough international opportunities that are filling in to replace that.

But you can't ignore the fact that on a global basis there are a number of markets that look like they could see a decline over the same time period that capacity is getting added.

So, we are cautiously watching to make sure we're not headed into another period of excess capacity.

We are cognizant that an argument could be made that there is some risk of that.

With respect to the yieldco decision, I think essentially, we don't feel that we are missing either gross margin opportunities or market share capture opportunities because we don't have a yieldco today.

As we have consistently said, we are self-developing projects.

Those projects continue to be lucrative assets for us.

We are keeping those projects on our balance sheet through the commercial operation date.

And in certain circumstances we are retaining an interest in those projects where we think it makes sense.

We may revisit it at some point, but when we look at where all of the capital markets sit today, where everybody sits today, the results we've seen in the marketplace, we don't feel like we are constraining our business by continuing to maintain an optionality type of position, a patient position with respect to that.

And I think it's as simple as that.

The other thing I'll just add, just on the capacity side of it, since we got two questions on it as well, I think the other think we need to connect the dots on as we continue to highlight the progress that we've made around our technology and the efficiency road map and the cost profile.

As we said before, as the competitiveness of our technology is increased over time, we would anticipate that we would capture a higher percentage share of the market.

And I think what's happening is in line with our previous statements in that regard.

We have made the enhancements around the technology, it's becoming more and more competitive in the market, it's creating an element of differentiation and a value proposition that resonates very well with a number of our key customers; and it's capturing itself in incremental market share.

With that, though, as Jim indicated, we will continue to be very disciplined with an awareness of understanding of the oversupply that could be in the market.

We will make sure that demand is has complete visibility before the capacity will be added.

Next, Shahriar Pourreza, Citigroup Capital Markets

Jim, just two quick questions here.

First one, you mentioned on projects, the RFPs in the southeast.

Is there any update on the Georgia RFPs that are currently happening?

And then, maybe you could just comment on where your cost of capital advantage is when there is a yieldco involved.

Because I think you've highlighted before in the past that it has become a little bit more challenging when there is a yieldco involved, given the fact that they could have a more cost of capital advantage.

Let's start with the latter and then I will defer to Mark.

I'm not sure I have the latest information that we have made public on Georgia.

A lot of the activity that we're seeing in the marketplace that's very aggressive is not actually on behalf of yieldcos.

It's on behalf of developers speculating as to the price yieldcos are willing to pay.

We haven't actually seen any of our competitors that have yieldcos behave in what we view as a significantly undisciplined fashion, and pay discount rates that aren't reflective of the appropriate risk-adjusted rates.

That in part is a component part of our decision.

If it was facilitating pricing decisions on the part of responsible other players that we thought was disadvantaging us, then we would have an urgent need to do something.

But that's not what we perceive.

There is pricing in the market that we don't think is rational and we think there will be some disappointment in certain quarters.

But we're not going to chase it to the bottom.

We're going to look at what we think are rational disciplined capital decisions.

And we were comfortable that our business is going to continue to perform with rational disciplined capital decisions.

Mark, have you got anything on Georgia?

Yes.

Just on the cost of capital discussion, as well, I think it maybe is important that, as we indicated in the script here, as well as in prior announcements, we did make a decision to sell Solar Gen 2 to Southen.

We took that asset out to market about four or five months ago, and we included all of the yieldcos in the process of evaluating what the value of that asset was.

And the best value came from a non yieldco.

So, to Jim's point, we're not seeing in the market at this point in time the yieldcos coming up with an advantaged cost of capital relative to some of our other partners that we have sold to.

However, we are seeing a different behavior, in the cases, with developers speculating, as Jim indicated, with potentially what the cost of capital that they could realize associated with their development assets.

On Georgia, we haven't made any public announcements on Georgia.

We're in the process of some activities at this point in time that we may be able to make some comments here before the end of the quarter.

But we haven't made any public statements at this point in time.

Next, Steven Chin, UBS.

Hi, guys.

Thanks for taking our questions.

Two questions.

Just to follow-up on the yieldco or decision to not move forward with one, what does that mean exactly for yourself and the projects going into 2015?

Will you be pursuing equity sales sooner rather than later?

Or with the idea that you may retain a whole or partial interest, are you still going to hold off for as long as you can before you commit to something?

And just in terms of the capacity flexibility, what does that mean for efficiency per watt and/or cost structure as you re-open certain lines for the average across your capacity?

Thanks.

Mark, do you want to take these?

Yes.

On the last one, on the capacity side, yes, the capacity will help a little bit of the absorption of costs across the balance of the activities that were idled.

But we have been, generally, as we've talked through that; we have pulled that out, as we refer to it, as under-utilization costs.

However, on a holistic basis we will benefit now from full absorption against that under-utilization costs, so there will be a positive impact from that perspective.

On the yieldco and the decision we've made around this, and two things we said in our stated strategy is that we will hold assets longer.

We reiterated that a number of times in the script today.

That is our intent.

We will look to potentially sell a portion, all, or maybe none of the asset we may choose to hold.

And we'll look to what makes the most sense and how do we capture the greatest value for those assets.

We have assets that are highly sought after and that are highly valued, and we will look at every possible option to get the best return for our shareholders.

Next, Patrick Jobin, Credit Suisse.

A simple one here.

You have alluded to some aggressive bidding by developers, rightly or wrongly, with their perceived view on where those assets could get bought at.

So, I'm struggling to understand why that does not translate into some potential margin pressures for you if you are looking at winning those RFPs.

Just help me understand the margin dynamics.

And then, lastly, just any updates on TetraSun.

Thanks.

Sure.

I think you have to consider the margin dynamics in the context of overall demand.

We're in a fairly robust demand environment where, in contrast to a few years ago, we have a bit of an ability to high-grade opportunities.

And that's what I mean when I say we're not going to chase it to the bottom.

It's really, in the context of the overall demand environment, we have a little bit of a luxury.

If those projects ultimately get sold or executed at aggressive pricing, and if the overall demand picture is such that we are going to have to meet that, obviously it would create pressure.

I think our view at this point is we're skeptical that it reflects reality.

And skeptical that that's the baseline against which we're all have to operate, but we'll see.

Time will tell on that.

And you've got to remember, the cost curve continues to come down, so what's challenging today may be easy tomorrow.

Next, Vishal Shah, Deutsche Bank.

Thanks for taking my question.

I wanted to just better understand the actual capacity of self-developed projects that you have on your balance sheet right now, and what kind of cash that would be generating if you were to do a yieldco.

And then at the same time, can you just maybe talk about where you think the PPA prices are in the US utility market right now versus the RFPs you're looking at?

Thank you.

Mark, I'll let you take these.

On the first one in terms of capacity of the self-development assets that we have on balance sheet and what type of cash available for distribution would it be able to generate, let's just say that we probably have some of the premier assets in that regard.

And we would not have, if we chose to do that.

And we believe it was the right decision to make.

Our ability to hit minimum requirements as it relates to cash flow available for distribution or expectations around growth associated with a yieldco type of structure, we would not have any challenge in terms of doing that.

We have some very high-quality assets that we're currently developing.

As it relates to the PPA environment, it does range.

It depends on where you are, in terms of what markets across the US.

In some cases, everyone knows of the $0.05 type of price points that are happening across Texas.

And that is true, that is happening.

We're seeing a higher pricing, though, outside of that in some parts of the Southeast and obviously, in some parts of the Southwest.

But I would say you are probably still in the range of around $0.05 to $0.07 or so.

On the lower end of that range, I would think, as Jim indicated, it is questionable whether some of those projects truly will be able to be executed.

Time will tell.

I think as time moves forward, and as we continue to achieve the cost reductions and the efficiency improvements around our module, our overall ability to clear those types of market prices and do that with exceptional return on capital, changes and is enhanced.

In today's market those types of cost points can be very challenging.

Next, Brian Lee, Goldman Sachs

Hi, guys, thanks for taking the questions.

First off, on the yieldco thought process, and I know you talked about at a high level why you are coming to the decision right now that you are, but are there any Company-specific issues at play, in terms of your ability to defer taxes, or the potential to compete with some of your CadTel customers in the US, if you were to go down that route?

And then, secondarily, if I look at your international footprint, some of your peers, they seem to be gaining traction in China, mostly through partnerships.

You've talked about this opportunity in the past, so I was wondering if you can update us as to where you stand in that market, how you might size it.

And then, any views on timing and economics versus some of the other overseas markets you are targeting?

Thanks, guys.

Sure.

I'll start with the last one first.

We have always been very cautious about the expectations for the China market.

While it's very large, execution is certainly challenging and margins also appear to be pretty thin.

One of the biggest issues we have with respect to the China market from a development model standpoint is there's lots of curtailment of assets in that market.

And I think how that develops and what risks that represents gives us significant pause for concern.

We've recently hired a new country manager.

We do have efforts underway.

But I would say that our highest grade efforts are elsewhere around the world as opposed to China.

And in the current opportunity set that we are disclosing, there's no significant China volumes in that opportunity set.

To the extent, as we continue to look at the market, we identify a strategy that we feel comfortable with, it would be accretive to everything that we have been presenting to date.

And then on the other question about Company-specific issues on the yieldco, I'll let Mark address it.

I don't see it as any Company-specific issues.

There are constraints as we're thinking about the opportunity.

To your comment about are there any inefficiencies or inabilities around the tax basis, and potentially you were alluding to whether we would be able to trade a step up and be able to have the appropriate tax shields and everything else along those lines; those aren't issues.

The comment as well around the -- does it create some type of conflict with some of our traditional customers.

I don't see that really as being an issue either.

If anything, every one of our traditional customers are trying to find ways to deepen their relationships.

They want to partner with us and they value the First Solar value proposition and the solutions that we can create for them.

And in some cases, as we talk about partial retention of assets, it could be we would partner with a traditional customer and then that retained interest that we would hold could be monetized, either internally, held as an internal asset that we monetize the cash flows over time; it could be held in some type of private yieldco, it could be held in some type of public yieldco.

So, we have optimum flexibility in that regard with whatever we choose to do with those retained interests.

But I would say the main thing is, yes, our key customers that we traditionally have done business with, would prefer to find ways to deepen the relationship with us.

Next, Sven Eenmaa, Stifel Nicolaus.

Thanks for taking my question.

I first wanted to ask, in terms of the system pricing in general for your projects, what are you seeing on that market currently?

What are the trends?

I think we answered that.

At least in the US, as we indicated, there is some pretty aggressive pricing in certain geographies, which would be Texas probably on top of that list, and other markets probably be more reasonable around expectations and what's happening in those markets.

As you go across internationally, it does very market by market.

But it should be no surprise that pricing generally across most of the jurisdictions are coming down over time, which you would expect, as the technology improves, the capability to achieve lower LCOEs.

It also drives elasticity of demand associated with it.

We are in an environment where prices are trending down, not only here in the US but internationally, as well.

And I think you should expect that to continue to happen.

And that is why it's important for us to drive our technology road map, drive our cost reduction road map, and great solutions that we can efficiently get to market, and do those at the lowest cost points possible.

And second question I had, you delayed some of the revenue recognition of the projects here from this year to next year.

By holding them, what is the expectation in terms of additional either cross margin dollar or earnings capture for you?

What's happening right now in the market is, people are becoming more and more comfortable with the risk profile, and are becoming more comfortable with how to value solar assets.

We had a couple of assets that we had thought initially potentially to engage and try to sell into the market in advance of COD, and partly because we wanted to test that market and see how the assets were being valued.

And we did see improvement in that regard.

However, as we've seen now the results of the marketing that we've done in particular around Solar Gen, we clearly believe the right thing to do is to hold these assets longer than we have done historically, and what we were anticipating to do on a couple of smaller assets.

And, so, we will realize more significant economics by holding these assets and selling them next year.

Next, Krish Sankar, BofA Merrill Lynch.

Thanks for taking my question.

I had two margin related ones.

The first one is, can you quantify the margin benefit from selling an asset once fully built, with this earlier in the development cycle?

And the second part of it is, as your mix in the backlog shifts more internationally, in other words, more international megawatts, how should we expect the margins and the OpEx to trend?

The rough order of magnitude on selling an asset, let's say, at final notice to proceed versus selling the asset when it's fully built up and operational; we are generally seeing somewhere in the range of 50 basis points from an unlevered IRR basis, which is meaningful as it relates to these assets.

The trade-off of the carry associated with the asset versus the benefit of the value that you capture at COD is meaningful, very accretive, and something we'll continue to do.

Next, Jeff Osborne Cowen and Company.

Is there a way to quantify the price per watt premium that you would get by holding the project?

And then, I just had a question on tax equity in terms of if the surge happens that you are preparing for with your capacity, do you think there is enough tax equity appetite for big uptick in solar demand in 2015 and 2016?

If you do get a super cycle?

On the price per watt it varies because the price per watt to install a project across the US varies.

So, as a result of that, your impact is going to vary.

So I would point you back to basically about 50 basis points of return, and you can do the math around that.

And obviously, that comes back to be pretty meaningful.

As it relates to tax equity, yes, I think as you get into 2015 and into 2016, I think there could be some constraints.

But that is also why it is important to find relationships, whether it's with Southern or others that we've dealt with, that we can structure transactions with them that effectively allows them to play the role of tax equity, and do it in a much more efficient manner than trying to be engaging with the current tax equity players that are in the market, that are generally constrained in terms of availability.

And their return expectations are much higher than what we think they should be.

So, we've tried to look at other alternatives to leverage and optimize the tax attributes in the most efficient manner, and have that flexibility as we move into 2015 and 2016 where tax capacity could become more constrained and, as a result of that, more expensive.

Next, Edwin Mok, Needham & Company.

Hi, thanks for taking my question.

First question is, when I look at your bookings -- actually, when I look at module shipment in terms of revenue and megawatt that you have laid out on your presentation, does that include project that you guys plan to eventually hold on balance sheet for a period of time and therefore not materialize into revenue?

And then a question on the mid- to late-stage opportunity, that number has come down.

Is that a function of the full four-day you guys talk about for 2015 and therefore, as a result that number has come down?

As it relates to the first one, that's just the opportunity of the set that we are evaluating.

And as it relates to whether, again, we decide to sell the asset, hold the asset, sell a portion of the asset; those decisions are all made after we have been able to capture the opportunity and then we evaluate the opportunity in making the decision.

What's the best way to capture the highest return on invested capital?

So, don't think about that as being discrete to one potential direction of what our intention is around ultimately how to monetize that asset, because it'll be aggregated up and we'll make a decision at the right time.

Again, to figure out how to get the best return on our invested capital.

I don't think you should think about the -- the fate of the early to mid or late stage, they're going to move around.

Has there been activity that is being pulled forward, especially in the US?

That's true.

But we're seeing more robust activity happening outside of the US that's filling in some of those latter buckets, as Jim indicated.

We clearly see the opportunity to buffer maybe slower demand in 2017 with our international platform and success from that regard.

Next, Mahesh Sanganeria with RBC Capital.

Hi, this is Cheyenne for Mahesh.

Thanks for taking my questions.

Just a quick one.

Since you're not pursuing a yieldco for those self-developed assets, you mentioned that you could sell a portion or all of them or just hold them on balance sheet.

I'm just wondering what metrics or economics you will look at to make those decisions whether the project is to hold or sell.

As I indicated, again, we'll look at many different metrics -- return on invested capital, our equity, internal rate of return, the NPV.

We're going to look at it from a lot of different ways and evaluate the optionality that we have, and make a decision which we think is the right decision to make.

Again, there may be some decisions that we will also look at given the potential liquidity that can be generated from a particular transaction.

We may say we want to sell more of it because we want to benefit ourselves from liquidity because we have alternative uses of that cash at that point in time that we want to deploy.

So, it will be a holistic comprehensive analysis and one that's well informed and insightful, again ultimately to create the best value for our shareholders and optionality for First Solar.

Next, last question, Colin Rusch, Northland Capital Markets.

Can you talk a little bit about the logic behind ramping capacity given that you're still at 77% capacity?

And then also, just talk about the bookings, how that breaks down between projects and modules.

On the ramping capacity, you have to remember that we're in the midst of implementing the technology road map, and there is impact upon our capacity utilization as we roll that technology across the fleet.

So, that utilization is not necessarily reflective of solely demand.

It's also reflective of the changes that are being made to the production facilities to implement the technology road map.

Mark, do you have any other comment?

Yes.

And I think what I was trying to say before is, again, the reason for the ramp is the technology and the offering is becoming more and more competitive.

And it's really indicative of the demand profile that we currently see in front of us for 2015.

Now, we did run at less than full utilization and we've been doing that now for the last couple of years.

Again, that's when our technology was disadvantaged and unable to potential compete at the same level that we wanted it to.

As we've made the enhancements to the technology and been able to make it more competitive, we've been able to increase our win rate in the market.

It's also reflective of our international expansion and successes that we've made in those jurisdictions.

As we invested across many markets, we're seeing the paybacks now start to be realized.

And as we indicated, over 40% of our bookings this quarter, for example, were out of international markets.

I remember not too many quarters back, people were always asking us, when are we going to start to see bookings come from the international markets?

Well, this quarter we started to see it, and we continue to see that in front of us.

So, it's a combination of the technology, overall being more competitive, the successes that we now are starting to see in the international market as we've made investments in them over the last few quarters, is really what's paying off from that perspective.

I think the other one that you said was around bookings and between systems and modules -- we don't provide that level of detail.

At this time this does conclude our question-and-answer session.

And also concludes our call.

We appreciate everyone's participation.

Thanks, everybody.