SunPower Corporation (SPWR) 2013 Q4 法說會逐字稿

Good afternoon.

Welcome to SunPower Corporation's fourth quarter 2013 results conference call.

(Operator Instructions)

I would like to turn the call over to Mr. Bob Okunski, Senior Director of Investor Relations at SunPower Corporation.

Sir, you may begin.

Thank you, Sheila.

I'd like to welcome everyone to our fourth-quarter 2013 earnings conference call.

On the call today we will start up with an operational review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our fourth-quarter, 2013 financial results.

Tom will then discuss 2014 guidance before opening up the call to questions.

As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.

During today's call we will make forward-looking statements that are subject to various risks and uncertainties that are described in our 2012 10-K, our quarterly reports on Form 10-Q, as well as in today's press release.

Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

To enhance this call, we have also posted a set of PowerPoint slides which we will reference during the call on Events and Presentations page of our Investor Relations website.

In the same location, we have posted a supplemental data sheet detailing some of our historical metrics.

On slide 2 of our PowerPoint presentation, you will find additional information concerning the risks and uncertainties associated with our forward-looking statements contained in this presentation.

With that, I'd like to turn the call over to Tom Werner, CEO of SunPower, who will begin on slide 4. Tom?

Thanks, Bob, and thank you for joining us today.

SunPower delivered strong Q4 results, exceeding our financial forecast every quarter last year.

Our performance reflects robust worldwide demand for our high-performance distributed generation solutions, and solid execution in our power plant construction and upstream manufacturing.

On the power plant side of the business, construction on our Solar Star projects was ahead of plan, and CVSR reached full commercial operation during the quarter.

We also made good progress expanding our international power plant footprint, announcing new project wins in South Africa and Japan, while securing financing from OPEC for our Chilean 70-megawatt merchant power project where construction is already underway.

Our joint project development cooperation with Total has already delivered significant international power plant projects, as we continue to strengthen our partnership efforts in a number of emerging markets.

In our distributor generation business, demand in US residential lease remained strong, and we recently closed the $220 million financing fund with Bank of America.

Revenue and margins in our EMEA business continue to improve.

In Japan, we recorded another strong quarter with record shipments.

Our Operations team executed well against our cell and panel cost reduction road map during the quarter enabling us to drive a greater than 20% panel cost reduction for the second straight year.

Equally important, we reduced Oasis balance of system cost by 24% in 2013.

As we have said in the past, we believe that SunPower's ability to directly attack cost across the entire value change represents an important source of long-term, competitive advantage.

With respect to capacity expansion, Fab 4 remains on track, with initial production expected in less than 12 months at a cost-per-watt that is 35% lower than our Fab 2. Additionally, we will leverage our strong research and development efforts in step-reduction programs at Fab 4 that will enable us to drive higher cell efficiencies, with the plan to produce our first 23% X-Series panel by the end of 2015.

In the meantime, we are continuing to ramp our X-Series production at our existing facilities, as global demand significantly exceeds capacity.

With our next-generation Fab under construction and continuous cell efficiency improvement, we continue to extend our technology leadership in the industry.

I would now like to spend a few moments on our recent business development activities.

During Q4, we acquired a Company named Greenbotics, a small, California-based robotics engineering firm.

This new technology will enable us to reduce water usage for panel cleaning at our power plants by up to 90%, lowering costs and improving energy production.

We believe that this will be particularly important in key emerging markets such as the Middle East, South Africa and Chile.

We also see significant and increasing opportunity in technologies and capabilities adjacent to our core PV product offerings.

One particular area of focus will be the integration of energy storage into our product solutions, where we are currently initiating a number of pilot programs.

We will be providing additional details on these programs later in the year.

Finally, we strengthened our balance sheet during the fourth quarter, ending the year with $760 million in cash, generating more than $270 million of free cash flow in 2013 and increasing are available liquidity to over $1 billion.

I will now present a little more detail on our performance by region and channel starting with our power plant business.

Please turn to slide 5.

In North America, construction on the 579 megawatt Solar Star project for mid-America remains on track and we reached a key milestone during the quarter of the first 57 megawatts of project were connected to the grid.

We were also pleased to announce that are CVSR project for energy is now in full commercial operation with an AC rating of 250 megawatts, CVSR is one of the world's largest solar power plants yet completed.

In EMEA, we won an 86-megawatt power plant project in the most recent, highly competitive South African tender.

We also sold a 10-megawatt project in Israel.

It was sold after completion of construction and financing, which maximized [the] project profit model that we will utilize for other booked projects where the economics are compelling.

In Asia-Pacific, we added another 20 megawatts of power plant bookings in Japan last quarter, which brings our total Japanese power plant bookings to more than 110 megawatts.

As I mentioned above, our cooperation with Total focused on international power plants is working very well, having generated about 300 megawatts of bookings in the past year alone.

We believe that together, Total and SunPower are very well-positioned in this market, and expect to close and announced additional projects this year.

Now, moving to our distributor generation business, please turn to slide 6. In the North American residential market, demand for our rooftop solution remains very strong.

We are offering an increasingly broad, balanced array of tailored financing options in order to meet specific customer requirements including cash sales, loans and leases.

As we have said previously, we expect continued innovation in this sector with respect to financial products.

In Q4 we shipped approximately 48 megawatts of systems in our residential and light commercial segment, and our lease portfolio continues to grow, with over 20,000 lease contracts in place, to date.

We were pleased to identify -- we are pleased to recently announce an expansion of our Bank of America relationship, closing a $220 million lease capacity financing fund.

Our ability to leverage BofA's proven and scalable platform positions us well for 2014.

Including this financing, we have secured more than $1 billion in lease capacity in less than two years and expect to continue to grow our capacity in the near future.

We remain the market share leader in the US commercial business that recorded another strong bookings quarter in Q4.

One highlight was the booking of our largest C7 project to date, the 20-megawatt data center project scheduled to begin construction this year.

This is an important milestone in the commercialization of this existing, exciting new technology, which we're also scaling up in China through our JV in inner Mongolia.

We will provide additional details on the 20-megawatt C7 project later this year.

In our new homes channel, fourth-quarter shipments rose 45% compared to last year, bringing our total new home customer base to more than 13,000.

We have partnerships with 7 of the top 10 builders in the US, and expect accelerating growth in this channel as the housing market continues to recover.

We will continue to work closely with our production homebuilder partners to capture the benefits of solar power as part of an integrated low-energy or zero-energy home offering.

In EMEA, improving industry conditions and stable pricing helped us achieve regional profitability by the end of 2013, as we had planned and previously communicated.

Finally, Japan remains a very strong distributor generation market for us, with shipments up nearly 100% year-over-year and accounting for approximately 24% of our Q4 volume.

We are capitalizing on our industry-leading technology to expand our range of products specifically tailored for the Japanese rooftop market, including our new 36-cell panel the began shipping in Q4.

In summary, 2013 was a breakout year for the Company.

We recorded our highest profit since 2010 and generated significant free cash flow to fund our growth.

As we look to 2014, we are confident that we will be able to deliver continued strong financial performance.

Additionally, with plans to expand Fab capacity, the monetization of our 135 megawatt Quinto project and 128 megawatt Henrietta project, execution on our domestic and international project pipeline, and further expansion of our global distributor generation business, we believe we are well-positioned for accelerated growth in 2015.

With that, I would like to turn the call over to Chuck to review the financials.

Chuck?

Thanks, Tom.

Good afternoon, and please turn to slide 7.

We posted another strong quarter results in Q4, as we executed well across all geographies and end-segments.

For the quarter, revenue, margin and EPS all came in better than our plan.

Non-GAAP gross margin rose 170 basis points year over year, with net income increasing significantly compared to last year.

We also delivered $270 million in free cash flow for the year, beating our forecasts by $70 million.

Overall, execution on our power plant projects, further expansion of our global distributed generation market footprint, stable pricing, and lower annual manufacturing costs enabled us to exceed our forecast.

Moving on to the P&L.

Our non-GAAP revenue for Q4 was $758 million, compared with $785 million last year and better than our forecast.

As a reminder, our Q4 2012 results included a one-time benefit of development revenue for Solar Star.

Cell production in Q4 was 317 megawatts, a company record as our Fabs are fully utilized during the quarter.

Megawatts recognized for the quarter totaled 334 and megawatts deployed were 336.

Our non-GAAP gross margin for the quarter was 20.4%, and better than planned.

Now, let's discuss our regional performance in more detail.

In Q4, non-GAAP North America revenue was $503 million and accounted for 66% of total revenue, with a non-GAAP gross margin of 22.5%.

We recognized 190 megawatts in the quarter, with approximately 70% coming from our power plant business.

We benefited from strong execution at our Solar Star project for mid-American and with CVSR now in full operation.

The fourth quarter includes revenue from CVSR and Solar Star of $347 million on a non-GAAP basis and $225 million on a GAAP basis.

The balance of our North American business performed well, with strong commercial bookings and public sector revenue.

Also, demand in residential was solid, including lease, with cash sales accounting for approximately 70% of total residential sales.

We expect a higher mix of lease versus cash in the coming quarters, as we benefit from ample sources of third-party financing for our program.

In EMEA, non-GAAP revenue was $154 million, up 28% sequentially, as we benefited from strong demand trends and the sale of one of our projects in Israel.

Margins were also strong, as ASP's were stable in Europe.

Megawatts for the quarter were in line with Q3.

Gross margin increased to 16% for the quarter, and higher than forecast due to the Israel project sale.

We expect the current favorable conditions in ASPs and demand to continue in 2014.

Turning to APAC, revenue was $101 million, and also ahead of plan.

Gross margin for all of APAC was 16%, due to a higher mix of commercial sales.

Total company non-GAAP operating expenses for the fourth quarter were $82 million, up from Q3, as a result of higher sales and commission costs, as well as one-time infrastructure investments.

For Q4, EBITDA was $115 million, up $24 million sequentially, with full-year 2013 EBITDA of $386 million.

Non-GAAP diluted earnings per share for the quarter was $0.47 and GAAP earnings per share was $0.15.

For the year, non-GAAP EPS was $1.68 and GAAP earnings per share was $0.70, all significantly better than forecasts.

Non-GAAP weighted average diluted shares outstanding for the quarter were 160 million.

We expect our non-GAAP weighted average shares for Q1 to be in the range of 155 million to 165 million, with GAAP shares of 145 million to 155 million.

For full-year 2014 we expect our share count to be in line with our Q1 ranges also note, that our 2014 converts mature in April 15, and will likely be stock settled, assuming the stock price continues to exceed the conversion price of $26.40.

In Q4, we recognized $18 million of NCI in the P&L and expect Q1 NCI income to be approximately $12 million.

Please note in other types of sales transactions, this benefit shows up as revenue or a reduction of COGS.

Please turn to slide 8. We exited Q4 with a strong balance sheet as we increased our cash position by $20 million in the quarter and generated approximately $270 million in free cash flow for 2013.

Our $250 million revolver remains undrawn.

We continue to prudently manage our working capital.

For Q4, we reduced inventory by 15% with turns of 10 times, as we ramped installation at Solar Star and met other project commitments.

We were pleased to see DSO's decline to 43 days, with a Company-record cash conversion cycle of 13 days.

Please turn to slide 9. Q4 was another solid quarter for our DG business.

Globally, SunPower deployed 128 megawatts of residential products, including 53 from APAC, 31 from Europe and 44 from North America.

As of the end of Q4, we reached 147 megawatts of cumulative North America leases deployed, serving more than 20,000 customers with net aggregate future contracted payments exceeding $600 million.

Before turning the call back to Tom for our guidance, I would like to spend a few minutes discussing the current state of the financing environment.

Please turn to slide 10.

First, residential lease.

Appetite in the tax equity markets is strengthening, and we are seeing significant interest from not only financial institutions but also from the Fortune 500 companies.

We were pleased to announce our $220 million in new lease capacity financing with Bank of America in Q4.

This is an extension of our existing relationship with BofA, but their first residential lease fund, and positions us well for the first half of the year.

We continue to look at new structures for lease funding both here in the US as well as internationally, and we expect to close additional capacity soon to fund our growth.

With the addition of BofA, our strong balance sheet and superior product, we no longer see financing capacity as a significant bottleneck to growing our business.

Let's spend a few moments and discuss the trade-offs of cash versus lease.

As we stated before, we want to have a good balance between cash and lease customers.

Cash customers provide strong margins and cash flow day one, whereas are successful lease program is currently financed partially with capital provided by SunPower.

The lease program provides high-retained value, it's cash neutral in the short-term when coupled with debt, and provides long-term cash flow advantages.

Our priority remains to be diversified across platforms to minimize specific solar lease risks such as net metering, ITC policy changes and the potential impact of rising interest rates.

In the near-term, debt is required to make residential lease cash flow positive.

There is a significant interest from various investors in this area, and we are evaluating the optimal mix of interest rates, coverage ratios and tenor in these structures.

We expect to announce our nonrecourse debt facility sometime over the next two quarters.

Ultimately in the midterm, we expect the ABS market will provide the lowest cost-to-financing for our residential cash flow.

SunPower also has a retained value advantage driven by our technology; with 30% more energy per square foot on day one and 100% more energy delivered in year 25, our higher energy yield drives a significantly higher residual value.

In addition, these technical advantages lower the risk for our investors over the life of the lease.

Financing for commercial utility projects is also evolving, with structures similar to MLPs, REITs and especially Yieldcos.

These capital-formation strategies are significant for the industry, as they show that competition is working and driving and lower overall cost of capital.

We are bullish on these structures as they create competition for our project pipeline and significantly increase the value of our booked projects, including our 135 megawatt Quinto project, our 128 megawatt Henrietta project, other North American projects, as well as our international opportunities.

We believe these projects and distributed generation projects in our residential and commercial segments would be highly desirable Yieldco assets in our own sponsored Yieldco or someone else's.

These are also financing alternatives underway to review, as we continue to expand the number of options we have to maximize the after-tax cash flow on our project investments.

In closing our 2013 performance reflects the unique advantage of are industry-leading technology and flexible, customer-focused, multi-market segment downstream model.

With that, I'll turn the call back to Tom.

Thanks, Chuck.

I would now like to discuss our guidance for the first quarter, as well as our improved 2014 earnings outlook.

Please turn to slide 11.

For Q1 2014, we expect to recognize revenue on approximately 320 to 350 megawatts, with full-year megawatt recognized in the range of 1.15 to 1.25 gigawatts.

On a non-GAAP basis, we expect Q1 revenue of $650 million to $700 million, with full-year revenue to be between $2.4 billion and $2.6 billion.

For Q1, we see non-GAAP EPS in the range of $0.25 to $0.40, and for 2014 we are raising our earnings guidance range from at least $1.00 to $1.30.

On a GAAP basis we expect Q1 revenue of $575 million to $625 million, with annual revenue of $2.45 billion to $2.65 billion.

In relation to earnings per share, we see Q1 2014 in the range of $0.10 to $0.25 in 2014 earnings and $0.65 to $0.95 per share.

Capital expenditures in the first quarter are expected to be in the range of $25 million to $30 million, as we start to ramp construction of Fab 4.

We will now open the call to questions.

In addition to Chuck, we also have Howard Wenger, Regions President, and Bob Okunski, our Senior Director of Investor Relations.

(Operator Instructions)

Ben Kallo, Robert W. Baird & Company.

Thanks for taking my question.

On the guidance Tom, can you walk us through?

It looks really front-end loaded, so do you not have visibility into the back half?

Or, is this a starting point or how are you looking at it?

Thanks for the question, Ben.

The way we're looking at it is, it is somewhat front-end loaded and that's mostly architected because of the Quinto project that we will build this year.

We'll actually plan on selling that project in 2015 because the economics will be superior by building it on our balance sheet.

So it's a big part of the driver of the profile of the year.

Secondly, Solar Star did start out with a little more [rev-rack] in earnings in Q1 than the rest of the year but that's primarily the profile to give you a sense of how things are going to progress.

Okay.

And so just to make that clear, the project you're building is going to generate earnings in 2015 but your allocating modules this year to it?

Exactly.

Okay.

And resources, yes.

But exactly.

Okay.

And can you just size that out to us if possible at all?

And then, any of these other entities that you guys talk about, maybe this is for Chuck, does that impact earning this year?

Whether that's talking about Yieldcos?

Are you factoring any of that in or even the leasing allocation there?

And I'll hop back in queue and thanks, guys.

Yes, good question.

Quinto's a 135-megawatt project and Howard maybe you can circle back -- you can give a sense of how much of that will be built.

To give you some sense of scale 135 megawatts, there will be a little bit of looking forward to structures that we might utilize but that's not going to be a big driver for the year in terms of keeping commercial assets on our book or residential assets on our books.

So, Ben, the Yieldco decision would be a few quarters out and would likely start with Quinto is latter half of 2015.

Great, thanks guys.

In terms of construction at Quinto, this is Howard, we're looking at you could think one-third 2014, two-thirds 2015.

Vishal Shah, Deutsche Bank.

Hi, this is Jerimiah Booream on the line for Vishal from Deutsche Bank.

I was just hoping you could touch on the Japanese market?

Specifically, from Q2 to the end of the year, what's the outlook there and how could that impact profitability?

This is Howard.

2014 is really strong demand year for the Company.

We have two-thirds of the Company megawatts are in backlog in terms of bookings.

So we enter the year extremely strong.

Very balanced portfolio across the world, half of our revenue we're looking international, half domestic and again, half DG and half utility scale.

And Jeremiah let me jump in.

To a strong Q1 we started shipping in earnest to some of our commercial and power plant projects.

That's new for us so we have a new mix and over the course of the next few quarters that next little stage similar, but we expect on the volume in Japan to stay the same but maybe towards the end of the year to see margins increasing some.

Okay, that's helpful.

And maybe just piggybacking off of that, the upper end of your earnings guidance would that be coming more from shipments or margin increases this year?

So it's internally driven from margin.

And margin could be pricing mix or better cost.

Okay, great thanks, guys.

Rob Stone, Cowen and Company.

Hi, guys thanks for taking my question.

Tom, in your prepared remarks you talked about having new capacity online in less than a year, I think that's faster than originally expected.

Can you add any detail to that?

And any thinking about what you might add or what comes behind that?

Rob, thanks for the question, yes I can.

It's a little bit faster than we were thinking and of course the operating team knows that sooner is better so they are working aggressively to bring that Fab online.

To give you a little bit of color, there will be three line pairs.

The first line pair will be the existing technology, the second two line pairs will be advancement on our existing technology platform which will allow us to increase the efficiency of the product and take steps out so that we can get cost down.

So think of the Fab, the way we think of it is the first two lines being one build and the second set -- or four lines -- being a new platform.

And so, materially we'll get output out of the first two lines next year and start seeing the new technology towards the end of 2015.

In terms of another Fab, yes, our team is looking at where we would take that new technology from those last two line pairs and build that in much larger scale at a fifth Fab.

So, yes we are doing the work to decide where we would do the fifth Fab.

And it would be a larger Fab on that new technology.

Great.

My follow-up question is on Oasis cost reduction.

I think you said 24% if I recall correctly.

How did you do that and you have a target for further reduction this year?

So Howard you want to jump in after I go, let me know.

Yes I did say 24% and it's the result of the work that we did at CVSR.

We've perfected a power block which is the size of 1.5 megawatts and we pre-engineered the 1.5 megawatts so that we can replicate that on these sites.

That gives us purchasing scale by virtue of the replication from block to block.

It also gives us efficiency of install because it's partially prefab so we take a lot of the difficult task out of the field.

Secondly, it is pre-engineered so you're not reinventing things each block that you implement.

Thirdly, we were able to engineer those blocks so that we make more efficient use of the commodities that are part of balance-of-system and you can think of optimizing the mounting structures, and when you build a very large scale plan you can optimize not only the block but also where the blocks our positioned.

It allows you to optimize the amount of steel you use, so those are the primary drivers.

As we look forward, there are different revisions of Oasis that we've implemented, so any new project would benefit from capitalizing on the last revision.

It had all of the improvements, we would continue to see better BLS performance by virtue of the fact we're using the best, latest generation of Oasis so, more to come.

Am I right that, that 50% increment on the block side used to be a 1-megawatt block?

The short answer is yes.

We didn't built a lot though with 1, we went to 1.5 pretty quickly but you have a great memory.

Great, thanks.

Patrick Jobin, Credit Suisse.

Hello, it's Brandon Heiken on behalf of Patrick Jobin from Credit Suisse, thanks for taking the question guys.

I just wanted to clarify, I think you mentioned the mix of the residential lease should increase going forward?

Was it constrained by the tax liquidity in the fourth quarter there?

What do you see for the new loan offering this year?

This is Tom.

I'll make some overall comments and hand it to Howard.

Started on Q4, or just prior to Q4, yes, being constrained with the amount of tax equity lease capacity we had so Howard's team did a very nice job of responding to customer demand and our lease capacity and he can talk about how he sees things going forward plus the loan product.

Sure.

So we had a really strong quarter in Q4 in residential demand overall for residential US is very strong.

In the middle of 2013 we were financed-constrained to an extent so we were able to flex our channel and move customers to cash and we had record sales in residential for cash customers in Q4 up 30% quarter-on-quarter.

So per our press release, we did a deal with Bank of America for $220 million of financing so we're really not facing a constraint in lease capacity going forward and we expect a really strong year for lease growing that disproportionately.

Probably on the order of very substantial growth year on year -- at least 50% or higher growth in lease for 2014.

As far as -- we have a suite of financial products for our customers and we don't really lead with lease, we lead with our product because we think we're differentiated on the product side and that's what customers really value.

And then we consult with them on how to pay for it.

Many of our customers want to pay cash, some want to pay with a loan and take advantage of the tax credit themselves and we have a number of facilities for customers to get loans directly and we will continue to offer those to our customers in 2014.

Thanks and just to clarify, it looks like you mentioned the margins were up in EMEA in part because of Israel project?

And then down in Japan because of a mix shift to commercial sales?

What would margins have been all else equal in those two regions?

If you were to adjust for that project in Israel and for say, a neutral mix or constant mix in the Japan?

Yes.

I'll say a few words and Chuck if you want to add?

In Europe -- we certainly don't want to convey that the positive margins were exclusively the project because they weren't, the core business has improved significantly.

Over the course of the year we've sized our organization to the size of the business and businesses improve by targeting the segments that better fit our product.

And so our core business -- the residential -- the distributed generation business has improved rather significantly therefore you should expect to see good results out of that region going forward as well.

But we did in fact, have a project that improved things further.

To answer your first question on Japan, margins would've been consistent with historical levels on the residential side and just a few points lower and in EMEA also a few points.

I do want to point out though we did grow year over year or improve year over year our EMEA gross margins by $75 million, so it was a pretty radical turnaround.

Thank you, guys.

Thanks.

Tom Daniels, Goldman Sachs.

Hi, this is Tom Daniels on for Brian Lee from Goldman Sachs, thanks for taking my question, I really just had two.

To start with on NCI guidance for 1Q, I think it's down about 33% and it sounded like you guys are tax equity constrained in 4Q so just wondering is that just lower megawatts?

Because it sounds like you have bigger mix on the tax equity residential lease side and then, how should we think about NCI going forward in 2014?

Sure, this is Chuck.

On the NCI side their Q3 was a little higher than normal because you effectively get the benefit about six months after interconnection and we had a bit of a backlog they came through in Q3.

Q4 and Q1 are probably more of a normal level.

The easy way to think about NCI is we get roughly two-thirds of the tax benefit year one, roughly one-third in year six and so if you just do the math on the value of the system we get roughly two-thirds of that benefit in year one and so we would expect NCI to grow in 2014 and 2015.

Okay thanks Chuck.

Do you think it will be up around what your residential expectations are, which I think you said was around 50%?

Is that a decent benchmark for year-over-year growth?

No because of emitted lag affect of about six months.

Given that we were constrained in the back half of the year in tax equity it will be up but you'll see a bigger increase in 2015 then you will in 2014.

Okay, got it, great thanks.

And then just one other question, a lot of talk recently about the Middle East and I know you guys have done a lot of work over there with Total but specifically around the need for potential local content requirements, is there any way you guys could comment on that?

And as you guys think about increasing your production capacity -- Philippines, Malaysia -- would the Middle East be an option for you?

Do think you need to have local content there to compete in that market?

Thanks.

The Middle East is still evolving in terms of what the business model will be.

It's certainly common to a lot of the conversations is local content and the question becomes what is the most effective local content.

And I think the objective is primarily local employment.

And it's not clear what drives the most local employment for example, in some of the upstream facilities often import a lot of the people that work in those facilities so it doesn't always accomplish the goal.

So the conversations are rather refined as you know they been ongoing for some period of time.

Those conversations really only exist where there's likely or potentially a longer-term ongoing sizable market and you're right, we leverage Total whose been doing meaningful business in the region for 75 years or more.

So it's a huge advantage for us and it allows us to be part of the conversation to shape where this goes.

There are some near-term tenders in markets outside of Saudi Arabia that will be interesting over the next year and probably in the next year or so we'll start to see some activity in Saudi Arabia as well.

Great, thanks Tom, I'll jump back in queue.

Thank you.

Krish Sankar, BofA, America Merrill Lynch.

Bank of America, Merrill Lynch and this is Andrew Hughes on for Krish.

Congrats guys on a good quarter.

Thank you.

One question on the Yieldco prospects, it sounds like there might be a little more excitement around a Yieldco as a potential landing place for a project like Quinto rather than doing one on your own but I'm wondering if you could talk a little bit about the status of the pipeline?

In terms of what's contracted versus what's not contracted and how that might play into what you're thinking here in terms of your own Yieldco plans?

So, I'll go first then Howard can talk about the pipeline.

We are in a really good spot because we generate and develop projects and with the proliferation of Yieldcos and the discussion on these new financing vehicles, it's making us real excited about the value creation of lowering the cost of capital.

Quinto and Henrietta are two very large class A projects that are desirable for Yieldcos and other buyers.

So if we decided to launch one, those would be great assets.

I'll let Howard comment on our pipeline.

Thanks Chuck, this is Howard.

We have about a 6-gigawatt global pipeline for projects.

A lot of that with Total or we're co-developing projects internationally, specifically.

We've announced some wins, so far the deals that we talked about add up to about 450 megawatts contracted that we've actually announced.

That includes Henrietta and Quinto in the US, that's 265 megawatts and then we announced a project in Chile, 70 megawatts, another project in South Africa, 85 megawatts, as examples.

So, we expect 25% of the pipeline to convert to real contracts so that's well over a gigawatt and those projects are candidates for Yieldco, and we are talking to a number of parties that have Yieldcos and or thinking of putting Yieldcos together.

We're talking internally about our own thoughts around a Yieldco.

And the main driver as Chuck mentioned, is you need projects to make these Yieldcos work so we're really in good shape to feed the Yieldco ecosystem that's developing.

Great and then just one quick one on leasing.

I'm wondering if you can talk about what the lease revenue was this quarter and talk also a little bit about how the cash sale lease or sales-type lease versus operating lease breaks out either on a revenue or megawatt basis?

Lease revenue we saw about a $10 million increase to just over $40 million of lease revenue and you'll note in our 10-K when it gets filed in a few days we have separately disclosed what we call our ESP revenue which shows power plant systems as well as lease and other revenues.

So we've tracked that nicely and again as we disclosed last quarter, our lease business was profitable and we grew profits again this quarter so both cash flow positive and profitable.

And just in terms of how the cash sale or sales-type lease versus operating lease breaks out, do you guys talk about that?

We do.

Our operating leases -- we're about 70% and that was consistent quarter over quarter.

Thanks, guys all jump back in the queue.

Thanks.

Colin Rusch, Northland Capital Markets.

Can you talk a little bit about the trends on leasing?

The lease pricing right now as well as when we can expect something in either Australia of any real material nature or in Europe on a lease product?

This is Howard.

Lease pricing going into 2014, I'd say it's fairly stable.

We may be selective in different markets in the US in terms of tuning the leases to get volume up, the lease pricing.

As far as Australia and Europe, we talked about that before, we've launched a pilot in France already and that's ongoing.

Where we've actually signed up over 100 residents in France to participate in the pilot.

And then we are still working on Australia and expect to give more news in the quarter or second quarter on the progress there.

And I would just jump in and add, this is Tom, that in meaningful markets we're able to price favorably to conventional electricity, so that market force, we're at the right place and it's creating a lot of demand.

Second thing I'd want to comment on is our product works great in lease because we're really happy to price on an energy basis because like we said for years that's what our customers are buying -- in the case of lease it's exactly what they're buying.

And the residual value of our product, as four outside agencies have verified in the last year, will be higher than alternative products so we have two product advantages in lease as well.

Thank you for the question.

Okay.

And just a quick follow-up, on the C7 product, can you talk a little bit about the bidding activity that you have right now using that product?

As well as your expectation for the relative value proposition and your margin potential with that product?

It looks to me like there's a potential, significant cost advantage on an energy basis with that once it's fully rolled out.

If you could give us a sense of what you're expectation is on activity around that product and what we can expect from a margin profile?

Sure.

It's Tom, I'll take the question.

So, it's nice to have the data center application.

It's particularly well-suited because it's just at the beginning and it's a nascent market so there's a lot more activity that could be had there.

And the C7, eventually we'll call it low-concentration PV product because the 7 will improve, the concentration will improve as we introduced our higher efficiency cells.

It has the potential to be very cost-effective.

And it has the virtue of utilizing our Fab output very efficiently and so it's a way of expanding without adding Fabs.

So, yes, it's economically competitive and B, it's a lot faster to scale.

Last comment I would make is, it is what we're focused on in China and China has huge upside potential.

So as we build out our four-way joint venture in China and we build some projects later this year, there's a really significant upside as we look to the out years.

Great thanks a lot.

Paul Coster, JPMorgan.

Thanks very much for taking the question.

Just want to get the guidance for the full year for a moment if I may.

It sounds like the Quinto project's about a third of the revenue for the whole project shifts into 2015, I'm guessing it's about wondered $150 million, am I approximately correct?

And then the broader question is, it's a front-end loaded year, you're talking about strength in (inaudible) things seem to be getting stronger in Japan and you're now no longer capital-constrained with the North American BG business, what's preventing you from running up those numbers through the remainder of the year?

Is it capacity constrained?

Chuck will take the first part of the question and I'll take the second.

Yes, about a third of the overall project revenue and profits for Quinto, under the old model would've been recognized in 2014.

And so normally you've seen a lot of development revenue and profit which are significant.

We're planning on those -- on all of the profits -- the EPC development, et cetera, all being recorded likely in 2015 although it could be in a Yieldco, as we discussed earlier.

So you're right, about a third of the progress may have been completed under the old model.

And then Tom can take the --

Yes.

So the second part of your question is yes, there's a finite capacity for the year.

Now we shouldn't go overboard with this, the strength of the first quarter, it is front-end loaded but it's not like we're going to have a difficult Q2 thru Q4.

As you allude to, the DG business is a strong business and there still is mix improvement that can happen for the rest of the year, so where you choose to do business in DG, there is strength that we can capitalize in the next three quarters.

It's just the profile that we see today slightly favors Q1 or is biased to Q1.

We are going to take one more question and then wrap it up.

Can I just tie-in quickly?

What is your estimate of the US-retained value-per-watt on the distributed lease products now?

And you said something about 2015 having a good line of sight into growth in 2015, can you just elaborate on that from your prepared remarks?

Sure.

You can't ask any more questions (laughter).

Chuck will take the first part, I'll take the second part, then we will go the last question.

So we indicated almost a year ago, I guess a year ago in May, our retained value for our typical California lease is about $1.75.

Over the last year we've seen a 20% cost reduction in our PV so we're excited about overall cost reduction and the components in our residential lease.

So you can infer by that there is a growth in the retained value.

We've also seen the cost of financing of these is going down.

For instance, the BofA deal that we just consummated, has a lower cost of tax equity than our first deals did, so competition is working, it's driving down the overall cost.

We are not providing specific numbers on retained value.

We've tried to give you guys the input you could model your expectations given the assumptions of residual value and cost of capital et cetera.

In 2015 the drivers are, the movement of Quinto and then there might be some upside from the second project, Henrietta.

And then we have the new Fab coming online giving us more output.

Then out of the existing Fabs we'll have improvement throughout the year that we'll capitalize on in 2015, so we will get more output of the existing Fabs.

So three things -- big projects we will start to build this year that we'll capitalize on in 2015 -- the build of our new Fab and more output out of the existing Fabs.

Thank you.

Next call.

Pavel Molchanov, Raymond James & Associates.

For your full-year guidance in 2014, what percentage is attributable to projects that are sponsored or backed in any way by Total?

It's been a while, nice to hear from you.

It would be a small percentage of revenue this year.

When you say backed, it would be our co-development model where they've invested some equity in it and that would almost (technical difficulties) it's less than 10%.

And to be more precise probably around 5%.

Okay, very clear.

Appreciate it.

Thank you very much.

Thank you all very much for your time and we look forward to hearing, talking to you on our next earnings call.

Thank you.

That concludes today's conference.

Thank you for participating.