SunPower Corporation (SPWR) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to SunPower Corporation's first-quarter 2014 results conference call.

Today's call is being recorded.

If you have any objections, please disconnect at this time.

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 would like to welcome everyone to our first-quarter 2014 earnings conference call.

On the call today we will start off with an operational review from Tom Werner, our CEO, followed by Chuck Boynton, our CFO, who will review our first-quarter 2014 financial results.

Tom will then discuss our updated 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 the Safe Harbor slide of today's presentation, our 2013 10-K, and our quarterly reports on Form 10-Q.

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 this call, on the 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.

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.

I will start with a brief overview of the quarter, and then review our strategy, and explain why we are well positioned to lead the solar industry into what we believe will be a sustained period of growth.

First, our results.

We exceeded our financial targets for the quarter, driven by continued strong demand for our industry-leading high-efficiency solutions across all geographies and end channels.

ASPs remain solid across the board, and we expect this to continue for the balance of the year.

In our distributed generation business, we posted another great quarter, led by strength in Japan, which accounted for 22% of our shipments.

In the US, we were pleased to sign two innovative lease financing transactions within the last month; one with Google for approximately $250 million in fair market value lease financing, and our ITC back leverage deal for $42 million with Hannon Armstrong.

We also exited the quarter with strong bookings in our commercial channel.

In our power plant business, we executed on our project schedules, including the 579-megawatt Solar Star projects where we have grid connected more than 170 megawatts to date.

We also received a 70-megawatt C7 cell package order from our JV in China.

We are pleased to see the ramp of the JV's project pipeline and subsequent C7 order volume growth.

We also executed well on our technology roadmaps during the quarter, and were pleased to receive NREL certification for a 25% efficient solar cell made on our pilot line running Fab 4 technology.

Higher-efficiency cells produced using fewer process steps will allow us to further drive down [mobilized] cost of energy for our customers.

I would now like to spend the remainder of my time explaining why our strategy positions us well for industry leadership and sustained profitable growth.

Please turn to slide 5. As we all know, the long-term opportunity for solar power is tremendous.

The cost reduction and technology improvements has made solar power competitive with traditional generation in many markets.

Nowhere is this more evident than in Chile where we are constructing a 70-megawatt merchant power plant that will sell electricity directly into the grid without any incentives.

SunPower is uniquely positioned to capitalize on this enormous market opportunity.

Our strategy is to proactively identify markets that will offer large-scale and competitive customer economics, and then to leverage our industry-best technology in downstream channels to take a leading share in these markets.

Our decade-long investment in the Japanese market is a good example of this approach.

The chart on the right side of the slide shows the projected 2016 demand mix based on data from a number of third-party firms.

SunPower is extremely well positioned to address this global demand due to our leading share in North America, JV in China, strong channel partners in Japan, established go-to-market platform in Europe, and partnership with Total in the Middle East, Africa and Latin America.

SunPower is also the only solar company with deep expertise across all application segments.

This allows us to tailor our approach to each market based on local conditions and segment attractiveness, a key element to deliver a long-term sustainable profit growth and technology differentiation.

Since becoming a public company in 2005, we have often heard that PV panels are an undifferentiated commodity.

This is simply not true.

Please turn to slide 6. We showed this slide at last year's Analyst Day.

It clearly shows why customers choose SunPower for their rooftop systems.

On a typical space-constrained rooftop, SunPower panels produce over 50% more energy than conventional solar systems in the first year of operation.

By year 25, this advantage will grow to 100%, due to superior reliability and much lower performance degradation rates.

The bottom line is that SunPower customers generate over 75% more energy over the lifetime of their systems.

As customers and financiers become more educated about panel degradation rates, and system residual value, SunPower's technology advantages and associated economic benefits become increasingly clear.

When incorporated into a yieldco or a lease vehicle, these long-term reliability and performance advantages are directly monetized.

Chuck will share more information about our current thinking about yieldcos and other monetization objects.

The primary driver behind this lifetime energy advantage is our higher panel efficiency.

Please turn to slide 7. This slide shows how SunPower panel efficiency compares with the efficiency of panels from the top 10 panel suppliers.

There are many reports and press releases regarding high-efficiency products and champion laboratory efficiency results.

So, it is quite revealing to compare what is actually being shipped today.

As can be seen, SunPower panels clearly stand above the pack.

However, our high-efficiency technology is not the only reason we are the leader in the distributed generation market.

Please turn to slide 8. SunPower's distributed generation go-to-market channel platform, financing options, and product suite are also clearly differentiated versus our competitors.

Our global dealer network of 1,800 dealers and strategic channel partners provide an unparalleled market footprint in 10 countries with minimal fixed costs and rapid scalability.

We offer our customers a spectrum of financing options, including cash sales, secured and unsecured loans, PPAs and lease; all tailored to their individual needs.

Our product offering includes not only complete solar solutions, but also performance monitoring and energy assurance products that enhance our customers' ownership experience.

We are adding energy management and storage functionality to our DG offers and are actively piloting these systems in several markets.

Finally, we continue to extend our leadership in the large commercial rooftop space as a supplier of choice to Fortune 500 customers, as well as federal and public sector institutions.

I would now like to talk about our leadership position in the global power plant business.

Please turn to slide 9. We also showed this slide at Analyst Day, and we are providing an updated pipeline size today.

Since May of last year, our pipeline has grown from 6 gigawatts to more than 7.5 gigawatts, as we have added opportunities in all geographic regions.

A key growth driver, internationally, has been our partnership with Total.

This partnership has already resulted in more than 300 megawatts of booked projects, and we are jointly pursuing many more projects in a number of promising emerging markets.

SunPower's power plant business advantage is a result of several factors.

First, our Oasis power block system is the gold standard for balance of system, with 850 megawatts deployed globally to date.

Secondly, we are seeing increasing traction with our C7 concentrator technology, particularly in China, the world's largest PV market.

C7 is a triple win: driving more competitive levelized cost of energy, maximizing local value creation, and multiplying SunPower's fab capacity by a factor of 6. We have approximately 30 megawatts installed or under construction in the US, and are planning to start installation on two projects totaling 120 megawatts in China later this quarter.

Finally, SunPower has a world-class project development team with a long history of EPC execution to budget and schedule.

By joining forces with Total in a number of emerging markets, we can effectively project this capability on a truly global stage.

I would now like to provide a short update on the construction of our 350-megawatt Fab 4 facility.

Please turn to slide 10.

Fab 4 remains on track.

We plan to produce between 50 and 100 megawatts in 2015, and more than 250 megawatts in 2016.

With strong and growing demand for our panels, and a stable pricing environment, our expansions team is highly motivated to meet or exceed these targets.

Fab 4 will produce our most efficient solar cells to date, enabling panel cost reduction of up to 35%.

As I mentioned in the last call, we are also evaluating locations for our next significant capacity expansion, and expect to make a decision on additional capacity within the next few quarters.

Before handing the call over to Chuck, I would like to touch briefly on the recent rollout of our new customer portal.

As we have said on previous calls, SunPower is very focused on improving our customers' ownership experience.

Please turn to slide 11.

The recently launched customer portal 2.0 provides a key touchpoint for our customers, allowing them to track energy production, see their savings, view educational videos, and get their questions answered.

We launched our latest portal at the beginning of April, and it has been a great success from a customer satisfaction and branding standpoint.

Why is this important?

First, when we deliver a superior customer experience, we get a customer for life.

This is a foundational principle for our energy solutions business model.

Second, the new customer portal facilitates referrals.

A happy customer always tells their friends about their experience, and referrals are by far the most effective type of lead.

Third, the site enables self-service support, which increases the speed of issue resolution, and drives down customer support costs.

Finally, the new portal constitutes a flexible and powerful platform to add additional services and adapt to changing market conditions.

In summary, Q1 was another strong quarter for SunPower.

As we look to the balance of 2014, we are confident in delivering continued strong financial performance, and driving significant growth in 2015 and beyond.

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

Chuck?

Thanks, Tom.

Good afternoon, and please turn to slide 12.

As Tom noted, Q1 was a very good quarter, as we beat our plan in all regions and end markets, driven by strength in both our DG and power plant businesses.

In addition to our solid non-GAAP margins, GAAP was also better than plan, due to the completion of our 250-megawatt CVSR project.

I will comment on a few key items from our Q1 performance on slides 12 and 13, but spend the balance of my time discussing economic optimization of solar assets.

For the quarter, our factories ran at full utilization.

Additionally, our construction of Fab 4 remains on plan, and we continue to implement our new technology in Fab 2.

Inventory was at a two-year low, as megawatts recognized exceeded production.

We were pleased with our cash conversion cycle for the quarter, as we achieved a multi-year best of four days.

Over the next two quarters, the EPC retention receivable for Solar Star will move from long-term to short-term AR, which will inflate our DSOs temporarily until the cash is collected when the project is complete.

Our non-GAAP gross margin for the quarter was 22%, driven by solid performance from project sales in EMEA, along with execution on our other power plant projects, including Solar Star.

We also benefited from strong ASPs in all residential markets.

America's margins was on plan, as we continue the construction of our Solar Star projects.

As we mentioned in our last call, we will soon commence construction of our 135-megawatt Quinto project; but unlike previous projects, we will not recognize development or construction revenue for this project in 2014.

Our North American residential business was solid, with total deployments of 35 megawatts, with 24 from cash sales.

Lease bookings for the quarter were 6 megawatts, with 172 megawatts booked to date, representing $628 million in net contracted payments, excluding the residual value.

The higher mix of cash sales played an important role in our cash conversion cycle and earnings for the quarter.

In addition, NCI for the quarter was $22 million, higher than forecast, driven by faster-than-planned lease connections.

Q1 was also another solid quarter for our global DG business, where demand continues to outpace supply.

In total, we deployed 108 megawatts of residential products, including 52 from APAC, 21 from Europe, and 35 from North America.

For Q1, EBITDA was $122 million, up $7 million sequentially.

Excluding the impact of NCI, the adjusted EBITDA was approximately $100 million.

Before I turn the call back to Tom for guidance, I will spend a few minutes discussing the economic optimization of solar assets.

We announced last quarter that we had billed Quinto on our balance sheet, deferring the developer and EPC margin until we sell the project at COD.

By maintaining ownership of projects through construction, we reduce the risk to potential buyers, and realize a greater return for SunPower.

Our industry-leading product reliability and technology advantages allow us to enhance our return further by maintaining an ownership interest through project operation.

There is a material benefit to our return by capturing the lower annual degradation, longer system life, best energy performance, and lowest risk that our systems provide.

Our technology advantages, combined with our worldwide footprint and development experience, with more than 4 gigawatts of systems deployed, gives us the confidence today to announce our holdco strategy.

Please turn to slide 14.

As you know, there have been significant discussions concerning a number of alternative financing vehicles for the industry.

We firmly believe employing these structures will significantly reduce the overall cost of capital for the industry, and for SunPower, specifically.

We have created our holdco strategy to capture the increased value of our solar project portfolio, and will include systems from all three of our end channels: utility, commercial and residential.

The structure of our planned holdco is on slide 14, which also summarizes the P&L and balance sheet impact of implementing this strategy.

Today, we have over 500 megawatts of assets under contract, and will continue adding to that total through 2015.

This strategy gives us the option to continue to hold assets, sell them individually to strategic buyers or other yield vehicles, or sell equity of a holdco to the public, whichever maximizes the benefit to SunPower shareholders.

Please turn to slide 15.

Initially, we will primarily focus on the US market, with our Quinto and Henrietta utility scale projects.

Additionally, we expect to contribute North American commercial PPA projects, as well as our residential lease assets.

As we expand our portfolio, we expect to add residential systems through future ABS transactions, international third-party financing vehicles, as well as commercial projects in Europe and Japan.

Finally, we will look at adding jointly developed projects with Total in top-tier countries around the globe, and potentially leverage significant future growth through our footprint in China.

As you can see in the chart, we have more than 500 megawatts of assets under contract, with 172 in residential, 81 in commercial, and 264 in power plant, which consists primarily of our Quinto and Henrietta projects.

Please turn to slide 16.

I would now like to talk about the value of residential leased assets.

As we've stated in the past, without debt, residential leases consume cash, since tax equity financing does not cover the hardware and installation costs.

We are happy to report that we closed our first ITC back leverage transaction, which provides enough cash to cover the total cost.

Based on this success, we will continue to expand our leasing program in 2014 and 2015.

To provide more transparency on our leasing program and retained value of our leases, we are showing our most recent lease data for Q1 sales.

We believe we have a significant advantage in average system size and lease price per kilowatt hour, which translates to a higher retained value.

In addition, we use a conservative approach to price escalators with an average annual escalator of 0.3%, which we believe will significantly reduce future default risk, and positively impact our residual value.

The combination of lower power degradation rates and the reduced default risk gives us a significant financial advantage in the residential channel.

Moving to slide 17: This is a simple example of how our holdco strategy is expected to positively impact power plant project NPV.

As shown on the slide, selling at COD with the SunPower Advantage increases the value between 30% and 60%.

Let me put that in real terms.

When we sell a project at COD, as we did with our projects in Israel and Italy, we were able to generate more than $2 per watt in margin.

We feel this value is, on average, indicative of what we expect for self-developed projects going forward.

We also believe the demand for high-quality projects by existing and future yieldcos will remain strong for the foreseeable future, and we will leverage this demand profile to maximize return.

Additionally, we also have the option to take it a step further, and decide to sell the project to our own yieldco, further improving NPV.

As we have mentioned, our holdco strategy gives us a number of options to monetize our projects, and increase our project returns significantly.

I would like to close by turning to our outlook for megawatt growth through 2016.

Please turn to slide 18.

We are growing deployed megawatts by 65% over the next three years.

The recognition of the deployments depends on the size and scale of our holdco strategy.

In summary, we will continue to focus on maximizing returns for our shareholders, whether selling our systems for cash, or holding them to receive a higher retained value and longer-term cash flow.

As I mentioned, holding projects will impact the P&L, but we will continue to prudently manage the mix between cash flow and retained value.

Ultimately, we plan to monetize our holdco by harvesting the cash flows, selling all or part of the entity to a private buyer or the public via a yield vehicle.

We do not expect to make a decision on this until late 2015 or 2016.

In closing, our Q1 performance reflects the sustained competitive advantage of our industry-leading technology, strong project execution, and diversified downstream model.

With our 7.5-gigawatt pipeline, and plans to leverage our holdco structure, we remain confident that we will be able to significantly grow shareholder value over the next three years.

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

Thanks, Chuck.

I would now like to discuss some of the highlights of our guidance for the second quarter, as well as our improved 2014 earnings outlook.

Please turn to slide 19.

For Q2 2014, we expect to recognize revenue on approximately 275 to 300 megawatts, with full-year megawatt recognized in the range of 1.2 to 1.3 gigawatts.

On a non-GAAP basis, we expect Q2 revenue of $575 million to $625 million, with full-year revenue between $2.5 billion to $2.65 billion.

For Q2, we see non-GAAP EPS in the range of $0.15 to $0.35; and for 2014, we are raising our earnings guidance range to $1.10 to $1.40.

For 2015, we see year-over-year non-GAAP earnings-per-share growth of more than 50%.

But this depends on the size and scope of our holdco.

On a GAAP basis, we expect Q2 revenue of $500 million to $550 million, with annual revenue of $2.55 billion to $2.7 billion.

In relation to earnings per share, we see Q2 2014 in the range of a loss of $0.10 to a profit of $0.10, and 2014 earnings of $0.75 to $1.05 per share.

Capital expenditures in the second quarter are expected be in the range of $30 million to $40 million, as we continue 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.

First question, please.

(Operator Instructions)

Vishal Shah.

Deutsche Bank.

Thanks for taking my question.

Tom, I just wanted to follow up on your guidance for the year.

You had a pretty strong Q1, but you only raised your guidance by $0.10.

Is it just the Holdco/Yieldco strategy that you're holding more projects on your balance sheet and not recognizing earnings, or is it capacity?

Can you just talk about how we should think about the next couple of quarters?

Thank you.

Yes, sure.

Thanks, Vishal, for the question.

Yes, you're right on.

As -- we talked about our profile in Q1, and the fact that we're building Quinto on our balance sheet, starting to build it this year.

Chuck alluded to that there may be other projects we put our balance sheet.

So, that's the most significant factor, for sure.

And do note that it is late April and we've raised our projection for the year rather substantially in less than four months.

So, first, we're proud of being able to raise again and, secondly, it is primarily the Holdco is the difference.

Just on that front, you also benefited substantially from the NCI income in Q1.

What kind of assumptions should we be making for NCI for the rest of the year?

And, given the recent financings, what's your outlook for leasing business for the next few quarters and 2015?

Thank you.

I'll take the NCI one first, Vishal.

This is Chuck.

We had a strong quarter in NCI.

Our dealers performed very well and I would say accelerated NCI from Q2 and Q3 into Q1, $22 million versus a plan of, I believe, it was around $15 million.

I would expect Q2 to be roughly in the $10 million to $15 million range.

Vishal, this is Howard.

With respect to our leasing business, it's going to grow in 2014, relative to 2013.

Thank you.

Next question, please.

Krish Shankar.

Bank of America, Merrill Lynch.

Hi, guys, it's Andrew Hughes on for Krish.

Quick question on the pipeline.

The 7.5 gigawatts globally -- it sounds like 517 under contract with an off take agreement.

Can you categorize where in the development cycle that balance of 7 gigawatts is?

What is sort of more near-term opportunities?

What's more long-term?

Sure, this is Howard Wenger.

That's right, we've got have 7.5 gigawatts worldwide -- about 4 gigawatts in the Americas and the balance outside.

We've got around 300 megawatts in near-term, meaning, the next four quarters that are significantly advanced in the pipeline.

I would say that's probably on the lower end of the spectrum, but that gives you a sense.

As we said before, we expect approximately 25% of our ongoing pipeline to be realized into real projects and that assumption holds going forward.

Great, thanks.

And then, in terms of the Middle East opportunity there, any updates on how you guys plan to address that market as far as domestic content requirements are at play?

Will it be a C7 market primarily, or are there other -- might that be a location where you plan to put your next manufacturing facility?

So, we'll consider all the above.

C7 works ideally to replicating or leveraging what we did in China is a logical thing to do.

But, it's still early stage and we don't rule out other parts of the value chain being in the Middle East.

A couple other thoughts.

Having Total is a huge advantage.

Having done business, Total, for 90 years in the region.

It's our sense that the large opportunities in the Middle East are still a few years off.

There will be a number of tenders in the near term.

We feel well positioned for those.

So, mix of technology reserving options, but we completely understand the local content requirements and think we're well positioned to meet those.

Great, thanks guys.

I'll jump back in the queue.

Thanks.

Ben Kallo.

Robert W. Baird.

Thanks, guys.

A good quarter.

As far as the pipeline goes and this additional 1.5 gigawatts -- I know, Howard, you said 300 megawatts in the near term -- but do we see some type of acceleration as you keep on working on these things in parallel, where you can start adding more?

Then I have a follow up.

Ben, your reference to parallel is parallel markets, different parts of the world?

Is that what you mean?

Right, yes.

I'll say a few comments, and I'll turn it to Howard.

There's absolutely an element of that.

There are different markets that are coming online at different speeds.

Also, the time to permit is radically different depending on the market.

So, I would point to the positive extreme, which is China.

It's a huge -- it's the largest seller market on the planet.

It will be the largest electricity generation -- new capacity electricity generation, by far, in the world the next 10 years.

And, when the project is approved, it's very short time to market.

So, yes, you can see China coming on in parallel to other parts of the world for us.

So there's definitely an element of that, mostly driven by China.

Do you want to add anything, Howard?

Yes.

The only thing I would add is that -- agree with Tom, of course -- and, we will see acceleration as we approach grid parity markets.

And that's what's happening.

We are starting to see the pricing intersecting with the grid and the fossil fuel alternative.

And, you'll see continued acceleration.

All right.

My followup -- Tom, I think you mentioned by year end we would hear more about a much larger expansion of a new fab, new factory.

Could you talk about what you're seeing in the fundamental market where -- the financial market we don't have much differentiation between technology, but in the fundamental, which gives you confidence with even some of the Chinese guys expanding capacity that you are going to do something big like that and that you have -- there's a demand out there for you.

And I'll jump back in queue.

I think you said in the finance market, is that right?

So, as the market moves to lease and to Yieldco, or predecessor structures to Yieldco, that becomes more of a product differentiation strategy because the benefits of lower degradation, higher output for rated kilowatt or watt, and longer life, which ends up with higher retained value -- those three factors are directly monetized by both lease and by Holdco.

So, those factors couldn't excite us more, because we have a clear and distinct advantage.

On top of that, our Oasis product and power plants, we've been able to get costs down as significantly as a module.

So, when you combine those two, we're quite happy to compete on cost per kilowatt hour or dollars per megawatt hour.

We're taking that same approach of Oasis to our rooftop business and creating power blocks where we think we can aggressively get costs out and balance the system in DG business as well.

So, I would say that the way financing has moved has given us the confidence then to say, make more of our product.

So, also I would say that our Fab 4 technology, our confidence is increasing in the performance of that product, so we're de-risking technology, the Fab 4 is on track, and we're increasingly confident in the competitive space, which leads us to let's expand faster, let's get going on the next capacity expansion.

Great.

Thank you.

Shar Pourreza.

Citigroup.

Hi, everyone.

Just one question and then I just have a followup.

I just want to focus on the utility scale side for a second.

We've seen some life being brought into utility scale solar in the US.

We've seen some sizable RFPs from Dominion in Virginia, Duke Energy in the Carolinas, Southern Company in Georgia, and Texas and Minnesota.

And then, you've obviously seen some large tenders in Jordan as well as in Dubai.

The question is, do you have the capacity, even with this recent expansion, to take on some of the more larger utility scale projects with the C7 and the Oasis?

The answer to your question is, yes.

Now, of course that depends on the timing.

Most of what you mentioned is in the next couple years.

And as we can direct, certainly the Middle East business, to C7, and as you know, by nature of your question, we get 6 times -- we leverage our factory capacity by 6X with C7.

So the answer is, yes.

We are getting more output out of our existing fabs as well as we improve yields and the way we operate the equipment.

So, it's a combination of C7, running the existing fabs more effectively, and the new fab coming online.

Then, of course, the fab that we talked to Ben about a few minutes ago.

Got you.

Then just one quick question on a potential as you think about a Yieldco or selling to an existing Yieldco.

You sort of, unless I'm wrong, have a relatively low cost of capital.

So, I guess the advantages of you doing a Yieldco would be creating an arbitrage between dropping down an asset from a sponsor into a Yieldco.

Is that sort of where you see the advantages of forming a Yieldco, or are you actually going to get cost of capital advantage?

Because I was under the impression you already have a low cost of capital.

This is Chuck.

That is -- we do have a low cost of capital, so we benefit in -- whether we're doing construction loans or other financings, we've been able to demonstrate getting, we think, the lowest pricing in the industry.

As it relates to long term, with Holdco -- do we do our own Yieldco or not, that will really depend on the buyer IRR and the factors at that time.

There could be structures where we're selling parts of projects to strategics or Yieldcos and we retain some ownership.

Because we do believe that monetizing our projects for the long haul, there's a lot of value to be captured with residual degradation and the technical benefits.

Congrats on another great quarter.

Yes, thanks, Shar.

If I would just add on -- yes, we expect a buyer IRR improvement for our projects.

In other words, the selling price of our projects will improve and, with the Yieldco, we're 100% confident that we get the product advantages.

So, it's a really important trend and one that really favors us.

Thank you, Shar.

Brian Lee.

Goldman Sachs.

Hi, guys, thanks for taking the questions.

Just a quick one on the recent Google announcement.

Can you provide a bit more detail around the structure?

Is this all tax equity from Google and some combination of tax and cash equity from your end?

I guess I was just wondering why you're contributing to this fund and why that seems different from what you did with the BofA fund in January.

Thanks, Brian.

This is Chuck.

It's a very similar structure to the other funds that we've done where Google is the tax-equity investor and SunPower is the cash-equity investor.

We would then likely take ITC back leverage, like we did with Hannon Armstrong, to effectively cash flow this fund.

So, the great news is, we've got a high-quality corporate who's doing a tax-equity investment and we'll put that together with an investor like Hannon Armstrong to then cash flow these year one for SunPower.

And then we'll enjoy, long term, the payment streams from the residential fund.

Okay, that's helpful.

Thanks, Chuck.

Second question was on the Holdco/Yieldco structure.

I guess it's more of a philosophical one, if I could.

I understand the arguments around NPV and economic value creation.

And your slides do a good job of that as well.

I guess what I'm wondering is, if you look at what Yieldcos in the market today trade at, they trade at, to some degree, a dividend yield but also on EBITDA multiples and they do command a premium on that basis.

But as they shift from system sales to power sales, I guess my understanding is, EBITDA would directionally go down in the near term before the cumulative effect of the power sales would make your EBITDA generation go higher.

And so, from a stock valuation perspective, if, in the market, these are trading at EBITDA multiples, you could actually see a negative impact.

So I'm just wondering, is that the right way to think about the rationale and the mechanics directionally from an EBITDA perspective, when you think about that being a potential driver of valuations?

Indeed.

Tom mentioned, as well, in his comments that our -- the SunPower corporate EBITDA numbers would be influenced by this potential change.

And it's all about building shareholder value.

We believe that we're building great projects that have tremendous cash flows.

And if we can get investors to value those appropriately then we'd likely keep those.

And if, in fact, we're not getting full value, then we'd create our own Yieldco or sell the projects.

So, we do think this is sort of an arbitrage in being able to demonstrate how great our projects are.

It's similar to the software industry when they change from enterprise license software to the SaaS model.

It's long-term recurring revenues and cash flows.

And we think that we're in a great position to benefit from this move.

And we're giving investors a long runway to evolve thinking with us.

So, there's several quarters between now and that decision.

So, there's several times more for us to talk about this.

Okay, thanks a lot guys.

James Medvedeff.

Cowen and Company.

Thanks for taking the question and congratulations on the great quarter.

I wanted to ask a low bit more about the C7 business.

It seems to be gaining a bit more traction than -- it's been a while in the development and now it seems to have really started to be rolling out.

So, you've got a 30-megawatt project in the US and I guess the Chinese project is now up to 120 megawatts, the last I heard that was 20.

What's been going on with that whole program?

Sure, and thank you for the question.

Those are both combined numbers.

So it's -- the projects we're building in America, there's two or three that add up to 30, two that add up to 30, and the larger of the two is in construction, it will be done towards the end of this year.

And, of course, that's great experience for us because it allows us to build out the supply chain and to get more experience with the performance of the product.

It also allows us to reinvest earnings from that product to the next generation.

The same thing is happening in China.

There are two projects -- one's 100 and one's 20 megawatts.

We'll start construction soon.

And that is a joint venture structure.

And those are considered small, almost prototype projects in China.

So you can imagine the upside potential over the next few years is considerable above those two projects.

We are also localizing C7 in China, which -- we'll leverage the manufacturing expertise in China, which will allow us to get cost out further.

So, it's a very virtuous up cycle in China, for sure, with a lot of upside potential.

Okay.

My follow-up question is in a different area, but it was nice to see the additional disclosure on channel outlook.

In other words, not just geographic, but also by channel.

I wonder if there is a -- can you characterize how much of each of those channels is in each of the geographies?

Okay.

You've got us thinking -- (laughter).

The more you tell us, the more we're going to ask for.

That's just the way it works.

(laughter)

No, we understand that.

I'll let Howard give you just a little color.

You probably have a pretty good sense that there are very few markets where the power plant business and the rooftop business are big.

It's really Japan, North America.

There's a couple emerging markets where they're both big, and then what you see is one dominates or the other.

Europe is a rooftop business.

Middle East is a power plant business.

China is largely a power plant business.

So, that's a broad overview.

You want to add anything Howard?

That's how we see it.

We hear you, and that's something we'll consider as we communicate over the next few quarters.

Just as a quick follow up to that, is there a significant ASP or, more to the point, gross margin, or even more to the point, return on capital differential between any of the geographies or any of these channels?

Yes, I'd say plus or minus 20%.

So it matters.

I'm thinking return on capital.

So, of course, a return on capital needs to be higher than our WACC so you can get a sense of the variation.

Okay.

Thank you.

Thank you.

I think we'll take our last question from Credit Suisse -- or two more, so Credit Suisse, please.

Patrick Jobin.

Two quick questions.

First, just a followup on the residential solutions business.

You mentioned growth in that leasing business in 2014.

Are there any bottlenecks to that growth, with financing now secured?

Or, how should we think about accelerating growth in the leasing business?

This is Howard.

No, we're set now with financing, at least for the next six to nine months, so we're in good shape there.

And there really are no bottlenecks to growing our lease business.

And we expect to grow it quite substantially, north of 50%, 2014 over 2013.

Okay, thanks.

And then, a question on China, you've been one of the few companies who has successfully gone into the market and I just want to understand, from your perspective, what enabled you to have a successful market strategy within China.

And then, just some more color on how that opportunity could evolve through 2014.

So, I'd say several things about what we're doing different.

One is, that it is a four-way joint venture.

It's a very creative structure because the structure has a utility, has a state- owned enterprise, and a government entity at a city.

And so that gives you all of the elements to build out a project -- you have the technology; you have access to the grid; you have land; and then you have local supply.

Obviously, those are all matters of degree.

So it's a unique joint venture structure.

The other thing that we have is we have C7, which allows us to put intellectual property into China to increase local employment.

And, of course, those are key things that, that country would like as it expands its energy markets.

The potential of the Chinese market -- solar market is so much bigger than, I think it's the sum of the next two places -- next two countries would equal China.

And we expect it to grow faster.

So, aside from the opportunity in China -- it is big and rapid -- the challenge for us, of course, is to build out the infrastructure so that we can capitalize on that.

There's also parts of China where there's real weather challenges.

So, it can be a bit seasonal.

For example, the two projects we're building this year, we're going to want to get what we're going to do materially done by, say, November.

But lots of upside -- certainly lots of work to be done, but lots of upside in China.

All right, thank you.

Colin Rusch.

Northland Capital Markets.

And thanks for squeezing me in, guys.

Tom, I just wanted to clarify the comment that you made on EPS growth and just make sure I understand the underlying assumptions.

Did I hear you say that you're looking at 50% EPS growth in 2015?

Yes, but let me be precise.

Take this year, multiply it times 1.5 and that would be up to, and then it depends on what we do with Holdco.

If we do more Holdco, of course that would lower that number.

That's how you think of it.

Okay, great.

And then, on the model ASP trajectory, in your guidance, so it sounds like you're putting a little bit more Holdco -- more products into the Holdco this year.

Underlying your guidance this year, can we just get a sense of what you're looking for in terms of ASP declines for the balance of the year?

And then, what have you seen to date on those model ASP declines?

I'm going to let Howard talk about ASPs.

And then, Howard, if you could thank everyone for joining the call.

Okay, sure.

Yes, we're seeing a lot of strong demand in most of the world -- in every part of the world frankly.

So, the module ASPs are quite stable.

We're migrating more and more of our business to package solutions and integrated downstream to the customer.

So, ASP actually is a mix.

As the mix changes, we'll go up for the company.

And varies, depending on projects, et cetera.

One thing I wanted to mention on lease and the cash business in North America is that we're a customer-choice company.

So, we lead with that.

And we offer a number of solutions to our customers.

And so that can also have an impact on the Company's ASP -- how much of our business is lease, how much is cash.

And we actually had a really strong quarter in Q1 for cash.

And when you look at economics from a consumer perspective, and for customers that can afford it, cash is actually better than lease.

So, we're offering both -- we're offering lease, we're offering cash, we're offering loan -- and that will also impact ASP.

And Tom has delegated responsibility for me to thank everybody for joining us on this earnings call.

So, thank you.

Howard, just one clarification.

So the key part of the question was, what's the assumption in your guidance for this year in terms of ASP declines on an apples-to-apples basis for those models?

Stable.

Stable ASP throughout the rest of the year.

Okay, great.

Thank you so much.

Thanks, Colin.

Thank you, everyone.

Thank you.

Have a good day.

That concludes today's conference.

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