SunPower Corporation (SPWR) 2015 Q3 法說會逐字稿

Good afternoon, and welcome to SunPower Corporation's third quarter 2015 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, Tori.

I'd like to welcome everyone to our third quarter 2015 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 third quarter 2015 financial results.

Tom will then discuss our outlook for Q4.

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, today's press release, our 2014 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, as well.

Finally, I would like to remind everyone that we will be hosting our 2015 Analyst Day on November 12, starting at 9 AM Eastern Time in New York City.

We will be webcasting this event on our investor relations website and will post our slides prior to the beginning of the event.

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.

Thank you for joining us today.

I'll start by providing some brief comments on the quarter before discussing our performance in greater detail.

Q3 was another solid quarter for SunPower.

Demand remained robust across all three of our end segments and we were able to exceed our financial targets for the quarter by virtue of strong execution.

In our Power Plant segment, we achieved important development milestones on a number of large scale projects, including Quinto, Henrietta, and Hooper.

We also continued to grow our international power plant business in key global markets, completing projects in France with Total and in China for Apple.

Our distributed generation business remains solid, driven by strong global residential market demand and increasing traction for our PV-integrated microinverter solution, where demand is significantly ahead of plan.

In our commercial business, we recently launched our low-cost helix platform, while adding to our growing North American commercial pipeline.

Finally, we executed on our project commitments, including the 13 megawatt UC Davis project, owned by 8point3, which reached COD at the end of the third quarter.

Upstream, we performed extremely well, again achieving record cell output and manufacturing yields.

Average solar cell efficiency across all lines was close to [23%] during the quarter with panel efficiency ranging from around 20% to over 22.5%.

The buildout of our Fab 4 continues and we remain on track for large scale production in 2016.

Finally, we continue to deliver on our sustainability goals with three manufacturing facilities now cradle-to-cradle Silver Certified.

This designation recognizes our efforts to achieve sustainable manufacturing processes for our products.

We are the first solar company to achieve this certification and intend to certify all of our facilities in the future.

I would now like to provide more color on each segment of our business, starting with power plants.

Please turn to slide 5. In the Americas, we completed construction at our 135 megawatt Quinto project and expect the project to reach COD in the fourth quarter.

This project is a cornerstone of our initial 8point3 portfolio and we're pleased to be on schedule in completing this project.

We closed financing on our 102 megawatt Henrietta project during the quarter and construction of this project, as well as our 50 megawatt Hooper project, are on track.

We expect to drop these projects down to our 8point3 joint YieldCo vehicle within the next 12 months.

We also continue to expand our pipeline organically and recently announced that we signed a 20 megawatt PPA with Sulphur Springs Cooperative in Arizona, with delivery in 2016.

In EMEA, we are focused on enhancing our market footprint in France and South Africa.

In France, President Francois Hollande attended the dedication of our most recent project, a 12-megawatt project for ENGIE.

With this dedication, we have now supplied over 40 megawatts of projects for ENGIE and France continues as a key EU market for SunPower.

In South Africa, our 86 megawatt Prieska project remains on plan.

In APAC, we made good progress on our project pipeline in Japan and achieved completion of our 40-megawatt project in China for Apple.

This brings our global partnership with Apple to more than 180 megawatts and we look forward to continued cooperation in the future to help Apple meet their long-term renewable energy goals.

I'd now like to briefly discuss our DG business.

Please turn to slide 6. Q3 was another great quarter for our DG segment, with strong demand for our industry-leading smart energy solutions and financing options.

Once again, the US and Japan were the key drivers of the business with the EU market stable.

We remain on plan to end this year with more than 500,000 global DG customers.

In our US residential business, Q3 was another strong quarter as we grew megawatts sequentially and saw further traction with our lease product.

Both lease bookings and installed megawatts increased more than 50% year over year.

In particular, we are pleased to see significant early success with our utility partnerships, including ConEd and Dominion.

For example, in our initial quarter of roll-out, we booked more than 400 leases through ConEd.

As I mentioned earlier, we are seeing significant traction for our PV-integrated microinverter solution, with demand exceeding capacity.

This solution lowers overall system costs, while leveraging SunPower's industry-leading technology to maximize energy production.

We expect volumes to increase significantly in 2016, due to the recent introduction of our higher power Gen 3 microinverter fitted to our 96-cell panel.

This solution will drive even better economics for customers and installers.

We also continue to invest in our next generation smart energy residential solar platform, including further expansion of our storage offerings.

While still early, we have already signed close to 1,000 storage contracts to date in both the new home and retrofit markets.

In the commercial segment, we executed well, as our 13 megawatt UC Davis project reached COD at the end of September.

This project is now owned by 8point3 and will be a key contributor to the YieldCo's initial portfolio's cash flow.

We also added to our product line of both new and existing customers.

In addition, we recently launched our Helix platform, the world's first fully integrated commercial solution.

This innovative platform builds upon close to a decade of experience in the commercial market and for the first time, seamlessly combines with hardware and software to enable customers to maximize value of their solar investment.

Designed for the rooftop, carport, and commercial ground mount markets, Helix delivers significantly lower costs and improved reliability, while accelerating installation times.

When paired with our proprietary energy information services offering, or EIS, this solution gives customers unprecedented visibility and control over their solar energy production and consumption.

Initial response to Helix has been very strong from both new and existing customers, with 20 megawatts already booked, including eight Bed Bath & Beyond locations.

We look forward to providing additional details about the product at our upcoming Analyst Day in November.

We expect 2016 to be a very strong year in DG, as demand fundamentals remain solid due to technology improvements, cost reduction, and the ITC environment.

We are also increasingly positive on prospects for 2017 and 2018, as our pipeline continues to build.

I would like now to finish my formal remarks with a brief overview of what we plan to cover at our Analyst Day in November 12.

Please, turn to slide 7. We will be highlighting the number of key topics during our presentation.

First, how SunPower is well-positioned to capitalize on the continued global growth of solar, including our long-term strategy, capacity plans, and our competitive position.

Second, an overview of our industry-leading technology in new product introductions and how this fits into our solution road maps.

Third, we will provide a detailed overview of our financial model, asset monetization strategy, and how 8point3 fits into these plans.

Finally, we will be providing formal 2016 guidance.

In summary, Q3 was another strong quarter for the Company as we executed on our project commitments, expanded our pipeline, and progressed on our cost and technology road maps.

We see continued strong, global demand and we are excited about the launch of our new products and the growth of our global project pipeline.

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

Chuck?

Thanks, Tom.

Good afternoon.

Please turn to slide 8. I will spend most of my time today reviewing our Q3 results.

Q3 was a very strong quarter for the Company as we beat our financial plan.

We generated $54 million in EBITDA, while building our HoldCo asset base and executing on our projects for 8point3.

Our overperformance was primarily driven by strength in our North American residential and commercial businesses.

In addition, our Q3 results reflect the impact of our HoldCo strategy that defers revenue and margin to the future.

Q4 and 2016 bookings continue to increase, which positions us well for long-term growth.

Specifically, on the P&L, non-GAAP revenue was at the top end of our forecast, due to strength in our DG business.

In commercial, we completed construction of our 13-megawatt University of California Davis project.

As you know, this was a project sold to 8point3 as part of the IPO.

Because construction was completed this quarter, we recognized revenue and margin for non-GAAP, which is based on IFRS.

Our residential business also showed sequential improvement as demand remained strong going into next year; however, as expected, Power Plant revenue declined as we continue to build projects in our balance sheet, rather than sell them prior to construction.

We expect Quinto to reach COD this quarter, triggering significant revenue and margin recognition in Q4.

Our non-GAAP gross margin for the quarter was 17.7% and above our target, as we benefited from a mix shift to residential and commercial, including recognition of our UC Davis project.

Power Plant margins were on plan, but down sequentially due to our HoldCo strategy, which effects the timing of revenue recognition on our projects.

As I just mentioned, we expect a significant increase in Power Plant margins in Q4.

Commercial margins were ahead of forecast for the quarter.

We will also expect strong margins in Q4 as we recognize revenue on our Macy's and Riverside Public Utilities projects, both owned by 8point3.

As Tom mentioned, we officially launched our new Helix product line this quarter, a product line that offers significant cost reductions and decreased installation times compared to our current generation of commercial products.

In residential, our business was solid as we saw strong North American installations in Q3.

Non-GAAP residential margin for the quarter was 22.2% and positively impacted by a high percentage of cash sales.

North American cash and loan sales totaled 61% of our shipments, while 39% were leased.

Overall, we deployed 90 megawatts of residential products globally, up 17% sequentially.

Lease bookings were 28 megawatts in Q3, with cumulative lease bookings of 245 megawatts, excluding the 45 megawatts we sold to 8point3 earlier this year.

Net contracted payments were $938 million, excluding the residual value.

This is also net of the approximately 6,000 leases we sold to 8point3, which represented $258 million in net contracted payments.

In addition, NCI for the quarter was $31 million, primarily the result of strong installs in the channel.

Third quarter, non-GAAP OpEx was up sequentially as we continued to invest in complete solutions and other strategic initiatives.

We expect OpEx to increase slightly in Q4.

Our factories ran at full utilization with record yields in cell output.

Additionally, we are continuing the construction of Fab 4 and plan for volume production in 2016.

CapEx for the quarter was $64 million and we expect spend to increase in Q4 as construction of Fab 4 progresses.

Moving on to our HoldCo strategy, please turn to slide 9. This chart summarizes our HoldCo asset portfolio for the third quarter, which has reached 1 gigawatt of projects under contract, including a 8point3 IPO projects that have not yet reached the COD.

Now, please turn to slide 10, where we provide a more specific view of our HoldCo assets by project.

We deployed approximately 80 megawatts in the third quarter and have now installed all panels on our 8point3 IPO projects, which are on track for COD in Q4.

We expect to deploy an additional 50 megawatts of HoldCo assets in the fourth quarter.

All assets are either part of our initial 8point3 portfolio or part of the ROFO.

Finally, I'd like to mention that we currently expect our first official project dropdown to 8point3 in early 2016.

Looking forward, due to our pipeline development, strong backlog of projects, new product introductions, and continued strength in industry fundamentals, we are well-positioned to meet our financial goals in 2015 and 2016.

Tom?

Thanks, Chuck.

I would now like to discuss some of the highlights of our guidance for the fourth quarter.

As a reminder, we believe that EBITDA is the most appropriate measure of our ongoing business.

For Q4, non-GAAP guidance is as follows.

We expect revenue of $1.25 billion to $1.3 billion.

Gross margin of 28% to 29%.

EBITDA of $300 million to $325 million and megawatts deployed in the range of 275 megawatts to 305 megawatts.

On a GAAP basis, the Company expects revenue of $300 million to $350 million, gross margin of 5% to 6% and GAAP loss per share of $1.25 to $1.15 Please note that our Q4 2015 GAAP guidance reflects the impact of our HoldCo strategy, as well as the deferral of revenue and margin, due to real estate accounting treatment.

Capital expenditures in the fourth quarter are expected to be in the range of $115 million to $165 million.

We are also raising our 2015 EBITDA guidance to $475 million to $500 million from $425 million to $475 million.

With that, I would like to turn the call over for questions.

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

(Operator Instructions)

Tyler Frank, please announce your company name.

This is Ben Kallo.

Hi, Tom.

Hi, Chuck.

Hi, Bob.

The stock prices of all of the solar stocks are down and I'm just wondering, Tom, you've been through these bad cycles before, if you see anything out there that gives you pause.

The results seem very good, commentary seems very good, outlook seems very good, what are we missing?

You're right.

I have seen these cycles and if there is a lesson learned or what worked was to stay the course.

I think our quarter was great.

We beat the quarter and we raised our EBITDA guidance significantly for the year and we go into 2016 thinking very strongly about the business.

If there was a thesis that we need to communicate effectively with our investors, it would be on the way business will flow through 2016 and 2017, particularly if the ITC does drop down, which we believe we can manage through with our new product pipeline.

The other thing that we will and continue to communicate and certainly communicate at our Analyst Day is 8point3 and how 8point3 is different.

I think if you look at the history of MLPs, you'll see they can be cyclical.

We're patient and strong believers in the long-term of 8point3.

Lastly, our innovation engine is moving towards products in the balance of system part things that we're innovating on complete solutions and we just started to communicate that.

That's over half of the cost of systems for most applications.

So interestingly, investors should start tuning into that more than the module.

Those are a few things that I think we need to do a good job communicating at Analyst Day and thereafter.

One other thing, you talked about capacity expansion in a market where everyone is questioning whether or not capital markets are open.

How do you guys look at bringing on new capacity and your capital needs?

What should we expect from you as far as capital needs go?

I'll take the first part and then turn it to Chuck.

On capacity expansion, we'll be ramping our latest generation technology and volume production starting in Q1 of next year.

That production will highly differentiated.

It is our IBC technology, our interconnect back contact technology, which has gigawatts of production experience underneath it, but is an advanced version of it that has panels shipping that are above 22%, averaging somewhere between 21% and 22.5%.

It is a highly differentiated product, so we're bullish, we're committed and we're expanding.

On Analyst Day, we'll give you more of a sense of expansion beyond that timing of another fab and timing of growth in general.

So, I'll save further comment and further expansion for that.

In terms of capital --

As you know, we have one of the strongest balance sheets in the industry.

I think we are well-positioned.

We contemplated Fab 4, going back a couple years ago.

So, we feel like we're in a pretty good place, but having said that, as the markets evolve, we'll continue to evaluate sources of capital depending on market fundamentals.

Great, thanks guys.

Brian Lee, please state your company name.

It's Goldman Sachs.

I had two questions.

First, on the improved earnings and EBITDA outlook for 2015, great job on that, but was just wondering if you could help reconcile the slight downtick in deployed and recognized megawatts.

Is this volume that's moving into 2016 and you're simply making up the difference on the bottom line with better mix or maybe margins are expanding faster than expected?

And I have a follow-up.

The short answer, Brian, is yes to what you said.

I'll elaborate really briefly.

We have shifted mix around the world, generally speaking, from Japan to North America.

The other thing we've done is we've moved PV allocation to some projects that we won't deploy that PV until early next year, for exactly the reason you said.

Next year is going to be a very strong year and we're actually starting to build next year now.

It is pretty much what you said.

Then, yes, to favorable mix and as I said in my prepared remarks, our cost reduction programs and the performance of our fabs are both on track or better, so we're benefiting from good mix and really good cost performance.

It's what you said and I just would expand a little.

Okay, great.

That's helpful.

My follow-up was just on China.

I know you talked, Tom, a lot about Fab 4 and how that's on track, but just curious if you could update us on the status of the manufacturing build out in China, particularly what milestones there are for each of your JVs to reach construction, if they haven't already, and what you might be expecting on timing.

And if I could just squeeze one last one in on that front, the monetization strategy you're targeting, whether it is on laminate versus project development on each of those?

So, in China, the marker that's most significant is we've installed almost 100 megawatts and we've energized two projects so far.

We're putting real projects in, real PVN, real performance-generating electricity, which means that we've learned how to do the complete development cycle and it means our first JV is working where we provide laminates, turn those into receivers, and then make a C7 system in the field.

That whole supply chain is in place and working.

The second JV is developing projects.

We have a pipeline and we'll give the status of that pipeline and how we expect to deploy that on Analyst Day, as well as other lessons learned.

In terms of monetization, that's also a really good question.

Currently, our strategy is exclusively selling laminates.

What we've found, though, is that we do add value downstream in the value chain and so we're certainly contemplating evolving what we do in China, but today it is exclusively monetizing the laminate.

Okay, thanks a lot.

Krish Sankar.

Bank of America, Merrill Lynch.

Two quick questions, one for Chuck.

In a scenario where 8point3 is unable to acquire assets in the future, what alternatives do you guys have for SunPower for those specific assets?

So, we have talked about this a lot on other calls with 8point3.

There's a couple key points.

One is the projects that we're going to sell, we're going to do our first drop-down I announced on the call in early 2016 and we're planning that right now with the team at 8point3 and the conference committee.

Going into the future, we had a lot of demand for our projects.

We did state that we will sell projects outside of 8point3 as well and we're looking at different financing structures.

For example, a 51%/49% ownership structure would aid in that.

Our plan, I think evolves, but we feel like we're in a really good position with 8point3.

You've got a solar specific-entity that we think has a cost of capital advantage versus other YieldCos and has two world-class companies behind it, probably the highest quality offtake of any of the YieldCo's investment grade counterparties.

We're under levered, so there's a lot of capacity for borrowing there.

We'll run the play and we think 8point3 can successfully buy projects without issuing equity for a period of time.

Got it.

Got it.

That is very helpful, Chuck.

Just as a follow-up.

Clearly, really nice margins on the commercial side and it's nice to see that finally improve after a couple of quarters of low margins.

I'm curious, how do we think about the commercial margins going forward and what would you consider a sustainable run rate for these commercial projects?

This is Howard Wenger.

I'll answer that.

We're really thrilled with the performance of our commercial team.

We're growing the business quite rapidly, 50% quarter on quarter, year on year, really strong performance.

We just unveiled the Helix turnkey solution, which is the first fully integrated commercial solar power solution and what that does is lower costs, both on the BOS and the supply chain and also the installation side and provides a more reliable, higher-performing product.

That positions us well for the future.

We'll see take hold as we go forward in terms of realizing those benefits and seeing those in our -- those benefits in our financial performance going forward.

Until that time, it'll be influenced by larger projects like we saw in this quarter with the University of California Davis, which is actually is very large, commercial project, where we got the benefit of that project in this quarter.

So, we're excited going forward with our product portfolio and you should see that in our financial results.

Thank you.

Patrick Jobin, please announce your company name.

Credit Suisse.

Tom, you made some comments on 2017 and 2018 with the pipeline building there.

Can you put any more details around that?

And then, related to that, with the ITC uncertainty or what happens there, at what point do you think we start to see RFPs and more PPAs get signed for 2017 and 2018?

Thanks.

Let me take the latter first.

The timing of when I think you see more activity in 2017 is still a quarter or two away.

It's because I think we're still in 2015 there's still -- how do you project the ITC in Q1 of 2017, one.

Two, with the uncertainty, it's a clear catalyst for business between now and January of 2017.

So, you need to digest all that business and determine what your strategy is and I think that'0s preoccupied both customers and companies like SunPower.

I think you get out a quarter or two.

As we introduced things like Helix, that pull cost out of the product, we're a position to offer our customers economics in 2017 that we think will work.

We've got to work that out with our customers and as I mentioned, we expect to be able to talk more about that and give better clarity over the next quarter or two.

In terms of our view in 2017, I'll comment briefly now and I'll say more at Analyst Day.

But, we are of course modeling what is a 10% commercial and utility ITC look like and what cost points do you need to be at?

Then what does your residential business look like without it, at least on the cash side of the business.

That affects what my comments were.

It's our belief that we would be in materially good shape in 2017.

But again, in terms of specific project announcements or specific guidance, I will save any of that for Analyst Day.

Got it.

Just a follow-up, I guess as some companies in this space pivot a little bit more toward selling to third parties as opposed to YieldCo capital formation.

Have you seen, with that increased supply, any change amongst potential buyers of third-party assets given your hybrid model here?

I think there is a change.

Some companies are actively selling all their projects to raise capital.

I think we're in a good position because the quality of our assets, the quality of our technology and there's demand for our projects.

I think we're world-class in development and we think we have the best technology, so there's strong demand for our projects.

So the pricing level has changed or hasn't changed?

Hard to say.

I would suspect it has changed because lots of companies have announced selling assets and I think supply and demand, but I don't have an exact data point to give you.

Okay, thank you.

Vishal Shah, please see your company name.

I just had a question on the US market.

Considering your strong eight presence in the US market, how do you think 2016 demand shapes up?

Is it going to be more front-half loaded, especially considering a lot of the projects need to get modules completed by the end of the year?

Vishal, this is Howard.

I think you can expect that, particularly the first three quarters of the year, should be quite strong.

But as we go into 2017, we're certainly planning to have a smooth transition from 2016 to 2017.

We're planning our business around the ITC going from 3% to 10%.

It is possible that there could be additional language that changes the equation there, but that's not what we are planning for.

So that means to run the business, we've got to keep innovating, we have to keep reducing costs, and we have to make sure that we have the installation, EPC capacity, selling capacity, to deliver all the way through 2016 and into 2017.

But, yes, you should see stronger demand in the first three quarters.

Of course, we have projects that we're also going to be delivering through the end of the year.

So, for SunPower, you know our model.

We've got commercial projects and power plant projects that we're also going to be delivering, so we should have a good profile.

That's very helpful.

Can you maybe talk about your residential business?

What kind of margins do you assume for the next couple of quarters?

22% was a very strong performance in the third quarter.

Do think that kind of run rate is sustainable and what your mix will look like within residential and commercial in the US next year?

We should see steady pricing, steady margins in residential and a very good balance between residential and commercial in terms of mix.

50/50 is a good benchmark to continue model the Company.

Julien Dumoulin-Smith, please state your company name.

UBS.

Good afternoon.

Just a quick follow-up on the residential conversation, perhaps elaborate a little bit on what's going on with the 2015 targets bringing that down a little bit here.

How are you thinking about basically hitting the wall in terms of when you need to get bookings done to make sure they're deployed in time by year-end 2016 for ITC?

You talk about the 50/50 mix, can you elaborate when you'll have a pretty good shot?

I imagine it's probably earlier on in the year than later.

Also how you see that evolving just given the slight downtick on the full year 2015 guidance?

Julien, it's Chuck.

Thank you for the question.

First, on the residential numbers, what you're seeing is a little bit of a shift.

What we've done is we've shifted as some volume out of Japan, which was residential, into our commercial and power plant segments, so you're seeing just a little bit of a shift in 2015 to, quite frankly, earn better margins.

It's helped with our beaten rays in that part of the megawatts going into our commercial business are recognized this year and then as Tom mentioned earlier, I think on the first question, we're far along building out a very large power plant project and we have that PV reserved for deployment in early next year.

Julien, this is Tom, I'll add a few comments or one comment.

We have decided well over a year or two ago, that the commercial was going to be a case segment for the industry and for SunPower, so we invested in product development and we see the output of that investment in the form of Helix.

We've also added other capabilities including energy link, which is software we've created with EnerNOC that allows customers to manage load with solar generation and do some really creative stuff.

In some cases, they're adding storage to that.

We're really evolving the investment in commercial and we expect that to pay dividends.

Therefore, from our perspective, because we put the investment in, we expect it to grow faster and that's not only 2016, but I would say that's through 2017.

For commercial customers, we look more like an energy company as we integrate the load management software, we call energy link, with storage and with our PV systems.

We think that business has a better ability to ride through ITC disruptions and therefore, we're investing disproportionately.

Got it.

Excellent.

There was a timing, I imagine in the first half of the year, you should probably get a pretty good sense even on the resi side, right?

Sorry, I didn't answer that part of it.

The answer to your question is yes.

I would think even as early as Q1, we should have a very good sense of that mix of business and of course, you will be rewarded to be very good at installing systems late in the year, committing, and then getting them installed.

I imagine that the profile earlier that Vishal was asking about certainly will be front-end load it, but it will be very motivated to keep it level-loaded, even if ITC does have a change in January 2017.

Excellent.

We're going to take one more question from Cowan, I believe.

Mr. Jeff Osborne, please state your company name.

Cowan and Company.

Thanks, Tom, for squeezing me in.

I had two questions, one on the residential side.

Is there any noticeable trends, new states evolving for you guys?

Then can you just articulate the importance of California is, given the a AB 327 discussion there?

And then, for Chuck, can you just touch on the financing environment, any noticeable trends over the past three months on the debt side or tax equity side?

You certainly discussed the 8point3 positioning, but just curious on the two other variables that you have from financing would be helpful.

This is Howard.

I'll take the first part on res.

California is really important for the US market.

It's going to continue to be.

It's got the right political and regulatory climate, frankly, and in addition to having fantastic demographics, rate structure, solar radiation, all the other attributes that make a great market, so there's a lot of momentum.

The governor signed the bill that's going to require 50% of all of the energy in California coming from renewables going forward.

So, that's going to be a driver.

But the new regulatory regime is also going to provide a very good, durable rate structure pass net metering.

We're projecting that we're not going to be a burden by any net metering caps, so we're going to be virtually -- well, we're going to be uncapped as a market in California.

So, that's good.

Other states coming online, we're seeing very positive activity in places like New York, New Jersey, Massachusetts, some places where the tax credits rolling off, like North Carolina, are good because of that feature.

In Hawaii, still good, interesting market moving toward self-consumption.

As the costs go down in a post-ITC world, you're going to see the top -- 80% of the demand comes from the top of five or seven states.

You're going to see that expand to like the top 15 states.

That's good.

It's going to be a more diverse market.

Chuck?

Thank you, Jeff.

On the financing side, one, we continue to do project debt for commercial and large-scale utility projects.

There's no real change there and we think there's a pretty deep market and supply of tax equity investors and great partners there.

On the residential side, we have done and we are always putting new funds together for tax equity.

We see an abundant supply of tax equity for our programs.

We think ours are pretty conservative and well-run and are a lot of repeat investors.

I'll also point out we've done back leverage for residential, which has provided great capital alongside tax equity for residential.

We are working on ABS as well.

We've talked a lot about ABS in the past.

We were working on an ABS deal, but we did the 8point3 IPO instead and sold roughly 6,000 leases to 8point3.

We're now working again on an ABS fund in the future that will be exciting and work alongside tax equity to help finance residential.

Thank you all for joining the call.

We look forward to seeing you on SunPower's Analyst Day on November 12.

We'll start at 8 AM with a product demo and 9 AM for our formal remarks.

We look forward to seeing you then.

Thank you.

Thank you.

This concludes today's conference.

Thank you for joining.

You may now disconnect.