SunPower Corporation (SPWR) 2016 Q1 法說會逐字稿

Good afternoon and welcome to SunPower Corporation's first-quarter 2016 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, Vice President of Investor Relations, SunPower Corporation.

Thank you, sir, you may begin.

Thank you, Michelle.

I'd like to welcome everyone to our first quarter 2016 earnings conference call.

On the call today, we will we'll start off with an operational review from Tom Werner, our CEO, followed by Chuck Boynton, our CFO, who will review our first-quarter 2016 financial results.

Tom will then discuss our outlook for Q2, as well as 2016.

As a reminder, a replay of this call will be available later today on the Investor Relation's 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 today's safe harbor slide of today's presentation, today's press release, our 2015 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 the call on the Events and Presentation's page of our Investor Relation's website.

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

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'd like to start with a few short comments on SunPower's strategic position, before discussing our Q1 2016 results.

As we outlined at our Analyst Day last November, we've embarked on an ambitious plan to profitably grow our share of the global solar business by combining rapid expansion of our upstream P-Series panel capacity with the unique benefits of our standardized complete system solutions.

With our P-Series technology now transitioning into volume production and the full suite of customer solutions in place, we are very well positioned to execute our growth strategy.

Please turn to slide 4. Overall, Q1 was a solid quarter as we executed well across all segments.

In power plants, we met our project development milestones, added to our pipeline and expanded our international footprint with a major win in Mexico.

In residential, our US business remains very strong.

We gained share again in Q1, and launched our latest complete solution called Equinox which is already off to a fast start.

In commercial, demand for our Helix solution continues to build, and we added both new and existing customers to our backlog.

In our upstream solar cell and panel manufacturing operations, we achieved record panel output and strong yields.

And we're pleased with the ramp of our advanced technology of Fab4 which is already shipping cells for our 22% efficient X-Series panels.

During the quarter, we also began commercial shipments of our new lower cost high-efficiency Performance Serie's product line, and we are on track to ramp volumes significantly starting in Q3.

I will now provide more color on each segment of our business starting with US Power Plants.

Please turn to slide 5.

Overall, Q1 was all about solid execution, as we positioned ourselves for major project completions in the US in the second half of 2016.

Including our 100 megawatt NV Energy project, 102 megawatt Henrietta project, and our 68 megawatt project for Stanford University.

Also in relation to our Infigen pipeline acquisition, we are currently in construction of 72 megawatts of projects with an additional 1.3 gigawatts in various stages of development.

We expect to monetize close to one-half of the entire pipeline by the end of 2018.

We were pleased to close the sale of our 50 megawatt Hooper project to 8point3 ahead of schedule.

We also completed our first power plant, utilizing Performance Serie's technology for Tucson Electric Power, and are on track to launch the next version of our lower cost Oasis 3.0 platform by the end of the year.

Please turn to slide 6. SunPower's strategy has consistently been to pursue a diversified portfolio of opportunities across multiple geographies and applications.

We believe there is an increasing international opportunity in markets such as Mexico and Chile, building on the strength of our home market in the US, enabled by the recent ITC extension.

We were very pleased to recently announce an award of approximately 500 megawatts in Mexico's First National Tender, our largest international tender win to date.

This award accounted for close to 20% of the total energy awarded to all types of renewable generation, and underscores the increasingly competitive cost structure of solar power in many markets.

We plan to build six projects in multiple regions in Mexico, with the expected delivery dates of 2018 and 2019 and gross margins above 20%.

There are several factors that we believe will make these projects very successful.

First, these projects will fully leverage the benefits of our new Oasis 3.0 platform coupled with low cost P-Serie's panels.

Second, we optimized site selection to maximize the benefit of time-of-day payments, as well as congestion adders or reductions.

In Mexico, there are 52 regional zones each with different pricing profiles, and our four-year experience in Mexico enabled us to site projects to maximize these pricing parameters.

Finally, there is limited currency risk.

These contracts, while priced in pesos, are indexed to the US Consumer Price Index, so lenders are essentially treating these PPAs as US denominated contracts with commensurately attractive financing costs.

These six projects build on our first PPA award in the country, a 36 megawatt PPA with ASUR, a leading airport operator, with project completion scheduled for 2017.

Given our success to date in Mexico, we believe we are well positioned for further business expansion.

In Chile, which is another strategic market for us, we have begun construction of a new 100 megawatt project in partnership with Total.

This project, which is due for completion in 2017, follows the construction of our 70 megawatt Salvador project last year and further expands our footprint in Chile.

Altogether, our Latin America pipeline now exceeds 2.5 gigawatts, and together with our US pipeline gives SunPower a very strong position in this segment throughout the Americas.

Finally in Asia, we began the construction of our 27 megawatt Nanao project in Japan, with completion scheduled by the end of the year.

We also recently secured a 47 megawatt panel supply agreement for our power plant project that is currently under construction.

While Japan remains primarily a DG market for SunPower, our unique technology allows us to opportunistically address the power plant business there as well.

Finally, in China, we are pleased with the progress of our two joint ventures, and continue to pursue both manufacturing and project development activities there.

With more than 300 megawatts deployed to date, our JV ecosystem is gradually building a solid footprint in the world's largest solar market.

I would now like briefly discuss our DG business.

Please turn to slide 7. Q1 was another great quarter for our DG segment.

In residential, we launched our Equinox complete solution, maintained our industry-leading net promoter scores, and further increased our market share.

We focused intensely on delivering an excellent end-to-end solution and customer experience, and it is gratifying to see the results in terms of both NPS and market share gains.

Our Q1 shipments and deployments in US residential were up 50% year on year, driven by strong demand for our unique solutions.

We also signed an exclusive arrangement with AT&T to co-market our high-efficiency Solar Solutions to their customers.

These solutions will feature SunPower's plug-and-play Equinox system, which includes 24x7 high-reliability connectivity enabled by AT&T's Internet of Thing's technology.

Our new initiative with AT&T is another example of how SunPower is partnering to scale and broaden the paths to market for our complete solutions.

In commercial, we're seeing strong and increasing demand for our Helix complete solution platform that we announced last quarter.

As we discussed, our new Helix product for commercial and industrial facilities follows the model of making the complex simple by fully engineering every aspect of the product, and delivering a complete solution via our vertically integrated model, what we call the Power of One.

The unique industry approach drives a more reliable higher quality system that can be installed faster at reduced overall cost.

An independent third-party recently conducted a time trial, and measured our Helix product at 2.5 times faster installation rate than conventional systems.

This photo shows a recent Helix installation at Macy's.

The Helix product line covers rooftop, carport and ground-based systems, enabling flexibility to design around our customer's preferences and site specifics.

We believe the Helix platform will further enable us to grow faster than the overall market, and to build on our already robust $1.2 billion pipeline.

We also are starting to see increased traction in our international commercial business, as evidenced by a recent 15 megawatt contract in Japan.

Our product placed very well in the small commercial segment in Japan, and we plan to further expand our sales activities there over the next 12 months.

We have a solid book of commercial business, and expect strong growth and execution in the second half of the year.

I would now like to take a few minutes to provide some color on the recent launch of Equinox, our complete residential system solution.

Please turn to slide 8.

Last month's product launch was an important milestone for SunPower.

Equinox is unique in the market.

Every major component has been designed and engineered by SunPower to work seamlessly together and deliver long-term performance, reliability and superior aesthetics.

Key elements include SunPower's industry-leading, high-efficiency solar panels including our 22% efficient X-Serie's panels.

Proprietary microinverters that are factory integrated with every panel, eliminating field assembly and allowing each panel to operate at peak performance.

Our microinverter and complete solution approach enables flexible system design and layout that safely conceals wiring and eliminates the need for visible conduit.

Our low-profile, all-black, pre-assembled InvisiMount mounting system seamlessly hides the racking system beneath the panels, and our proprietary gateway and energy link platform that tracks energy production and consumption in real time.

Customers now have the ability to manage their consumption patterns to maximize system performance, with access to data through an intuitive user interface on multiple device platforms.

This is what we call smart energy.

Equinox offers customers up to 70% more lifetime power, with 70% fewer visible parts than conventional systems, all backed by our industry-leading 25-year product and power warranty.

We expect Equinox to be a key driver for our residential business going forward, and we are already seeing Equinox at a run rate of more than 40% of all new residential orders in the US.

As can be seen on slide 9, the launch of Equinox rounds out our portfolio of complete standardized solutions for all three application segments.

SunPower pioneered the standardized systems approach initially in our Power Plant business, where we introduced the Oasis power block five years ago.

Since then, we've applied the same design philosophy and planning discipline to our commercial and residential businesses with the recent launches of Helix and Equinox.

These complete solution platforms reduce costs through scale and standardization, enable more efficient installation and operation, and provide enhanced customer benefit by virtue of seamless interoperability between components.

We refer to this approach as the Power of One, and believe that these types of standardized solutions will become increasingly important to facilitate the mainstream adoption of solar power.

Before turning over the call to Chuck to discuss our financials, I would like to provide an update on our Performance Serie's technology.

Please turn to slide 10.

As many of you know, we announced our Performance Serie's technology at our Analyst Day last November.

This product employs a unique solar cell assembly process to offer customers a higher efficiency, higher quality panel than conventional panels with the reliability that customers expect from SunPower.

At scale, we believe our cost structure will rival that of many of our Asian peers.

P-Serie's products will initially be targeted in non-OECD countries and the emerging markets where financing costs are typically much higher than in developed solar markets.

The CapEx required to scale our Performance Serie's technology is significantly lower compared with the CapEx for our IDC products, so we can expand our panel capacity and downstream footprint with modest investment.

Our manufacturing ramp is on plan for our P-Serie's production goal of between 60 and 80 megawatts this year.

We've completed UL certification testing, and we're pleased with the efficiency of our early production volume.

Finally, as I mentioned previously, we have completed our first megawatt scale power plant for Tucson Electric Power as you can see on the picture to the right.

And we're seeing months of performance data that meets or exceeds our projections.

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

Chuck?

Thanks, Tom, and good afternoon.

Please turn to slide 11.

Q1 was a solid quarter for the Company on many metrics, as we met or exceeded our forecasts and positioned the Company for a strong second half of the year.

We generated $6 million in EBITDA, added to our whole co-asset base, and executed on our projects for SunPower and 8point3, specifically on the P&L.

Our revenue came in ahead of plan, as we recognized revenue from our Hooper Project a quarter earlier than expected, and better than forecast performance in our US residential business.

As a reminder on Hooper, we recognized the profit and margin in Q4 due to the closing of tax equity.

In Q1, we recognized the revenue with the sale of 8point3, however with no margin contribution.

In commercial, revenue declined sequentially as this segment will remain a bit volatile until the full rollout of our Helix solution.

Commercial backlog for the second half of the year is very strong, and we should see significant top-line improvement in Q3 and Q4.

Our global residential business performed well, with our US business exceeding forecasts on almost every metric including a more than 50% year-over-year increase in megawatts recognized.

Our non-GAAP gross margin for the quarter was 13.6%, and better than plan due to strength in our residential business.

As expected, our Power Plant margins declined sequentially to 6% due to project timing.

As we mentioned last quarter, this was the result of recognizing the Hooper margin in Q4, the revenue without margin in Q1, and the build of assets for sale in the second half of this year.

Commercial margins were better than expected due to the impact of mix.

Our residential business was solid, as we saw strong North American installations and bookings in Q1.

Non-GAAP residential margin for the quarter was up sequentially to 23.4%, with strength in North America as well as Europe.

North America cash and loan sales totaled 62% of our shipments, while 37% were leased.

We feel our balanced portfolio between cash and leased offers us a significant competitive advantage in the industry, and reflects our strategy of offering customers a number of different financing options to own our industry-leading Solar Solutions.

Overall, we deployed 71 megawatts of residential products globally, in line with our forecasts.

Leased bookings were 16 megawatts in Q1, with cumulative leased bookings of 285 megawatts in our Holdco, net contracted payments are over $1.1 billion excluding the residual value.

In addition, NCI for the quarter was $16 million, slightly below forecasts due to timing as we implemented a new tax equity fund.

First-quarter non-GAAP OpEx was $111 million, down approximately 10% versus Q4.

We expect OpEx to be in this general range on a quarterly basis for the balance of 2016.

Our factories ran at full utilization with strong yields and record panel production, as we built inventory for second-half project completions.

CapEx for the quarter was $47 million.

On the financing front, we were pleased to close our latest funding yesterday, a $200 million non-recourse construction revolver that includes a $100 million accordion feature.

Use of this five-year facility will be focused on commercial and small-scale utility projects in the US.

With a rate of L-plus 150 and the ability in many cases to cover 100% of the construction costs, this revolver will significantly lower our financing costs and give stability and timing of when we sell or drop down assets.

Moving to our Holdco strategy.

Please turn to slide 12.

This chart summarizes our Holdco asset portfolio for the first quarter.

Assets under contract now total 1.5 gigawatts, and reflect the addition of our recent 500 megawatt PPA award in Mexico.

As you can see, we are well diversified by geography and end market.

Now please turn to slide 13, where we will provide a more specific view of our Holdco asset by segment and status.

We deployed approximately 315 megawatts in the first quarter, and expect to deploy up to 385 megawatts in the second quarter.

Today, we have 323 megawatts in operation, 578 megawatts in construction, and 643 megawatts contracted and waiting to start construction.

In addition to the 1.5 gigawatts, we have a global pipeline in excess of 14 gigawatts.

Some of which we expect to convert into closed projects for delivery in 2017 and beyond.

Regarding our North America second-half projects for 2016, please turn to slide 14.

This is a partial list of US projects that we expect to complete by the end of the year.

We have also highlighted our targeted buyer for each of the projects.

Including those projects that are currently in the 8point3 ROFO list.

Given that these projects are already contracted and planned for completion this year, we remain confident in achieving our megawatt goals for the year.

Finally, we want to provide additional transparency around our EBITDA calculation, as well as further explanation of the impact of 8point3 dropdowns.

We believe the following slides will improve the understanding of our model.

First on slide 15, we are providing a waterfall of our Q1 EBITDA, starting with our GAAP net loss.

As you can see, we have split the waterfall into specific categories for ease of analysis.

The first three green bars reflect the adjustment to GAAP net loss for IFRS, which again we use as the convention for non-GAAP.

The first bar reflects our earnings from 8point3, primarily related to our portion of the NCI income recognized under IFRS but not in GAAP.

The second bar accounts for the GAAP real estate accounting impact for non-8point3 transactions.

The third bar is the recognition of profits on the sale of lease assets to third parties under IFRS.

As we have said in the past, with the convergence of GAAP real estate accounting and IFRS standards as early as 2017, we expect these EBITDA differences to go away once the new standards are adopted.

The other categories on the page are self-explanatory, such as depreciation and taxes.

Additionally, in the interest of enhanced disclosure, we have also provided a breakdown of our EBITDA by business segment on this slide.

Clearly, EBITDA is calculated differently than gross margin as it includes operating expenses, equity and earnings, and so forth.

In addition, we are showing the corporate and unallocated lines which consists of operating expenses that are not attributable to revenue generating activities, margin deferrals related to 8point3, depreciation expense related to factories and Modcos, and other gains and losses, primarily FX.

Going forward, we will disclose this information on a quarterly basis through our 10-Q filings.

Including today, as we'll be providing a full reconciliation to non-GAAP income in the appendix of our presentation deck.

Now let's discuss the equity and earnings line related to our ownership of 8point3.

Please turn to slide 16.

This slide shows the four primary drivers of equity and earnings and the potential impact on our P&L.

All four are included in our EBITDA calculation.

First is our share of 8point3's operating profit, this is fairly straightforward.

Second is our portion of the tax equity benefits that we receive for First Solar project's drop-down to 8point3.

This is essentially earnings that flow to SunPower, there hasn't been an impact yet but we do expect this in the future with the drop of Kingsburg.

Third is the same as number two, but for SunPower dropped projects.

The difference though is under GAAP, these are deferred based on real estate accounting.

Finally, is the benefit we received on 8point3 dilution.

As you know, we defer a percentage of gross margin on every product we drop down based on our ownership percentage in 8point3.

Simply, if we own 40% of 8point3, we defer 40% of the margin on the sale.

As 8point3 issues additional equity, our ownership stake in 8point3 is reduced, and we can recapture a portion of the deferred margin, which will be reflected in the other income and expense line.

A reminder, this margin is not recognized on a GAAP basis until a number of conditions are met, but it is recognized under IFRS standards.

Again, this difference goes away when GAAP and IFRS align.

In closing, we remain committed to our long-term strategic plan and are positive about the future.

With that, I'd like to turn the call back to Tom for our guidance.

Tom?

Thanks, Chuck.

I would now like to discuss some of the highlights of our guidance for the second quarter and 2016.

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

Please turn to slide 17.

For Q2, non-GAAP guidance is as follows.

We expect revenue of $310 million to $360 million, gross margin of 12% to 14%, EBITDA of $0 million to $25 million, and megawatts deployed in the range of 360 to 385.

On a GAAP basis, the Company expects revenue of $290 million to $340 million, gross margin of 10% to 12%, and GAAP net loss of $90 million to $65 million.

Please note that our Q2 2016 guidance reflects the impact of our Holdco strategy, as we expect to complete a significant number of large-scale projects in the second half of this year.

For 2016, our non-GAAP guidance remains unchanged, as we feel we are well positioned to achieve our goals as global solar fundamentals remain strong.

However, these forecasts are subject to various assumptions including project completion, and sales timing, and the schedule of anticipated dropdowns to 8point3.

For a review, we expect non-GAAP revenue of $3.2 billion to $3.4 billion, gross margins of 14% to 16%, EBITDA of $450 million to $500 million, and megawatts deployed at 1.6 to 1.9 gigawatts.

In relation to GAAP, we have revised our revenue higher, as a result of the impact of real estate accounting of our planned project sales for the year.

On a GAAP basis, we now see revenue of $2.8 billion to $3 billion, gross margin of 13% to 15%, and a net income of breakeven to $50 million.

Capital expenditures in the first quarter are expected to be in the range of $210 million to $260 million.

That is capital expenditures for the full year.

In summary, Q1 was a solid quarter for the Company, as we: built our Holdco assets; expanded our backlog and pipeline, especially in Mexico and Chile; increased our DG market share; signed an exclusive co-marketing agreement with AT&T; and progressed on our cost and technology road maps.

We're also pleased with the construction warehouse facilities showing our preferential access to low-cost capital.

We see continued strong demand for our Solar Solutions, and are particularly excited about the momentum we're seeing with our portfolio of complete solutions: Oasis, Helix and Equinox.

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.

Questions please.

(Operator Instructions)

Brian Lee.

Goldman Sachs.

Hello, guys, thanks for taking the questions.

I just had two actually related questions on your residential business.

So given the California exposure you had, I just wanted to dig into this a little bit.

Did you have any impact from or see any impact from the abnormal rain conditions this quarter out there on the West Coast?

And just curious if it had an impact on installations or sales velocity i.e.

would you have posted even better numbers in that segment without the seasonality?

And then my follow-up is related to that, but some recent data came out Wednesday night it looks like on the California residential solar market.

It implied volumes are up almost 40% versus last year through March.

As you look at you near-term backlog, can you give us some sense of how you are trending against that, and also versus expectations you might have had entering the year or let's just say versus three months ago?

Thank you.

Brian, this is Howard Wenger.

I will take that.

We are really happy with how things are going in our residential business.

We had a solid quarter in Q1, and the outlook for the year is really positive.

We grew 50% year on year, so terms of the numbers that you stated we are growing faster than the rest of the market and we believe we're taking market share and that is good.

A couple of big drivers for us as we look forward to the year is, we just launched our Equinox full complete solution and that we had a strong quarter in Q1 but we just launched it in Q2.

So we believe that in the order rate for that, the new order rate is exceeding 40% for us on the Equinox product.

So it's being very well received, and we think it puts us in even better differentiated advantage going forward.

So we're not seeing some of the issues that you mentioned with respect to the market.

There is a little bit of a slowdown in terms of approvals from the utilities, but it is not materially impacting our business.

Thank you.

Tyler Frank.

Robert Baird.

Thanks for taking the question.

Can you guys talk a little bit about 2017?

We've been getting a lot of pushback as people are looking out to next year.

I guess what gives you guys confidence that you'll be able to grow or maintain EBITDA next year when it seems that the other people do not have the same level of visibility?

This is Tom.

Our view of 2017 remains unchanged from what we said on the analyst day back in November, and the foundation for that is severalfold.

One, we purchased purposely in diversified markets geographically and segments and increasingly on technology.

So it diversifies out any single country or single segment risk to a large degree, or alternatively gives you more comfort in longer-term guidance.

Secondly, we believe our product differentiation remains in modules, and is expanding in smart energy and so that gives us comfort in terms of customers choosing us in a different [jaded] way.

Thirdly, we are cleaning capacity with P-Series and that ramp is on track and so we continue to have confidence in the ramp of that product, and the performance both in terms of cost and the performance of energy production both are on track.

So the key variables from November remain in place, where what is new since November of course is the IPC extension, and if anything that moves business from 2016 to 2017 if there was a general trend caused by the ITC.

What it does do more favorably though, it gives you a longer horizon to work with customers and importantly financiers.

So I'd generally say, and I have said this several times in various forums, the solar fundamentals have never been better, of course, that is over the next few years and not a particular year.

So those of be the reasons why we're still comfortable with what we said in November.

Great, thanks.

And a quick follow up.

Can you discuss what you're seeing just in the general marketplace?

Not for 8point3, but for third-party buyers, just the overall demand for projects right now.

Has there been any slowdown or any pickup?

I said it's consistent.

This is Chuck.

It is consistent with where we were last quarter.

We have this strong demand for our projects from third-party buyers, and we're in the negotiations right now to close several deals.

So we are feeling that it is consistent with where we were last quarter.

Great.

Thank you.

Krish Sankar.

Bank of America Merrill Lynch.

I had two questions.

First one on the residential side, clearly it seems like you guys are forecasting pretty strong growth in Q2 from Q1 timeframe.

Is this primarily the Equinox line that's driving it?

And then along the same path, what do we think of the long-term margin profile for the commercial and the residential segments?

And a follow up, is, Tom, your thoughts on how the tax equity availability across the different market segments in the US is currently?

Thank you.

This is Howard.

On the residential side, what is happening with us and it is really positive, our strategy is working and our strategy is basically twofold.

First of all, have the best fully-engineered solution in the industry complete from end to end.

And as you know, our Equinox product just elevates that to a new standard, which is having a fully-manufactured product, that is the inverter and the panel, completely integrated and plug-and-play AC panel.

And when you combine that with our upgraded monitoring system that has quadruple redundancy for communication with the customer, it is really an elegant solution and differentiated in the marketplace.

And we also focus on -- so that as part A of our strategy.

Part B is to have a great customer experience as measured by third parties.

We are able to deliver a much higher NPS score than the competition, and we believe that that is helping us as well because it generates more customer loyalty and higher referral rates and lowering our customer acquisition costs.

And we're seeing extreme dealer loyalty.

We have a differentiated model go to market as well, which gives us a lot of coverage with a lighter OpEx footprint for the Company.

And those things in combination are providing us, in addition to a robust suite of financial products at lower preferred cost of capital versus competition, we believe that whole suite is giving us a differentiated advantage in the marketplace.

Therefore, we are quite bullish in projecting our growth going forward.

And the numbers are bearing that out, the data is there and the backlog is there.

On commercial, just briefly, we have solid margins.

We believe we will be extending those through the rest of the year.

A lot of our execution is going to happen in the second half of this year.

Our Helix platform, which we announced previously, is now proliferating through our bookings and our delivery and we expect approximately half of our business that is delivered in 2016 to be based on our Helix platform, which is a lower-cost higher-quality platform which will solidify our margins going forward.

Krish, this is Chuck.

I will give a little more color on margins.

Residential, I think we are seeing mid-20%s to high 20%s for our North American residential margins.

And then the commercial side, we are seeing right now high teens and we see that moving to the low 20%s with Helix in the next back half of the year.

Regarding your question on tax equity across the various markets, with residential, we closed one deal at the beginning of this year.

We'll probably close one more this year.

We have got strong demand and multiple people that are interested in this deal, think about that midyear to third quarter.

On the commercial side, we do lots of commercial tax equity financing.

There is very, very strong demand and many, many great banks that we work with.

As you know, we do sale leasebacks and partnership flips, and there is very, very strong demand for our commercial business.

And then the utilities scale, these are larger transactions and there, again, strong demand.

Some of those deals are 100% sales to strategics, others are the 51%, 49% structure that would be I would say friendly drops to 8point3 or others.

And there, we are seeing strong demand on the utility side.

Thanks.

Patrick Jobin.

Credit Suisse.

Thanks for taking my questions.

Howard, popular guy here on this call, sorry to pile on here with one more question probably aimed for you.

Just diving one level deeper into residential.

I'm just looking at the booking number being down year over year and sequentially, but installs looked great.

So I'm just trying to reconcile some drivers of the bookings line, if anything is having an impact there.

That would be helpful.

So, Chuck, do you want to take the first part of that?

Sure, Patrick.

So what we've seen is our US volumes are up significantly, 50% year over year.

So we are seeing really, really strong growth.

Clearly, Q1 is a lighter quarter than Q4, obviously Q4 is typically a strong quarter because of the tax advantages especially for cash buyers.

We are seeing a little bit of a mix shift.

But we're seeing a lot of demand for our cash solutions, and the great thing about SunPower is we're not pushing one solution to the customer.

We give our customers choice.

Many customers prefer to own their systems and pay cash.

We also arrange financing for loans.

We do not back the loan, but we arrange those for our customers, and they are very, very attractive rates.

We also offer a lease solution.

So we sell the customer what is best for them.

So we are seeing very strong demand in volumes that have grown residential North America significantly.

Globally, revenues are in line year over year in residential, as we have seen a shift from Japan to North America.

Now we are seeing Japan come back a lot with the strength of the yen.

That is helpful.

Thanks.

Then I guess my last question, just thinking about some of the dislocation in the marketplace following all of the capital constraints from some of your peers.

Is there an opportunity to do something similar to the pipeline purchase that you did previously.

Or step in to try to augment Power Plant volumes, I don't know if that is possible to switch technologies to your platform?

But just any thoughts on is it opportunity for you, or really doesn't impact your outlook for what has happened with some of your competitors?

Thanks.

So I would say yes absolutely it is a positive opportunities.

Not so much near term, more in the out years, particularly in the utilities phase, an opportunity to acquire a pipeline or a PPA specifically, we've already seen some of that.

SunPower has not participated in what has been sold so far.

We are certainly active, and that is an opportunity I think more in the back of half or 2017 2018 and beyond.

Typically customers that are not continuing to do business with that player, what they are doing is, is they are rebidding the business.

So we are seeing opportunities for rebid.

But as you point out, rarely is it just a technology switch.

That is helpful.

Thank you.

Vishal Shah.

Deutsche Bank.

Thank you.

Tom, maybe you can talk a little bit about the breakdown of how 2017 shipments would look like between the three segments?

I know that you mentioned you feel pretty confident about growth and EBITDA, but can you just talk about what percentage of your business would be power plants?

And then can you just talk a little bit about C&I?

And I understand that the Helix platform going to drive second-half strength, but what do you think is going on in the market right now.

You think there is any slowdown at all or is it just in the Company specifically?

Thank you.

Regarding 2017, I'll give you the color that I think is appropriate in May of the preceding year and what fits, what we're prepared to comment on.

I would say that the distributed generation business is going to expand faster than the Power Plant business in the near term.

It is not necessarily the case as we go out in the years 2018, 2019, and 2020, but we do expect the DG business to expand faster specifically commercial will -- which is a segue way to the second part of your question, the commercial business will expand really rapidly.

And what we are seeing there is the traditional business was of course some select multinational companies, and very much the public sector, so schools, water districts, and the like, public agencies.

We see that traditional business staying strong, and to that it we are adding customers that are committing to go 100% renewable.

Apple of course is a later in that that we saw as an example on the public side, Stanford University and we see more multinational companies that are making that commitment, because they can have an influence on the environment and their employees want that.

They can also typically save money.

And a prime example of that, of course, is the data center customers.

And the data center customers, in general as a segment, are going renewable, and I think that trend is accelerating and that gives us confidence in certainly in the end of 2016 and going into 2017, because we think that is a sector that will do particularly well.

That is helpful.

Can you maybe also about what you think about the commercial segment?

And also, there's a lot of discussion about price declines in the market in the second half, especially.

Are you seeing anything at all on the pricing front?

Thank you.

Sure.

I will comment, and then Howard might add on.

What we see is what is very public is the utility scale tenders and of course, we like probably a lot of solar companies, have plotted PPA pricing over time.

And it would be fair to say that the forward pricing continues, and that is great for our customers.

I think we've crossed grid parity in a lot of the world that's therefore an increasingly international business because more and more countries will benefit from low cost solar.

We, of course, just won 500 megawatts in Mexico, a 100 megawatt project started in Chile.

So we have a handful of countries that we're particularly focused in self development, and a large stain on the cost down trajectory such that that can still be good business for us.

That business will evolve, and there will be ancillaries services added to that business, so it won't exclusively be a PPA pricing business.

On the commercial and residential side, we don't see prices contracting nearly as fast.

The value proposition already is quite good for those customers.

We are adding value beyond the solar system in a lot of cases now where we had storage in some cases in energy management, and the projects tend to be unique for the customer as well.

So the combination of the economics working already and the unique circumstances, certainly pricing has come down but not nearly as fast as the Power Plant business and that would be our comments for this year, and equally so in the residential sector.

Anything you want to add, Howard?

So I think that would be our color on both of those questions.

Thank you.

Colin Rusch.

Oppenheimer and Company.

Guys, can you talk a little bit about the proliferation of commercial pace structures, and how you see that impacting the demand on the commercial rooftop market over the next couple of years?

We're not doing a lot with pace right now.

We're primarily doing transactions with investment grade off-take, and doing sale leasebacks in larger systems.

So we do have a really strong commercial bar network, but I'd say most of our volumes are going through larger scale corporate that are investment grade where we get really, really attractive financing.

Okay.

Great.

And then as you move more of your Power Plant business into emerging markets, can you talk a little bit more about the dynamics around project level debt and guarantees that you are seeing from non-governmental agencies?

So what we are seeing on the international side is that we are finding low-cost financing for international large-scale power plants.

As it relates to moving those around, we're not moving volume for large-scale projects around two much.

Where you're seeing a little bit of movement is in the North American projects, but even there we are pretty much staying on schedule because getting tax equity structured is a critical part of the transaction.

On the cost of that, we're seeing very attractive financing costs.

I'll point out in the commercial side, we were really happy today to announce a $200 million commercial warehouse that has a couple of really unique features.

One, it's a very, very low cost to capital at L plus 150.

It is a five-year facility and what is really unique is that we can actually put projects in there, in many cases, use 100% debt financing to build the project and have some flexibility for the takeout.

So if we have the tax equity structured, we then have flexibility to sell that over time as opposed to needing to sell the asset right away.

So I think we're in a really good place for both timing and cost of financing.

And that in terms of support of something like World Bank or IFC, we see that in Africa where they may back a PPA so that it is more bankable.

And there's programs in Africa to kick start that country, and in the long run that is going to be a very good solar market.

Thanks guys.

I think we're going to take one more question please.

Michael Morosi.

Avondale.

Thanks for taking the question.

First I was just hoping you could give a little more color on the development of the Mexico market.

Obviously, you guys had a lot of success with that first tender, but I would just like to see your thoughts on that market longer term, both with respect to utility scale but also potential DG opportunities down the road.

The first tender was very successful, successfully run.

It was a very positive success for SunPower.

There is also a legacy program that SunPower has capacity in still, and that is what ASUR was part of and there's up to a couple hundred megawatts more potential in that legacy program and these are ground out systems.

There will be another tender coming up that will end this summer, I think in July.

So we expect this just to be the beginning.

On DG side, the DG market was maybe 50 megawatts, so by standards around the world it's an early stage market.

We think it has real potential.

In both cases, of course, we're capitalizing on our very large presence in Mexico, and the investment in resources we made four or five years ago.

So we know the market well and expect to capitalize on both of those well.

I would also say that the 500 megawatts we've won has created a lot of interest with other parties, and therefore we think will allow us to expand business by partnering with other companies as well.

So a number of avenues for us to grow in Mexico.

We are very committed in the long run because of that.

Thanks for that.

And then with respect to the breakout of projects for 2016 delivery, that was some great detail there.

Those handful of projects that are potential 8point3 drops or could go to third party, how are you thinking about that in terms of timing and any potential risk to full-year guidance and any potential pushouts there?

Sure.

So in the column, you'll see we've labeled whether it is a third party, 8point3, or possibly both.

And so the ones that are both, we have flexibility on, the ones that are 8point3 are in the ROFO and we would offer those to 8point3.

In many cases, the larger projects that would have a material impact on the P&L, we intend to structure with a 5149 structure where effectively we'll bring a strategic who would buy just over half of the asset and then we would have flexibility for the 49%.

And it certainly, we could sell all of the asset of 8point3 doesn't want to buy it, we could replace the ROFO list or we could sell to 8point3.

So I think we're in a good position with flexibility, and we wanted to provide the detail and give you a lot more color on the strength of our business in the back half of the year.

Thanks a lot.

I appreciate the questions.

I think we're going to end it here.

I appreciate everyone calling in very much, and we look forward to our next earnings call for Q2.

Thank you, everybody.

This concludes today's conference.

Thank you for joining, and you may now disconnect.