SunPower Corporation (SPWR) 2017 Q1 法說會逐字稿

Good afternoon, and welcome to SunPower Corporation First Quarter 2017 Results Conference Call.

This call is being recorded.

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

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

Thank you.

Sir, you may begin.

Thank you, Marco.

I'd like to welcome everyone to our first quarter 2017 earnings conference call.

On the call today, we will start off with a strategic and operational review by Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our first quarter 2017 financial results.

Tom will then discuss our outlook for Q2 and 2017.

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 2016 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 & Presentations page of our Investor Relations website.

In the same location, we have posted supplemental data sheets detailing some of our historic metrics as well.

With that, I'd like to turn the call over to Tom Werner, CEO of SunPower, who will begin on Slide 3. Tom?

Thanks, Bob, and thank you for joining us.

Today, I'll provide our perspective on the evolving solar market and describe how we are adapting our strategy for future success.

I will then discuss our segment performance in greater detail and provide some color around the recent announcement of our new SunPower Solutions business unit as well as provide further detail concerning our P-Series panel manufacturing JV in China.

Please turn to Slide 4. As many of you know, SunPower has been a leader in the solar industry for over 30 years.

During this time, we experienced dramatic market growth and several significant changes in the overall market structure and specific growth drivers.

For the first 2 decades, our focus was very much on solar cell technology development, and the industry was driven largely by expectations of future contributions to the energy mix.

It was during this period that we developed our unique high-efficiency back-contact solar cell technology.

Starting in 2006, the year we completed the ramp of our first factory, the industry exhibited accelerated growth, as, in annual deployment, volume grew from around 2 gigawatts in 2006 to almost 80 gigawatts last year.

This hypergrowth phase was driven primarily by financial incentives such as feed-in tariffs, which provided very effective -- proved very effective in stimulating the expansion of the industry but also highly disruptive when they were improperly modified.

SunPower's strategy during this period included a conscious diversification of our geographical and application segment mix to mitigate the impact of policy dislocations.

During this period, a number of solar companies, led by SunPower, expanded their scope from upstream manufacturing into various downstream channel and development activities, in some cases even including long-term asset ownership models.

The result was massive capital deployment across the entire value chain and the trend to balance sheet-heavy business models.

We believe that the solar industry is now entering another phase of growth, characterized by decreased financial incentives, steadier growth, geographically diverse demand creation and a return to more traditional financial metrics such as return on invested capital.

As we have done several times during our history, we are adapting our strategy to succeed in this changing market environment.

We will continue to build on our long legacy of technology innovation, focusing on scalable product solutions in digital platforms that streamline the customer experience and enable channel expansion.

Please turn to Slide 5 for some further detail on our strategy.

Technology innovation has been at the heart of SunPower's strategy for over 30 years, and we will continue to preferentially invest in technology innovation and differentiation going forward as a key driver of long-term success.

Our complete Power of One product solutions have been highly successful in the market, and we will continue to develop these fully pre-engineered plug-and-play solutions to improve functionality and reduce installed costs.

A specific theme will be the progressively increasing integration of battery storage and software services into our DG solutions across key markets.

Secondly, we will significantly reduce the capital intensity of our business.

In our power plant business, this will include a narrowing of our focus in our direct development footprint and an increase in the scope and ambition of our recently announced SunPower Solutions equipment sales activity.

Upstream, our recently signed P-Series manufacturing JV in China provides us with significant effective CapEx leverage, and we are in the advanced stages of development on our next generation of IBC technology that is much more capital efficient.

Finally, we are evaluating the sale of certain assets in order to reduce cost, improve cash flow, simplify our operations and financial reporting metrics while deleveraging our balance sheet.

In conclusion, we are adapting SunPower strategy to succeed in the context of an evolving and maturing solar industry environment.

Now let's review our segment performance for the first quarter of 2017.

We are pleased to have achieved our overall company financial goals, including cash generation and adjusted EBITDA targets during the quarter, which we will review later in the call.

Please turn to Slide 6 for a review of our residential business.

Our residential business executed well despite challenging weather conditions in several key markets.

ASPs are relatively stable, and demand for our industry-leading X-Series panels remain strong.

In the U.S., demand in Q1 was solid, with a modest mix shift to lease.

Our Equinox solution accounted for 80% of new orders in Q1.

We once again exceeded plan in Europe and Japan, where we are benefiting from the pricing adjustments we implemented in the second half of last year.

We are seeing significant traction from our dealer base for our new dynamic design and automated sales tool, called EDDiE for short.

This application significantly streamlines the design process for customers while lowering costs for our residential and commercial dealers.

Looking forward, we expect to see a continued shift toward our Equinox X-Series complete solution and an expanded rollout of our EDDiE platform across a greater portion of our dealer base.

Moving on to commercial.

Please turn to Slide 7. The fundamentals for our commercial business remain solid, with particular strength in our public sector and light commercial channels and continued traction of our Helix complete solutions, which accounted for 100% of Q1 bookings in our direct channel.

Our direct channel forecast for 2017 is now fully booked.

Recent commercial wins include Cabrillo College, UC Merced and the County of San Diego.

We are also currently starting new deployment of a 9-megawatt system for Toyota at its U.S. headquarters.

As we mentioned last quarter, interest in our integrated solar and storage commercial solution continues to build, and we recently began construction of a 910-kilowatt solar-plus-storage system in Hawaii.

Finally, we made initial shipments to Total under our 200-megawatt long-term supply agreement.

Looking forward, we expect further deployment growth of our Helix systems across rooftop, ground-mount and carport applications and continued expansion of our solar and storage project pipeline, which currently includes more than 50 projects.

Now let's turn to the power plant business.

Please turn to Slide 8. During Q1, we executed on project construction milestones, including the El Pelicano project in Chile and our 56-megawatt project -- Gala project in Oregon.

PPA and project pricing remains very challenging, and we expect these conditions to continue through 2017.

We recently announced the launch of our SunPower Solutions business unit that will focus on global power plant equipment sales.

I'll discuss this in greater detail shortly, but we are very pleased with our SunPower Solutions sales traction, including approximately 400 megawatts of supply contracts booked and awarded so far this year.

Looking forward, we expect SunPower Solutions to account for our -- a growing portion of our power plant business mix due to the expanding global power plant demand and a narrower focus within our self-development activities.

Also, while we believe we will continue to face competitive pressure related to our Mexican portfolio, we believe that margins will improve in the second half of the year as well -- as we sell certain projects currently under construction.

Please turn to Slide 9 for some further color on our SunPower Solutions business unit.

We expect significant opportunity in the global power plant market.

Solar power is now the lowest-cost source of incremental electricity generation in many locations.

Our solar solutions team currently has operations in more than 10 countries around the world, and has already achieved bookings and project awards of around 400 megawatts so far this year.

Through SunPower Solutions, our customers can benefit from SunPower's experience of developing, designing, constructing and maintaining over 1,000 utility-scale solar systems since 2004.

Our fully engineered third-generation Oasis platform, combined with low-cost P-Series panels from Mexico or our Chinese JV, enables local developers and EPC companies new to solar to minimize project construction schedule risk and ensure reliable operation while delivering competitive cost of energy.

Now on the upstream part of our business, please turn to Slide 10.

Overall production was on plan as we met our yield output and cost targets for the quarter.

In particular, Fab 4 continues to outperform as we [date] our cost and efficiency targets, with average production cell efficiencies now regularly exceeding 25%.

For P-Series, we now have 400 megawatts of capacity in place as we completed our ramp in Q1.

Finally, as I mentioned, we signed an agreement for a JV in China that will enable significant expansion of P-Series capacity.

More on that shortly.

Looking forward, we expect continued progress against our cost-reduction road maps on both the IBC and P-Series technology platforms.

We are making significant progress on our next-generation IBC technology and expect the first panels out of our new San Jose pilot fab by the end of Q2 2017.

Before turning the call over to Chuck, I would like to provide a few more details on our new P-Series JV in China.

Please turn to Slide 11.

In Q1, we formally signed an agreement to restructure our existing DZS JV to enable significant capacity expansion of our P-Series technology.

This JV currently operates a 1.2-gigawatt mono-PERC cell fab in Yixing and plans to construct up to 5 gigawatts of P-Series panel assembly capacity using a mix of internal and third-party-sourced solar cells.

Located geographically in the heart of a low-cost China supply chain, we expect that this JV will drive significant scale economies for P-Series panel manufacturing.

Our partners, Dongfang Electric Corporation, so-called DEC; and Tianjin Zhonghuan Semiconductor, with the acronym TZS, each bring unique synergistic capabilities to the JV.

DEC is one of the largest global suppliers of conventional power generation equipment and a major global power plant EPC contractor.

TZS is one of the world's largest suppliers of monocrystalline wafers and part of the TZ Group, a $35 billion diversified technology and electronics company.

Initial production of mono-PERC 19%-efficient P-Series panels is expected to commence in the second half of this year.

1/3 of the output will be allocated to SunPower for use in our North American power plant projects and global DG markets.

Another 1/3 will be allocated to SunPower Systems International, an 80%-owned JV focused on rest of world power plant equipment sales under the SunPower Solutions umbrella.

The remaining 1/3 will be sold into the Chinese market.

We are very excited about the opportunity for DZS to scale up P-Series panel technology to multi-gigawatt scale while driving down costs and accessing the world's largest solar power plant market.

In conclusion, despite the near-term industry challenges, we see tremendous opportunity for solar power around the globe.

We are making significant changes to our business to adapt to the changing market environment in order to capitalize on this long-term, large-scale opportunity.

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

Chuck?

Thanks, Tom, and good afternoon.

I will first review our first quarter results and then discuss certain financial highlights for the quarter.

I will then turn the call back over to Tom for our guidance.

Please turn to Slide 12.

We exceeded our forecasts while continuing our restructuring programs and prudently managing cash and working capital.

Before moving on to the P&L, I would like to point out that, starting this quarter, we have made the decision to exclude the impact of our above-market poly contracts from our non-GAAP results, as we believe this will provide a more accurate picture of our performance.

Moving on to the P&L.

Our non-GAAP revenue was in line with our guidance as we execute according to plan in all segments.

Q1 results reflect the impact of seasonality as well as significant rain in California.

In power plants, we are building projects for second half delivery, but as Tom mentioned, this segment remains very challenging.

In our DG business, revenue grew significantly year-over-year and, as expected, declined sequentially from our historically strong Q4 results.

Overall, non-GAAP gross margin was 6.5%, as we were impacted by overhead absorption across low volume, power plant sales and commercial project mix specifically by segment.

Q1 power plant margins remain challenging.

We expect, will not improve in Q2.

We see continued project pricing pressure, primarily in Mexico, but do expect a very strong Q4 with planned project sales in Chile.

Non-GAAP commercial margins declined in the quarter due to overhead and project timing.

We expect continued margin improvement throughout the year, and eventually back to the mid- to high teens.

In residential, margins for the quarter were impacted by overhead costs allocated across lower company volumes and regional mix.

Internationally, Europe and Japan were ahead of plan.

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

As you know, SunPower customers not only get the best product in the market, but they also pick the best financial solution for their needs: cash, loan or lease.

Overall, we deployed 73 megawatts of residential products globally, and in line with our forecasts.

Lease bookings were above plan at 21 megawatts in Q1, with cumulative lease bookings of more than 355 megawatts in our holdco.

Net contracted payments are approximately $1.4 billion, excluding any renewal or residual value.

In addition, NCI for the quarter was $17 million.

We remain confident that we will have sufficient tax equity capacity to meet our 2017 demand.

Non-GAAP OpEx was $81 million and in line with our restructuring targets.

We also continued to ramp our P-Series product.

CapEx for the quarter was $28 million lower than planned due to the pushout of purchases.

I would now like to discuss a few financial highlights for the quarter.

Please turn to Slide 13.

As I mentioned earlier, we have made the decision to exclude the impact of our above market poly from our non-GAAP results.

For the quarter, this amounted to approximately $30 million in cost of goods sold.

As we have said in the past, we have long-term contracts at prices well above market in quantities greater than what we expect to use in the near term.

We consume poly in our products and, from time to time, sell excess poly and record a charge because of a loss on sale.

Approximately half of the above market poly costs are noncash and shown on the balance sheet as a $250 million prepay.

We believe this change in reporting provides investors increased transparency related to our segment gross margin performance and non-GAAP income.

Given this change, we have provided historical information excluding these costs for the past 9 quarters in the appendix of our presentation deck.

Lastly, even without this change, the company exceeded EBITDA guidance for the quarter.

We also settled a long-standing legal dispute that resulted in a $28 million impact to our power plant gross margin.

This impact was also excluded from our non-GAAP results.

We exited the quarter with approximately $390 million in cash, down slightly from Q1.

We expect our cash to decline in Q2 and nonrecourse debt to increase as we build projects on our balance sheet.

We then expect to monetize these projects in the second half of 2017, increasing our cash balance and paying off project debt.

Our restructuring initiatives are on track, and we continue to prudently manage working capital with a continued goal of materially reducing our inventory by year-end.

We also announced today that we reached an agreement with Total, where Total will guarantee up to $100 million of our $300 million revolver through the -- August of 2019.

This support ensures that we have adequate resources to execute in our restructuring and transformation plan.

In relation to 8point3, we were pleased to see solid results from the company during the quarter, including increasing the distribution for the seventh quarter in a row.

We are currently reviewing our strategic options related to 8point3, and we'll disclose additional information to our investors when a decision is made.

I would now like to provide an update on the assets we have in relation to our holdco strategy.

Please turn to Slide 14.

Our holdco strategy reflects 1.6 gigawatts of assets contracted, in construction or in operations.

Residential assets rose 15 megawatts sequentially, reflecting new SunPower lease customers.

Commercial saw significant growth as we added new customers, commenced construction on new projects and reached COD on existing builds as well.

In power plant, our overall megawatts declined due to the sale of both Boulder Solar II and Sulphur Springs projects.

We maintain a minority position in Boulder Solar I, which is in operations, generating strong cash flows.

However, given the recent events at 8point3, we no longer expect to drop it down in Q3.

In summary, while beating plan, Q1 was a transitional quarter as we executed on a restructuring plan, prudently managed our cash and further positioned the company for the long term.

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

Tom?

Thanks, Chuck.

I would now like to discuss our guidance for the second quarter as well as reaffirm our fiscal year 2017 outlook that we gave in February.

Please turn to Slide 15.

The company's second quarter fiscal 2017 GAAP guidance is as follows.

Revenue of $275 million to $325 million, gross margin of negative 3% to negative 1% and a net loss of $135 million to $110 million.

Second quarter 2017 GAAP guidance includes the impact of the company's holdco asset strategy, revenue and timing deferrals due to real estate accounting as well as the impact of charges related to the company's restructuring initiatives.

On a non-GAAP basis, the company expects revenue of $275 million to $325 million, gross margin of 2% to 4%, EBITDA of negative $25 million to breakeven, and megawatts deployed in a range of 330 to 360 million -- 360 megawatts.

As a reminder, our non-GAAP results exclude the impact of our above market poly contracts, which is estimated to be approximately $13 million for Q2 and $100 million for fiscal year 2017.

On Slide 16, we are providing our fiscal year 2017 guidance, which remains unchanged from what we disclosed in our February call.

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

(Operator Instructions) Our first question is from Ben Kallo.

Baird.

Tom, Chuck and Bob, can you just talk about the margin for Q2 and how much that has to do with your own production gain?

Where it needs to be versus overall market?

And then I have one more question.

Yes, Ben, this is Tom.

Just a quick comment overall on Q2.

It is a profile that is basically what we were communicating in Q1 for the year.

We did hold the year guidance, and what we see is an impact of volumes and absorption of overhead in the first half of the year, where the back half of the year is much stronger.

Chuck will comment a little bit further.

Yes, Ben.

So the profile is that we're deploying about 350 megawatts but only recognizing around 200 megawatts, and we amortize the overhead only across the megawatts recognized.

So what you should see is a really strong back half of the year based on more volume, and then plus the items that Tom mentioned.

And then on the P-Series, could you talk about how much has been deployed, what the reception has been?

And then, maybe I'll tie in a third one.

Going to China for the JV versus the concentrator, how was that decision made in -- versus possible trade rules out there barring you from shipping that product to the U.S.?

And I'll leave it there.

Okay.

So I got how much is deployed, how is it performing in China, where we're producing.

And if I miss something, Ben, just remind me.

So first deployed is tens of megawatts.

We've deployed our first meaningful system in terms of scale about 14 months ago.

So we have lots of field data, and we have the certificate.

We've been through certifications, and we have 2 independent engineer reports.

So the product is performing at or above rated energy production at the sites that we're monitoring.

And the receptivity is excellent for the product.

We are selectively deploying the product; it's not offered everywhere.

It's offered where it fits best, which is high cost-of-capital markets and where balance of system is inexpensive.

Think big warehouses or that sort of thing.

So we're selectively offering P-Series in the near term, and the performance is great.

As we commented, overall, we're working to simplify SunPower as a company, simplify our financials and simplify or -- and to deleverage our balance sheet and to reduce the amount of capital that we need to deploy.

So China, for P-Series, fit great because it requires less capital to have significant capacity expansion.

It gives us access to the world's largest solar market.

It gives us access to the world's largest supply chain, and therefore, we can scale and get cost down faster.

We can also produce, and do produce, P-Series in other module operations.

One of those is in Mexico.

And we can buy cells from nontariff countries.

So we have the flexibility in our supply chain to produce and -- tariff-free.

And the P-Series is inherently less capital-intensive, so it's more flexible than other technologies, as we look at potential other changes in tariff structures.

And as I mentioned in my prepared remarks, we've received meaningful orders, including an order from an American utility for over 100 megawatts.

And this is a very discriminating utility, so I think we've crossed the threshold of credibility.

The next question comes from Brian Lee.

Goldman Sachs here.

A couple of questions.

Maybe first, Chuck, on the revolver.

I know you touched on this a little bit, but could you maybe elaborate a little bit more on the latest status on the ability to access it?

How much has Total backstopped?

And are you able to access just that amount or the full amount?

And then, maybe more broadly in looking ahead, how are you generally thinking about the liquidity into 2018?

Just what capacity do you have?

What sources are they?

And then, is the general thought around the 2018, converts to refi, or would it be something else?

Any color on that would be great.

Great.

Thanks, Brian.

So as we look at our cash plans, we feel we have ample cash to run the business.

However, as you know, the revolver which currently matures in 2019 is not currently accessible.

And so as we look at our plans, because project timing can move and whatnot, we felt it was prudent to have a backstop there.

And so Total agreed to backstop $100 million of the revolver, and that was simply based on sensitivities and whatnots.

So we feel like we're in a really strong position there from a liquidity standpoint.

As it relates longer term, yes, the convert is about 5 quarters out, so it's still a little bit premature.

But as we're thinking about this, our preference would be probably to pay it off in cash right now given our share price, but I'd say it's still early, and it's something that we're actively working on but would probably provide more color on the next call.

Okay, great.

I appreciate that.

And just second question for me is on the 8point3 process.

I know there's sensitivities around what you can say publicly, but maybe at a high level, can you give us some thoughts around how much of a say you have in how you're a partner for solar?

How they ultimately work in monetizing that strategic alternatives process?

It seems like their priorities are different than yours in this process.

So if you could maybe characterize those differences at some high level, and also, to what degree you guys are working in tandem with them on making sure you both come out on the right side of this.

Yes, certainly.

So they've been a great partner throughout this process.

They're committing to helping us run 8point3 for the intermediate term.

And so as we go through this evaluation process, I think our general desire would be to stay in and find a partner.

However, given that they've started this process, we thought it was prudent to look at all alternatives.

And we both have hired advisers and are running a process.

There's a lot of interest, and so I think we'll see a lot more unfold over the next couple of quarters.

But 8point3 is running extremely well, delivering solid results.

We just increased distributions for the seventh quarter in a row, and it's producing really high-quality, stable cash flow.

So I think we're in a really good position, and we appreciate First Solar being a strong partner in this JV up to this date.

The next question comes from Krish Sankar.

Yes, Bank of America Merrill Lynch.

I had 2 of them.

First one, Tom or Chuck, if I look at SunPower, let's say, 2, 3 years into the future, it looks like most of your [pilots] are going to be more P-Series versus your IBC end type technology.

Is that true?

And if so, is it because you think IBC is not cost-competitive anymore?

And then I had a follow-up.

Sure.

This is Tom.

On -- the answer is -- to your question is no.

The strategy is unfolding as we projected it when we made the investment when we bought Cogenra for P-Series technology, and that is to have P-Series for non-OECD markets where the cost of capital is higher and, therefore, the discount rate is higher, and you're penalized -- or you want to have a low-capital, upfront-cost panel but you'd also like to have high energy production, and that's exactly what P-Series is.

And as we mentioned, increasingly, the solar business is going to be a worldwide business or a geographically dispersed business, and therefore, having P-Series ramp preferentially is consistent with where the market's going, where the market is going is more geographically diverse.

It's also because it's lower capital intensity, and so we can use that to grow our company faster with less capital intensity.

Now IBC.

IBC, interdigitated that contact technology, this is what we are known for, it's still the world's highest-efficiency solar module technology and solar cell technology, and we have 1.2 gigawatts of that technology that competes on a cost-of-energy basis, where there's good sunshine or the balance of system is at a premium.

Obviously, that's residential, they tend to be a lot of commercial.

That can be power plant, depending on where you are, because it's expensive land.

So it's complementary to P-Series.

And in fact, lastly on -- we got first silicon off our pilot line for our next-generation technology here in Silicon Valley.

And next-generation technology will be slightly more efficient with significantly less cost.

And so we're actually excited about the future of IBC.

And it really is still at the core of our company because the mainstream of our company will be the commercial and residential businesses.

Got you, got you.

That's very helpful, Tom.

And then, along the same path, just a final question.

With your focus on DG, the resi margins look a little depressed, I understand, because the volumes are low.

What do you think is the long-term gross margin profile for the resi business for you guys?

Yes.

Let me just say just 2 words, and then I'll pass it to Chuck.

Resi is an interesting evolution of our offering in residential, as we've added Equinox.

And Equinox is a complete solution, the -- what we call the Power of One, which is not just our high-efficiency module, but unique mounting system that you can't see, so-called InvisiMount, with a micro inverter that is all supplied by SunPower, and therefore, has one company, one-stop shopping and one-stop warranty.

And the value of that to our residential customer is shown by the attach rates, which are now about 80%.

That influences how we think about margins going forward, and Chuck will take that.

Yes, great.

And so the other thing to think about, if you looked back a year ago, resi margins were 25.5%.

I think we'll be at that level, in the mid-20s long term.

Clearly, Q1, as you mentioned, is impacted by the overhead.

It's also -- we had a really strong quarter in Europe and Japan.

And with FX, those margins are a little bit lower than the historical averages.

So we think as we grow our volumes throughout the year, you'll see those margins move back to where they've been historically, which is mid-20s.

The next question is coming from Pavel Molchanov.

Raymond James.

You mentioned kind of a disparate dynamic in Latin America, Mexican margins being quite disappointing, whereas Chile looks much better.

What accounts for the difference between those 2 markets that extensively look quite similar?

Thanks, Pavel, for the question.

So Chile has a lot more buyer interest.

It's quality PPAs and -- versus Mexico, where there's significant supply of projects in Mexico by virtue of the first few auctions, and so there's a supply-and-demand mismatch.

And of course, the geopolitical environment is then perceived as being more risky, and so that's not favorable in terms of buyer interest rate -- buyer rates of return.

Yes.

I would just add that it's largely driven by the PPA pricing.

Both are really high-quality projects.

And in Mexico, what we're seeing is a lot of interest in those projects, we have not started construction yet, so we're in the early phases.

And I think we'd seen an abundance of caution, looking at the political environment and interest rates and merchant curves and whatnot.

But there's a lot of interest in both projects, and we feel that we're going to get a really good price.

Those are really high-quality projects with great offtakes, and we think are -- just are worth a lot of money.

And so we'll have to wait and see, but we're being a little bit cautious as we look to the future.

And if I can just ask quickly on -- to get your thoughts on [Soneva] and the whole discussion in Washington about escalating tariffs on Chinese modules.

Sure.

On -- we're not in a great position to forecast how that's going to come out nor -- it's very early stage, so it would be premature for anyone to forecast.

Remember, and you're well aware of this, Pavel, that we're an American company.

We source a lot of materials from America.

And so it'll, of course, be relevant if things were to play out how they would play out in terms of what is -- what's considered American content and what isn't.

So we have a significant supply chain in America.

And we, of course, have produced models in America previously on -- our supply chain is a worldwide supply chain, so we have flexibility, and we'll evaluate options as we need to.

But again, too early to forecast.

And I think things sort of on that front are taking a little longer to develop than perhaps some of the comments might suggest.

The next question comes from Vishal Shah.

It's Deutsche Bank.

Tom, I just had a question on the longer-term capacity plans.

What percentage of your total mix would be P-Series versus IBC?

And what percentage of your IBC capacity is contracted?

Or do you have visibility for the back half of this year?

And I have a follow-up.

Sure.

Let me deal with the latter first.

In terms of IBC capacity, I don't have a specific number for you, but well north.

It's -- a majority of the capacity is spoken for.

That does go to our turns business.

So the residential business is typically a quarterly cycle for bookings.

The commercial business is direct -- is split between direct and channel.

The direct business is 100% booked for the rest of the year, and that's all IBC.

And the channel business does use some P-Series, the channel commercial business, and that has also a shorter booking cycle.

So I'd say the majority, but still not 100% booked.

As I look out beyond this horizon, we're still finalizing our 5-year plan with our board in making the decision of how aggressive to ramp our next-generation technology.

I think our P-Series plans are pretty clear.

Those were conveyed on our prepared remarks.

The additional capacity for IBC will be our next-generation lower-cost capacity, and we have not finalized plans, so I don't have that mix yet.

We will probably by the next call.

Okay, great.

That's helpful.

And then what kind of a premium are you able to charge to your customers for the IBC capacity or IBC panels relative to the P-Series panels?

So the IBC panels are higher efficiency by 1 -- by, let's see, 2 to 4 percentage points, so materially higher energy production.

They also have a completely different architecture, therefore, they perform differently in terms of energy production over the life of the system.

So the premium we get is mostly based on that, which is a levelized cost of energy.

And it can be material, it can be on the upwards of, in some cases depending on the end market, anywhere from 50% to 150% premium.

The next question comes from Andrew Hughes.

It's Crédit Suisse.

A couple of questions.

First, on -- it's great to see the continuing signs of support from Total.

It seems they're coming in sort of $90 million to $100 million chunks as of late, at least.

As you think about how SunPower fits into 8point3 going forward, is there a role that Total could play here?

Have they expressed any interest to you and, perhaps, purchasing for a solar stake or otherwise getting involved?

Thanks, Andrew.

This is Chuck.

Total's been extremely supportive and a great partner on power plants around the world.

To date, they have not been active in power plants in the U.S. because of the complications of the tax equity markets.

I won't speculate on if they would be a buyer of First Solar.

We're running a process.

And I think our proclivity is to find a partner who is a U.S. developer who brings value to the U.S. development market that -- but it's hard to say how things will ultimately shake out.

Great.

I appreciate that.

And then, just on the holdco strategy going forward, curious how you see that evolving.

Tom, I think you've mentioned maybe selling some projects in Mexico that are in the construction phase.

Just as you guys balance some of the liquidity cash flow priorities going forward, do you see yourself selling projects in the holdco earlier than you may have thought you would 6 months ago?

And just how that looks going forward.

Okay.

Thank you, Andrew, for the question, and we'll take one more question after this.

We appreciate everyone calling in.

So in terms of the holdco strategy, it would -- I'll start with, recall that when we IPO-ed 8point3, we did drop down some residential assets.

As residential assets mature in the years forthcoming, they could be dropped down into 8point3.

And commercial projects work great in 8point3, and we've dropped a number of commercial projects into 8point3 as well.

That will continue business as usual, of course, throughout the course of a quarter, that -- what we choose to do because of the number of projects varies.

But certainly, in the longer term, both of those work for 8point3.

In power plants, we'll be more selective.

There still will be projects that we can build out through COD drop down, but it would be far more selective, and therefore, I would say that there will be less of those going forward, but that's not excluded from the available assets that drop down into 8point3.

Last question is coming from Colin Rusch.

Oppenheimer, and this is Kristen on for Colin.

Just had a quick one.

I wanted to build off of a previous question.

As you look at the opportunity for power plants in Central and South America, can you talk about where you're seeing those pockets of significant growth that are opportunities?

So I'd say most of our efforts have been focused in both Chile and Mexico.

We've seen opportunities elsewhere, but we have primarily focused development in those 2 markets.

All right.

Thank you all very much for calling in.

We look forward to talking to you at our next earnings call.

This concludes today's conference.

Thank you for joining, and you may now disconnect.