SunPower Corporation (SPWR) 2017 Q3 法說會逐字稿

Welcome, and thank you for standing by for the SunPower's Earnings Call.

(Operator Instructions) We would also like to inform this call is being recorded.

And if you have any objections you may now disconnect.

And now I would like to turn the call over to the host of today's call, Vice President of Investor Relations, Bob Okunski.

Thank you, and you may begin.

Thank you, Chris.

I'd like to welcome everyone to our Third Quarter 2017 Earnings Conference Call.

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

Tom will then discuss our outlook for Q4 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 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.

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.

On this call, we will review our Third Quarter 2017 financial performance and report on progress against our strategic initiatives.

I'll also provide some perspective on the section 201 trade case.

Strong Q3 execution enabled us to exceed our revenue, margins and adjusted EBITDA financial forecast.

We also surpassed our planned Q3 cash generation and further delevered the balance sheet by reducing project-level debt by approximately $80 million.

I'll start with an update on our 3 segments.

Please turn to Slide 4 for a review of our residential business.

We executed well on residential.

ASPs are stable, and demand for our industry-leading Equinox complete solutions in the U.S. remained strong while our X-Series ramp in the EU is on plan.

In the U.S., we saw a slight increase in lease mix in the quarter, though overall mix remains in line with expectations.

As mentioned last quarter, our new homes business is doing quite well as we saw record deployments and strong bookings during Q3.

Outside of the U.S., we again exceeded plans in both Europe and Japan as demand in pricing in both markets remained favorable.

We believe we gained share in of all of our key residential markets during the quarter.

Looking forward, we expect a solid demand profile and stable ASPs in all markets for balance of the year.

Moving on to commercial.

Please turn to Slide 5. We have been increasing our investment in the commercial segment over the past 2 years.

We are pleased with the results of these investments, which have driven strong customer adoption of our Helix complete solution in the U.S. and enabled us to expand our global commercial sales footprint.

The Helix platform significantly decreases installation time and reduces both total installed system cost and operating expense.

Digital design soles also enable quicker, more accurate system layout and allow for accelerated development of new channels to market.

Our Q3 performance was driven by record installation volume, including the completion of our 9-megawatt Helix project at Toyota's U.S. headquarters.

We are also expanding our commercial footprint internationally as we recently finalized the partnership with Apple and Daini Denryoku for commercial rooftop project of deployment in Japan.

Initial results are promising, and we are pleased to be broadening our reach into the Japanese market where we have been active for over a decade.

On the financing side, we are pleased to announce our partnership with True Green Capital Management for a 3-year $140 million commercial portfolio fund.

Chuck will provide more details on this financing in his comments.

Finally, we continue to see strong interest in our solar port storage solutions, with attach rates in certain U.S. markets in excess of 75%.

New wins include our AES announcement where we both supplied them with a 28-megawatt Oasis system as well as a 20-megawatt 5-hour duration storage system.

When complete, this will be the largest utility scaled solar + storage system in Hawaii and one of the largest in the world.

Additionally, we were awarded a 1-megawatt storage deal as part of our Redstone projects for the U.S. Army.

Looking forward, we remain excited about the commercial market.

Our pipeline exceeds $2.5 billion and we expect megawatt growth of 15% to 20% next year, driven by further deployment growth of our Helix systems across rooftop, ground out and carport applications as well as continued expansion of our solar and storage project pipeline.

Now let's review our power plant in SunPower's solution business.

Please turn to Slide 6. In Q3, our power plant (inaudible) executed ahead of plan on several key project construction milestones, including the completion and sale of our 69-megawatt Gala (inaudible) project as well as the sale of the interconnection facility for our 100 megawatt El Pelicano project in Chile.

As a result of these execution milestones, we significantly beat our power plant financial targets for the quarter.

In France, we also commenced construction on a 8-megawatt project for La Mede.

We continue to see strong growth in our SunPower Solutions equipment business as we increasingly transition from power plant development toward an equipment solutions sales model.

In Q3, shipments exceeded 165-megawatts, up almost 70% from the previous quarter.

Year-to-date bookings totaled more than 500 megawatts.

Also, as [Notel] announced recently, we have been awarded approximately 300 megawatts in the French CRE4 tenders to date.

We expect to be awarded additional panel supply agreements in the upcoming CRE tender round.

Year-to-date, our solutions group has provided equipment to customers in more than 30 countries, and we are well positioned to continue to expand our international footprint in 2018.

Looking forward in power plants, we expect to sell our El Pelicano project by the end of the year and to continue the ramp of our global solar solutions business.

Moving on to upstream and technology.

Please turn to Slide 7. Overall production remains on plan for the year as we achieved our yield and cost targets for the quarter.

In particular, Fab 4 again, outperformed with mean sales efficiency of 25%, while beating our cost targets.

Finally, as we discussed last quarter, we remain committed to commercializing our next-generation technology and are pleased to announce that we recently began the certification process for NGT panels.

Looking forward, we remain focused on our long-term technology and cost reduction road maps, which are on plan.

In Q4, our manufacturing plant calls for a 100% fab utilization.

In addition to starting the NGT certification process, we have commenced tool orders for equipment to build our first full-scale line with initial production forecasted for the second half of next year.

Now let's cover the section 201 trade case.

Please turn to Slide 8. On Tuesday, the ITC communicated their recommendations for remedies, which they'll send to the President on November 13.

A federal interagency group, chaired by the U.S. trade representatives office, will now do their own analysis and also provide a report to the President in 60 days.

This includes getting written public comment on November 20 as well as a public meeting in Washington, D.C. on December 6. We remain actively engaged with relevant parties in this process.

We have supported the remedy that SEIA has proposed and that Commissioner Broadbent had in her recommendation.

Our position remains the same.

That SunPower technologies should be treated differently or excluded from the proposed remedies, much like First Solar.

This is because first we are a U.S.-based company that does not benefit from foreign company subsidies.

Second, we continue to invest significant resources into our U.S. R&D efforts to maintain our industry-leading position and this investment now totals more than $500 million to develop and commercialize our unique and patented technology.

Third, given our technology and pricing, we serve a distinct subset of the market and do not compete directly with the offerings from the petitioners.

For example, in our residential business our premium high-efficiency solar panels are almost twice the price of the positioner's product, hence our exclusion will not hurt their ability to grow their business.

Fourth, we have also invested heavily in other parts of the solar value chain.

We directly employ more than a 1,000 people in the U.S. in addition to indirectly employing more than 12,000 people through our residential dealer network as well as more than 4,400 people through our American supply chain.

We will continue to work with the administration to ensure that all parties are aware of our continued investment in U.S. jobs as well as the specific impact to SunPower.

We are confident that the President will take these facts into account in the final decision.

Before turning the call over to Chuck to discuss the financials, I'd like to briefly reiterate the key strategic initiatives we believe will enable SunPower to drive long-term profitability.

Please turn to Slide 9. As previously disclosed, we are in the process of simplifying the company through divestitures of noncore assets and focusing our efforts on commercial, residential and SunPower Solutions while investing in 4 key areas: Digital; our advance complete DG product solutions; next-generation solar cell; and the integration of storage into our DG solutions platforms.

We remain committed to profitability in the fourth quarter of this year and being sustainably profitable in the second half of next year.

I would like to take just a minute to provide a little more detail on our strategic investments.

First, digital.

We continue to invest in software.

We make buying, selling, installing and owning SunPower easy.

For example, we are seeing strong adoption of our EDDiE sales software solution for our partner network, which significantly streamlines the customer experience.

Earlier in the call, I mentioned the traction we are seeing with similar software platforms that we're using in our commercial business.

Second, we continue to invest in our Smart Energy initiatives with a near-term emphasis on adding storage to our commercial solar solutions.

This focus is paying off as we recently signed a number of solar and storage deals in this segment and have a pipeline of over $60 million, for storage -- for solar and storage projects.

Third, leveraging our technology innovation expertise to develop new complete DG product solutions that reduce installed costs while increasing performance in user functionality.

Think of these as the next-generation Equinox and Helix solutions platforms.

Finally, as I already discussed, we are very focused on the commercialization of our next GEN solar cell technology with initial production slated for the second half of 2018.

In addition to these investments, we plan to simplify our overall operations to reduce the complexity of our financial reporting.

This will provide investors with a clearer picture of the health and performance of the business.

Financially our focus remains on cash generation and deleveraging the balance sheet.

As you are aware, we initiated a strategic review last quarter to identify and potentially dead pass those assets that are no longer core to our operations, and that process is continuing.

Downstream, we will focus on continuing to expand our share in key DG markets, and our growing our solar -- our SunPower Solutions business to access the global light and (inaudible) power plant market.

In conclusion, despite near-term industry challenges and policy volatility, we see tremendous growth potential for solar power around the globe, and are focused on structuring our business, to profitably capitalize on this opportunity.

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

Chuck?

Thanks, Tom, and good afternoon.

I will first review our third 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 10.

We were pleased to exceed our forecast while continuing our restructuring programs and prudently managing cash and working capital.

Our non-GAAP revenue was above guidance as we executed well in all segments.

In power plants, we continued to build projects for Q4 delivery while benefiting from the early sale of our 69-megawatt Gala project as well as the sale of our El Pelicano switch station in Chile.

In our DG business, we saw solid performance in residential, while commercial exceeded plan as we completed a number of projects including our 9-megawatt Toyota project.

We expect this strength to continue in commercial in the fourth quarter as our direct business is fully booked for the quarter.

Overall, our non-GAAP gross margin was approximately 13% as we benefited from strong performance in our factories, a stable pricing environment and solid execution in both power plant and commercial.

Specifically by segment.

Q3 power plant margins remain challenging, though up sequentially.

However, we expect a very strong Q4 with the sale of our El Pelicano project in Chile.

Non-GAAP commercial margins improved sequentially to 16% due to the sale of a handful of larger higher-margin projects.

We expect strong margins to continue in Q4 as well.

In residential, margins increased versus Q2 as we benefited from a better seasonal environment and stable pricing.

Europe and Japan were, again, ahead of plan.

In North America, cash and loan sales were 63% of our shipments, while 37% were leased.

Overall, we deployed 86 megawatts of residential products globally, in line with our forecasts.

Lease bookings were above plan at 27 megawatts with cumulative lease bookings of more than 410 megawatts.

Net contracted payments are approximately $1.6 billion, excluding any renewal or residual value.

NCI for the quarter was $25 million.

Non-GAAP OpEx was $82 million and in line with our restructuring targets.

We recorded a one-time tax benefit of approximately $27 million, which includes a $7 million cash benefit and a $20 million release of reserves for uncertain tax positions.

Finally, CapEx for the quarter was $13 million and below our forecast.

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

Please turn to Slide 11.

As I mentioned, we had a strong operational quarter as we executed well against our project milestones while prudently managing working capital and, as inventory declined approximately 10% sequentially.

Cash came in better than planned at $275 million, though sequentially as we continued to build out and restructure -- build out projects and our restructuring initiatives.

Also, due to our project sale, we were able to reduce power plant project-level debt by approximately $80 million during the quarter.

We expect cash to increase significantly in Q4, along with a decrease in project debt as we complete planned project sales.

We are continuing to work on various financing options for our DG business.

As Tom mentioned, we recently partnered with True Green Capital for a $140 million commercial financing fund.

This innovative structure will fund up to 50 megawatts of projects over the next 3 years primarily in the Northeast.

We are pleased to be working with True Green Capital to offer our customers creative and competitive financing structures.

We are continuing our strategic review process related to the potential monetization of noncore assets and recently monetized a portion of our lease portfolio for $54 million.

Our strategic review of 8point3 is continuing and we will not provide additional detail from the process at this time.

While we are confident that we're aligning a prudent process to maximize value, there are no assurances that this transaction will take place.

Finally, as we had mentioned previously, we believe the sale of noncore assets and associated asset financings will provide us with additional resources, not only to make strategic investments, but also reduce leverage and retire our 2018 convert.

In summary, we were pleased with our performance in Q3 as we executed on our 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 fourth quarter as well as our fiscal year 2017 outlook.

Please turn to Slide 12.

Our Fourth Quarter 2017 guidance includes the sale of the company's 100-megawatt El Pelicano Chilean project as well as the accelerated completion of certain projects originally scheduled for Q4.

Fourth Quarter 2017 GAAP guidance is as follows: Revenue of $635 million to $685 million, gross margin of 6.5% to 8.5% and a net loss of $80 million to $55 million.

Fourth Quarter 2017 guidance includes the impact of the company's holdco asset strategies, 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, company expects revenue of $800 million and $850 million; gross margin of 13% to 15%; EBITDA of $75 million to $100 million; and megawatts deployed in the range of 420 to 450 megawatts.

For 2017, we expect revenue of $1.85 -- of $1.85 billion to $1.9 billion on a GAAP basis and $2.1 billion to $2.15 billion on a non-GAAP basis, with gigawatts deployed in the range of 1.37 to 1.4 gigawatts.

The balance of the company's fiscal year 2017 guidance remains essentially unchanged.

Non-GAAP operational expenses of $330 million to $340 million, and GAAP restructuring charges of $20 million to $60 million, but now we expect lower capital expenditures for the year and in the range of $100 million to $120 million.

Additionally, the company continues to expect to generate positive operating cash flows through the end of fiscal year 2017 and to exit the year with approximately $300 million in cash, excluding any proceeds from the potential divestiture of noncore assets.

Finally, we expect adjusted EBITDA for the year to be in the range of $165 million to $190 million.

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

(Operator Instructions) First question comes from Tyler Frank from Baird.

Nice quarter guys.

I guess to start, can you just discuss where you think your cash balance would be at the end of the year?

And do you think that you've hit a bottom in terms of just the overall market and where you think the company performance will be heading into 2018?

And then as a follow-up, can you discuss where you're at with P-Series right now?

And how we should expect that to ramp in Q4 and then throughout next year as well?

Tyler, this is Chuck.

I'll take the first part on the cash side.

So we expect to end the year at approximately $350 million in cash and of course, that number could be quite a bit higher.

But we're expecting $350 million would be our target consistent with our prior guidance.

In terms of performance in where we see sort of the cycle, Q3 and Q4,

little hard to use as the baseline for where things are going.

Because we still have self-developed power plant projects that are in the numbers particularly Gala and El Pelicano.

If I exclude those, I would say directionally your question is -- or your -- the nature of your question is it bottom is we think it can be.

With the exception that each year, the first half of the year is seasonally less strong than the back half of the year, particularly in the residential and commercial channels.

So excluding seasonality I think, the answer would be yes.

I think we're well positioned because we focused on residential or commercial and we focused our SunPower Solutions in the international markets and we've reduced our focus on self-developed power plant projects that we really like that profile going into 2018 so I think we benefit from that.

In terms of D-Series, the ramp in Mexico is going really well.

We have, I think it's 4 lines running and so the automation the hypothesis of what we bought works.

And we expect volumes next year to be north of what we produced in our Fab 4 in the Philippines.

So it will be a meaningful part of our mix in 2018.

And just to clarify the $350 million ending cash balance, that's not including the sale of CAFD?

Is that correct?

That's correct.

Yes, that would not be considered in our ending cash number.

Our next question comes from Brian Lee.

I guess, first off, could we, Chuck, can you quantify the impact on a dollar basis of the project pull-ins in 3Q?

Just, how much came out of the fourth quarter here?

And then, not to nitpick but overall, revenue for 2017, your non-GAAP guidance it's down a smidge at the midpoint?

Is that coming out of residential, which was a bit softer, I think than we might have been anticipating.

Are there project delays or cancellations in the power plant business?

Just trying to reconcile a bit here what the moving pieces might be?

So first, we had a great quarter in Q3.

We have been building a couple of very large projects and we wanted to de-risk Q4.

Our teams performed exceptionally well.

And as a result, we recognized about $150 million of projects in Q3 that we thought might be not finished until Q4.

So the great news is this acceleration has protected our quarter and our year and now we can focus on the projects in Q4.

The overall revenue, we tightened the range for the year now that we have good visibility for the balance of Q4.

And we did bring revenue down a bit.

As I said before though, we are focused more on cash and earnings than on top line revenue.

The megawatts are roughly in line with our plan.

We did push out Mexico to improve the overall economics and so that has -- brought revenue down but it improved profitability and has been a benefit to the P&L and the balance sheet.

Okay, great.

I appreciate that color.

Just my follow-up is on the strengths in the solutions bookings.

The 500 megawatts you talked about, can you give us some color on the geographic mix, is it all France?

I know there's a lot of France in there.

And then also some color on the cadence of deliveries between 2018 and 2019 we should expect?

And then any comments you're able to make on the margin profile for those volumes versus other segments?

Sure.

This is Tom.

So SunPower Solutions to (inaudible) the baseline is growing quite rapidly.

It is and to make sure we're all on the same page.

The idea is to sell the complete capability to build a solar power plant including automated design.

And the complete tracker plus the module.

And we're benefiting from between 4 and 5 gigawatts of power plants that we've built.

And it grew almost 70% quarter-on-quarter.

So it's performing as we expected.

When we built this business, we had in mind that the power plant business was increasingly a global business.

And its stats are very interesting.

A few years ago, you could be in 5 markets and you'd be in 80% of the market, going forward, that looks like more like 40%.

And so SunPower Solutions looks more like 40%.

So we're in 30 countries in Q3.

And I think that will increase, we're seeing particular strength in the far-east.

And we see positive traction in South America actually.

So that will be largely a global international business and we expect France to be less than a 1/3 of the volume next year.

In terms of margin profile, think of this business like an equipment business so you're going to have low OpEx, moderate margins and so we expect it to be accretive at least on the bottom line to be positive.

But remember, that scale gives us benefit in the other 2 businesses as well.

And it allows us to ramp products like the P-Series that we can leverage in the rooftop business.

(Operator Instructions) Our next question comes from Vishal Shah.

How does the mix look like versus (inaudible) between power plant, commercial and residential?

Also what's your longer-term run rate, OpEx?

(inaudible) it should be in processing and operations (inaudible) ?

Okay, Vishal, you were breaking up a little bit.

But I'm going to answer your question, and then feel free to jump back or reiterate parts of it, that I may have missed.

First, in terms of mix in the business, I'll just make some broad comments, because I didn't totally get it.

In terms of module mix, I think it would be fair to estimate P and X being roughly steady equally going forward.

And P, B and primarily out of Mexico.

In terms of mix between the business units, SunPower Solutions will grow quite significantly from '17 to '18.

And will represent a much greater percentage of the mix next year.

However, we see growth in commercial and residential with residential -- I'm sorry, with commercial growing 15% to 20% as I said in my prepared remarks.

In terms of OpEx and R&D some comments there, we've reduced OpEx about $70 million so far this year.

By virtue of the -- continuing to focus on the business, on the residential, commercial and SunPower Solutions businesses by simplifying our P&L, we think, we'll further reduce that OpEx and we're thinking in the range of 3 to 310 and I would consider that a ceiling.

As we look at long-term profitability of the business, we get the benefit of the 4 investments, the focus on those 3 businesses and the decrease in OpEx.

And that's how we see the crossover point towards the back end of next year.

Also, Vishal, if I missed something, just try it again please?

This is helpful, thank you Tom.

Just one more follow-up.

As you think about some of the other services you're providing, just help us understand how we should be modeling the company going forward for X amount of (inaudible) capacity?

How much incremental revenues can you generate from all the other services and solutions offerings that you have in place?

Okay I'll take a pass at that and I might come back later to talk more about this, and I appreciate the question.

So for services, the first place we're seeing on the combination of our solar system plus services will make a meaningful difference is in our commercial business.

In that business a year ago, virtually none of our bids included storage and as everyone knows, I believe, that we've started to install solar systems with storage.

Next year, we have $60 million of pipeline and up to 1/2 of our projects in commercial will have storage.

That is just the beginning.

Because as your question alludes to, we can do more than just storage.

In '18, I think I'll get the number for later in the call.

I think that'll be a smallest percentage of our revenue.

It will be a higher margin because, so it's a good profile.

And we expect to expand that capability to the residential business as well.

And so '18 increasing dramatically throughout the year on the estimating terms of revenue and contribution, very low double digits.

But going into '19, it can make a much bigger difference and again, I'll calibrate that probably later in the call.

Our next question comes from Krish Shankar.

This is Chirag Odhav on for Krish.

Can you give some clarity on where your cost and ASPs stand for P-Series channels relative to some Chinese competitors?

And separately you spoke a little bit about the section 201 case.

If you were unable to exclude yourselves from tariffs, is there any potential to shift some P-Series manufacturing into the U.S.?

This is Tom.

So first on P-Series cost, P-Series is higher efficiency and higher watts per panel than the majority of the market.

Therefore, commands a premium, but it commands a premium less than our X and E-Series.

And think a premium of anywhere from 10% to 20%.

Our cost will be projected because we're on a very steep part of the ramp.

As we think of the more steady state, we think our costs will not be proportionally higher.

Therefore, we expect reasonable margins on P-Series.

Again, the business model for P-Series will mostly be part of our equipment sales, therefore, it's low OpEx and reasonable margins.

And I can talk more about that if you want to ask more.

In terms of 201, so we're really devoting a lot of resources to look at what options make sense.

And I think an important thing to note here is that there is the ITC recommendation, which will be formalized on the 13th of November.

There's the interagency process, which there is a public hearing on December 6. And they'll issue a report call it somewhere close to 60 days from now to the President.

Both of those are inputs to the President and the President on January 12, unless he extends it, will make his own decision.

So we're not going to make any significant changes to our supply chain until we hear from the President on January 12.

We will be prepared for various options.

You are right, P-Series gives us more flexibility, it's more of a CapEx.

And faster to ramp.

But that does not necessarily mean that that's what we'll do.

But it does have those attributes.

Our next question comes from Colin Rusch.

Thanks for the color on the Equinox traction, through the end of the year.

But I'm curious, about what the bookings look like as we go on to 2018 and with the pricing at MXR as you look out into next year with that product and what the competitive landscape is shaping up for you guys as you go into next year?

So I'll take that question.

Specific to your question in residential, we see pricing continue to be stable for our Equinox solution, which is good news because we have best in line overall market in residential.

And that says to me that we're increasing share maybe moderately.

And so our Equinox solution as you alluded to in your question, the percent of tax rate is really important and is quite high and is a significant differentiator.

We're seeing strength in Q3 that's moving into Q4.

And if I had to project '18, which obviously, we're not prepared to guide yet, but if I could project '18, I'd say it's going to be a good year for North American residential for SunPower.

I think we'll see some growth, but that will be in the back half of the year, it will be seasonable.

I will comment on overall demand, our commercial business is growing in a also inline market.

We're adding capability there, the commercial team's doing a great job at SunPower.

And we'll go into 2018 with certainly more than half of the year already booked.

Perhaps, (inaudible) can work on that.

Pricing is similarly in line in that business.

SunPower Solutions is going quite rapidly, and we're seeing a lot of demand in SunPower Solutions but we're being careful as to what we book so that one, we have flexibility depending on what happens with 201 and two, it's a very early stage business, it's forming its business model and we want to let it mature so to speak in a way that we can manage without over committing it.

So we see really strong business in SunPower Solutions but are being selective about what we book.

Great.

My follow-up is around your battery cell supply.

Can you talk about how many suppliers you're working with?

And what you're seeing from them in terms of pricing?

And how well you're going to be able to monetize margins as we go into next year?

We're seeing pretty aggressive price declines from some of your competitors in terms of pricing.

And want to see just really what the dynamics are around that from a margin profile for you guys and the diversity of supply that you can leverage in terms of managing costs?

All right.

So in terms of battery suppliers, predominantly we're buying from 2 sources.

We have bought from as many as 2 others as many as 4 are qualified but as we look forward we've focused on 2 suppliers and your question is exactly spot on, pricing for storages has come down significantly this year.

And what's that's done, is it's opened up more states in America where the addition of storage, and I would say I would put that as a few more states where storage is economic.

The margins are accretive to our commercial margins but think 5 points or something like that, not some other number.

In terms of approximately.

Now that's very much in flux because the storage capabilities allow you to do more than just battery backup and demand charge elimination and so this market's full of all -- So they will be more capability and then we would expect it to potentially expand.

But to your core question, storage cost or pricing to SunPower, and then presumably costs have come down dramatically this year, opening up a few more states and that's why we see half of our pipeline, have storage attached to it.

Okay I thank you, and we're going to take one more question.

Last question comes from Pavel Molchanov.

You've been highlighting your status as a U.S.-based company in your arguments regarding the trade case but the fact that you're also manufacturing in an FTA country, Mexico, obviously, do you think that's going to have an effect, regardless of whether your U.S. domicile perhaps, is not as impactful?

So I'll answer your question and then I want to expand a little bit.

The answer is that 1 of 4 of the commissioners cited that, that was Broadbent and she cites that at least 720 megawatts that would be carved out of the quota.

And SunPower was one of the most significant producers in the period of interest.

So the answer is, there is some traction already.

And yes, we're talking to the agencies that are part of the interagency group about that.

And I think there is some traction.

I think where there's more traction with some agencies is the fact that, as cited by Broadbent as well as the tariffs are in response to the -- and I'm not saying this is the case, but what was written in the Broadbent communication was that the tariffs are for subsidized Chinese companies and the hypothesis is they've moved to other countries.

And therefore, you need to put tiers on those countries.

Obviously, SunPower is an American company, was not subsidized by anybody.

We just happen to be producing in those countries where some other companies have moved.

Putting a tariff on SunPower doesn't make any sense.

It's not consistent with what's trying to be accomplished.

That discussion or at least that communication has been acknowledged as making sense.

Now whether or not that ends up making a difference on January 12 will be up to the President.

So a little more color than your question suggested.

Thanks, everybody, for joining our call today.

We look forward to our next call, which will be after most likely after the President has made his decisions.

So we'll have great clarity when we speak next.

And that concludes today's conference.

Thank you for your participation.

You may now all disconnect.