SunPower Corporation (SPWR) 2018 Q1 法說會逐字稿

Welcome to the SunPower First Quarter 2018 Earnings Call.

(Operator Instructions)

Now I will turn the meeting over to your host, Bob Okunski, Vice President of Investor Relations of SunPower.

You may begin.

Thank you, Ryan.

I'd like to welcome everyone to our first quarter 2018 earnings conference call.

On the call today, we will start off with an operational and strategic review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our first quarter 2018 financial results, before turning the call back to Tom for guidance.

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 2017 10-K and our quarterly reports on Form 10-Q.

Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

To enhance this call, we have also posted a set of PowerPoint slides, which we will reference during this call, on the Events & 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.

On this call, we will review our first quarter 2018 financial performance and provide an update on our strategic initiatives, including the proposed acquisition of SolarWorld Americas.

We executed well in Q1 with strong segment performance across the board.

In particular, I'd like to highlight our U.S. residential business, which posted a record Q1 quarter.

We also met key milestones in our commercial and power plant businesses while further expanding our SunPower Solutions' global footprint.

Finally, we've surpassed our revenue and EBITDA forecast and reduced operating expenses.

I'll now move on to our segment performance.

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

In residential, our strong fourth quarter momentum carried into Q1 as we exceeded our forecast for the quarter.

We executed well despite Q1 seasonality and believe that we gained share in all key markets.

In the U.S., we posted record Q1 performance with 35% year-over-year megawatt growth.

Outside of U.S., we again beat plan in both Europe and Japan as demand and pricing in both markets remained favorable.

In commercial, we executed well during Q1, expanding our #1 market share in growing year-over-year megawatt deployment by over 50%.

Accomplishments include the completion and sale of a number of key projects, including the 7-megawatt JBAB project for Constellation Energy as well as our 4-megawatt carport, rooftop and ground-mount system for Campbell Soup.

We continue to see particularly strong interest in our Helix solar-plus-storage solutions, with storage attach rates approaching 30%.

Looking forward, we intend to further consolidate our leading role in the U.S. DG segment and in key international markets with expected megawatt -- annual megawatt deployment growth of 20% in 2018.

Demand visibility is strong, particularly in U.S. commercial by virtue of our $2.5 billion pipeline with 100% of our 2018 commercial forecast either booked or already awarded.

Now let's review our power plant and SunPower Solutions business.

Please turn to Slide 5. SunPower Solutions continues to grow very rapidly with Q1 year-over-year shipment volume growth of over 5x and current project awards totaling more than 850 megawatts.

We exceeded our megawatt revenue and EBITDA targets for the quarter in SPS and were recently awarded 145-megawatt Oasis project in Hawaii with initial shipments expected to start later this year.

Our legacy power plant team also executed well during the quarter as we completed the sale of our Boulder Solar project as well as our 126-megawatt development project in Mexico.

Looking forward, we expect continued strong growth in SPS with approximately 1 gigawatt of planned shipments in 2018, up 100% year-on-year.

As our DZS P-Series JV ramps this year to multi-gigawatt capacity, we will also increasingly utilize this incremental capacity to serve international DG market demand.

We expect this to drive meaningful margin expansion in SPS.

Moving on to upstream and technology.

Please turn to Slide 6. We again achieved our overall output, yield and OEE targets for the quarter with Fab 4 again beating volume and cost targets.

We continue to aggressively develop our next-generation IBC technology, which we call NGT.

NGT will enable SunPower to produce our industry-leading IBC solar panels with costs similar to commodity products, utilizing manufacturing equipment with around 3x the capital efficiency of our previous generation technology.

We are hitting all key technology milestones in our San Jose R&D pilot line and expect first silicon in June with volume ramp from our first NGT production line in Fab 3 during Q4.

Now I would like to briefly comment on our recent announcement to acquire SolarWorld Americas.

Please turn to Slide 7. As announced, we signed an agreement to purchase 100% of SolarWorld Americas' shares.

The logic behind this strategic decision is as follows: first, we feel it is the right time to invest in U.S. manufacturing as we see sustainable demand in the domestic market driving favorable long-term economics, particularly in the DG segment.

Second, the decision was catalyzed by the 201 tariff ruling, which explicitly rewards U.S. manufacturing.

Third, this acquisition will enable us to directly address increasing domestic market demand for our industry-leading P-Series technology in both the power plant and DG segments, capitalizing on SolarWorld's current PERC capacity.

Finally, we believe there are significant synergies in the areas of operations and go-to-market structure.

We believe that by combining forces, SolarWorld Americas can become a more competitive solar manufacturer.

Some details.

For various reasons I cannot give the specifics of the purchase price, but we do not consider the cash consideration material to our financials.

Solar World's manufacturing facility in Oregon comprises a 400-megawatt nameplate capacity mono-PERC solar cell fab and approximately 600 megawatts of module assembly capacity.

Following the closing of the proposed acquisition, approximately 1/3 of SunPower's manufacturing capacity will be U.S.-based.

We also plan to make some factory improvements, increase working capital and retrofit a portion of the Modco with our industry-leading P-Series panel technology.

In summary, we are committed to U.S. manufacturing, and we continue to work through the 201 tariff exclusion process for our IBC technology.

Now I would like to take a few minutes to review the evolution of our long-term strategy.

Please turn to Slide 8. As many of you know, we have been working for over a year to transform the company through the implementation of a number of key operational and strategic initiatives.

Given the solid progress of these restructuring initiatives over the last 12 months, we are now turning our attention to the next phase of our strategy, which involves positioning the company for accelerated growth and increased profitability.

Specifically, we plan to increasingly align our organization around upstream and downstream business units with greater autonomy and operational flexibility.

We believe that this structure will have several benefits.

First, we believe this long-term strategic approach will drive improved operational focus and financial transparency.

Second, we expect to reduce costs by moving most of our corporate OpEx into the 2 BUs, thereby, driving accountability for overhead costs down to the operating level.

Finally, with this potential structure, each BU can react to strategic industry developments in relevant parts of the value chain with increased speed and agility.

Now I would like to focus on our business unit strategy in greater detail.

I'll start with our upstream product and manufacturing strategy, which has evolved in the past 2 years to comprise a broad product portfolio increasingly biased towards DG markets where we believe we can capture superior margins due to our highly differentiated technology attributes.

Slide 9 shows SunPower's current 5-year market growth forecast.

We believe that the market for large-scale solar power plants will remain largely stable over this period, while demand in the distributed generation segment will expand by around 40%.

There are a number of factors, which support this expected shift towards DG deployment.

First of all, wholesale mid-day electricity prices continue to fall, particularly in mature markets with significant solar penetration.

This, in turn, puts margin pressure on the entire solar power plant value chain.

Secondly, constrained transmission system capacity and, in some locations, limited availability of large buildable sites can make development of conventional, large-scale solar farms difficult.

Finally, the decreasing cost of battery storage is driving interest in behind-the-meter self-consumption and peak demand shaving value propositions that relate to retail, not wholesale, electricity rate structures.

Therefore, in many of the major solar power markets around the world, policymakers are increasingly biasing the rules to favor on-site, or proximate to, load deployment options.

As a market leader in high-efficiency, high-reliability solar products, SunPower is extremely well positioned to capitalize on the expected market shift towards DG applications.

In general, DG systems are more likely to be site-constrained and thereby, benefit from our high-efficiency technologies.

Most DG systems will also be owned by the building or homeowner with a vested interest in long-term system reliability, durability and safety.

Please turn to Slide 10, which shows the evolution of our solar panel product line from a DG perspective.

SunPower's IBC products have long been the technology of choice for residential and light commercial customers with panel efficiencies up to 23% and the highest levels of reliability in the solar industry.

Our new NGT technology will offer customers similar performance to our X-Series products, but with up to 40% lower manufacturing cost.

We expect NGT to be highly margin accretive as we retrofit older generation capacity in our existing fabs to this new NGT process.

We'll provide more details on our specific scale up plans at our Analyst Day, which we are planning for the second half of this year.

Also, over the past 2 years, we have successfully commercialized and ramped our unique P-Series technology.

Our P-Series products also offer superior efficiency and reliability benefits compared with conventional solar panels with average panel efficiency currently at 19% and a road map to 20% in the near future.

Our initial focus for P-Series products was a global power plant business.

With more capacity available now, we are introducing new products suitable for DG applications and plan to increasingly ramp global DG sales through our solar solutions group.

Finally, with our recently announced plans to acquire SolarWorld Americas, we will be in position to also offer conventional mono-PERC panels into the U.S. residential market.

This will further broaden our product portfolio and coverage of the U.S. DG business where SunPower has the leading downstream market footprint.

Now I would like to say a few words about our downstream strategy, particularly in relation to our domestic DG business.

Please turn to Slide 11.

As most of you are aware, we have been at the forefront of market development in the U.S. DG business for more than 15 years.

Over that time, we have leveraged our unique product technology and channel strategy to build what has become the leading DG franchise in both the residential and commercial segments.

This puts SunPower in a strong position to capitalize on the expected trend toward DG deployments over the coming 5 years.

Let's take a closer look at each of our DG segments.

First, residential.

We have been building our U.S. residential channel since 2005 and are currently a market leader in this segment.

We believe that we will further expand our share, our Equinox complete solution, broad and differentiated product technology, industry-leading customer satisfaction and flexible portfolio of financing options, all while maintaining strong margins.

Our Equinox complete solution includes sophisticated design tools to improve dealer efficiency and decrease customer acquisition cost.

We believe that the addition of battery storage will drive further adoption of Equinox.

Our unique dealer channel minimizes fixed cost, builds brand loyalty and exposure and enables flexibility to quickly adjust to changing market conditions.

Our planned acquisition of SolarWorld Americas will further expand our go-to-market platform by virtue of their legacy distribution network.

Now let me turn to commercial.

We remain the #1 market share player in commercial today with more than 1.2 gigawatts of commercial projects in operation across the country for both the public and private sectors.

We offer our commercial customers the broadest product offering in the industry, including roof, carport and ground-mount systems, all driven by our standardized Helix product architecture that reduces installation time, lowers cost and improves performance.

Last year, we incorporated storage into our Helix product line to allow our customers the ability to reduce demand charges in peak energy prices.

Customers are finding the economics compelling as the attach rate of storage has climbed to 30%.

Before turning the call over to Chuck, I would like to say a few words on some cross-platform benefits we see in our DG business, specifically with respect to channel structure and storage integration.

Let's start with scale.

On a combined basis, residential and commercial, our U.S. DG business currently sells about twice the megawatt volume compared with our nearest downstream competitors.

As we further increase market share and drive scale across our DG platform, we believe that our operating cost advantage will continue to widen.

Secondly, storage.

Since 2015, we have been developing solar-plus-storage solutions for use in our commercial channel.

We have developed proprietary software algorithms to learn customer electricity usage patterns, forecast solar system output and decide when to dispatch a given quantity of stored energy for maximum economic benefit.

SunPower has the largest installed DG fleet in America, and no one understands solar system performance across the country better than we do.

This has 2 benefits.

First, our deep system performance understanding has allowed us to develop smarter algorithms that require less storage for the same customer benefit.

And second, we can guarantee system performance to our customers with higher confidence.

The next step for us is to leverage the software tools we have developed and deployed in the commercial segment in our residential systems business.

Finally, we see increasing synergy across our DG platform as both our residential and commercial reseller networks share channel management tools, common energy and data monitoring platform as well as the internal resources such as financial product development and operations.

In short, we believe that we can capture increasing synergy from the operational integration and continuing scale-up of our U.S. residential and commercial organizations.

Before I conclude, I want to thank Chuck Boynton for his 8 years of service to the company.

He has been an excellent partner, key member of the executive team and great contributor to SunPower.

While he will be missed, we want to wish him the best of luck in his future endeavors.

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

Chuck?

Thanks, Tom.

Good afternoon.

Before getting started, I'd like to thank Tom and the Board of Directors for allowing me to serve the company the last 8 years.

SunPower is a great company, and I have enjoyed working with a world-class team.

With the significant progress we have made in our transformation and the company on solid footing, I felt that this was the right time to step down.

To remind everyone, we started the transformation over a year ago when we made the decision to sell 8point3.

This was followed by the plan to sell other assets to generate cash, delever our balance sheet and simplify our financial statements.

I'll comment more on this later.

But now as we near completion of this phase of our transformation plan, I decided to take a break.

I will officially hand the reins to our new CFO after our 10-Q is filed but will remain with SunPower for a couple of months to ensure the asset sales are complete and a smooth transition to our new CFO, Manavendra Sial.

In addition, I've agreed to remain as the Chairman and CEO of 8point3 until we complete the sale.

Now let me review the financials.

Please turn to Slide 12.

We are pleased with our results for the quarter as we exceeded our revenue, margin and adjusted EBITDA forecasts.

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

Power plant was lower sequentially due to a large project sale in Q4 but better than planned due to the sale of our 128-megawatt (sic) [126-megawatt] Guajiro development project.

Our commercial business was in line with prior year with solid bookings.

We saw a strong year-over-year growth in our residential business as our North American team posted a record Q1.

Overall, our consolidated non-GAAP gross margin was 6.5%, ahead of plan, in line with last year even after absorbing tariffs and a material onetime charge.

Specifically, the onetime charge was a $25 million impairment related to the sale of our power plant assets in the U.S. In our power plant segment and as a company in total, excluding this charge, our margins were up significantly from a year ago.

Commercial margins were up year-over-year yet down versus last quarter due to fixed overhead costs and seasonality of project completions.

In residential, as I mentioned, we saw record results in the U.S. with Europe and Japan again ahead of plan.

Overall margin was 19%, up both year-over-year and sequentially.

In North America, cash and loan sales were 58% of our shipments, while 42% were lease, with the mix change due to system install timing and seasonal effects.

Overall, we deployed 98 megawatts of residential products globally, in line with our forecasts.

Non-GAAP OpEx was $76 million for the quarter, down sequentially as we continue to reduce expenses.

We remain on track to reduce operating expenses by at least 10% this year.

Finally, CapEx for the quarter was $9 million, below our forecast.

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

Please turn to Slide 13.

The overall goal of our transformation plan is to generate cash and return to sustained profitability.

We are making great progress with our cost cutting and expect to close on significant asset sales in Q2 as well as the second half of 2018.

We have a convertible debt maturity on June 1 that we believe we are well positioned to pay off with cash from our current cash position, our undrawn revolver and the pending sale of 8point3.

In the event the sale of 8point3 is delayed, we have lined up a low-cost bridge facility for $300 million.

We are making solid progress in our plan to simplify our financial statements.

Specifically, we plan on selling both our residential and commercial lease portfolios.

When complete, we expect to generate approximately $200 million of incremental cash from the existing assets and achieve deconsolidation.

In addition, for new lease systems, we plan to have full upfront GAAP sale treatment.

We expect this to close in several phases with the first transaction in Q3.

We believe this change will make it much easier for investors to understand the fundamental performance of SunPower and materially simplify our financial statements.

Tom will discuss this in our guidance, but one impact is after this transaction is complete, we expect to no longer record NCI income, which will reduce our reported adjusted EBITDA.

Finally, we adopted the new accounting standard ASC 606 and elected the full retrospective method so prior periods will be comparative.

This new standard had a material positive impact on our balance sheet, improving shareholder equity by $445 million.

The pickup in equity is due to historical deferral of revenue recognition under real estate accounting.

Now that we've adopted 606, 8point3 is reflected at approximately the expected sale price on our books.

I would now like to provide a brief status on 8point3 transaction as well as our power plant development pipeline.

For 8point3, the partnership proxy was declared effective, and the shareholder vote is scheduled for May 23.

All other regulatory approvals are in process.

When closed, we expect this transaction to generate approximately $380 million in cash to SunPower.

As we have discussed in the past, we have been transitioning away from power plant development to SunPower Solutions.

We have now decided to stop pursuing new power plant development projects and plan to sell the remaining portfolio of projects.

Because of this change, we recorded a $25 million impairment charge in both GAAP and non-GAAP in our power plant segment.

We are making progress on the sale of these assets completing one project sale in Mexico in Q1.

We expect to close more sales in Q2 and be substantially complete by Q3.

When the asset sales and lease monetizations are complete, we not only expect to generate significant cash but also to eliminate approximately $400 million of nonrecourse debt from our balance sheet.

In addition, with the maturity of our 2018 convert, we will reduce our recourse debt by approximately 25% with the next major maturity not until 2021.

With these transactions, we will further derisk our business, improve our capital structure and provide the resources to regain long-term sustained profitability.

In summary, we were pleased with our performance in Q1 as well as the progress we made in the transformation of SunPower.

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 and fiscal year 2018.

As a reminder, our guidance assumes our estimated impact to the 201 ruling for Q2 in 2018 as a whole.

Please turn to Slide 15.

Second quarter fiscal 2018 GAAP guidance is as follows: revenue of $360 million to $410 million, gross margin of 2.5% to 4.5% and a net loss of $125 million to $100 million.

Second quarter 2018 GAAP guidance also includes the impact of revenue and timing deferrals due to sale leaseback transactions as well as the impact of charges related to the company's restructuring initiatives.

On a non-GAAP basis, the company expects revenue of $375 million to $425 million, gross margin of 6% to 8%; EBITDA of $10 million to $35 million and megawatts deployed in the range of 350 to 380.

Second quarter non-GAAP guidance reflects timing differences related to the revenue recognition of certain power plant projects during the quarter.

For 2018, please turn to Slide 16.

We expect revenue of $1.6 billion to $2 billion on a GAAP basis and $1.8 million to $2.2 billion on a non-GAAP basis with gigawatts deployed in the range of 1.5 to 1.9.

The balance of the company's fiscal year 2018 guidance is as follows: non-GAAP operational expenses of less than $290 million and capital expenditures of approximately $100 million.

Our 2018 guidance does not include the impact from our proposed acquisition of SolarWorld Americas.

Also, we now expect fiscal year 2018 adjusted EBITDA to be in the range of $75 million to $125 million.

This range assumes a $55 million negative impact related to tariffs associated with the Section 201 trade case as well as a reduction of approximately $50 million of noncontrolling interest income resulting from the anticipated sale of the company's lease portfolio in the second half of the year.

On a comparative basis, under the same assumption, guidance reflects 10% to 15% year-over-year adjusted EBITDA growth, and we expect further EBITDA improvement in 2019.

We'll take questions now, please.

(Operator Instructions) Our first question comes from Tyler Frank.

Robert Baird.

Can you just discuss the overall outlook now for potentially getting an exemption for Section 201?

Is that off the table completely?

And then, it seems like you're going to transfer more to a U.S. focus.

How should we think about that given the ramp up of P-Series both in Mexico and then here in the U.S. after the acquisition of SolarWorld?

So you should absolutely not interpret that we incorporated tariffs into the rest of the year.

We do not think we're going to be excluded.

We just chose to be really clear about the size of the tariffs this year.

And rather than go down from a bigger number, we just subtracted it.

We absolutely expect to be exempted.

We think that we meet the criteria better than anyone.

So if anybody's exempted, it should be SunPower.

I think those criteria are familiar to most.

Obviously, we've never been subsidized by the Chinese.

We have unique technology.

Only we can make it.

The American consumer wants it, and it's exactly what USTR has asked.

Now having said that, we don't know the timing of that, and of course, we don't know the answer.

I will be in Washington, D.C. again this Thursday, making sure that we've communicated and answered any questions that needed to be answered.

In terms of U.S. concentration, what I would say is that it would be fair to say that we're increasingly focused on the U.S. because we are a U.S. company.

Our product works great in this market.

The U.S. market is increasingly a DG market that plays to SunPower's strengths.

However, as you point out in your question, we have other module technologies, that being the P-Series technology, and that address the power plant market and most importantly, the international market.

So I wouldn't say that we're overly dependent on any region.

And those of you that have tracked us as a company know that we've always focused on being regionally diversified because policies can change, and I think we continue to be well diversified.

Our next question comes from Brian Lee.

This is Hank Elder, on for Brian Lee from Goldman Sachs.

So at some of the state, solar data is beginning to pick up, and then your strong results suggest trends are improving year-over-year.

So I know, you said 20% year-over-year for DG is the growth we can expect.

But can you quantify what you think the residential segment will do?

And then how does that compare to kind of the industry expectations?

Thank you, Hank.

I think what we're seeing in U.S. resi has been a record Q1.

We believe that we're taking share.

We expect to have continued share gains.

And that I think what we would say for that U.S. market in light of the various policy is that there will be growth, and we expect to grow faster than the market.

Also, we're #1 in commercial.

We expect to maintain that and grow share in commercial.

Do you think that 35% that you guys did in 1Q can continue?

Or do you expect that to kind of head down towards 20% as we go through the year?

Yes.

I would say that the latter, that it will moderate.

We still expect growth, but it won't be at that rate.

What we're pointing to is that Q1, which is a seasonally light quarter for the solar industry, our products did particularly -- our products and solutions did particularly well.

As the market comes back, as it normally does during the summer months, we'll still grow favorably but not as fast.

Okay.

That's helpful.

And then on -- I mean, I guess, sticking with resi, you called out the $200 million of proceeds from the lease monetization in total but coming in phases with the first one in 3Q.

So how much of that $200 million could we expect in the third quarter?

And then kind of what's the time line for realizing the full $200 million?

Yes.

A little more than half in the third quarter, and the balance should be in -- the rest of Q3 and Q4.

It could spill into Q1, so we haven't guided that far out.

But I would say, out of the $200 million, we expect more than half in Q3.

Got it.

And then just one last one, and I'll pass it on.

But the development megawatts, and I know you sold the 1 project in Mexico.

But how much is left?

And what was the impact to the P&L into the power plant segment from that sale?

I guess, how should we model this going forward?

I would model it at roughly neutral for the U.S. We took an impairment charge in the U.S. We expect to sell that portfolio.

It's about a 2-gigawatt portfolio of various LAN positions and interconnections.

We will -- we likely will sell that in the second and third quarter.

And the -- we would expect to not have a P&L gain or charge.

We took a charge in Q1.

There is another portfolio in Mexico and elsewhere around the world that we could have substantial gains in the future, but those are not in the near-term horizon.

And in terms of the impact on Q1 of...

$25 million impairment charge, and then there was a small gain in Mexico for the sale of Guajiro.

Our next question comes from Pavel Molchanov.

Raymond James.

A simple question, would you do the SolarWorld deal if there were no Section 201 tariff?

Unlikely.

Okay.

Clear enough.

Given that you're not giving any guidance on the -- at this point on the incremental uplift on financials from SolarWorld, I guess, in advance of that guidance, how do you want us to think about the accretion dilution of this transaction since we don't know the purchase price or any of the other metrics?

Yes, fair enough.

What I would say -- and you know what, Chuck, add some color, if you'd like.

What I would say is, first of all on the purchase price, we gave you some sense of the materiality, which is not to our financials.

Next, the fundamental question in SolarWorld is a couple fold.

One, how much improvement can we make and how much of it will be complementary to our existing products.

We're optimistic on both fronts, so we think that there'll be a market share gain by virtue of their product and their distribution channel.

This gives our DG customers a comprehensive product offering as we did mention in our prepared remarks.

So we expect that to be favorable.

On the other hand, there's some OpEx that we'll need to absorb from the facility that would require us to have complementary sales.

I think the net of that is we're optimistic.

We're just a few weeks post acquisition announcement.

Of course, we're mostly focused at this point on closing which has [CPs] and government approval, so that's mostly what we're focused on.

Hopefully, that was helpful, Pavel.

Yes.

I think, Pavel, on the accretion dilution, what I would say is the cash purchase price is not material.

We can't disclose the terms due to confidentiality.

But what I would tell you is the bull case is extremely accretive.

And again, that will unfold over the next couple of years.

And we think the synergy, the technical synergies are quite high.

We know how to run factories at a world-class level, and we can improve operations, improve reliability and quality.

And so there's a very great bull case, and we don't think the downside case is very high.

And so I'd say -- I would say neutral from a planning standpoint, but we think that we can do better and really drive good profits and make it significantly accretive over time.

Our next question comes from Julien Dumoulin-Smith.

BAML.

Could we go just back to the NCI impact here on the residential solar piece?

Can you talk a little bit about how that annualizes into '19?

And then also talk about how much of the backlog of the 2 gigawatts is reflected in that -- in the initial adjusted EBITDA for 2018.

I think you said relatively limited impact there, but I just want to make sure.

That's correct.

So I'll first do the impact on the pipeline sale.

We don't think it's going to have a material impact, up or down, on the rest of the year.

We took a $25 million charge in Q1.

There could be some gains in international portfolios, but they would be modest likely in '18.

So that one, I would say, from a modeling standpoint, the core EBITDA is our core operating performance, not asset divestitures.

As it relates to NCI, Julien, of course you know, NCI is effectively the tax benefit that we generate by monetizing tax equity for residential leases and in some cases, commercial.

What we're guiding is there would be no NCI income in Q3 and Q4, as we would expect to deconsolidate leases going forward, and that has a negative or adverse impact because we will not take that NCI income, HLBV income to our P&L.

On a run rate basis, that is, you can look historically, it's $25 million to $30 million a quarter of NCI benefit, and there is some seasonality.

So going forward, we would not be booking that.

Our core view on EBITDA, generally, is we have -- we will have growth year-over-year, '17 to '18, and we'll have growth again into '19.

We expect even more growth into '19.

And so what I would tell you is the core performance is improving, and we feel like we're turning the corner overall on the core operating performance.

NCI adds a little bit of complexity and noise to the system, and so we want to kind of guide you that we'll take that out going forward or likely would have that out.

And if things go well, we would be in that position in Q3 to not be recording NCI income.

Got it.

What about just on adjusted EBITDA altogether with respect to the residential solar piece rolling off?

Just to understand like sort of on a run rate basis, if you were to kind of think about the composition there, net of the (inaudible) were back up here.

Yes.

What I'd tell you is that it's a really good business.

The core residential business is a really good business.

We've seen margins that are, this past quarter, 19%.

We think that business is 20% to 30%, I'd call it 20% to 25% in a near term.

But we're taking costs out in a fairly rapid way, and we see margin expansion in residential, not just in the U.S., quite frankly.

In Europe, we had a really strong quarter.

We see Q2 being a good quarter in Europe as well.

So globally, residential and DG in general is a terrific business.

Okay.

We're going to take one more question.

I believe, it's from Colin.

One more question comes from Colin Rusch.

Oppenheimer & Co.

Can you just talk about the relationship of SunPower technology on an ongoing basis with that utility portfolio that's for sale?

Will the technology continue to be designed into those projects?

And do you expect to negotiate equipment sale pricing in conjunction with the portfolio sale?

So I -- all to be determined.

I would say as a rule, we'll separate the 2, and SunPower Solutions will sell on its own merits, which, given the multi-gigawatts of the installed capacity, we have lots of experience and, I think, a great solution.

So we're going to separate those 2 things.

And it's hard to project what percent would have the attach rate of SunPower Solutions.

We're not banking on that in our guidance for SunPower Solutions, by the way.

Great.

And then there's a lot of moving pieces here on the restructuring of the business.

And do you have a sense of the full time line for seeing the company kind of cleaned up and ready for that sustainable run rate?

Is that 2 quarters away, 3 quarters away?

Do you think it's going to take longer than that?

So I think we're turning the corner this quarter.

We are materially through the asset divestitures or they're at least materially on course.

And thank you, Chuck, for accomplishing that.

We've had a significant reduction in operations expense, and we're going to see the benefit of that as we get to the back half of this year and go into next year.

So the culmination of that effort, plus greater focus on 2 businesses, that being upstream and downstream, happens over the next quarter or 2. And we think we're in sustained profitability by the fourth quarter of this year going into 2019.

Thank you very much for your time, everyone.

We look forward to our next call.

And also, I should mention, we will have an Analyst Day in the second half of the year, so we look forward to seeing you there.

This concludes today's conference.

Thank you for joining, and you may now disconnect.