Good afternoon, and welcome to SunPower Corporation's First Quarter 2015 Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Mr. Bob Okunski, Senior Director of Investor Relations, SunPower Corporation. Sir, you may begin.

Thank you, Carolyn. I would like to welcome everyone to our first quarter 2015 earnings conference call. On the call today, we will start off with an operational review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our first quarter 2015 financial results. As a reminder, a replay of this call will be available later today on the Investor Relations page of our website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the Safe Harbor slide of today's presentation, today's press release, our 2014 10-K and our quarterly reports on Form 10-Q. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. To enhance this call, we have also posted a set of PowerPoint slides, which we will reference during this call, on the Events & Presentations page of our Investor Relations website. In the same location, we have posted a supplementary data sheet detailing some of our historical metrics as well as an additional document providing historical data related to our new segmentation reporting structure that we announced last quarter. Finally, we will not be taking any questions related to our proposed joint yieldco vehicle with First Solar. All publicly available information related to the transaction is available in our original S-1 and subsequent amendment, which are both on file with the SEC. We will provide additional details through updates to this document. 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 start by providing some brief comments on the quarter before discussing our performance in greater detail. Please turn to Slide 4. Q1 was another solid quarter as we executed well across all geographies and end segments. Shipments for the quarter were strong despite the further build-out of our yieldco assets as well as the shifting of a few projects in China. In our power plant business, we've met our U.S. project milestones, including Solar Star and Quinto, while starting construction on our second project at Nellis Air Force Base. Internationally, we dedicated our merchant plant in Chile and expanded our footprint in South Africa as we started construction of our Prieska project. In APAC, our focus remains on China, where we were pleased to announce our latest projects with Apple, adding to the projects we have done with them in the United States. In distributed generation, we saw solid demand in the U.S. and Japanese residential markets. Our North American commercial pipeline also continued to grow as we announced a number of agreements in both the public and private sectors. We see the commercial segment offering significant opportunity for growth. Finally, we continue the development of our Smart Energy platform through an exclusive commercial partnership with EnerNOC. Upstream, we executed well on our technology and cost road maps, while achieving record cell output during the quarter. The ramp of Fab 4 is on track with first silicon expected mid-year. I would now like to provide more color on each segment of our business starting with power plants. Please turn to Slide 5. In the Americas, construction at our 579-megawatt Solar Star project remains on plan, with more than 500 megawatts already grid-connected. We expect to achieve full project completion in…

Thanks, Tom. Good afternoon, and please turn to Slide 7. For today's call, I will focus my remarks on our Q1 performance. Before we get started, I'd like to remind everyone that we initiated our new segment reporting structure in Q1, which is now based on our end customer categories rather than geographic regions. We believe that this structure provide more transparency about our business while giving investors a greater understanding of our model. As Bob mentioned, we provided a table detailing our historical performance based on the new segmentation in the appendix of our Q1 presentation deck as well as posting a document on our IR website. Q1 was another solid quarter for the company as we executed well in all geographies and end market segments, generating $58 million in EBITDA while building and adding to our holdco asset strategy. As a reminder, EBITDA would be substantially higher if we were not building assets on our balance sheet in support of our proposed offering of 8point3. I will provide more detail on our holdco assets later on in my remarks. Again, our strong performance was led by our utility and power plant business, specifically Solar Star. Additionally, Q2 bookings to date have been solid in all segments, giving us confidence that we are well positioned for future long-term growth. Specifically on the P&L, non-GAAP revenue was down sequentially but in line with our forecast as we executed well on our commitments despite some seasonality in our residential business. Power plant and commercial revenue declined sequentially, primarily as a result of projects that we are building on our balance sheet related to our holdco strategy. Our non-GAAP gross margin for the quarter was 20.5% and above our guidance. Power plant margins were on plan, led by our large U.S. projects,…

Thanks, Chuck. Looking forward, we believe that our underlying business fundamentals continue to remain strong for 2015. As a result of our announcement on February 23, announcing our intention to form 8point3 Energy Partners as well as our pending S-1 registration statement, we are withholding our fiscal year 2015 financial guidance until such time as we can finalize the impact of 8point3 on our expected financial performance. However, on Slide 12, we have provided our forecasted recognized and deployed megawatts for Q2. With that, I would like to turn the call over for questions. In addition to Chuck, we also have Howard Wenger, President, Business Units; and Bob Okunski, our Senior Director of Investor Relations. Questions, please.

[Operator Instructions] Our first question will come from Brian Lee.

Goldman Sachs. I had 2 of them. First one was on just the pipeline. So the holdco was relatively flat here, but your overall market prospects, they seem to be pretty positive based on the prepared comments and across a number of geos. So just curious how you're thinking about what gets retained on the balance sheet and holdco, yieldco versus what you sell to third parties and what the criteria are for that decision process.

Great. Brian, thank you. This is Chuck. So we did -- we've got a great quarter starting off in Q2, booking the Stanford deal at 68 megawatts. That, as you see from the filing, is now in the ROFO list. Q1, the bookings that -- we had a great cash quarter of cash bookings. Our PPA bookings were primarily in residential. As we look forward, we'll find many more PPAs in North America and internationally, and the key focus for 8point3 would be in the OECD countries as we've referenced in the S-1. We do plan on doing many other projects outside of the OECD countries, and there, we'll traditionally finance with a project that unlikely sells the equity.

Okay, fair enough. But I guess, maybe it's just a simple question, but how do you guys think about what actually sits at the ROFO list level versus what actually gets housed in what you are officially calling the holdco pipeline?

Fair enough. So in the ROFO list, we work with First Solar and the -- and our bankers to put the assets that we thought would be most appealing, so there's a broad list from both companies. Additionally, both companies have many assets that they plan on holding and may sell later to 8point3 or might sell to other third parties or retain long term. It's really our decision and First Solar's decision on that long term.

Okay, fair enough. That's helpful. And then second question was around the comments you made about the commercial segment margins, and thanks for breaking those out by the way. But can you elaborate on what the new technologies are that are going to reduce the costs in that segment to drive the margin expansion you're targeting? And then related to that, how should we think about the long-term gross margins by segment? And how does that look when you're monetizing via the yieldco strategy? Fair to assume that we could see additional margin expansion through that vehicle?

This is Howard. I'll do the cost and product piece, and Chuck will follow up on the margin piece. We're really excited about the commercial market. We've got a long legacy there, starting with our acquisition of PowerLight more than 7 years ago. We're fully integrated to the customer. We have our own sales team, our own EPC. We provide a full turnkey solution. We are driving costs down. What we're doing is we're following pioneering work we did in the power plant business with our Oasis product, where we have a modular product plug and play. And we're applying that to the commercial segment, and we're rolling those products out this summer. It's a full turnkey solution for roof, ground and parking. And so that's just part of the puzzle that we have. Our unique partnership with EnerNOC, where there's a convergence of the PV solution with digital and a full energy connectivity to the customers so they can help manage their demand and get maximum savings on their buildings. So that's how we're approaching it. So I'm going to pass it to Chuck.

Great. And on the -- Brian, on the margins by segment, I mentioned that we expect our commercial margins to grow high teens, low 20s. We certainly do projects all the time that are -- margins that are well above that, and there's a global mix that you'll see that has impacts over time. On residential, our margins this quarter were 22.7%. That does not include NCI, and NCI is a great value in residential. If you added that, margins would be closer to 30-plus percent. If you look power plants, again, it's depending on geographic location and the ultimate sale price. For the quarter, we were 22% for power plant. And then your question on the impact of selling to 8point3, I -- the sales will be at market prices to 8point3. So we think that we'll have consistent margins over time, and we'll get the benefit as well of the IDRs and dividend growth of our shares. So we think that there's -- it's a great model both selling to 8point3 and selling to third parties.

Our next question will come from Patrick Jobin. Patrick Jobin - Crédit Suisse AG, Research Division: Crédit Suisse. A few here. Just following up on that kind of drop-down pricing mechanism. As you think about a hybrid model, is there any way you can tweak value maximization if you push down to accelerate more the IDRs or kind of wanting to keep some EBITDA on the parent level, I guess is the first question, kind of your thought process there. And then the second question is just better understand the commercial gross margins today. I guess that was a little lower than we were thinking about.

This is Tom. I'll take the first part. Just some general comments about the yieldco and maybe working off of Brian's question as well. The yieldco gives advantages -- the proposed yieldco gives advantages to sponsor co, i.e. SunPower, by virtue of having a predictable place to sell projects in -- more frictionless in terms of the way the terms will work. And there's economics that improve because of that, so it does allow us to be more competitive as we look at -- as we approach different markets. Then as you talk about how much of that aggressiveness do you put into the sale of the project versus building into the drop-down, I'll let Chuck speak to how we think of the different cash flow and CAFD, IDRs.

Great. And we can't talk a lot about 8point3 in this phase, and so we look forward to having a lot more detailed discussions with you over time. But clearly, as I mentioned, valuation of SunPower, there was the traditional EBITDA value to SunPower as well as the share price in our ownership in 8point3 and the IDRs. If you read the registration statement, you'll see we have this expanded IDR structures, which we think will provide great value to SunPower and First Solar long term. Unfortunately, we can't get into those details until after we've completed the offering. Patrick Jobin - Crédit Suisse AG, Research Division: Okay. And on commercial gross margins, just to better understand that 6% level. What's causing that today?

Sure. This is Howard. I'm going to answer that. We -- it's a function of mix. So we're a global company. We have commercial business in the European continent and as well as Asia Pacific and the U.S. What we see going forward are sequential margin improvement in commercial business as we move more of our business to the U.S. and into complete solutions. So we're very optimistic about the commercial business and our ability to attack it with complete solutions, increasing ASP, better customer capture and improved revenue and margin outlook. Patrick Jobin - Crédit Suisse AG, Research Division: Okay. Just last one from me, sorry. Storage plus solar, what are your views on kind of the economics of the storage solution and kind of when you would anticipate some type of inflection point bundling those offerings?

This is Tom first, and Howard will add on. So we've been optimistic in investing in the combination of solar plus storage plus energy management, and we will have a comprehensive offering. We already do cell storage. We'll have a comprehensive offering of all 3, as Howard mentioned, this summer. So it's a really powerful proposition because of the obvious things you can do, you can use solar when you want, you can optimize load. So again, you'll see that this summer. In terms of projecting when storage is economic, the last comment I'll make is it depends on the application and what the energy is worth to the customer. So it's economic today where the loss of energy is very expensive to the customer, so for example, a battery backup where, again, downtime would be really catastrophic. But if you wanted the mainstream storage, I'll let Howard take that piece.

Yes. Probably the best applications for storage in solar today are in the commercial segment. And as Tom mentioned, it depends on geography. So where there are places of high demand charges where you can clip the peak demand of the customer, you can really realize some significant demand charge savings. So those are places like California and New York and Hawaii. And we're seeing paybacks that can be less than 5 years, to give you a feeling. Residential in the U.S., the economics of storage, because solar isn't predominantly places where there's Net Metering, the economics of storage are more challenged, but there's still value to the customer because you're providing backup power and security. In places like Germany, storage with residential customers is quite powerful because there, you can increase the self-consumption and get the full value of the solar generated and export less to the grid, capturing high retail price. So it really depends on geography and segment.

Our next question will come from Ben Kallo. Benjamin J. Kallo - Robert W. Baird & Co. Incorporated, Research Division: Robert W. Baird. Just on a higher level, could you guys talk about the overall health of the market and then maybe looking ahead to some of the new markets developing in '16, '17, where you guys are seeing opportunity?

Sure. What I would say is in Q1, markets were really good, and as we look forward, they're quite strong -- they continue to be quite strong. As you look at sort of a regional breakdown, North America is growing really rapidly and will continue to do so. And as we all know, we think the ITC is not predictable which way it will go in January of '17, so that likely will be a catalyst for further growth in the next 18 months. And so business is very strong. China has insatiable demand, almost. They're installing as much as almost the rest of the world. And Japan continues to be strong as we speak. In Japan, the FX is not going at direction a favorable to a company like ours, although we do sell in U.S. currency. As we look out to '16 and '17, of course, as costs come down -- as we drive costs to come down further, we think North America will still be strong, and we model that with various ITC scenarios. However, for sure, the economics are getting very favorable for countries like all of South America, especially the strongest economies there, that being Chile and Brazil, but you'll see solar in all of those countries. We expect Mexico to be coming on as the market policy becomes more clear in the next 6 to 9 months. Those -- and then, of course, China will be a volume engine for sure for the solar energy for the indefinite future. And Japan, we think likewise, that it's got sustainable demand. It just makes sense in Japan, and that will be a good market for the long term. So add South America and Latin America to the existing markets would be my answer for '16 and '17. Benjamin J. Kallo - Robert W. Baird & Co. Incorporated, Research Division: And one more question on the new fab. Could you just talk to us about how comfortable you are with that original 30% cost down now that you have your own, I think, Fab 2 and some of the changes there and then how confident you are for first silicon in the second half after the pushout?

First of all, it can well happen in the second half, so extremely confident. The cost down will be certainly north of 20% and approaching 30%, and you shouldn't read that as a walk away from the commitment. It's just that we haven't started producing yet, so as committed as ever. I will give you some statistics. We've done 100,000-cell, what we call, soft turn-on run, and the performance of those cells was above the efficiency target of the fab. And the yield was close to the efficiency there or the yield targets of the fab, which indicates it will get higher performance and likely hit the economics. And I've been around since the original fab, and I have to smile when I talk about 100,000-piece first turn-on run, how far we've come. That would have been the first year probably in the old days. So we have a very good sense of how this fab is going to perform, and we have data that suggests it's going to hit plan or beat plan.

Our next question will come from Krish Shankar.

Bank of America Merrill Lynch. I had 2 of them. Either Chuck or Tom, how are you arranging construction financing today? Is it primarily through revolvers? And also, do you see that changing ahead of -- through use of warehouse facilities or something along those lines so that you have a more repeatable financing vehicle? I also have a follow-up after that.

Great. Krish, it's Chuck. Thank you. So we've done multiple facilities recently. Hooper was closed, and that's a traditional mini-perm structure that gives us flexibility long term. We have the same facility with Quinto. We have not used our corporate revolver, and we have considered a warehouse for smaller projects. But quite frankly, we've got a very strong balance sheet and lots of cash, so we didn't like the economics of a smaller facility. But for large ones, like Hooper and Quinto, a mini-perm facility we thought kind of best suited our needs.

Got it. That's very helpful. And then a follow-up for Tom. Obviously, with the pending yieldco, there is no full year guidance. I'm kind of curious -- when you look into 2015, are there any tangible or quantifiable goals that you can tell us that you have for this year for SunPower?

Well, for sure, your question is which ones will we highlight. But we will grow as a company. We do -- pending SEC comments and finalization of the process, we do plan on launching the yieldco, which makes us more aggressive in terms of pipeline acquisition for '15 and beyond. Another goal is to establish a strong presence in the markets that are going to be big in '16, '17 and '18, which we are accomplishing. And I would add China, that China is very successful for us as a company. We've installed 60 megawatts so far, and we have an increasingly large pipeline of projects in China. So getting China to an efficient model that will allow us to capitalize on the size pipeline that we're developing is also a key goal for the year. And then, of course, as Ben asked the question, to get additional capacity on our latest generation of technology that allows us to grow in '16, '17 and '18. Those would be the top 4 or 5.

Our next question comes from Vishal Shah.

Deutsche Bank. Tom, I guess, first question on the U.S. market. As you think about ITC and the tax equity availability, I mean, do you have a time line as to when -- by when these projects need to be on the ground in order to get a tax equity? Are we talking first quarter of 2016? Or you can actually start construction of a project even late 2016 and expect to get an ITC?

Well, I can give a really broad answer and let Chuck or Howard add on. But I think what we're going to see, Vishal, is compressed construction cycles. We've been through a few of these. Those of you who have been with us for a while, we've been through incentive that have lapsed. And what we find is, is that you can do some amazing things in short order. So I would think that time line is towards the middle of or late even '16.

Yes. That's right. I mean, so our planning model has the projects that we're using tax equity to finance, completed by the end of '16, COD.

Okay, great. That's helpful. And then you guys mentioned that you also may be looking to do some M&A once the yieldco is up and running. Can you really just talk broadly speaking about how the environment is for M&A right now in the U.S? And also, I mean, if you think about the growth that you're expecting beyond 2015, a lot of the growth is going to come from sort of the non-OECD countries. And one -- at least one of your competitors talked about an emerging markets yieldco. So how do you plan to monetize some of that growth that you expect to see? Do you have any thoughts on another yieldco in the long run?

Sure. I'll take the second part first. So we have been selling international yieldcos, and I'm not sure there's a public market that we see that is bullish about that in the short term given the risk profile. However, we have been doing syndicated deals internationally in some of these countries, and we have a distinct advantage with Total as a partner doing co-development. We see many of these emerging markets as great opportunity for us to develop with Total and even with other partners. In some cases, we retain small equity ownership percentages, like in South Africa. In other cases, we chose to outright sell the equity. So I think over time, we'll look at these new and emerging structures. But today, the markets we're focused on in China, we have strong partners there. And in the -- in Africa, Middle East, we're working with Total, the partner. And in the first part, on M&A, we always look at pipeline. We always look at new opportunities, and there are many projects out there where we like the position that we have with our pipeline and the projects that we're building. But of course, following 8point3, as you suggested, we'll continue to evaluate new opportunities.

Yes. I think, Vishal, we're going to end our comments with that last question, that we're on a strong position. Because of our organically grown pipeline, we're not in the position that we necessarily need to acquire, but we are aggressively looking at all opportunities that we can find. So if somebody listening to the call has a great pipeline, please do contact us. But again, we're in a position where we can be selective. We really appreciate everybody calling in. We know you have another call to go to, so thank you. A strong quarter for SunPower, and we look forward to our next call. So thank you very much.