SunPower Corporation
Q2 2017 Earnings Call Transcript

Published: 2 Aug 2017

[Unknown Speaker:]

[Abrupt Start]

[Operator:]

...and all participants are in a listen-only mode until the question-and-answer session of today's conference. I would now like to turn the call over to Bob Okunski, Vice President of Investor Relations at SunPower. You may begin.

[Bob Okunski:]

Thank you, Gee. I'd like to welcome everyone to our Second Quarter 2017 Earnings Conference Call. On the call today, we will start out with a strategic and operational review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our second quarter 2017 financial results. Tom will then discuss our outlook for Q3 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 statement. 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'll begin on slide 3. Tom?

[Thomas H. Werner:]

Thanks, Bob, and thank you for joining us today. Today, I'll start by reviewing our performance for the quarter by segment. I will then reiterate our strategy and key initiatives we are pursuing to position SunPower for long-term success before concluding with some remarks on the Section 201 trade case. In Q2, we achieved our financial goals, including our cash generation and adjusted EBITDA targets. Please turn to slide 4 for a review of our residential business. We executed well on residential, delivering a sequential increase in megawatts deployed and megawatts recognized. ASPs are relatively stable and demand for our industry-leading X-Series panels and Equinox complete solutions remains strong. In the U.S., we saw a continued modest mix shift to lease. We once again exceeded plan in both Europe and Japan and continued to gain share in both markets. We are also seeing continued traction in our new homes business as we exceeded plan for the quarter. As a reminder, we have partnerships with seven of the top 10 new homebuilders in the country and see significant opportunity in this market. Looking forward, we expect continued strength in the second half of the year in the U.S. market, driven by Equinox adoption rates of 85%. Additionally, we plan further expansion of our dealer network and third-party channel partnerships in Japan. Moving on to commercial. Please turn to slide 5. The fundamentals for our commercial business remain solid. Adoption of our Helix product is strong, and with a pipeline of approximately $2 billion, we are well-positioned to grow our commercial business going forward. Recent commercial project highlights include commencement of construction on a 4-megawatt system at Campbell Soup global headquarters, award of a 5-megawatt project for UC Merced that included 500 kilowatts of battery storage; as well as an additional order from 1-megawatt of storage at our 10-megawatt Redstone Arsenal Army project. We are also seeing continued strength in our commercial dealer channel or CVAR network, where we are 100% booked for Q3. Looking forward, we see further deployment growth of our Helix systems across rooftop, ground-mount, and carport applications, and continued expansion of our solar and storage project pipeline driven by policy support in key states. Now let's review our power plant business. Please turn to slide 6. In Q2, we executed our key project construction milestones including completing panel installation at our 110-megawatt El Pelícano project, which remains on plan to be sold in Q4. We also completed the sale of our 46-megawatt Tono project in Japan, and we're awarded a 10-megawatt project for Oklahoma Gas & Electric. As discussed in our live call, our primary focus for the global power plant business going forward will be supply of complete equipment solutions to our new SunPower Solutions business unit. We believe that this Group will be a key growth driver to the company going forward. In Q2, we delivered equipment solutions to 28 countries, including our first significant order for India. SunPower Solutions has booked or contracted 250 megawatts during the quarter. We are fully booked for Q3. Looking forward, we plan to complete more than 500 megawatts of projects in the second half of the year while continuing to ramp our global solar solutions business. Moving on to the upstream part of our business. Please turn to slide 7. Overall production was on plan as we met our yield, output, cost targets for the quarter. In particular, Fab 4 continues to outperform, as we again beat our cost and efficiency targets. As a reminder, average production, cell efficiencies at Fab 4 now regularly exceed 25%. We are also pleased with the ramp of our DZS JV in China, which produced their first 19% efficient mono-PERC P-Series panels and is on track to reach 600-megawatts capacity by year-end. As we mentioned last quarter, we continued to invest in our next-gen cell in module technology, which we believe will significantly reduce cost while maintaining industry-leading performance. We are making strong progress on this initiative and have already manufactured our first next-gen panels in our Silicon Valley research facility. Looking forward, we are focused on our long-term cost reduction roadmaps which remain on plan. For the quarter, we returned 100% utilization across all our fabs and expect to be fully utilized for the balance of the year. I'd now like to spend some time reiterating the key strategic initiatives, which we believe will enable SunPower to drive long-term profitability within an industry environment characterized by decreased financial incentives in increasingly diversified geographical demand. Please turn to slide 8. We remain committed to returning to profitability in the fourth quarter of this year and be sustainably profitable in the second half of next year, while increasing investment in four areas. Specifically, first, we will continue to invest in software to make buying, selling, installing, and owning the SunPower easy. For example, we are seeing strong adoption of our EDDiE sales software solution for our partnered network, which significantly streamlines the customer experience. Second, continued investment in our Smart Energy initiatives with a particular near-term emphasis on adding storage to our solar solutions in the commercial segment. Third, leveraging our technology innovation expertise to develop new complete DT product solutions that reduce installed costs while increasing performance and user functionality. Finally, commercialization of our next-gen 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 to 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 divest those assets that are no longer core to our operations, including our ownership interest in 8point3, our joint YieldCo venture with First Solar. Chuck will provide more detail on this in his comments. Downstream, we will focus on continuing to expand our share in key DG markets and on growing our SunPower Solutions business to access the globalizing solar power plant markets. Before turning the call over to Chuck to review our financial performance, I would like to spend a few minutes discussing the Section 201 trade case in front of the U.S. International Trade Commission. As a leading player in the U.S. solar industry, we have a strong interest in this case and are actively involved in the U.S. Solar Energy Industry (sic) [Industries] Association's response to this filing by two foreign-owned manufacturers. In September, the ITC is scheduled to decide whether to recommend the imposition of import tariffs or quotas on solar panels and to subsequently propose specific remedies in November. Please turn to slide 9. As many of you know, the U.S. solar industry currently operates under rules and imposed import tariffs on specific companies identified by the Department of Commerce in 2014 who is practicing illegal price dumping. This new filing proposes much broader remedies that would apply to any importer of crystal and silicon solar panels regardless of their business practices or the product's country of origin. We believe that the proposed remedies will encounter the long-established free trade principles. We are also convinced that the requested remedies can significantly impact U.S. solar market, imposing a direct burden on manufacturers of solar panels and associated equipment, raising prices for customers and eliminating tens of thousands of jobs. This trade case supports fewer than 1,000 U.S. jobs by foreign-owned manufacturers while putting at risk nearly 260,000 high-paying downstream jobs, all of which are in the U.S. and many of which are with local small businesses. We are working with our industry trade association to ensure that the Commission and the Trump Administration understand the negative implications of the proposed remedies. This case is already starting to have an impact on the U.S. market. For example, some installers are building inventory for Safe Harbor purposes to partially mitigate a potential negative outcome. As a result, ASPs have stabilized and actually increased in some markets. Also, the timing of certain projects have already been delayed pending the 201 decision. While there's uncertainty over the next several months as this process unfolds, SunPower is strategically evaluating a robust set of options to address potential government actions. It would be premature for us to go into further detail at this time. But it's worth noting that global demand for our high-performance products is strong, and that SunPower has a long history of proactively adapting to various policy shifts around the globe. In conclusion, despite near-term industry challenges and policy volatility, we see tremendous growth potential for solar power around the globe, and we are focused on restructuring 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?

[Charles D. Boynton:]

Thanks, Tom, and good afternoon. I will first review our second 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 are pleased to meet or 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 according to plan on all segments. In power plants, we continue to build projects for second half delivery, in our DG business we saw strong sequential growth in residential, while commercial is lower, primarily due to project timing. We expect commercial revenue to improve in the second half of the year, and we are seeing a particularly strong fourth quarter as our direct business is fully booked for the year. Overall, our non-GAAP gross margin was 12% as we benefited from strong performance in our factories, a stable pricing environment, and continued strength in residential, specifically by segment. Q2 power plant margins remain challenging, and we expect this to continue in Q3. However, we expect a very strong Q4 with the sale of our El Pelícano project in Chile. Non-GAAP commercial margins rose sequentially, and we are forecasting continued commercial margin improvement throughout the year. In residential, margins increased versus Q1 as we benefited from a better seasonal environment and stable pricing. Internationally, Europe and Japan were again ahead of plan. In North America, cash and loan sales were 65% of our shipments, while 35% were leased. Overall, we deployed 87 megawatts of residential products globally, up from 73-MW in Q1 and in line with our forecasts. Lease bookings were above plan at 31 megawatts, with cumulative lease bookings of more than 386 megawatts in our HoldCo. Net contracted payments are approximately $1.5 billion, excluding any renewal or residual value. In addition, NCI for the quarter was $19 million. We remain confident that we will have sufficient tax equity capacity to meet our 2017 demand. Non-GAAP OpEx was $79 million and in line with our restructuring targets. We are continuing to ramp P-Series production in Mexico and China. CapEx for the quarter was $17 million. I would now like to discuss a few financial highlights for the quarter. Please turn to slide 11. As forecasted, we saw decline in cash for $325 million in Q2 as we continued our project build-outs and restructuring initiatives. We expect cash to decline marginally in Q3, and then a significant increase in Q4, along with a decrease in project debt as we complete project sales. We're also working on various financing options related to our approximately 400 megawatts of residential lease asset from the balance sheet. As you know, we have done several back leverage transactions in the past and hope to close our next transaction in the near future. This modernization will help to recycle capital deployed in the business. Our strategic review of 8point3 is continuing, but given significant initial interest in the acquisition of our general partnership stake or in the sale of the entire partnership, we have made a decision to not actively seek a replacement partner for First Solar and to focus our efforts on the modernization of our ownership stake in the partnership. While there are no assurances that this transaction will take place, the proceeds of the sale will provide us with additional resources not only to make strategic investments, but also to retire our 2018 convertible bond to minimize shareholder dilution. Additionally, depending on market conditions, we may have the opportunity to refinance our 2018 convert as well. We offered our Boulder Solar I project to 8point3, and potentially will offer other ROFO projects to the partnership over the next two quarters. If the partnership waives its rights to acquire these projects, we would sell them to third parties. In either case, we expect the sale of these ROFO projects to generate additional cash proceeds to fund our growth initiatives. I would now like to provide an update on the assets we have in relation to our HoldCo strategy. Please turn to slide 12. Our HoldCo strategy reflects 1.6 gigawatts of assets contracted in construction or in operations. Residential assets rose 31 megawatts sequentially, reflecting new SunPower lease customers. Commercial was up slightly as solid bookings were partially offset by achieving COD in certain projects. In power plant, our overall megawatts were unchanged during the quarter and will likely decrease over the second half as we sell projects. In summary, we were pleased with our performance in Q2, and we expect our restructuring plan, prudently manage our cash, and further position the company for the long term. With that, I'll turn the call back to Tom for our guidance. Tom?

[Thomas H. Werner:]

Thanks, Chuck. I would now like to discuss our guidance for the third quarter as well as our updated fiscal year 2017 outlook. Please turn to slide 13. As I mentioned in my remarks, we expect to deliver more than 500 megawatts of power plant projects in the second half with significant margin contribution in the fourth quarter. This will directly impact second half linearity. Given our narrowed focus on power plant, self-development, and increasing growth in SunPower Solutions, we expect linearity to improve in 2018. As a result, our third quarter fiscal 2017 GAAP guidance is as follows

[Operator:]

At this time, we are now ready to begin the question-and-answer session. Our first question is coming from Vishal Shah. Your line is open.

[Unknown Speaker:]

(20

[Thomas H. Werner:]

Sure. On Mexico, we have two large projects that we're permitting. One is called Ticul and one is called Guajiro. They're both progressing through the permitting process. In the case of Ticul, it has to go through a social consultation process that is in the early stages of the projects going through it. So we're sort of working through the process with the authorities in Mexico. And so the project has not gotten its permit yet, but we expect that to happen soon. In the case of Guajiro, we expect permit to come soon as well. And then we would be able to finish perfecting the project and start construction.

[Unknown Speaker:]

Great. So the follow-up is actually on storage. So you mentioned there are a lot of strong demand for energy storage in the commercial sector, and given some key state incentives. So could you just elaborate that and what percentage of the demand from bookings are from like solar plus storage in the commercial sector? Thank you.

[Thomas H. Werner:]

Sure. So storage, throughout most of this year, was sort of low-single digits attach rate. As we look at our pipeline, that would start to fulfill late this year and early next year, that almost triples to almost 15% attach rate. And the application is almost exclusively demand charge elimination. And there are several states that we think come on-line next year that will cause the – or be the catalysts for the 15% attach rate versus what we see today, low-single digits attach rate.

[Unknown Speaker:]

Great. Thanks.

[Operator:]

Our second question is coming from Krish Sankar. Please state your company name. Our next question is coming from Brian Lee. Please state your company name, please.

[Brian Lee:]

Goldman Sachs. Hey, guys. Thanks for taking the questions. Maybe first off with respect to the strategic options, I know you're talking about asset sales here for the past couple of quarters. Maybe just an update on the process there, where it stands? And then, you introduced the resi back levering option. How much capacity do you specifically have on the portfolio, maybe what type of loan-to-value or advance rate do you think is achievable given the asset quality? And then also, what type of rate do you think is fair to assume on that?

[Thomas H. Werner:]

Brian, thanks for the question. So I'll start. So we're going through strategically reinventing the company. We're investing in a number of areas that I mentioned in my prepared remarks that are digital – the attachment of storage, disruptive module technologies for our rooftop channels, and finally, our next-generation solar cell, which of course will be built into a panel. Those all, I think, considerably change the strategic position of the company. At the same time, we're simplifying our company. And our P&L, so it's more straightforward to follow the financial performance and to value the company. And as part of that, we are considering selling some assets. The asset sales are not built into our forecast, but would be things like Chuck mentioned, 8point3 decision we made based on market reaction, but also has the impact of simplifying our P&L. We would consider other things like we have a lot of residential leases on the balance sheet, and it's something that we would consider selling because it would simplify the company. I'll let Chuck talk more about the sale process and also residential back leverage.

[Charles D. Boynton:]

Certainly, Brian. So as far as 8point3 goes, historically we'd talk about three different options, a replacement partner for First Solar, selling the GP, or selling the whole company. We're not going to comment on the process itself other than SunPower as a sponsor had taken the first option off the table. And we are focused on selling our stake along with First Solar. We won't comment though on the process itself. As your question on residential back leverage, we have 400 megawatts of residential assets on our balance sheet, representing $1.5 billion in receivables, long-term receivables, excluding the residual value. Some companies add that into their long-term receivable. For that $1.5 billion, the amount of money we could raise in the short-term is lower than long-term because of the tax equity partnership flip projects, which as you know, the way those structures work, cash is allocated to tax equity and at some point in the future typically five to seven years, you buy out or their interest decreases. And for the amount of debt available is significantly higher later on. We are looking at and have done some back leverage, which means that it subordinates the tax equity cash flows. And we are likely to do more. Probably we'll close one in Q3, and there are many more we could do. We're also evaluating other structures that could unlock cash, and as Tom mentioned, simplify the P&L. I won't comment on specific rates because that's somewhat strategic to us, but do I think that SunPower enjoys kind of best-in-class rates, given our profile and the quality of our projects.

[Brian Lee:]

Okay. No, thank you. That's super helpful. Second question, the Section 201 overview. I really appreciate that, your thoughts around that, Tom. But you guys seem to have maybe one of the more diverse product portfolios among panel suppliers. And so maybe one of the most difficult pass to navigate with respect to how Section 201 ultimately breaks here. So, can you maybe at a high level just walk through some of the implications for Series-X (sic) [X-Series], Series-E (sic) [E-Series], Series-P (sic) [P-Series], just as you think about Section 201 and a potentially a backdrop where panel prices here in the U.S. are much higher than they are today, how do you view the competitiveness of each of those offerings and then what do you think – I know it's early days, but strategically, how you would try to navigate that with the diverse portfolio you do have? Thank you.

[Thomas H. Werner:]

So first, I would say it's early days with 201. And there hasn't been a hearing yet. So it's difficult to predict where things would end up, and therefore, the planning horizon is quite wide. As we've positioned the company as a residential, commercial, and solar solutions company, I think that sits particularly well with potential outcomes, particularly solar solutions, which as we mentioned in my comments is that we sold in 28 countries. And we see, and as you project as well, the solar market is becoming increasingly spread out among a large number of countries. And so solar solutions fits particularly well and it gives us diversification on outside of America. And it's capital-efficient because it's a joint venture where we have a small minority position in the actual manufacturing. So it's a very capital-efficient way for us. So on P-Series, think of it as not entirely but largely outside the North America, leveraging our joint venture, and very, very scalable, inherent to the technology and also by virtue of the effect that we're minority owner of the actual manufacturing. We do have up to two-thirds of the output can go to SunPower. So, highly leveraged from capital standpoint. On X-Series and P-Series, those are largely used on rooftop. As things have evolved, those tend to have a higher total installed cost. And so, to the degree that there were a tariff, it would have the smallest percentage impact on X-Series and E-Series because of the markets that they serve. And then beyond that, I would just tell you that, of course, we're looking at all aspects of 201, and of course looking at all of possible alternatives. It's too early from me to communicate what's the most likely, just the – rest assured that we're looking at all the strategic responses in various scenarios of outcomes. First, we're spending meaningful time on making sure our case, our view on 201 is heard through the utmost effective avenues.

[Brian Lee:]

All right, thanks, guys. I'll pass it on.

[Thomas H. Werner:]

Thanks, Brian.

[Operator:]

Our next question is coming from Krish Sankar. Please state your company name.

[Krish Sankar:]

Yeah, hi. It's BofA Merrill Lynch. Thanks for taking my question. The first one I had, either Tom or Chuck. First Solar said that they're able to sell projects to third party at a higher valuation rather than dropping it down to 8point3, I'm kind of curious given your new view of looking at 8point3, what precludes you from doing this a similar kind of third-party sale? And then I had a follow-up.

[Charles D. Boynton:]

So I think with the announcement today, we are planning to sell 8point3 along with First Solar. So, other projects would be sold outside of 8point3, similar to what First Solar did. The other comment though is residential and commercial had different profiles, where the return rates are actually, in today's market, a bit more attractive in utility scale. And so, just for the – some projects that have a strong investment grade off-take and are a large-scale utility project in this market commands a very low IRR. And so we enjoy those same benefits for our utility scale projects.

[Krish Sankar:]

Got you, got you. Thanks, Chuck, for the explanation. And then a question for Tom, and thanks for the color on the Section 201. To the extent you can answer it, in your view, what do you think happens to module prices if the trade case does happen in favor of Suniva? What do you think is the upside to module prices, and on the flipside side, if it doesn't go through, what do you think – where do you think module prices end up going back to? Do you think they go back to their June (32

[Thomas H. Werner:]

Okay. So I need to be a little careful, but I will answer your question, and this is my view. And what I would say is, in the scenario that the trade case goes through, there's been industry analysts, I think, Greentech Media is the one most often cited about the size and the impact on module prices and on the end markets, I would say directionally, I believe that to be correct. And I don't want to put numbers out and suggest that I think any number above zero makes sense or add credibility to any number above zero. But the module pricing in large-scale orders in America are certainly south of $0.35. And I think all of you publish on various numbers. So any tariff would have a meaningful impact in the utility business, I think substantially less so if you go to the other stream in residential. We are already seeing module prices impacted by just the possibility of a tariff that are either stable – prices are either stabilized or have gone up a few cents. So I think we're seeing empirically that may answer your questions to add a few cents, maybe a nickel or a dime after things settle out. If there is no tariff, which we believe should be the case, then I think it returns back to free market competition, in which case, we think that people are selling at cash cost, and that therefore, I'm not speaking – I'm talking about the industry. We think that things stabilize next year without a tariff.

[Krish Sankar:]

Thanks, Tom

[Thomas H. Werner:]

Thanks, Krish.

[Operator:]

Next question is coming from Pavel Molchanov. Your line is now open, and please state your company name.

[Pavel S. Molchanov:]

Raymond James. Back on 8point3, I know you don't want to talk about the process. But when you say that you've been encountering significant interest in buying your GP interest, does that mean there are prospective buyers who only want 100% of the YieldCo rather than simply First Solar's ownership?

[Thomas H. Werner:]

Yes. So the feedback from the market, and again, this is SunPower as a sponsor or an investor talking, not 8point3 talking. But the feedback from the market overwhelmingly was to buy out SunPower and First Solar or buy out the whole company, not to replace First Solar. And based on the feedback from the market, we've decided to take that option off the table and no longer seek a replacement partner for First Solar. And that's just simply based on the feedback that we've received. And again, we can't comment or won't comment on the process for the sale.

[Pavel S. Molchanov:]

Okay. Understood. And then you talked about selling El Pelícano 110 megawatts in Chile in Q4, is there a significance to kind of the back-end loaded timing? Is it feed-in tariff or other policy dynamics that needs to be pushed out to the end of the year?

[Charles D. Boynton:]

It's simply construction schedule. So the project is pretty much fully built, the panels are all installed. It's going through interconnection and all the testing throughout the second half of the year. And we expect to have it in full commercial operation in Q4, and at that point, sell the project.

[Thomas H. Werner:]

Yeah, Pavel, in fact, I would say El Pelícano is within weeks of the original schedule.

[Pavel S. Molchanov:]

All right. Very good. Appreciate it.

[Operator:]

Our next question comes from Colin Rusch. Please state your company name.

[Colin Rusch:]

Oppenheimer & Company. Guys, could you talk a little bit about the progress with the virtual power plant opportunity? We know you've made some meaningful announcements on that and certainly with the reduction in energy storage costs, or assuming that there's some progress with some of the other utilities in the U.S., if you could just give us an update on how that's progressing, that would be great.

[Thomas H. Werner:]

Yeah. So the original virtual power plant that we announced had difficulty in terms of getting permits, specifically the permits needed from the fire department to put storage because they're very large units on houses. So we're solving that. But it's taken some time. Now, more to your point is, is there a general trend? And we see a number of states in the Northeast that are favorably moving in this direction. Yes, we expect more of this. I think it's – I would call it more of a gradual trend that will happen over years, but meaningfully so, and there's several states we expect to capitalize on that technology.

[Colin Rusch:]

Okay. Excellent. And then with your microinverter solution, can you talk a little bit about failure rates and adoption rates for that project as you've rolled it out and started installing with it?

[Thomas H. Werner:]

Yeah. So, on adoption rates are consistent with Equinox. So, I believe the 85% of what we shipped in residential is with microinverter. So, the virtues of a microinverter, which is, as you know, converting from DC to AC at the panel allow you to configure way more easily, and the fact that it's a complete solution from SunPower so called one-stop shopping makes it so much better for the end consumer in our residential dealer channel that the attach rate has just skyrocketed since we introduced the concept. And I would say that our failure rates are consistent with what we've seen. And of course, we used other inverters and other forms of inverters, and we're certainly consistent with what we see in that category of product. I believe in the long-term, our differentiation will be, however, that we'll separate from the pack because we've done an immense amount of work on reliability on the microinverter.

[Colin Rusch:]

All right. Thanks so much, guys.

[Thomas H. Werner:]

We're going to take one more question, please.

[Operator:]

Our last question is coming from Paul Coster. Please state your company name, please.

[Paul Coster:]

JPMorgan. Tom, you talk of the return to sustainable profitability in 2018. And at the same time, you're also reminding everyone that the market is still pretty challenging. The return to profitability, does it assume a recovery in demand, unit volume and/or ASPs, and for that matter, if you'd be kind enough just to sort of talk to us about what kind of things have to happen for the market to transition from being challenging to a little bit more helpful? That would be helpful to us. Thank you.

[Thomas H. Werner:]

All right. You bet. And thank you for the question. My answer to your question is, we don't expect meaningful improvement. As I said in my other comments, we expect, I guess, stabilizing marginal pricing would be improvement. But we're not expecting prices to increase. We're adapting to the new reality. And what we're doing is we're investing in four areas that will differentiate us that largely impacts 2019 and beyond. But it starts to impact the back half of 2018, particularly our next-gen solar cell and the attach rate of Smart Energy. Both of those are accretive and positive for us. And we're focused on the commercial, residential and solar solutions businesses that have a better profitability profile or less volatile. And if we can grow preferentially in because of the nature of our product and because of like we offer a complete solution, so for our customer, they have one-stop shopping and we're incredible players, so that matters in those markets. And then particularly in SunPower Solutions, as I mentioned, we'll start to see the benefit of that strategy over the next few quarters. And it really addresses the rest of world market in a very capital-efficient way by virtue of the joint venture. So that beats your uber point one in terms of strategy and then the second point would be that we've pulled a lot of cost out of the company. Now, our run rate on OpEx was about $100 million last year and is now sub $80 million. There's more room there in terms of the way we manage the company. And we talked about asset divestures and we expect more progress on that front as well. It sits on a basis of the strategy of moving to more profitable business of adding some extra features to what we sell. SunPower Solutions and lowering OpEx is the basis of my comments.

[Paul Coster:]

Thank you.

[Thomas H. Werner:]

Okay, Paul, I'm assuming you don't have a follow-on.

[Paul Coster:]

Sure.

[Thomas H. Werner:]

So with that, thank you very much for joining the call, and we look forward to our next earnings call with you.

[Operator:]

That concludes today's conference. Thank you for your participation. You may disconnect at this time.