Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

SunPower (NASDAQ:SPWR)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

Robert Okunski - Senior Director of Investor Relations

Thomas H. Werner - Chairman, Chief Executive Officer and President

Charles D. Boynton - Chief Financial Officer and Executive Vice President

Howard J. Wenger - President of Regions

Analysts

Shahriar Pourreza - Citigroup Inc, Research Division

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Brandon Heiken - Crédit Suisse AG, Research Division

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Robert W. Stone - Cowen and Company, LLC, Research Division

Operator

Good afternoon, and welcome to SunPower Corporation's Second Quarter 2013 Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. I would like to turn the call over to Mr. Bob Okunski, Senior Director of Investor Relations at SunPower Corporation. Sir, you may begin.

Robert Okunski

Thank you, Sheila. I'd like to welcome everyone to our second quarter earnings conference call. On the call today, we will start out with an operating review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our second quarter 2013 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 our 2012 10-K, our quarterly reports on Form 10-Q, as well as in today's press release. Please see those documents for additional information regarding those factors that may impact these forward-looking statements.

To enhance this call, we have posted a set of PowerPoint slides, which we will reference during the call, on the Events and Presentations page of our Investor Relations website. In the same location, we have posted a supplemental data sheet detailing some of our historical metrics. On Slide 2 of our PowerPoint presentation, you will find our Safe Harbor statement.

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

Thomas H. Werner

Thanks, Bob, and thank you for joining us today. Our solid Q2 performance reflects continued demand for our high-efficiency systems across all of our geographic regions and channels. North America was again our strongest market, driven by solid execution on our power plant projects as well as booked engine [ph] revenue and distributed generation that were ahead of expectations. We also saw solid financial results in Europe due to an improved pricing environment and the effects of our restructuring efforts.

Shipments to Japan once again exceeded our outlook. Finally, we beat our targets with respect to both operational expenses and manufacturing costs. Bottom line, we exceeded our forecast for the quarter. While we benefited from a couple nonrecurring events during the quarter, which Chuck will detail in his section, operational performance was excellent across the entire company.

Please turn to Slide 4. Power plants were once again a key driver of overall performance. CVSR and the Solar Star projects, formerly known as AVSP, contributed significant revenue and margin for the quarter, and also allowed us to capture synergies associated with the simultaneous construction of 2 large projects. Internationally, our expansion remains on plan as we look to further develop our power plant business. With Total as our partner, we are well-positioned for these opportunities going forward.

We're also benefiting from the rapid cycles of learning and scale associated with our California projects. We remain ahead of schedule with our Oasis product roadmap. More on Oasis later.

In distributed generation, U.S. residential lease demand remains robust and we recently added $150 million in new financing from 2 partners. Chuck will provide a more detailed update on lease in his section.

Just as important to our Q2 results was a significant progress we made in our European business, where we posted our third straight quarter of improvement. As in Q2, we experienced the favorable demand trend in Europe with stable-to-increasing ASPs. We are on track with respect to our plan to return to profitability in EMEA by the end of 2013.

In APAC, we had another record quarter of shipments into Japan. As previously mentioned, we beat our Q2 cost targets for both cell and panel, with all fabs running at 100% utilization. We continue to receive accolades for the performance and reliability of our panels in the field. The latest comes from the Fraunhofer Institute, one of the most respected independent PV labs in the industry. Fraunhofer designed and implemented a very rigorous set of reliability tests to compare performance between top panel manufacturers. They tested panels from 5 of the top 8 manufacturers and subjected them to 4 categories at accelerated testing to simulate real word electrical, mechanical and fatigue stress. SunPower's panels once again topped the field with a power loss when [indiscernible] of the average of competing products.

Lower power -- lower panel output degradation rates means more energy produced over the system lifetime and lower-levelized cost of energy.

Finally, we strengthened our balance sheet during the quarter, including proceeds from a $300 million convertible bond.

Now let me spend some time discussing our performance from a regional and channel perspective. Please turn to Slide 5.

In North America, we recently completed full panel installation at CVSR, 3 months ahead of schedule and the 255 -- 250-megawatt project remains on track. To date, close to 2/3 of the site has been grid connected and we expect full project completion in Q4 of this year. We also continued to ramp construction of the 579-megawatt Solar Star project for MidAmerican. As we mentioned last quarter, we expect to materially increase our installation rate for this project during the second half of the year.

In Asia Pacific, Africa and the Middle East, we continue to see tangible progress related to our power plant business. Working with Total, we recently signed our first panel supply agreement for a large scale power plant in Japan. This agreement of more than 25 megawatts further solidifies our market footprint in one of the fastest growing solar markets in the world. We are working on a number of similar opportunities in Japan and expect to close and announce further projects by the end of the year.

As we mentioned in the Analyst Day in May, we continue to make progress in relation to our 6 gigawatt global power plant pipeline. And we are working closely with Total on a number of near-term opportunities. We will update you as we reach certain key milestones.

Now I'd like to spend a few minutes discussing Oasis, a product which is key to our ongoing power plant cost reduction and international success. Please turn to Slide 6. As many of you know, we have been in the power plant business since 2004. In fact, we installed the world's first 10-megawatt project in Germany that year. Since then, we have been building large-scale solar power plants throughout the world and we are currently constructing the world's largest for MidAmerican. Initially, each project involved a custom design. This made cost difficult to predict accurately and was quite time-consuming from a resource perspective.

In 2010, we began the development of a standardized integrated, complete solution for power plants called Oasis. All of our systems today are built using Oasis, where we build the same power block system over and over again. We now have over 1.5 gigawatts of Oasis systems installed or under construction across the globe.

This standardization has allowed us to provide a much higher quality system in the field. Everything is pre-engineered so we avoid custom engineering on site. We have reduced BOS cost due to economies of scale, design improvements and increasing installation speed via standardized work practices.

In 2011, we set some aggressive targets for balance of system cost reduction. As you can see from the chart, we are ahead of plan on our cost reduction program. This not only improves financial performance for existing projects, but also increases our competitive advantage on future power plants.

Now let me turn to distributed generation, please turn to Slide 7. In the North American residential market, lease demand remains very robust. Our ability to offer customers the industry's best technology at competitive pricing compared to traditional retail electricity remains the key differentiator for SunPower.

We recently closed $150 million in lease capacity financing and signed 2,200 leases in Q2. This brings our total residential energy solutions customer base to more than 18,000 with net aggregated payments totaling $528 million. We also had a strong quarter in the North American commercial and public sector markets, booking more than $100 million of systems.

In EMEA, we saw our third consecutive quarter of financial improvement. This performance was driven by our earlier restructuring program and a general improvement in industry conditions. Specifically, during Q2, we booked more than 60 megawatts of residential business while expanding our commercial footprint in France and in Italy. Finally, we continue to see strong product demand and market share expansion in the Japanese residential channel. Shipments accounted for approximately 28% of our volume in Q2, up over 30% sequentially. With the previously mentioned 25-megawatt-plus power plant supply agreement and our increasing footprint in the distributed generation market, we are well-positioned to continue our success in Japan.

With that, I'd like to turn the call over to Chuck to review the financials. Chuck?

Charles D. Boynton

Thanks, Tom. Good afternoon, and please turn to Slide 8. We posted very strong results for Q2 across the company and within all regions and end market segments. For the quarter, megawatts, revenue and margin all came in better than our plan. Non-GAAP gross margin improved more than 400 basis points year-over-year with net income increasing significantly both sequentially and compared to last year. In addition, we continue to reduce our operating expenses and prudently manage our working capital. Overall, our results were strong as we executed on our power plant projects, expanded our global distributed generation market share, reduced inventory, beat our manufacturing cost targets and strengthened our balance sheet with a successful $300 million convertible offering and a renewal of our $250 million revolving credit facility.

Moving on to the P&L. Our non-GAAP revenue for Q1 was $650 million compared to $575 million last quarter, and better than our forecast. We posted revenue growth in all markets. Revenue in the second quarter includes revenue from CVSR and Solar Star of $265 million on a non-GAAP basis and $190 million on a GAAP basis. Even though CVSR revenue recognition for non-GAAP is over 90% complete, we will continue to post significant GAAP results over the next few quarters, but more weighted in 2014.

We increased cell production in Q2 to 296 megawatts, up more than 40% sequentially as we reached full utilization of manufacturing lines following our strategic slowdown in Q4 of last year. As a result, we had minimal underutilization charges in Q2 which helped our financial results for the quarter. Megawatts recognized for the quarter totaled 277 and megawatts deployed more than 300. Our non-GAAP gross margin for the quarter was 19.5%.

Now let's discuss regional performance in more detail. In Q2, non-GAAP North American revenue was in line with last year at $442 million, accounting for 68% of total revenue with a non-GAAP gross margin of 22.5%. We recognized 135 megawatts in the quarter, with approximately 2/3 coming from our power plant business. We are ramping our installation at Solar Star for MidAmerican while we complete CVSR. The balance of our North American business performed well with strong commercial and public sector revenue. Demand in residential lease was very strong and our residential cash business grew 35% sequentially to 22 megawatts.

In EMEA, non-GAAP revenue was $107 million, up 56% sequentially as we benefited from strong demand trends and ASP increases. Megawatts recognized also rose 48% sequentially. As a result, gross margin increased to 9.7% and we recorded our third straight quarter of financial improvement in this region. Overall, industry conditions are improving and we continue to see results from our recently implemented restructuring programs.

Turning to APAC. Revenue was $101 million, up 22% sequentially. Gross margin for all of APAC were 16.6%, which was slightly higher than our forecast. Company-wide non-GAAP operating expenses for the second quarter were $67 million, down 11% sequentially as we executed on our cost reduction programs. We are on track to reduce OpEx by 10% year-over-year.

For Q2, EBITDA was $101 million, up $23 million from Q1 of 2013, and up $42 million year-over-year. Q2 EBITDA increased $15 million from NCI from our residential lease program. Non-GAAP diluted earnings per share for the quarter was $0.48 and GAAP earnings per share was $0.15.

Overall, our bottom-line financial performance was above plan due to 3 primary reasons. First, the acceleration of approximately $100 million in revenue and corresponding margin for business forecasted in the second half of the year. Second, structural benefits, including strong demand in EMEA and APAC that lead to high utilization of our fabs; execution on our accelerated cost reduction roadmap for both PV and BOS; and ASP increases in key markets. And third, to a lesser degree, onetime benefits of high overhead absorption and cost efficiencies constructing CVSR and Solar Star, benefits from inventory sales and recovery of previously reserved accounts receivable. Non-GAAP weighted average diluted shares outstanding for the quarter were $130 million. Increases in our share prices have resulted in a dilutive impact from our outsetting warrants and invested stock awards.

In Q2, we recognized $15 million of NCI in the P&L. As I discussed in detail during our previous earnings calls, our residential lease ITC financings provide the P&L benefit on our NCI line item. This is effectively the gain we recognize by transferring the tax attributes to our tax equity partners. In other types of sales transaction, this benefit shows up as revenue or reduction of COGS.

Please turn to Slide 9. We continued to focus on managing our working capital and it's paying dividends as we reduce inventory by $46 million or 16% sequentially, while significantly ramping cell and panel production. Cash and working capital remain a key focus and we continue to expect to generate between $100 million and $200 million of free cash, including lease financing activities in the full year of 2013, all while investing approximately $60 million to $80 million in CapEx.

In Q2, we added $75 million in cash and $100 million in investments to our balance sheet as we successfully completed our $300 million convertible bond offering and paid down our revolving line of credit. All told, this brought our total cash and investments at the end of the quarter to approximately $720 million. If you add the $250 million revolving credit line, our total liquidity is just below $1 billion. We remain committed to prudently managing our balance sheet and working capital needs, and our second quarter results reflect this commitment.

Please turn to Slide 10. Q2 was a great quarter for our DG business. Globally, SunPower-deployed are 192 megawatts of residential products, including 78 from APAC, 57 from Europe and 57 from North America. In North America, we are balancing our lease and cash business based on customer economics and available lease financing capacity. As of the end of Q2, we reached 118 megawatts of cumulative North American leases deployed, serving over 18,000 customers with net aggregate contracted payments exceeding $525 million. We are also pleased to announce $150 million financing capacity with 2 financial partners, 1 new investor and 1 repeat investor. This additional financing capacity positions us well for the second half of the year. Importantly, we are also developing new innovative approaches to financing in both the U.S. and Europe that we believe will drive additional customer and shareholder value.

In commercial DG, we are also creating ways to monetize energy solutions over the long term. For example, during Q2, we closed the nonrecourse loan for a 5-megawatt project at the Phoenix International Airport. We decided that the loan provides us with the ability to own the project and benefit from the annual energy sales that generate meaningful cash flow only partially offset by a 15-year fixed 7% interest rate loan. This financing approach has enabled us to monetize our investment with minimal risk to the company.

We're also working on a number of financing structures to drive better economics in the residential space. Internationally, these structures will be new to the market and will take some time to implement, but we are confident of success as they are generally simpler structures than tax equity financings. In North America, we're also working on new models that are intended to improve the return on invested capital versus the current structures that all industry participants use. Looking forward, our Q2 results give us confidence that we'll meet our financial goals for the year.

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

Thomas H. Werner

Thanks, Chuck. I would now like to discuss some of the highlights of our guidance for the third quarter, as well as our improved 2013 earnings outlook.

Please turn to Slide 11. For Q3 2013, we expect to recognize revenue on approximately 240 to 260 megawatts with full year megawatt recognized in the range of 1 to 1.1 gigawatts. On a non-GAAP basis, we expect Q3 revenue of $550 million to $600 million with full year revenue unchanged at $2.5 billion to $2.6 billion. For Q3, we see non-GAAP EPS in the range of $0.15 to $0.35. And for 2013, we are raising our guidance from $0.60 to $0.80, to $1 to $1.30 given our strong execution in the second quarter. On a GAAP basis, we expect Q3 revenue of $575 million to $625 million, with annual revenue of $2.45 billion to $2.55 billion.

In relation to earnings per share, we see Q3 2013 in the range of $0.10 to $0.30. And 2013 earnings of a loss of $0.05 to a profit of $0.20 per share. Capital expenditures in the third quarter are expected to be in the range of $20 million to $30 million. We also remain committed to reducing operational expenses by 10% compared to 2012 and expect to generate free cash flow, including lease financings in the range of $100 million to $200 million while continuing to invest in our technology road map and manufacturing cost reduction initiatives.

We'll now open the call to questions. In addition to Chuck, we also have Howard Wenger, Regions' President; Peter Aschenbrenner, our VP of Strategy; Bob Okunski, Senior Director of Investor Relations.

Question-and-Answer Session

Operator

[Operator Instructions] Shahriar Pourreza.

Shahriar Pourreza - Citigroup Inc, Research Division

This is Shar from Citigroup. I have question. It's nice to see that the Total relationship is starting to come to fruition and you guys landed a little bit of a win here in Japan. I'm sort of curious on, what's happening in the Middle East as far as marketing some of those C7 Trackers and especially in light of some of the Saudi reverse auctions that are occurring? I mean, are you seeing any opportunities down there?

Thomas H. Werner

Sure. This is Tom Werner. And I thought our quarter was a little better than pretty strong. We're really happy with the quarter. And you're right, by the way, thank you for the question. Total is a real advantage and the project in Japan is a good example. Another example would be our success we've had in the French tenders. We obviously looked a lot more European since Total's investment. In terms of the Middle East, we're leveraging their 90-year presence in the Middle East, including in Saudi Arabia. I don't think the market has developed. As on the time frame that most people forecasted, but there are certainly indications that nature and structure of that market are coming together. And we think we're really, really well-positioned there, including, as you point out, our C7 product. And then there are parts of the country where C7 doesn't make sense and we'll have a tracking solution in those parts of the country. We actually have both of those built as small projects in Saudi that we're gaining experience on. So we have both technologies deployed that we're gaining experience on. So I would tell you that we continue to be very positive about that market, but I don't think it's going to be a meaningful near-term market. Certainly, in the intermediate to long term, it will be.

Shahriar Pourreza - Citigroup Inc, Research Division

Okay, perfect. And then just switching [ph] on Japan for a second as far as on the residential distributed generation rooftop. Would you leveraging the relationships down there with either Toshiba and Sharp, I'm curious to see where your market share is now in Japan, especially in the rooftop market?

Thomas H. Werner

Sure. I'll turn that over to Howard with just the early -- just a brief comment that both Toshiba and Sharp were doing quite well. Toshiba, being the longer partner. And our product fits so well in that market that, you're right, we're growing faster than the market has. Howard, give a number for our share.

Howard J. Wenger

Yes. This is Howard. We're around 10%, plus or minus, of the residential market share in Japan.

Shahriar Pourreza - Citigroup Inc, Research Division

Okay. Got it, got it, helpful. And then, let me just ask you. I never thought I was just going to ask this at this stage of the game. But are you looking to actually increase your capacity in your manufacturing facilities given the fact that you hit full this quarter? I mean, you could obviously get an anomaly [ph], but I'm curious to see if there's any -- is there any room to increase capacity?

Thomas H. Werner

Yes. As we look at the balance to this year and deep into next year, we see ourselves fully allocated. So it's a fully allocated company, the answer to your question is, yes, definitely. We're in the process of looking at options which would include expansion of our EU [ph] JV, organic expansion and a number of other options. We're not to a solution yet. Perhaps in the time frame, in the next call, we will be, but yes, absolutely.

Shahriar Pourreza - Citigroup Inc, Research Division

Got it. Great. And then just one last question, if I may. In the residential leasing market, have you -- I mean, it seems like the biggest impediment has been the fact that funding or capital hasn't been able to keep up with the demand. What are you doing out there to try to drum up enough capital to try to at least not run out of funding on the DG side?

Thomas H. Werner

So Chuck will take the main stage of this question. What I would say to you is, remember, we've been in the residential, we created a residential [indiscernible] dealer channel all the way back in 2005. And that's allowed us to expand throughout the country and internationally as well. So there is a cash business and there's a lease business. And for us, the cash business continues to thrive. And the lease business, as we said in our comments, it can grow faster than our ability -- current ability, to raise lease financing capacity. But, Chuck, maybe you can elaborate on that and other financing vehicles.

Charles D. Boynton

Sure. So we are really proud of the 2 deals that we closed this past quarter. And it's clear that investors are choosing SunPower because of our technology and the balance sheet. And those definitely matter to investors. We have a number of conversations going and expect to announce additional tax equity investors in the back half of the year. We're also working on new innovative structures like a solar loan program, as well as cash because we see the market developing, where it's going to be many solutions, not just 1 solution and we want to have our products available for all the customers.

Operator

Sanjay Shrestha.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Lazard Capital. First, housekeeping, I guess. How should we think about the tax rate on a non-GAAP basis for the full year?

Charles D. Boynton

Great. The tax rate in the full year, it's effectively, we model cash taxes paid. We're still on NOL [ph] position. So you'd take the tax expense for the year, divided by our non-GAAP earnings. That rate should give you a fair number for the rest of the year.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Okay, okay, okay. Now sort of talking about the market a bit, right. So when I look at this 25-megawatt win in Japan for the power plant. Is it fair to say that we're now sort of starting to shift to power plant-type business in Japan from residential and commercial rooftop-type opportunities. So megawatt number might not grow that much, but the SAP on this power plant is higher and profit opportunity therefore becomes bigger for you guys going forward. How should we think about that?

Howard J. Wenger

This is Howard. I'll answer the question. Historically, in Japan, the biggest part of the market has been the distributed generation piece, and primarily residential. We believe that the trend will continue in terms of being the majority of the market. However, we are seeing a bigger part of our mix being contributed by commercial -- larger commercial systems and power plants. They call them in Japan megaprojects. And there are opportunities for the company in terms of providing turnkey solutions which could increase our ASP and our overall margin in that market.

Thomas H. Werner

Sanjay, what I would guide you to or comment on is, the other international markets are the ones that are likely to have more self-development, and therefore, higher ASPs. But yes, you're right. When we move to ground that projects, oftentimes, we self-develop and that turns out to be a higher ASP.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Got it. One final question for me then, guys. So given this recent sort of Europe and us China settlement creating some sort of a pricing floor [ph] for at least 7-gigawatt trade of export to Europe. What does that mean for you guys, given that, that probably creates some price inflation in that market? And does that help you -- can you talk about that a little bit? What is the implication for you guys from that?

Thomas H. Werner

I think -- Sanjay, this is Tom. I think, a couple of things. One, we see a stabilized pricing and a slightly increasing pricing, and we have over the course of Q2. And as we look to the back half of the year, certainly, we would expect similar trend probably stabilizing. Secondly, there still is a cap and it's still -- there's still a degree of uncertainty. And SunPower looks favorably in an environment like that because Total owns a majority of SunPower, so we have a very, very significant European presence. We manufacture in Europe. And we have a strong balance sheet. that suggests stability. So in an ambiguous environment where it's not clear how the cap will be implemented and how the whole thing will be implemented, it favors us. So I think we've become sort of the go-to stable supplier on top of what we see is a microenvironment that's stabilized quite well.

Operator

Vishal Shah.

Vishal Shah - Deutsche Bank AG, Research Division

Deutsche Bank. Tom, I wanted to ask you a question on 2014. I think you've provided this EBITDA guidance of 15% EBITDA growth in 2014. Does that still hold or do you think some of these project pull-ins make EBITDA profile a little bit more front-end loaded?

Thomas H. Werner

Vishal, that could be a purposely short answer here. You're right, in our Analyst Day, we gave both top line and bottom line guidance, what we said was 2014 and beyond, all right? And what I would say to you is just we're not ready to recalibrate that guidance, that we're comfortable with that for now and we will recalibrate on our next call.

Vishal Shah - Deutsche Bank AG, Research Division

Okay. That's helpful. And then, the leasing business so far has recognized about 18 megawatts -- sorry, the 36 megawatts year-to-date. Can you talk about the expectations for the rest of this year? And also, how we should think about 2014 in terms of how many megawatts of leases you plan to sign given some of the financing options that you're working on?

Thomas H. Werner

Sure. This is Tom. I'd say a few words and then maybe Howard and Chuck, if you want to jump in. So one of the things that we want people to track is that some of our cash lease and what will be a continuing emphasis is a loan, where you can actually own the system at the end of the financing. So it certainly would be a sum of the 3. Howard, maybe you can do is give a picture of the back half of this year and then just comment directionally on 2014. Howard?

Howard J. Wenger

Sure. So we expect continued strong demand in our DG business in North America in the second half of 2013 and going into 2014. Roughly, the split is approximately 70%, 65% of our business is residential and the balance is less commercial and larger commercial. Of the residential, we're more balanced in terms of -- when you look at the second half of 2013, we're going to have a little more cash and loan customers than our lease customers. Part of that is gated by the lease capacity. But the business will be growing sequentially from the first half to the second half, and then into 2014. We're not giving precise percentage breakdowns for these different components of our distributed generation business in terms of forecast and forecast growth at this time. Chuck may have some additional color.

Charles D. Boynton

Yes. I would just point out, Vishal, that the guidance we gave on our ESP business for the balance of the year is intact. So the mix of residential and commercial annuity cash flow streams.

Vishal Shah - Deutsche Bank AG, Research Division

Okay, that's helpful. And just one last question. Can you talk about your backlog of pipeline development in the U.S. and international markets? And whether the gross margin performance that you've explained in the European market continues in the fourth -- starting in the fourth quarter?

Thomas H. Werner

So comments on international pipeline and then maybe [indiscernible] result gross margins. Howard, do you want to take it?

Howard J. Wenger

Sure. And this is for which period of time?

Vishal Shah - Deutsche Bank AG, Research Division

Well, I'm just trying to understand if you've been able to sign any other major contracts and how the pipeline looks beyond 2013. A lot of the execution this year seems to be driving the outperformance, which is great, but I'm just wondering what happens in 2014?

Howard J. Wenger

Got you. Okay. So yes, Tom commented on our 6-gigawatt pipeline. This is our power plant pipeline, it's not even -- it doesn't include our distributed generation commercial pipeline that we have for larger commercial projects. And just for further color, about half of that is in the Americas and half of that is outside of the Americas. So very significant international pipeline. We are seeing progressive improvement in terms of the increase in probability that this pipeline will be executed. At Analyst Day, we mentioned that we are forecasting 25% of this pipeline to actually result in orders and book business and we're holding to that. We're going to have a number of significant milestones in the coming 12 months, for sure. Tom mentioned the Japan megaproject which is greater than 25 megawatts for the company. We're pleased that we are finishing the construction of 50 megawatts of projects in South Africa and the Middle East. Both of those had, in collaboration with Total, the French tender was significant win for us in the last go-round. We expect more positive news going forward in the next 6 months on the latest round of the French tender. Again, that was in collaboration with Total. So their presence and their help certainly giving us a boost in France, in particular, and internationally, in general. So other markets that are interesting to us, just a final comment. Chile is -- looks to be, what I would call, a potential breakout country. And we're seeing a number of very interesting opportunities that we're working hard on with Total in Chile.

Thomas H. Werner

So Vishal, what I would say to you is our team looks at the next 18 months, I mean, or current views where capacity constraint in the next 18 months. In 2015, we still have AVSP being finished. We have Quinto and Henrietta to build yet in America. And our backlog is starting to fill for other projects in '15. So you take the finish completing the existing pipeline or backlog, sorry, in America. Add to that the international projects and further expansion of our DG business. And I want to say that our feeling about '14 starts to look good for '15 as well. But that gives you some color on where we think it comes from.

Operator

Brandon Heiken.

Brandon Heiken - Crédit Suisse AG, Research Division

Crédit Suisse. So you alluded to -- obviously, you have these wins with the $150 million in new financing, but it sounded like maybe in part of the comments is that you maybe still constrained a bit on the lease capacity. Could you confirm that? Now you mentioned there may be future lease capacity announcements coming this year. But what happens if you are still constrained though? What's the other option to further push the distributed generation?

Thomas H. Werner

First, This is Tom. Let me just say that our product works great in lease because the benefits of our products levelized across the energy benefits of our product are embedded in the lease economics. And so in essence, at previous calls, our customer can get that world's best technology for, and I'll call it, essentially the same price as other alternatives or even better in some cases. So demand for lease will almost always outstrip the amount of capacity we have, certainly for this foreseeable future. Because it is a tax equity market and it's a constrained market. Of course, we have a robust pipeline of financing for both tax equity, and then Chuck mentioned, our loan product as well. And so the way we think of it is we offer cash loan, lease and other alternatives and give our customers a range of choices. But I think we're going to be in a lease capacity constrained environment at SunPower for quite a while.

Charles D. Boynton

Yes. And, Brandon, we're on plan with the guidance that we'd outlined for the year for our lease business. And so we will close additional transactions this -- the second half of the year and we'll be excited to announce those. But we don't see that as gaining item long-term because of the financiers love working with SunPower and so we just expect the market will normalize.

Brandon Heiken - Crédit Suisse AG, Research Division

And there is a lot of enthusiasm for the energy yield co. and the MidAmerican bond offerings that was with your project. How readily can SunPower do something like this? Or do you envision your partners to doing these types of offerings in the future?

Thomas H. Werner

Yes. Well, SunPower did the first ever solar bond in 2010 in Italy. And we led the market -- gave us a 300 million [ph] euro bond. We're very excited about the progress in the CVSR bond offering and the results. That's fantastic. Long-term, I think yield co.'s and MLPs, et cetera, will be a source of our financing. But in the short term, they will not because they don't provide the tax equity benefits that are needed to monetize North American projects. Internationally, there are some alternatives and we are working on some of those.

Operator

Brian Lee.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Goldman Sachs. I just had a couple. I'm not sure if you mentioned this. But what business segment and region did the $100 million acceleration from second half business come from? And then, can you also elaborate a bit on what drove the actual portfolio?

Thomas H. Werner

Sure. So it was broad-based. But I'd say, first -- primarily, it was our large projects business, both utility and commercial. Utility being Solar Star and CVSR, as well as some large scale data center projects. It was also driven by volume above plan in Japan, as well as in Europe. So there's a pull forward of $100 million to the year.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay, great. That's helpful. And then staying on kind of on that topic. For the 2013 guidance, you're not changing the revenue range, but obviously the EPS outlook is moving up quite a bit here. Can you talk a bit about what's actually driving that?

Thomas H. Werner

Yes. This is Tom. I'll give you a quick overview. The performance on the large scale projects, both CVSR and Solar Star, are a bit better. Our cost reduction on both the panel and our balance in the system is ahead of plan, and so that's contributing in a significant way. And the restructuring in Europe, it would be the third big bucket that is driving structural improvements for the company. And that is where we sell products and how much overhead we have in Europe, that's yielding dividends at this point. So it would be those 3 buckets.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay, great. Last one for me and then I'll hop out. Just wondering if you had any viewpoints here on some of the potential changes that are being speculated upon with respect to Net Metering policies in some of the key solar states, whether it be California or Arizona, especially given the momentum you are seeing in that segment?

Thomas H. Werner

Yes. So what we would say about Net Metering is, first of all, I want to calibrate everybody on the phone. Net Metering represents 10% to 15% of SunPower's business, just so you have some sense of how it fits with us. It's a very effective vehicle, and frankly, we think it's a great vehicle that they emulated all over the world. Of course, the question is, "How does it have a sustainable level with the utilities?" We happen to be a company that's working productively with the utilities to look at alternatives. And I think Net Metering stays. The question is, "What are the economics of Net Metering?" And to be more precise, "Is there a fixed cost charge and what is the rate that you get as the meter is turns backwards?" And we're working actively with all of the participants. And there's a productive solution here because in the end, solar energy has gotten cost effective and taking that option away from customers doesn't make any sense. So this will get sorted out.

Operator

Rob Stone.

Robert W. Stone - Cowen and Company, LLC, Research Division

Cowen and Company. Chuck, I wonder if you could quantify roughly anyway the impact of the onetime benefits in the quarter?

Charles D. Boynton

We said to a lesser degree, so if you think about the overall split we gave you at the range on the pull forward from the second half of the $100 million in revenue. The smallest impact was the third category of the onetime benefits.

Robert W. Stone - Cowen and Company, LLC, Research Division

Okay. And with respect to the revised guidance for the year, can you say how much NCI might contribute to that in terms of non-GAAP EPS?

Charles D. Boynton

I can. Let me just get you a number real quick.

Thomas H. Werner

Robert, I'm going to take another question or 2 so I -- we'll answer that.

Did you ask another one, Robert?

Robert W. Stone - Cowen and Company, LLC, Research Division

I do. I was wondering, with respect to C7, whether you have any multi-megawatt project deployments in view and then where they might be?

Thomas H. Werner

So let me take C7 and Chuck probably have an answer when I'm done with that. The answer is, let me tell you where we're at. We are finished -- we finished the deal with Arizona State. We're just suppling the product for Tucson Electric. The answer to your question is yes, we do have other projects in queue that would be more bigger than those projects. And of course, we've talked previously about how well that product works in markets like China and the Middle East. That's probably a little more intermediate term or maybe a longer term that you'll see that. The thing I'd point to you, Rob, is our Oasis product is we've scaled it. The cost have come out of it so rapidly that it's nice that we have those 2 options. Our Oasis tracking solution, as well as C7. So it's sort of a long-winded yes.

Robert W. Stone - Cowen and Company, LLC, Research Division

Okay. And on capacity, you said you were going to be constrained for 18 months. Does that mean you don't have any options to add something sooner than that?

Thomas H. Werner

Well, thank you for tracking my comments. And sorry for that comment. But the -- what I would say to you is, we will, of course, look at ways to increase capacity in the next 18 months. But we're thinking sustainable solutions. And so we're not likely to do something that only, in the short term, it's only a short-term solution. And as you know, building a fab is outside of that time frame. And the other solution that you can think of many of them are outside of that time frame. So as I said before, we're comfortable with what we said in April, not ready to modify that in terms of our guidance which we include capacity. We're obviously working very hard. On the next call, we'll give you an update. I think Chuck has an answer to your previous question.

Charles D. Boynton

Great. Rob, so first on the NCI, we have not changed the plan. So the upside and guidance has nothing to do with NCI. Secondly, for the back half of the year, we're estimating about $20 million of additional NCI balanced between Q3 and Q4, primarily in Q3.

Robert Okunski

I think we're going to take our last set of questions here from -- if you could?

Operator

[indiscernible]

Unknown Analyst

I actually have one question. Most have been answered. As I'm running through Q3 guidance and I'm looking at the model, it looks like Q4's quite a bit heavier. Is that AVSR and/or you guys leaving yourselves some room for Q3 projects?

Thomas H. Werner

So they're from a non-GAAP standpoint, it will be balanced between Q3 and Q4 in terms of EPS. If your comment was on revenue...

Unknown Analyst

On revenue.

Thomas H. Werner

Yes. Revenue, there will be likely more now called Solar Star revenue in Q4.

Unknown Analyst

Okay. And then the 25-megawatt project in Japan that you announced. Is that still with either Toshiba or Sharp, or is that your own project there?

Howard J. Wenger

This is Howard. I'll answer that question. We have not yet announced publicly who our partner is there. So you can expect some additional news in the coming -- soon.

Robert Okunski

Thank you, all, very much for calling in to our call. We have a very strong quarter and we look forward to having you on our next earnings call. Thank you.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SunPower Management Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts