First Solar, Inc. (FSLR) Q1 2010 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the First Solar First Quarter 2010 Earnings Conference Call. This call is being webcast live on the Investor section of First Solar's website at www.firstsolar.com. [Operator Instructions] I would now like to turn the call over to Mr. Larry Polizzotto, Vice President of Investor Relations for First Solar, Inc. Mr. Polizzotto, you may begin.

Thank's you. Good afternoon, everyone, and thank you for joining us for First Solar's First Quarter 2010 Conference Call. Today after the market closed, the company issued a press release announcing its first quarter 2010 financial results. If you did not receive a copy of the press release, you can obtain one from the Investors section of the First Solar website at firstsolar.com. In addition, First Solar has posted the first quarter presentation for this call, key quarterly statistics and historical data, and financial results and operating performance on the IR website. We will also be discussing this presentation during the call and webcast. Also, an audio replay of the conference call will be available approximately two hours after the conclusion of the call. The IR replay will remain available until Monday, May 3, 2010, at 11:59 p.m. Eastern daylight time, and can be accessed by dialing (888) 203-1112 if you're calling from the United States, or (719) 457-0820 if you're calling from outside the United States and entering replay pass code 95344574. A replay of the webcast will be available on the Investors section on the company's website approximately two hours after the conclusion of the call and remain available for approximately 90 calendar days. Investors may access the webcast on the Investors section of the company website at firstsolar.com. If you are a subscriber of FactSet or Thomson ONE, you can obtain a written transcript within two hours. With me today are Rob Gillette, Chief Executive Officer; Jens Meyerhoff, Chief Financial Officer; and Bruce Sohn, President of First Solar. Rob will provide an overview of the company's first quarter achievements, discuss our NextLight Renewable Power acquisition and give an update on the market and business. Jens will then provide you with the first quarter 2010 operational and financial results and provide an update to guidance for 2010. We will then open up the call for questions. During the Q&A period, as a courtesy to those individuals seeking to ask questions, we ask the participants limit themself to one question. The company has allocated approximately one hour for today's call. I want to remind you that all financial numbers reported and discussed on today's call are based on U.S. Generally Accepted Accounting Principles except that our free cash flow is a non-GAAP measure and is reconciled in the back of the presentation to operating cashflow. Now I'd like to make a brief statement regarding forward-looking remarks that you may hear on today's call. During the course of the call, the company will make projections and other comments that are forward-looking statements within the meaning of the Federal Securities laws. The forward-looking statements in this call are based on current information and expectations, are subject to uncertainties and changes in circumstances, and do not constitute guarantees of future performance. Those statements involve a number of factors that could cause the actual results to differ materially from those statements, including the risks described in the company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission. First Solar assumes no obligation to update any forward-looking information contained in this call, all with respect to announcements described herein. I'd now like to mention that in the second quarter of 2010, the company will be attending the following conferences: Deutsche Bank's Clean Tech Conference in Washington D.C. on May 12, Merrill Lynch's Clean Tech Conference in New York City on June 2, Crédit Suisse's Alternative Energy Conference in Washington D.C. on June 3, and then Intersolar 2010 in Munich, Germany, June 9 through 10. In addition, First Solar will be holding our annual Shareholder Meeting on June 1 in Phoenix, Arizona. It's now my pleasure to introduce Rob Gillette, Chief Executive Officer of First Solar.

Great. Thanks, Larry. Welcome to everyone. Thanks for joining our call. I want to turn the attention to our Q1 performance summary on Page 6 with another strong quarter. With net sales of $568 million which is 36% growth year-over-year, our net income was $172 million or 30.3% of net revenue and our diluted EPS was $2 a share. We turn on net assets. RONA was 23.2% on a four-quarter rolling basis which is well above our target of 20%. Cash and marketable securities were $1 billion, a $200 million increase year-over-year. On the operations and production side, Q1 production was 322 megawatts. That's a 47% increase year-over-year. We reached an annual capacity per line of 55.7 megawatts. It increases our current and announced capacity to 2.1 gigawatt by the end of 2012. Conversion efficiency was 11.1%. That's 2/10 of improvement year-over-year. And our cost per watt was $0.81 a watt which is down 13% year-over-year. We're on track with our Malaysian plants, five and six expansions with production that began in the first half of 2011. Finally, today, we're announcing that our Board of Directors has approved an additional four-line factory, and we expect to be operational by Q4 2011. This new plant will add over 220 megawatts, and we'll announce its location once we've completed all the necessary permitting and negotiated a final agreement. Our Systems business will continue to grow, and we see a strong demand for the business. During the quarter, we sold the 30-megawatts Cimarron, New Mexico facility to Southern Company and Turner Enterprises; the 22-megawatt Badajoz, Spain project, the Voigt & Collegen. This project was jointly developed by First Solar in cooperation with Blythe Strum [ph] and Assyce Fotovoltaica who acted as the EPC contractor. Our contracted project development pipeline increased from 1.4 to 1.7 gigawatts as we signed a 300-megawatt PPA with PG&E for Desert Sunlight, bringing the total site capacity to 550 megawatts. Construction is in progress from the 48-megawatt Copper Mountain project, the 60-megawatt Sarnia project and the 30-megawatts Cimarron site with substantial completion expected by year end. We continue to work with the Chinese government on Ordos Phase 1, the 30-megawatt project. And today, we're pleased to announce an agreement to acquire NextLight Renewable Power LLC. It have a 1.3 gigawatt project development pipeline, including 570 megawatt of PPAs with very experienced and talented team. NextLight adds to our North American pipeline and expands our strategy to drive growth and technology adoption of solar power. Their experienced development team combined with our former OPTis and the Edison Mission people, allows us to provide North American utility customers with the complete solution to the renewable energy needs, which is both low-cost and predictable performance. It's put First Solar on a unique position to the right system solutions tailored at customer requirements of providing services from development, EPC, operations and maintenance, and project finance. Our focus will be to continue to focus on the growth of the solar power market through these enabling capabilities. We add a 1.1 gigawatt pipeline which includes 570 megawatt of PPAs. Once closed, the transaction will bring our total contracted pipeline to 2.2 gigawatts. The preliminary financial impact is in earnings reduction of $0.09 to $0.10 per diluted share in 2010. We will finalize the financial impact of the acquisition once the transaction closes. This agreement is contingent on the CPUC approval of one project under development as well as Hart-Scott-Rodino clearance. Subject to these approvals, we expect to close in early Q3 of 2010. Here's a summary of pipeline of 2.2 gigawatts. And this is where our North American Canadian pipeline contracted business and it enclosed the addition of the 300 megawatts that I've mentioned on Sunlight, PPA and also the NextLight acquisition. So we've got a lot of good new business opportunity with the addition of NextLight. I want to focus now on the market and how we see it in 2010. We're getting an improved clarity around the 2010 and 2011 bit changes and their magnitude impact and the implementation and timing as things change including the growth corridors that are being defined. We expect the final decisions to be made by early June of this year. First Solar is well positioned to manage the potential impact and uncertainty in the second half, and we expect to remain capacity constrained throughout the year. Our priority will be to service customer demand while utilizing our captive pipeline as a buffer to potential demand fluctuations. As a result, some of our projects have shifted to 2011 so that we can provide more modules to our customers. Our captive pipeline can provide for take off of approximately 20% to 25% of our total second half production. The European market is expected to grow approximately 25% year-over-year, including 60% growth outside of Germany. We continue to work with our partners to expand the market throughout Europe. In North America, utilities continue to show a high interest in utility scale PV. Since the fourth quarter of 2009, we estimate that the volume of U.S. utility total PPAs has increased approximately 1 gigawatt. China has continued to delay announcement of its fifth program. A new project development may continue through a less transparent concessionary bidding process. First Solar continues to work with provincial and federal agencies on the Ordos project for the first 30-megawatt phase of our 2 gigawatt cooperation agreement. We have submitted the Ordos pre-feasibility study and have been developing local partner relationships. Industry demand and estimates for us, you can see highlighted on the next page. This is a chart that summarizes the industry view of the global PV market, size and growth from 2009 through to 2012. Although there's a range of estimates, continued strong growth is expected as the market diversifies. After significant growth in 2009, industry demand is expected to increase at 30% compound in annual growth rate to approximately 7 gigawatts in 2009 to over 15 gigawatt in 2012. We at First Solar aspired to be a clear global market leader, and we are targeting to grow share from approximately 15% in 2009 to 30% in the long term. Looking at our production capacity growth, Slide 12 shows our current capacity plan including the announcement today. Our 8-line expansion of KLM, Malaysia is underway and on scheduled for shipment in the first half of 2011. We have completed negotiations on our two-line factory in Blanquefort, France and are on the permitting and design phase. Shipments are anticipated in the first quarter of 2012. Our expansion in Malaysia and France and the new plants that we'll add will give us 14 new production lines, 780 megawatts of increased capacity at the current run rate, which is 58% increase from our current production equates to 2.1 gigawatt of capacity in 2012 based on the run rates we mentioned earlier. So to summarize, we had another strong quarter. In Q1, we have a very, very good results. Our captive pipeline enables us to accelerate technology adoption and buffer demand uncertainty. The pricing environment has continued to improve, and strong global demand appears to be absorbed in the industry supply. With the acquisition of NextLight, we've grown our contracted pipeline to 2.2 gigawatts, providing long-term visibility to growth and significant business in the future. We're continuing to invest in both that growth as well as our capacity to fuel of that growth. And I'd like to turn it over to Jens to cover the financials.

Thank you, Rob, and good afternoon. During the first quarter, we experienced strong macro demand ahead of the expected mid-year feed-in tariff change in Germany, continued growth in France and Italy, and sales for our development business. Net sales for the first quarter were $568 million, an increase of 36% year-over-year and a sequential decline of $73 million compared to the fourth quarter of 2009. The sequential decrease was driven by a shift from turnkey system sales to module sales as the first quarter benefited from the revenue recognition for signing of Phase I and the Blythe project. This was partially offset by higher average selling prices and revenue recognition from the sale of the Badajoz project. The 22-megawatt AC project was developed at First Solar in Europe in cooperation with Blythestrum [ph] and Assyce Fotovoltaica, who acted as the EPC contractor. The project was sold to Voigt & Collegen and is expected to be completed by the third quarter of this year. The blended exchange rate in Q1 was flat quarter-over-quarter at $1.39 to the euro. We produced 322 megawatts during the first quarter, up 3.6% compared to the prior quarter. During the first quarter, we completed the ramp of line four in Perrysburg, Ohio. Turning to cost per watt. Cost per watt produced for the first quarter was $0.81, down $0.03 benefiting from the completion of the Ohio ramp and throughput improvements partially offset by higher manufacturing overhead cost. Core manufacturing cost per watt was flat at $0.80 per watt quarter-over-quarter. Q1 gross margin was 49.7%, up 8.2 percentage points over the prior quarter. Module revenues increased to 93% in the first quarter compared to 86% in the fourth quarter of 2009. Module ASPs increased quarter-over-quarter based on strong market demand and mix. The completion of the Ohio ramp also strengthened gross margin. Gross profit increased sequentially by $15.8 million despite the sequential decline in net sales. Module gross margins were 52% during the first quarter of 2010. Operating expenses were flat quarter-over-quarter excluding the impact of the one-time items reported in the first quarter of 2009. Operating income for the first quarter was $191.1 million or 33.7% of net sales compared to $144.7 million or 22.6% during the prior quarter due to the higher gross profit and lower operating expenses. Net income was $172.3 million or $2 per share on a fully diluted basis. The effective tax rate was 11.8% for the first quarter. Following very strong cash innovation in the fourth quarter of 2009, the first quarter free cashflow consumed $118 million of cash with operating cash flows of $31 million. We spent $106 million for capital expenditures against depreciation of $37 million. First quarter cashflow followed the same seasonal pattern as in prior years and is impacted by accounts receivable linearity, annual bonus payouts and end-of-life recycling funding. The accounts receivable and inventory grew on higher volumes at more construction in profits in our Systems business. Cash and all other marketable securities decreased by $94 million quarter-over-quarter to $1 billion and 20 million. Our debt-to-equity ratio remains low at 6% providing us with the strongest balance sheet in the industry. This brings me to our updated guidance for 2010. We have made several key assumptions underlying our guidance. We allocated Module from the Systems business to the Module business due to a strong module demand discussed earlier. The low end of our guidance maintains resilience to competitive pricing based on $40 per kilogram polycrystalline cost and, $0.75 per watt conversion cost by the fourth quarter for our non-captive demand. We have reduced our spot foreign exchange rate assumption from $1.40 to $1.30 per euro. For the remainder of the year, approximately 43% of our net sales and 52% of our expected net income exposed to the euro are hedged at an average rate $1.39. Guidance includes approximately $12 million of operating expenses. For the next slide acquisition, the impacting earnings per share by $0.09 to $0.10 subject to final purchase price accounting. Capital spending includes KLM Plants 5 and 6 and the additionally announced new full-line plant. In our guidance, we're increasing our earnings per share expectation while reducing net sales due to the mixed shift from systems to module sales and less pass-through revenues. In addition, guidance includes the impact of the NextLight acquisition. Net sales are forecasted to range from $2.6 billion to $2.7 billion with modular net sales increasing to $2.1 billion to $2.2 billion. Gross margin guidance of 41% to 43% is up from prior guidance due to the increased module segment mix and the better-pricing environment, partially offset by the lower foreign exchange assumption. Module gross margins are expected between 49% and 51% for 2010. We expect plant start-up cost of $27 million, primarily from the Malaysia Plants 5 and 6, as well as the newly announced plant in the second half of 2010. Stock-based compensation is estimated at $90 million to $100 million with approximately 20% being allocated to cost of goods sold. GAAP operating margin is expected to be 25% to 27% with marginal operating margins of 31% to 33%. We expect our 2010 tax rates to be 12% to 14%. We estimate year-end 2010 fully diluted share count of $86 million to $87 million. Earnings per diluted share are estimated to range from $6.80 to $7.30. The increase from prior guidance is primarily driven by higher average selling prices partially offset by the weaker euro. CapEx for the year is expected to be $625 million to $650 million. This is up from our prior guidance due to spending for the new full-line plant. Operating cashflow is projected to be in the range of $725 million to $775 million. RONA guidance has increased to 18% to 19%, but remains below our 20% target for the year. Slide 25 reconciles for your convenience the prior EPS to the current EPS guidance and the primary drivers of change. Going to the following slides. Slide 26 shows the expected quarterly profile of revenue recognition by segment and the resulting mix impact on our consolidated gross margin. Please note, as in prior presentations, that as you read horizontally across each line, the quarters will add up to 100%. The majority of our EPC and project development revenues remain in the second half of 2010. However, the reduction in EPC net sales for 2010 comes from the third and fourth quarter. Note that those module segment and consolidated net sales are expected to decline slightly in Q2 consistent with our prior guidance as we will be allocating modules to the systems business in advance of revenue recognition. The margin profile follows the segment mix. The growing EPC mix is expected to dilute our consolidated gross margins slightly due to and more significantly in the second half of the year, consistent with the prior guidance provided. Module margin remains relatively flat throughout the year and are up from prior guidance even after absorbing the foreign exchange impact changing from $1.40 per euro to $1.30 per euro. With this, we conclude our prepared remarks and can open the call for questions. Operator?

[Operator Instructions] Our first question will come from Sanjay Shrestha with Lazard.

So to the slightly lower-than-expected Systems business, it's more of a function of capacity constraint rather than any delays that occurred with the permitting or anything like that during 2010, correct?

Yes, that is correct. I mean that's the decision. You may recall, I think we stated that on prior calls, that we look at the captive demands coming off our Systems business to some degree as a buffer, against any form of demand fluctuation given some of the changes in the fees and tariff. Right now, from what we can see, is a very strong demand on the Module side, and we have enough flexibility in the pipeline in order to serve that module demand ahead of realizing those systems. So there's no implied delay in those. This is a conscientious decision of how we allocate our capacity.

Our next question is from Vishal Shah with Barclays Capital.

Do you assume that most of those systems can be implemented in the first half of 2011? The push outs that you're doing right now just to meet your demand? Do you think it's going to be more linear in 2011?

Yes, Vishal, it's Bruce. The strategy is basically to continue to use our captive demand as a buffering mechanism alongside of our Module sales business which we've currently got three major projects under construction, they're on various places in North America. Those will get completed this year. The ones that we've decided to flex into 2011 will just be sequenced in accordingly.

The next question comes from Satya Kumar with Crédit Suisse. Satya Kumar - Crédit Suisse First Boston, Inc.: It seems like you're seeing new module demand for the second half of the year given you're pushing out the systems limit, saying your capacity constrained for the second half. I was wondering if you could give some color on which geography that new demand is coming from? And as a follow up to that, for 2011, given that German tariff declines would be dependent on 2010 market levels, is there a level of marketplace in 2010 above that you'd be concerned on the economics in Germany in 2011?

Yes, it's Rob Gillette. I think I would say that given the uncertainty with all of the starts and stops and negotiations that have taken place on the FiT in Germany, specifically, I think a lot of customers were uncertain, and we looked at the market and try to provide the opportunity to buffer, as Bruce said, the fluctuations that we might anticipate in demand. And I think that all of our customers, and we are surprised at how strong the demand is. And so I think it's a combination of the delay and a lot of effort on our part and our customer's part to go make things happen in 2010. And I think also a clear understanding to what's happening with the FiT changes and maybe not being as difficult or concerning as they might have been early in the year or into Q4, so that would be 2010. So what we're trying to do is balance our customer needs with what we can do in terms of meeting customer commitments on the capacity that we're building, but also allowed to flock some of that demand and make sure that all of our customers have panels to both products. So I think in 2011, once the actual decision is made, which we anticipate by early June on the FiT changes in Germany, everyone will have a clearer picture of what the market outlook is. But right now, we anticipate, as we said that, growth rate in the total business, including growth of the 60% outside of Germany that we mentioned on the market page. So as we said, we're working with our customers to really grow the business and market outside of Germany, but also maintain and grow our position in all of the market aspects in Germany as well. But a lot of good growth opportunity still exist throughout the world.

Yes, I mean, I think in particular, Satya, I think second half, right? We would see good strong demand increases outside of Germany and France, I think to some degree in Italy. If you think about 2011, if you see obviously there's a function of the gross corridor now, we're actively diversifying a cementum. We're moving actually captive pipeline out of the underlying economics of that captive pipeline are very strong that allows for a possible higher rate of digression in the German markets as we look at 2011. So that's effectively I think how we're buffering against that.

We'll take our next question from Steve Milunovich with Merrill Lynch.

Can you talk a bit more about ASPs? How do that work in terms of being sequentially up when you have the feed-in-tariff digression come in to the year? And it looks like from your graph that the modules may actually go up in the third quarter. So I guess how does that work? I guess part of it might have been fourth quarter you had Blythe, which sort of depressed the module margins, but how do we think about that?

Yes, so we had a couple of aspects. So one is Blythe's. The next one, as you may recall, there's a mix component in our ASP between German installations right in shipment outside of Germany, as it relates to eligibility of the rebate. That's the second component. And then there's a discussion with respect to the overall amount of rebates that is extended. So foreign exchange get to be another impact, like quarter-over-quarter we're flat on our backs, so that didn't have an impact. So those are the three key drivers here.

Our next question comes from Steve O'Rourke with Deutsche Bank.

Just a follow-up on Germany, how do you handicap demand in the second half versus the first half if he didn't tear a proposal as it is now goes through as expected?

So again, I think right now every indication that we have is even though you're going to get the feed-in-tariff reduction, the timing is not yet entirely certain, but let's say it's about a mid-to-mid-year event even though it could differ by segment. So right now, obviously, as opposed to get projects through. So now that could be an out pocket as we get into the following half depending on the inventory situation. Our understanding is that inventories are extremely low, but now a lot of it. It doesn't appear to be a lot of inventory overhang. But then keep in mind, you're also going to have the second digression by the end of the first quarter, which will in itself the project that can't be realized ahead of the mid-year reduction still will drive whether demand fall in order to drive completion. If you take that combined with my earlier statement of stronger demands rising and markets outside of Germany and Europe and our own pipeline, again at this point in time, we're a lot more focused on how to allocate the product as compared to same thing where to place it or where we have access.

Our next question comes from Smittipon Srethapramote with Morgan Stanley.

Rob, can you talk more about your 30% market share target in 25, 2014?

For us, we want to be the leader in the industry, and we as a team discuss the -- what we believe would constitute in a leadership position. And that's where we basically said it is a goal for our business to extend our position in the market and to grow the market as well. So that's our target which obviously has implications part of what we mentioned today in terms of our capacity. But in the future, we'll continue with the teams to evaluate capacity and where we would install it to enable us to achieve those growth objectives. And all of our strategy really is centered around driving technology adoption much quicker on a project development side, as well. So therefore the acquisition announced today next Slide and continue to drive the performance of world-class PV plans to sort of become a more acceptable part of the equation. So for us, it's a goal, it's out there. We know that calling this market four or five years ahead of time is a little bit of a risky thing to do. So we don't claim to do that. And we forecasted basis we said on input information we haven't do our best to roll off the market, based on the applications we know that we're involved with and coupled that with market information as well. So that's the 30%.

The next question is from Stephen Chin with UBS.

Just a follow-up question about the market share aspirations, I think you said your streaming [ph] (35:16) for about 30% share, that would imply a lot of capacity growth. I think you said you've got about 20% share now in the market growing about 30% a year. So how would that tie-in with focusing on ROIC and RONA?

I think it ties in as that kind of is a measure that we look at whether it's an acquisition or what we do in development is to clear that hurdle. So I think that's always our metric and yardstick. And we look at the combined business and that is our own captive pipeline in the total market growth. And it would imply that we need to continue to invest and then expand and drive scale and drive the cost as we've continued to do it. So we are always looking at and evaluating where the next increment of capacity will be and once those things are finalized we'll make sure to communicate it.

Yes, I explained just through after this. So by definition this plant investments right on an incremental basis by far exceeds the RONA requirement with our current outlook, even in a highly competitive pricing environment. You have to keep in mind that in most cases that capacity especially as capacity in different locations, that the capacity comes in a different cost point as well.

Our next question comes from John Hardy with Broadpoint.

Just looking at the core cost per watt number? And just looking at what a good job you guys did on throughput gains, I was somewhat surprised to see that flat sequentially. I was just curious if that was maybe currency related or maybe there's a delay and we should expect a significant decline in Q2 there?

John, as you know, we've got a roadmap for ongoing improvements in efficiency and throughputs and yields, as well as we have ongoing work for driving down the bill of materials cost. And the teams have been doing a pretty good job with bill of materials. During the last quarter, we also qualify the ramp holding off the startup costs associated with the fourth line in Perrysburg, Ohio. But we did encounter some modest manufacturing overhead cost that we dealt with. Some of those are seasonally related and a number of other relatively small ones. None of which significantly affect our thesis for ongoing improvements from a cost perspective.

We'll take the next question from Timothy Arcuri with Citi.

How do you think about, as you get -- at least in the U.S. as you kind of get into the development business more and more. You're sort of competing with this big project developers that are your current customers today. So in a sense in the U.S., you're sort of competing with your customers a bit more and more. So how do you think about that balance, number one? And then number two, I think on your last call you had your own demand forecast of 7½ gigs for 2010 and 9.74 for 2011, and you've move to kind of a consensus forecast here. So can you maybe give us what your own view of the market is for 2010 and for 2011?

Yes, I guess, the view of the market, I'll start with that, we've learned this much. I mean, we've framed it, we've looked at it. We're a little bit surprised by actually the number of installations that occurred in Germany based on actual data that came out. So I think it surprised everyone. I know they're relooking at that to make sure that all of that data is consistent and other things. I think the growth rate that we'd talked about in that range of the 25% to 30% compounded between now and 2014 is directionally what we think. We know that pending legislation and changes can affect that line. And so we've focused on that, whether it's through government relation effort or development pipeline. So I think that we have a pretty good view on what the market will be and we'll continue to grow in that range. And we want to make sure that we can help drive to make it grow faster by some of the investments that we're making and development in that pipeline. So on the question of our customers or viewing us as competitors, I think that we continue to work with our customers and they get a clear understanding of our investment and effort. Remember, our strategy is to expand the market in new regions of the world and invest to drive the technology adoptions. So I think they have good understanding that, that helps all of us do that and helps to grow the market. So it also is an opportunity for us to work together with them, whether it's just specific development project that may be out there and purchased day [ph] (40:34) with customers to build that site and develop the applications. So I think it's getting clearer and clearer to both and a good understanding is there from our customers and our business.

I actually believe that it is somewhat of a misconception that our activities in North America are constituting a competitive environment with our customers. We're in the business of developing and constructing power plants and we sell those power plants to independent power producers. Our customers are largely independent power producers, but their natural buyers and owners of these assets that can be overlapped with some of our customers have their own development effort. In which case, we often support them through our EPC capability. But at the same point in time, there's a scenario where we partner in an early into our own development effort in order to join and realize the asset. So I would actually describe that relationship not as competitive but synergistic.

Our next question comes from Burt Chao with Simmons Company [Simmons & Company].

Just maybe taking a step back with tough market sizing. There's been a lot of news out there about the Spain retroactively petition reducing the subsidy that they've provided on some of the projects that were installed there. Maybe can you just give some information on how you think about that and how it may affect, obviously, not directly module manufacturers, but the investibility and forecastability for investors in Solar? And how are you looking at that? Is it more pervasive? Could this be a precedent for other countries?

I would tell you personally, I can't tell you that I'm directly aware that, that is a serious discussion. I think, if that was implemented obviously, I think I don't even know whether it can be easily implemented on a legal basis due to the underlying financing that you mentioned. I would deem that a very unlikely case, but if you want to see erratically spin through it. Yes, it would make people a lot more nervous as it relates to long-term financing of solar power plants. But for the same reason, I do not believe that as a probable outcome at all.

The next question comes from Kelly Dougherty with Macquarie.

I'm just wondering if you can kind of help us think about the pricing differential between what you sell to third parties kind of in the open market, if you will, versus what you price at your own projects so you don't have to compete directly with anyone head-to-head? And then if maybe we should look at the NextLight acquisition as that you are focused on building out that captive pipeline. So looking forward into 2011, you don't have to compete with the Chinese, especially -- or don't have to compete with Chinese as much especially if the demand flows, is that a good way to think about it?

Kelly, it's Robert. I would say that -- I think a couple of things, one is, you remember a lot of them -- our investment is said to expand the market and drive growth and technology adoption. And depending on the marketplace and because of our position as a business and credibility with our customers, we can create a pretty good financing option in the business to make it a good investment for a lot of different types of constituencies and parties. And the basis of that investment varies from region to region and market to market. So there is opportunity we believe to capture more value for our customers and enable growth in a more rapid way by having the captive pipeline. I think in terms of, because as we've mentioned, throughout the year we're going to be sold out in terms of our capacity. So every -- Bruce gets a lot of input from the rest of us as to how much more we can make and produce. You're smiling at me, but we want -- that's why we're making investments in our capacity in the future. But also has created an opportunity for I think a strategy for us going forward to develop how our channels to market are constructed in one other opportunities there could be on -- think of it as a panel and distribution side. So I think, the cost to serve that market can be different, which can have an impact on economics versus putting a hundreds of megawatts into one side and shipping containers there and all the productivity that we've put into the BoS cost reduction and other things, it's a different equation and in different customer base. So I think that we can do a better job of developing that for growth in the future. And I think when you're just talking about a distribution sale, it obviously is where more of the competition can occur because it's not certified, it's not something that's gone through in permitting environmental requirements and standards and so on. So the distribution market is where you'd see more of the competition.

And Kelly on the NextLight acquisition, so obviously, that is a logical continuation in light of us increasing a higher degree of captive demand and value chain control. So that in itself, as you may have recall, all of our Analyst Day last year, we had a big emphasis on the economics and that part of our strategy. The piece that I want to as an addition to controlling the value chain is with this acquisition now, we have about a 2.2 gigawatt pipeline right under contract with PPAs, which allows us to standardize our system design over the largest pipeline in this industry which helps us right to scale cost, not only at the module level, but also very much on the balance of system level, which creates a significant competitive advantage over time.

Your next question comes from Christine Hersey with Wedbush.

Could you just give us an update on when you expect Desert Sunlight and Topaz to start construction? And then bigger picture, as we move into 2011 and the Systems business becomes a larger percent of your revenue could we expect I guess more detail or updates on some of these larger projects that maybe more impactful to your results?

Again, I don't think it's going to do. So I think for [ph] (47:24) us to giving specific dates on each of these production starts, right? We have these projects right scheduled in 2011. And however, there are subject as you know that both of these projects are right now, right in the final permitting stages, right. And as we mentioned on many cases, the permitting is something that you will not pin down to a day. So we believe we're doing quite well on both of these projects as it relates to permitting. I think we're seeing a lot of support on all irrelevant and involved constituencies. And we will announce on a call right when we need, when we reach a full notice to proceed to which obviously includes all permitting and all financing for this large scale projects. As of today, we're excited about these opportunities. We believe we're on track with this large project.

Your next question comes from Pavel Molchanov with Raymond James. Pavel Molchanov - Raymond James & Associates: I remember at your Analyst Day, you spend a lot of time talking about the various transition markets that you see geographically and it seems like your focus on the downstream has been almost exclusively North American. Do you see a meaningful opportunities that outside perhaps OECD countries or is it still too early for that?

I think -- it's Rob. I think that we see opportunity for that and we're working through in our minds how we define what is sustainable. Remember that curve that we presented at the meeting from the subsidy markets we transitioned and to sustainable markets. And so that's part of my comment on distribution side, how do we serve markets that we're not going to be participating in and meeting continually with people on the street, on the ground. I think we did also talk about the transition opportunities that exist outside of North America and that would be in China, India, Australia and other areas, including outside of Germany and throughout Europe. So a lot of growth opportunity on the subsidy side as well. So we are also as part of our strategy development, working through how we would participate in some of these markets, how we can work with IPP customers who are involved in those regions and we see those areas of the world as significant opportunities of the future.

Your next question comes from Dan Ries with Collins Stewart.

My question is about the Project business and the sale of the large projects. So far, most the sales have been to power-related entities but NRG or utility or Enbridge involve natural gas. Are you seeing any new types of buyers commence as you look or sell some of the much larger projects, specifically financial buyers?

Yes, I think we do have, as you know -- as we're bringing this assets to market, we generally have a fairly broad interest, right? So as we announced who buys the project, obviously, there were other bidders involved and generally on all of these assets, we have a fairly competitive bidding environment. And yes, the range of participants and their goals just beyond classical utilities or energy companies. And which is to some degree into financial buyers, so now you may recall if a financial buyer, at a longer term, requires tax expedites, right now under the grants in lieu I think you have ability for broader participation of pure financial buyers on the equity side. As we move into 2011, that is somewhat limited as it relates to entities with the right tax appetite.

Your next question comes from Colin Rusch with ThinkEquity.

Just a follow-up on Dan's question, can you talk a little bit about the syndicate formation for project finance? How much are you seeing that? How many participants you're seeing out there that are willing to finance these projects? And then also, what size jobs they're willing to take on it for any given project?

Yes, I mean if you think about it, it's all for the [indiscernible] (51:48) place, I don't want to call it a syndicate formation because that's not what it is. So right now you've got individual buyers. These buyers, these buy a fully financed projects right to [ph] (52:04) debt finance. Debt finance income can come through bank financing, export financing. We're obviously thinking on the larger project side. We're thinking about bond issuances and these are on a stand-alone basis are combined with the DOE, the loan guarantee program. So that's in fact is what we're all thinking. So there you get a more into the public debt market. As it relates to the equity fees, we generally like to place the equity with a single party, having multiple parties in the equity can be complicated as it relates to sharing the infrastructure and the available financing. So while we're using this strategy, you see that we're using generally the strategy of taking some of the smaller projects, right our mid-sized projects I should say as we have them in the U.S. and Canada. But to some degree also what we're doing with some of our partners in Europe, right as android [ph] (53:04) vehicles as learning vehicles for some of these investors and then steps them up over time. The signing of 20 moving light and down to signing of 60 is a good example of that right of stepping up a customer, once we demonstrate the capability.

And the next question comes from Adam Krop with Parador Capital (sic) [Ardour Capital].

It looks like your day sales, your inventory days picked up a bit of the quarter, can you just give us a little color behind that? And how you expect that to trend in Q2? And if you can give us any idea or any commentary behind how inventory levels are trending at you customers that'd be great?

Generally, I think we maintain inventory level, especially on the good side right at the pretty consistent flat levels. So I think is a little bit of inventory fluctuation right mostly out of the EPC, out of the EPC side. So that's worth positioning product, you can see temporary rises there until. We have recognized revenues completion of the entire power plant and sales. As I mentioned in my earlier comments, as it relates to channel inventory to our best understanding right now, the channel inventory has appeared very low. And so from that perspective, that feels healthy, I think it's a very strong demand for that appeals is a lot of inventory distributed to the channel.

And our final question comes from George Santana with Greener Dawn.

Can you provide sales by country and how much if anything was spent during the quarter on the rebate program in Germany?

I don't have it right at the top of my fingertip, but maybe Larry follow that with you on that. But I think we're saying, just for Germany was just shy off 60%, 59%. I don't have the breakdown for the rest of Europe or U.S. right now at my fingertips here.

We'll take our next question from Gary Hsueh with Oppenheimer Inc. Gary Hsueh - Oppenheimer & Co. Inc.: So 2009 was a pretty big year for German installations, I'm just wondering relative to the growth quarter, what you think the risk is and maybe qualitatively, even if there is a risk, if you outgrow that growth quarter in 2010 going into 2011 in the German market. Just a quick question on NextLight, so if I can squeeze this in. Under the PPA that NextLight has over the 570 megawatts of projects, are those PPAs within the $0.14, $0.16 sort of average for you right now? Or are there any significant outline that we should expect in the NextLight PPA so far maybe impacting 2011?

Generally, I think we addressed it in an earlier question as it relates to Germany right outgrowing or growing at a pace in 2010 that will trigger right the full digression on the gross concept. I think at this point in time, I think we got to see through, I think there's some possible around as it relates to the installation activity that we're seeing. As I mentioned earlier, if you look at the amount we're seeing right now in the rest of Europe even if as we go on to 2011, we look at our own captive demand in the underlying economics of it, I think we're to the best extent we can gage it right now we're buffer there. As you expect to NextLight, PPAs, I'm mean generally again, as we're talking about pricing, we're going to market and other development assets we're renegotiating power purchase agreements as part of our business. So I don't think it's necessarily meaningful or attractive for us to probably broadcast right under terms and conditions we're signing this contract. However, we also know there's a market price reference in place that has regulates I think pricing of these PPA's under the comps of leased costs that's fit leverage which provides certain variance distribution to market price reference.

And our final question does come from Mehdi Hosseini with FBR Capital Market. Mehdi Hosseini - FBR Capital Markets & Co.: Quick question on your RONA, I mean you're changing your revenue from this year to next, in terms of project push out, do you expect RONA to go down to single-digit next year? I mean you obviously increase your RONA guidance to 18%, 19% because you're getting more from. And if I may, IRR from your PPA projects, do you expect it to be double-digit?

The short answer is no, we do not expect our RONA to go to single digit. I mean that will be effectively very contrary I think to how right we make investment decisions. So the short answer there is no. So as it relates to IRR, so again, as we're placing and we're selling these assets, the IRR's and for assets, we're trying to keep the nomenclature space. So IRRs will be unlevered, ROEs we look at on a levered basis. That's the pricing at which we're selling these assets. So generally, I can say at a high level, double-digit unleveled returns, we will not been a bit at that level as attractive. We were seeing single-digit bidding from an unlevered IRR point of view for these assets.

And thank you. This does conclude today's conference call. And we thank you for your participation.