First Solar, Inc. (FSLR) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon everyone, and welcome to First Solar's 2016 Guidance Conference Call. This call is being webcast live on the Investor section of First Solar’s website at firstsolar.com. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Steve Haymore from First Solar Investor Relations. Mr. Haymore, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today the Company issued a press release announcing its guidance for 2016. A copy of the press release and the presentation are available on the Investor section of First Solar's website at firstsolar.com. With me today are Jim Hughes, Chief Executive Officer and Mark Widmar, Chief Financial Officer. Jim will first outline the strategic business priorities for 2016 and then Mark will discuss 2016 financial guidance. We will then open up the call for questions. Most of the financial numbers reported and discussed on today's call are based on U.S. generally accepted accounting principles. Please note this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in the press release and the slides published today for a more complete description. It is now my pleasure to introduce Jim Hughes, Chief Executive Officer. Jim?

Thanks Steve. Good afternoon and thank you for joining us today. As we approach the end of 2015 and look forward to next year, we are encouraged by the strength of our competitive position. Over the past several years, we have taken a disciplined approach to managing First Solar and we feel this philosophy continues to benefit our shareholders. We have continued to invest in our technology, manufacturing capacity, and global sales capabilities, all while effectively managing the development of multiple gigawatts of projects. Even with these significant investments, we have still been able to maintain superior financial strength. This disciplined approach has put us in a position of tremendous strength to both achieve our 2016 strategic priorities and take advantage of opportunities that may arise in the coming year. I will now outline our three main strategic priorities for 2016 as highlighted on slide four. The first major focus area for the upcoming year is to continue our operational execution in both the module and EPC businesses. We are focused on maximizing module production output to meet strong demand for our rapidly improving module technology. In addition, we are focused on completing more than a dozen large utility scale projects prior to the end of 2016, which totaled more than 2 gigawatts AC. Our second critical priority for 2016 is to achieve a book-to-bill ratio of at least 1:1 in order to enable future volume growth. While we will not have a full update on the latest bookings during today’s call, we expect over the coming quarters that a significant portion of projects booked during 2016 will be for international projects. In addition, we remain focused on maintaining our strong market share position in the US and continuing our recent momentum of capturing opportunities in 2017 and beyond. Third, we are focused on delivering strong financial results for our shareholders by increasing our total cash position to over $2.6 billion by the end of 2016, and by achieving our earnings per share guidance midpoint of $4.25. Mark will discuss this priority and provide more details on the financial guidance later. Lastly, underlying each of these 2016 priorities is our continuing focus on our module and balance of system cost roadmaps, which are a key source of competitive advantage. Turning to slide five. I'll elaborate more on our module production plans for next year. In 2016, we expect module production of nearly 3 gigawatts, which represents an increase of almost 20% from the current year. The approximately 500 megawatt increase in module production as a result of higher conversion efficiency improved throughput and a full year’s output from two additional lines of capacity, which we began ramping earlier this year. In the first half of next year, we will reassess our capacity levels relative to demand and evaluate future capacity additions. Turning to module efficiency. We expect our full fleet to average around 16.2% conversion efficiency in 2016. 16.2% efficiency is slightly below our lead line is currently running and the difference is due to the expected sales mix in certain geographies that are not best suited for high efficiency modules with anti-reflective coating. Our lead line efficiency next year will remain at the current 16.4% conversion efficiency level through most of the year. As we exit 2016, our lead line efficiency is expected to run slightly above 17% as we rollout our next round of efficiency roadmap improvements. As previously communicated, we are intentionally pausing the rollout of additional efficiency improvements in the first half of 2016 in order to maximize production capacity to meet demand. Slide six highlights our largest utility scale projects which totaled over 2 gigawatt AC in total installed capacity and are scheduled to reach COD in 2016. New to this list is an additional 79 megawatts AC 20-year PPA signed with NV Energy. This is an expansion of the original 100 megawatt AC PPA which we signed within NV Energy earlier this year and firmly establishes First Solar as the leading solar supplier in Nevada. All power generated by the 179 megawatt switch station will support switches commitment to renewable energy under NV Energy’s Green Energy Rider tariff. This deal further reinforces our strong and continued relationship with NV Energy. Continuing on to slide seven, we now have over 75% of next year’s available supply already contracted. As highlighted on our previous earnings call in October at that time, we had over 17 gigawatts of potential bookings opportunities including 3.9 gigawatts of mid to late stage projects. With a large number of mid to late stage projects, we remain well-positioned to contract the remaining 2016 supply and book additional volume into 2017 and beyond. I will now turn the call over to Mark to discuss the financial guidance for 2016.

Thanks Tim, and good afternoon. Let me begin by mentioning that a key assumption underlying our financial guidance is that the 30% ITC could step down to 10% as scheduled under current law at the end of 2016. To the extent that there is a commenced construction modification or an extension of the 30% ITC, this could impact the guidance we are providing today. The impact could be lower certain -- it could lower certain 2016 guidance range as some project completions may be extended into 2017. Notwithstanding the 2016 impact, if a change occurs, it would have a net benefit over the period affected. Now turning to slide nine, I will discuss the assumptions underlying our 2016 financial guidance. First, our 2016 production is expected to be approximately 3 gigawatts DC with full-year capacity utilization of 96%. Capacity utilization will be slightly higher in the first half of the year and decreased into the second half of the year as we resume the rollout of our efficiency improvement programs. As Jim mentioned previously, our full-year fleet efficiency is expected to be 16.2%, and the lead line exit rate will be greater than 17%. Note, as we migrate the fleet average to the lead line efficiency in 2017, our production capacity will increase by approximately 140 megawatts over the same number of production lines. We expect shipments to mass production for the year with 2.4 gigawatts of shipments to our systems segment, which includes module plus projects, with the remaining volume going to module only sales. In terms of the net sales and operating income profile for 2016, we expect a slightly higher weighting in the second half of the year. The distribution of net sales and operating income are expected to be approximately 40% in the first half of the year and 60% in the second half. Specific to the first half of the year, the first quarter will have higher net sales and operating income as compared to Q2. Keep in mind that timing of project sales can change the profile significantly. However, this is our best indication at this point. Next, to slide then, showing the ongoing scaling of Opex planned for in our 2016 guidance. In 2011, our operating expense as a percentage of net sales were 20%. However, since then, we have scaled Opex each year. Based on our $390 million guidance midpoint in 2016, operating expenses are now at 10% of net sales or half of the level from five years ago. We remain committed to growing our business affordably by prioritizing R&D and sales and marketing with an overall Opex investment and we’ll continue to look for ways to scale Opex as a percentage of net sales in the coming years. I would now discuss our 2016 financial guidance range on slide 11. First, we anticipate net sales to range between $3.9 billion and $4.1 billion. Solar power systems revenue, which includes both EPC and solar modules used in our systems projects is expected to be 90% to 95% of total revenue similar to 2015. Gross margin is expected to range between 16% to 18% for the full year. The lower gross margin percent as compared to 2015 is due primarily to difference of mix in systems projects and revenue recognition. Note that the net sales and gross margin guidance does not include the sale of a minority interest in the Stateline project. As highlighted in our Q3 earnings call, we sold the majority interest in this partially constructed Stateline product to Southern and have retained a minority interest. Our interest is accounted for as an equity method investment. When we sell our minority interest in Stateline, the profit on the sale will be recognized in equity and earnings and not revenue and gross margin. The gross margin guidance range would increase by approximately 200 basis points if this transaction was treated as a typical sale. Operating expenses are expected to be in the range of $380 million to $400 million, reflecting greater cost controls. Compared to 2015, production startup expenses are lower, but 2015 also benefited from a one-time $10 million reduction in Q3 associated with the end of life recycling obligation. The effective tax rate is 16% to 18%, reflecting a more normalized rate versus 2015 where the rate is lower due to various discrete items. Earnings per share is expected to range between $4 and $4.50. It is important to note that this includes a gain of approximately $200 million from the expected sale of our equity method investment in Stateline and First Solar’s share of 8.3’s earnings. These two items do not flow through operating income, but do impact net income and earnings per share. Turning to the balance sheet and cash flow, we expect capital expenditures to range between $300 million and $400 million in 2016. The increase relative to 2015 is due to continued investment in equipment and tools for the next scheduled advancements in our technology roadmap. Operating cash flow is expected to range between $500 million and $700 million. Note that this does not include approximately $450 million from the expected sale of our equity method investment in Stateline, which is treated as an investing cash flow. Ending net cash is expected to range between $2 billion and $2.3 billion or a midpoint of $2.15 billion. The expected net debt at the end of -- debt balance at the end of 2016 is approximately $450 million, which implies a total cash and marketable securities ending balance of $2.6 billion at the midpoint of the range. Also keep in mind, as we communicated previously that we have approximately $80 million of restricted cash used to collateralize and significantly reduce the cost of certain letters of credit that are not included in our cash and marketable securities balance. This restricted cash remains highly liquid and can be converted back into unrestricted cash in five days. Our cash position, overall strength of our balance sheet and access to capital continues to be a differentiator in today’s marketplace. Specifically, it creates a position of strength and provides optionality to selectively pursue opportunistic transactions that may come to market. Related to our dropdown plans for 8.3 next year, we are constructing four assets, Kingbird, Stateline, Koyama and Moapa, which all are part of the ROFO list. Kingbird is expected to be drop down in the first quarter of 2016. The remaining assets in the second half of the year. Given the macro environments currently impacting the yieldco sector, the timing and execution of the dropdowns to 8.3 is subject to market conditions. With this, we conclude our prepared remarks and open the call for questions. Operator?

And we’ll take our first question from Ben Kallo of Robert W. Baird.

Hi. Thanks for taking my question. As you look ahead to next year, could you just talk about the variance you might have as you set your guidance on the EPS level, how tight do you think it is as far as being at baseline? And just talk about pluses and minuses as you look ahead. Thanks.

So Ben I mean, the way I would look at it right now, we’re providing – what we normally always try to do is provide the best guidance and the best visibility that we have at this point in time. We have a range of around $0.50 between the high and the low. It is based on all the information that we have available to us. We still do have about 25% of the book still to finalize the orders as those orders come through and the margin realization associated with those orders, we could see some impact into our guidance. If they come in favorably, then we’ll end up in a higher end of the range, if they come in slightly lower, then we may be closer to the lower end of the range, but I would use it at this point in time as the best available information that we have.

And we’ll go next to Patrick Jobin of Credit Suisse.

Thanks for taking the question. First question, just thinking about the mix of asset sales to third parties relative to drop downs, 8.3, so I think you mentioned four projects, but if I just look at projects not sold, 758 megawatts, how much of that do you envision being dropped down next year or sold to a third party? And I have a quick follow-up on that. Thanks.

So well, we’ve highlighted the four projects out there, projects that were originally included in the ROFO, when we launched 8.3. As we did the roadshow for 8.3, we did highlight that we have a number of other projects that could potentially go into 8.3. I would say at this point in time, we’ll stay focused on the ROFO assets, and we’ll see how those projects are given current market conditions and how we perform against the expectations and what we think the ultimate valuations of those assets will be, we’ll focus on those four. We’ll be looking to sell the balance of those projects to third-parties. We may structure a few of them with strategic structures similar to what we do with Stateline, which we hold the minority interest in, and then therefore allowed this optionality around timing of when we drop down the asset, but all that is still to be played out subject to market conditions and as we engage on each one of those assets, we’ll determine on what’s the best way to capture the best value for First Solar shareholders.

And we’ll go next to Vishal Shah of Deutsche Bank.

Hi. Thanks for taking my question. You talked about the sale of four assets, drop down into 8.3. How much of that is contingent upon 8.3 receiving financing, and what's your plan if let's say you're not able to get the financing for those projects? And also, can you talk about your margin outlook for system sales in 2017 beyond the ITC step down? Thank you.

So as we’ve been trying to communicate, the reason we didn’t on the 8.3 call and the reason I think even in our First Solar call is that the first drop down that we have is Kingbird, which is in the first half of ’16. There is capacity to finance that project without going to the capital markets. So as we left cash on the balance sheet of 8.3, there is a delayed draw against the term loan, there is a revolver plus there is an accordion feature. All that will provide adequate capacity to deal with Kingbird as a dropdown. As it relates to the balance of the projects, it is dependent upon market conditions. We’ll evaluate what makes the most sense for 8.3 shareholders at the appropriate time as well as what makes the most sense to First Solar shareholders, and we’ll optimize the value appropriately between the two, so while it’s evaluated at that point in time, it’s unclear. We know the first dropdown will happen as anticipated, but we’ll evaluate the other three projects in the second half of the year. As it relates to ‘17, margin guidance and the like, again we’re still working through ‘17. I think it’s premature to give an indication as it relates to what we have firm bookings and 2017 is a very small percentage of the north of 3 gigawatts of volume that we anticipate to sell.

And just one second, one thing to add is should we not be able to drop down assets to 8.3, we continue to have a broad set of customer relationships across the industry that are perfectly capable and desirous of acquiring assets from us. So it’s not -- we don’t sit around worried about are we going to be able to monetize the assets that we hold.

And we’ll go next to Paul Coster of JPMorgan.

Yes. Thanks for taking the question. I realize it's a bit irritating to be asked about 2017 again, but if you can't talk about ‘17, can you talk at least how you will prepare for ‘17 given it's the big overhang for investors at this point, in terms of operating expense flexibility around that, capacity plans, and the technology roadmap?

So we said in the release today and we’ve previously said that we will evaluate our capacity needs for 2017 as we move through 2016. I think the concerns that we have about 2017 over time, we’ve gotten increasingly comfortable on the volume side. It’s really more of what’s the mix going to be and what’s the margin going to be as a result of the mix. So, I don’t -- we don’t feel like any drastic measures are going to be or is something we would need to consider or will consider on the capacity side, but we’ll certainly know more as we move through the next two quarters, because that’s really when we get into the hearts of the bookings sort of season for 2017, that’s when the sales cycle really begins to kick in. So I think we continue to feel relatively positive, we continue to feel that we’re going to see more demand in the US than we originally anticipated. It will clearly be down year-over-year. I think the bigger issue is really going to be mix, there has clearly been some borrowing in 2016 on the systems side. There are projects that in a more normal non-cliff environment would probably be delivered in ‘17 that will get delivered in ‘16, but I don’t think we’re going to have a problem moving the total volume of modules that we will be manufacturing at that time, but again we will have a lot more clarity over the next couple of quarters.

And we will go next to Julien Dumoulin-Smith of UBS.

Hey good afternoon. Just wanted to ask real quickly if you can elaborate a little bit, going back to that mix you were alluding to, can you talk about 2016 and the mix for systems versus module-only deliveries? And then also perhaps talk about how you're thinking about that in a more normalized environment. Apologies on thinking more structurally about this, but obviously, '17 and onwards plays into the considerations, given the 16% to 18%.

From a mix standpoint, as we highlighted in the prior comments is that the mix around systems business including the module sales was about 90% to 95% is what we anticipate in 2016, which is consistent with 2015. So the overall mix of the systems business hasn’t changed from ’15 into ’16. The projects and the mix of the projects that have changed, there is probably more. I would say third-party EPC, where we are not the developer of the project that we are performing EPC, so there will be more third-party EPC in ’15 – excuse me, in ’16 than would be in ’15. But in aggregate the mix is about the same. As we move forward beyond ’16, we would expect that that mix would start to shift, especially as we expand volumes from 3 gigawatts up to 4 to 5 to 6 gigawatts. And as we said before, we have always sort of a vision that somewhere in the range of 25%, maybe to a third of the business will be business, business over time as grow internationally and we will see more third-party module only or module plus type sales in the international opportunities that we currently are pursuing versus being the developer. But all that still hangs with our view of margin profile. So the guidance we provided in ’16 is consistent with the margin profile that we’ve continued to communicate over the last two years where we think the business will settle in and we see that continuing as we get beyond ’16.

And we will go next to Brian Lee of Goldman Sachs. And we will go next to Sven Eenmaa of Stifel, Nicolaus.

Yes, thanks for taking the question. I wanted to clarify, in terms of the dropdowns into 8.3, Moapa, Cuyama and Kingbird, what are the current assumptions in your guidance regarding revenue and margin recognition on those? And do you assume any of the similar structures here as you have for Stateline?

So as it relates to guidance, the only one that will not – as we currently envision that that will not show up in a revenue consistent with how other sales have occurred would be Kingbird. The way we’re structuring Kingbird right now, mostly likely would not result in revenue and earnings, gross margin. They will flow through outside of the gross margin line. The other three that we have Cuyama and Moapa, I should say are the two, because Kingbird or Stateline will flow through as an equity investment, but we currently envision Cuyama and Moapa to flow through as revenue and gross margin. Kingbird won’t, the other two will, and the Stateline we already communicated around how it would flow through as equity in earnings.

Got it. Thank you,

And we will go next to Brian Lee.

Hey, guys, can you hear me this time?

Yes, we can.

All right, thanks. Thanks for taking the questions. I have two of them. Follow-up on an earlier margin question, even if I adjust for the 200 basis points for Stateline, I guess I would have thought the cost reductions you’re seeing and the acceleration on the technology raoadmap that margins would be staying relatively more consistent with 2015 since the aggregate mix as you mentioned Mark is similar. I know you mentioned the interim project mix is changing. So can you elaborate a bit on kind of what margin differentials are when you’re doing the EPC only versus doing the full module plus development? And then second question would just be for you Jim around the latest thoughts on the ITC and potential for commenced construction on extension, any thoughts there would be appreciated.

As it relates to the margin, we have always said that third-party EPC is going to be our lowest margin business. With just third-party EPC somebody else is the developer. When you look at it on a percentage basis, it’s going to be lower than either a module only sale or system sale where we are actually the developer. When you look at the gross margin per watts on a cents basis or a dollar basis, then you will see that it contributes a meaningful amount of margin relative to on a per watt basis, and we have always talked about it from that perspective. We are more focused on what are the cents per watt or dollars per watt versus what is the percentage per watt. And so as we see a little bit of a higher mix of third-party EPC work that we are doing, it will bring down the gross margin rate a little bit. The other thing that I would say is that on the systems business it can have a different profile. So for the developer of a project, it will have a different profile and especially as it relates to how it plays into our roadmap and the value that kind of create to the project based off of our roadmap. So if we are bidding a project like we just recently announced last quarter with SCE where we won around 600 megawatts of PPAs, that gives us a tremendous amount of opportunity to capture value via our roadmap over horizon because the COD is out in the latter part of this decade. If you think about a couple of the projects that we have in our pipeline for 2016, one of them being Playa, which now is being expanded as well as the other being our East Pecos project in Texas, those are recently awarded PPAs, and as Jim has indicated, those are very tight CODs, so they have to be constructed by the end of ’16. Now if there is a commenced construction, for example, there will be some latitude to move that schedule a little bit, push it out beyond ’16, allow us to accrete more value to the project via our roadmap. However, the way we currently have assumed in our guidance, they will be constructed by the end of 2016. When we don’t have as much room to run with our roadmap and to capture incremental value through the roadmap, you will see a slightly lower margin profile and you will see that in those two projects relative to what you would be able to recognize let’s say in a couple of the projects that we’ve been awarded through SCE or even our Trina Solar [ph] project that we announced a few quarters ago were obviously a flat project that again has a COD that goes further out into the end of this decade. So that’s part of the difference. You got third-party EPC, plus you also have to look assistance business. Then depending on the time from the award of the PPAs to the COD can generally result in a different margin profile. The longer the horizon, the greater margin capture.

And then on the ITC, I think the only guidance I can give you is that it continues to be a uncertain and wild ride with the political process in DC. The reports that we are getting change day to day and hour to hour. There continues to be the possibility of no change and the stepdown in 2016. There continues to be the possibility of a build that would only provide commenced construction and there remains the possibility of a bigger package, more comprehensive package that provides a phase down extension of both PTC and ITC along with commenced construction. Again, I am not good in handicapping Washington and I am not going to try to – I do think that we will have an outcome somewhere before the 15 through just kind of 18 of December timeframe. But its – I haven’t gotten a whole lot of new clarity in the last 10 days.

Thanks guys.

And we will go next to Krish Sankar of Bank of America-Merrill Lynch.

Thanks for taking my question. I had two of them. First one is, if you guys are throttling back on the efficiency improvement, I am kind of curious Mark, why wouldn’t R&D come down more in calendar ’16. And then as a follow up for Jim, are you seeing any distressed assets or file sale of assets in the marketplace and if so, are those assets of projects of any interest to you guys?

Again, the R&D throttle-back is just the execution and implementation of the roadmap, which generally is being slowed down because of the downtime that’s required to change out tool sets and other things we need to do implement the efficiency changes. As it relates to the R&D investment, there is no change in that profile through ’16, primarily because we are focused on capturing the complete entitlement of our technology which as we have demonstrated through a cell, record cell technology is 21.5% where the module in the mid-18s. So we still have a long ways to go. We want to capture that value. We are positioning ourselves to capture a big chunk of that in 2017. Therefore the investments are required in 2016.

And the distressed assets?

So there is certainly a lot of activity in the marketplace with a lot of assets to look at. I don't know if distressed is the word I would use. I think there is a lot of market participants with changing strategies and changing financial capacities. And so there are lots of assets to look at. Suffice it to say some are interesting and some are not interesting. We see lots of asset acquisition opportunities than we have over the last several years. We will take a hard look at them. You have to – we have to believe that we can add some value and find a reason that it's going to be accretive and attractive to us and sometimes we do and sometimes we don't. But there is an increasing volume of assets for us to spend time looking at as compared to some of the historical time period.

Thanks, Jim.

And we will go next to Edwin Mok of Needham & Company.

Hi, thanks for taking my question. On the CapEx plan for your capacity, if you think that your volume, you are pretty comfortable about volume beyond 2016, why not be a little more aggressive in capacity. It seems like a lot of your gross margins are contracted through '16 and you think your volume can grow and you have your kind of mid to late stage booking is almost 4 gigawatt, why not be a little more aggressive in capacity and if you want to, can you accelerate and actually produce more than 3 gigawatt target?

We can always accelerate. The history in this industry have been aggressive on capacity has not been a happy one for most of the people that have undertaken it. I think I am correct in saying that the majority of the companies that have taken over the lead as the largest producer in the industry in the last several years have all run into significant and potentially fatal financial distress. Overbuilding the market just has not paid. So we are perfectly capable of expanding production and we are perfectly capable of expanding production rapidly, probably more rapidly than most players, because we have idle equipment. However, we are going as we've said repeatedly, we are going to take a cautious approach. We will look at what '17 is beginning to look like and what '18 is beginning to look like as we move through the first half of '16. Our ambition is to grow and we believe we will grow, but we will grow against solid visibility into the marketplace and we will grow with a discipline on the allocation of capital against what we believe are compensatory return on invested capital for those investments. So we believe we are being adequately aggressive to provide our shareholders with a stable growing asset that provides very attractive returns over the long term, but we are not going to get out over skies and get ourselves in a position where an unanticipated market downturn or a period of significant excess capacity puts in a position where we find ourselves as one of the players in financial distress. We've done a great job over the last several years making sure that we don't find ourselves in that place. We're not going to give that discipline up all of a sudden.

And we will go next to Colin Rusch of Oppenheimer.

Thanks so much. Two part question. One, could you give us an update on where project debt is pricing in terms allocating non-recourse project debt. And then secondly, looking at the opportunity for you guys to put cash to work, you've gotten a very robust balance sheet here. As you look at markets where you could put that to work outside of the US and India, where would you want to put that money as we look into the 2017, 2018 just from a strategic standpoint and ROI standpoint?

I will answer the project debt discussion and then let Jim talk about deployment of cash from a strategic perspective. Project debt is still pretty robust. I mean there is good demand in the market right now. Pricing is still very good and very attractive. So we're still seeing non-recourse project level debt in the kind of the 4% to 5% range, which is still very attractive and accretive to most of the projects if you were to look at putting project level debt on any of the assets that we have. I'll let Jim answer the question around the cash and the strategic use of it.

So we've said for a while now that in a lot of the international markets, our mix is going to trend more towards the module sales, Module Plus sales and less towards the sales develop, systems sales or the EPC. There are exceptions to that and we are doing some development in India and we have a relatively significant development portfolio in Japan and we've also done some development in Chile. So I think what you can say is that as we look to grow the business, a lot of that growth is going to be module, module only, Module Plus, which means the capital investment will come on the manufacturing side as opposed to the project development side. I think that we will reserve investing in developed projects to the highest quality markets with the highest available margins and we will manage our exposure to any one of those markets, so that we don't get overexposed given that there's both political risk and currency risks inherent in some of those markets that we don't have in our home market in the US. So it will be to the extent we feel like our deployment of capital is diversified, to the extent we feel like some of the higher quality markets the Chiles, the Japans, we will put some capital to work. We are putting some capital to work in India, but in these emerging markets, we will be cautious about the total volume of capital so that we maintain a reasonable risk profile for the investor.

And we will take our final question from Mahesh Sanganeria of RBC Capital Markets.

Hi, this is [indiscernible] for Mahesh. Thanks for taking my questions. Two questions. First, based on the guidance, the guided revenue and mix of sales, sorry of system and module only sales, we calculate the system ASP is about $1.60 per watt for 2016. It’s a bit lower than what we had expected given you have several luxury projects reaching COD in 2016. I mean, we understand that our mix of EPC may be a factor, but just wonder if there is anything else that is affecting your ASP assumptions. And then the second question is the book-to-bill target of 1 for 2016. Are you currently seeing any project RFPs beyond 2016 and also what is your expectation of project versus module only mix for the 2016 bookings?

So, on the revenue and the mix and trying to back into an ASP, one of the challenges that you have in there and we've been highlighting this over the last few quarters. We've seen a significant amount of Module Plus volume and Module Plus also falls through in our systems level revenue that we refer to. And Module Plus should be thought as just as kind of a limited engagement EPC, so it could be scoped, it could be the Module Plus, the mounting, it could be Module Plus all the way through the inverter. So when you look at the average ASP for that content, it's going to lower. So you've got an EPC mix in there, you have a Module Plus mix in there, then you have a systems business mix which would include the margin implied on the ASP for the development side. So it's in -- you got to take all three into consideration and one of the things that we are seeing as a movement over '16 over '15 is more Module Plus volume which is indicative of just the general strengthen and competiveness of our technology and our ability to be very successful in partnering with other developers and providing content that is accretive and valuable to them in their projects. And so it's hard to sort of do a simple hard and fast rule. I will say, though, that we will have a mix of – if you look at some of our more recent PPA prices, those prices will be lower. And in some cases when you look at some of those PPA prices, it doesn't necessarily mean that the margin realization is lower. You will just have a lower PPA price Texas is going to be a great example. It's much more cost effectively to develop and to construct in Texas than it is in California as an example. So as we've seen our mix move towards non-California opportunities, Nevada, for example, and Texas, you will have a slightly lower PPA price. You are going to have a slightly lower ASP. But it doesn't necessarily mean that the margin opportunity or margin timing will be different from those perspectives.

And this does conclude today's conference. We thank you for your participation. You may now disconnect.