SolarCity (SCTY) Earnings Report: Q2 2015 Conference...

CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics

EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

SolarCity(SCTY)EarningsReport:Q22015ConferenceCallTranscriptThefollowingSolarCityconferencecalltookplaceonJuly29,2015,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

AaronChew;SolarCityCorporation;VPofIRLyndonRive;SolarCityCorporation;CEOTanguySerra;SolarCityCorporation;COOBradBuss;SolarCityCorporation;CFO

OtherPart icipants

PatrickJobin;CreditSuisse;AnalystBrianLee;GoldmanSachs;AnalystPhillipShen;RothCapitalPartners;AnalystVishalShah;DeutscheBank;AnalystEdwinMok;Needham&Company;AnalystBenKallo;RobertW.Baird&Co.;AnalystPaulCoster;JPMorgan;AnalystPavelMolchanov;RaymondJames;AnalystNoahKaye;NorthlandCapitalMarkets;AnalystMichaelMorosi;AvondalePartners;AnalystJulienDumoulin-Smith;UBS;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Greetings,andwelcometotheSolarCitysecond-quarter2015earningscall.

(OperatorInstructions)

Asreminder,thisconferenceisbeingrecorded.Iwouldnowliketoturntheconferenceovertoyourhost,Mr.AaronChew,VicePresidentofInvestorRelations.Thankyou,Mr.Chew,youmaybegin.

AaronChew(VPofIR):

Thankyou,andgoodafternoontoeveryonejoiningustodayforSolarCity'ssecond-quarter2015earningsconferencecall.LeadingthepresentationtodaywillbeadiscussionfromourChiefExecutiveOfficer,LyndonRive;ourChiefOperatingOfficer,TanguySerra;andourChiefFinancialOfficer,BradBuss.Afterwhichpointintimewewillopenitupforquestions.

Asareminder,today'sdiscussionwillcontainforward-lookingstatementsthatinvolveourviewsasoftodaybasedoninformationcurrentlyavailabletous.Forward-lookingstatementsshouldnotbeconsideredaguaranteeoffutureperformanceorresults,andreflectinformationthatmaychangeovertime.PleaserefertoSolarCity'squarterlyshareholderletterissuedtoday,aswellastheslidesaccompanyingthispresentation,aswellasourperiodicreportsfiledwiththeSecuritiesandExchange




Commissionforadiscussionofforward-lookingstatementsandthefactorsandrisksthatcouldcauseouractualresultstodifferfromourforward-lookingstatements.Wedonotundertakeanyobligationtopubliclyupdateorreviseanyforward-lookingstatements.

Inadditionduringthecourseofthecallwewilluseanumberofspeciallydefinedtermsrelatingtoourbusinessmetricsandfinancialresults,includingnon-GAAPfinancialmetrics.WerefertothedefinitionsofthesetermsandtherequiredreconciliationbetweenGAAPandnon-GAAPfinancialmetricsincludedintheshareholderletterissuedtodayandtheslidesaccompanyingthispresentation,whichareavailableonourinvestorrelationsWebsiteatinvestors.solarcity.com.Withthatbehindus,IwouldliketointroduceSolarCity'sChiefExecutiveOfficer,Mr.LyndonRive.

LyndonRive (CEO):

Thankyou,Aaron.Q2wasanamazingquarterforSolarCity.Webookedtwonewrecords,bookingsandinstalls.Aswelookatourbusiness,weessentiallyhavetwocompaniesinone.We'readevelopmentCompanyandapowerCompany.ThedevelopmentCompanyisresponsibleforacquiringcustomersandgettingsolarsystemsinstalled.ThepowerCompanyprovidesthefinancingandcollects30yearsofrecurringrevenueforsellingtheenergy.

AswelookatourCompany,thisquarterwebooked395megawatts.Ourpreviousrecordwas237megawatts.Weinstalled189megawatts,anotherrecordforus,77%year-over-yeargrowth.Wereducedourtotalcostofinstallationto$2.91awatt.TheassetswedeployedachievedanunleveredIRRof12%.Aftercoveringourfullyloadedcostandpayingbackallsystemfinancing,wecreated$196millionofeconomicvalueforthequarter.

Nowlet'slookatthePowerCompany.Wehave262,000customers,addingover44,000customersthisquarter,an86%growthyearoveryear.Wearewellonourwaytoachieveour1millioncustomergoal.Weadded$1.6billionofnominalcontractedpayments,withatotalof$7.7billion.ThePowerCompanygeneratesalotofcash.Thelast12monthsthePowerCompanyhasgenerated$114million.I'mexcitedaboutthisnumber,asthisisthefirstwebrokenoutthecashforthePowerCompanyfromourGAAPfinancials.Bradwillcoverthisinmoredetail.I'mnowgoingtohanditovertoTanguySerra,ourCOO.

T anguySerra(COO):

Thanks,Lyndon.AsLyndonmentioned,wehadareallysolidquarterofinstalls.Wedeployed168megawattsofresidentialsystemsand21megawattsofcommercialsystems.I'mveryhappywithourcontinuedabilitytoscaleand[unbelievably]incrediblystrongsalesandleadershipteamsthatcontinuetoworkhand-in-handtooffercustomersanamazingexperience.Housinginstallsgrewat86%yearonyear.AndasLyndonmentioned,webelievewehavecrackedthecodeoncommercialgrowththroughacombinationofsalesexecutionandsignificantlyloweringofourcommercialinstallcosts,allowingthecommercialteamtobooksignificantprofitablemegawattsinQ2,andtherebyendingourflattishcommercialmegawattdeploymentrecord.Andweexpecttoseesubstantialgrowthincommercialmegawattsinthebackhalfoftheyear.

Ourcostscontinuetodecline.Ourall-incostsaredown3%yearonyearandourinstallcostsaredown7%,despiteflattishpanelpriceswhichspeakstothecontinuedincreasedproductivityofourteams.Ourlike-for-likeinstallcostsonhousingandoncommercialaredownversuslastquarter,butinthisquarterwehadahigherproportionofhighercostprojectslikecarports,whichalsocarryhighPPArates.Andsotheoverallblendofthecostisupversuslastquarter.Butthelike-for-likeproject-liketrendcontinuestobedecliningsequentiallyincosts.

Thesalecost,andtoacertainextenttheG&Aoursizedforthenextquartersofcontinuedgrowth,andtoalwaysincludesomeelementofinvestmenttothefuture.Weseepanelpricesandinverterprices




comingdownoverthenextfewquarters.Thatcombinedwiththeeffectsofourin-sourcingourcommercialprojectsallowsustonicelybridgethegapbetweenthecurrent$2.13ofwhatwe'reweatandthe$1.90targetcostswecallforoperationcosts.Withthat,backtoyou,Lyndon.

LyndonRive (CEO):

Thanks,Tanguy.Sowithourlowercommercialcosts,I'mexcitedtoannouncethatwe'regoingtobeenteringthesmallandmediumcommercialmarket.Thisisamassivemarketthat'sbeenneglectedbythesolarindustry.Untilrecentlyifyouwereasmallbusinessandyouwantedsolar,mostofthelargesolarcompanieswouldnotprovidewithaleaseorpowerpurchaseagreement,unlessyouwereover300kilowattsinsize.ThatincludedSolarCity.

Thetwomajorreasonsforthisiscostandfinancing.Almosteverylargesolarcompanyoutsourcestheinstallationofthecommercialsystems.Thismakesitextremelyhardtobecosteffectiveonsmallbusinesses.AsTanguaymentioned,weareabletobringdownthecostofthecombinationofdoingtheinstallationworkourselvesandoftheuniquecommercialmountinghardwaresystem,calledtheGSP.

Thenextbigchallengeisfinancing.Mostcommercialbuildingsthathavesolartodayhavegoodorinvestment-gradecredit.Withoutgoodcredititmakesithardtofinancesolarsystemsover20years.Thismakesithardtoprovidefinancingforsmallbusinesses.InQ4lastyearinCaliforniathelawchangedtoallowleasesunderthePACEprogram.ThePACEprogramisthePropertyAssessCleanEnergyProgram.WiththecombinationofourlowercostandaddingaleaseprogramtothePACEprogram,weareabletoofferattractivefinancingtooursmallbusinesses.TheeconomicstoSolarCitywillbeverysimilartoourresidentialbusinesswithagrossretainedvalueofaround$1.90awatt.InowmovetoBrad.

BradBuss (CFO):

Thanks,Lyndon.I'mgoingtostartusoffonslide7.Andasusual,wehadaverybusyquarterwithalotofaccomplishmentsinourfinancing.Asyoucansee,we'velaunchedourlatestABSintothemarket.It'sabout$124million.Unfortunatelysincethisofferingisinthemarketthere'snothingfurtherwecansay,oranyofthedetailswecangetintoit.Sowe'llgiveyouafullsummaryonceitcloses.ThisisthefinaltaxequitystructuretoberatedfortheABSmarket,andwenowhavetworatingagenciesandtwobankswellversedinallofourstructures.AndIexpectamuchmorepredictableflowgoingforward.

Withrespecttotaxequity,ourpipelineremainsveryrobust.InQ2weaddedanewfund.Weupsizedanexistingfund.Andweendedthequarterwith447megawattsundeployed.Wehave2015covered.Andweplanonclosingadditionalfundswithnewandexistinginvestorsinthesecondhalf,withafocusonfillingupour2016needs,whichisproceedingverywell.

Inaddition,ourrevolverhasbeenincreasedtosupportgrowthwithadditionalbankingpartnersadded.Ourfinancingfactoryisleadingtheindustryininnovationandcostofcapital.Andweareingreatshapetosupportourcontinuedgrowthin2016andbeyond.Economicvaluecreationisakeymetricweintroducedlastquarter.AnditcapturesthetotalvaluecreationtoequityusingouractualQ2installsandcostwithaforecastfordebt.OurEVCincreased33%fromQ1,drivenmostlybydeploymentgrowthandlowercost.

TheQ2unleveredIRRwas12%,upnicelyfrom11%inQ1.TheNPVonaper-wattbasiswasapproximately$1.14perwatt,suggestingarangeofapproximately$1billion-plusofannualizedequityvaluecreationin2015basedonourmegawattguidance.Ifwerunthisverysamemodelapplyingtheexpectedimpactofa10%ITCin2017withour2017costgoal,wewouldstillmaintainhealthyunleveredIRRsofapproximately7.5%andanequityNPVofroughly60%,or$0.60perwatt.

Nowgettingtothemainevent.Aspromised,weareintroducingnewdisclosurewithrespecttoourcash




flowgeneratedfromourPowerCompany.Thisisveryimportant,sinceduetoourrapidgrowthofstrongcashflowgeneratedbyourPowerCompanyishiddeninourGAAPfinancialsbytheinvestmentinDevCo,whichisdrivingourrapidgrowth.CapfeeisthefocusintheindustryandourPACdisclosure,aswecallpoweravailablecash,isourproxy,giventhatourcapitalstructureisverydifferentthantheaverageyieldco,asweusetaxequityanddebtversusequitytofundbusiness.Thequarterlydetailweprovidedincludesalldirectcosttomanagethepowerbusiness,anditisderivedfromourconsolidatedGAAPfinancials.

Wehavepreparedadetailedwhitepaperthatdetailsourmethodologyandcalculations.Andit'salsoavailableontheWebsite.Thetrailing12-monthPACtotaled$114million,ofwhicharecord$41millionwasproducedinQ2alone,thusadjustinganannualizedrunrateattheendofQ2closerto$160million-plus.WithrespecttoNRV,wecontinuetogeneratestronggrossaswellasnetretainedvalue,andweendedthequarterwithanetretainedvalueof$3.1billion,anincreaseofalmost13%quarteronquarter.Notably,ourgrossretainedvalueperwattincreasedacrosstheboardandcommercialreboundedbacktoitshistoricrange.

I'llwrapupwithsomeguidance.ForQ3weexpecttoinstallapproximately260megawatts,whichisaverystrong90%growthrateyearonyear.Weenteredthequarterwithrecordbookings,andJulyhascontinuedtobeverystrong.WealsohaveourusualGAAPguidancelistedontheslideforyourreference.Forthefullyear2015wearealigningourfull-yearguidancetomegawattsinstalledversusdeployed,whichisconsistentwiththewaywe'vebeenprovidingourguidanceforthelasttwoquarters,andisthewaywe'llprovideguidancegoingforward.

Assuch,weexpecttoinstall920to1000megawattsfor2015.Remember,deploymentstendtolagthisnumberbyseveralweeksonaverageduetoourlargevolumeandtheschedulingofthird-partyinspections.Insummary,IthinkwehadagreatQ2andIexpectanevenbetterQ3.AsaCompanyweremainveryfocusedonrapidgrowth,loweringcostanddrivinghigherequityreturnstoourshareholders.I'llnowturnthecallbacktoLyndon.

LyndonRive (CEO):

Thanks,Brad.Let'swrapthingsup.IreallywanttoexplainhowthemanagementteamthinksabouttheCompanyandtheequityvaluethatwearecreating.WehavePowerCompany.PowerCompanyhas1.4gigawattsdeployedassetsgeneratedgigawatthours.Forthelastyear,thePowerCompanyhasgenerated$114millionofcash.Andthoseassetswillbesteppingupto$166millioninthenextsixorsevenyears,postthetaxequityflip.Thesecashflowsiscontractedwithinvestment-gradeentitiesandhighFICOscores.Ifweweretostopthebusinesstoday,wewouldcollect$9billionoverthenext30years.Usinga6%discountrate,thenetretainvalueofPowerCompanyisover$3billion.

WealsohaveanamazingDevelopmentCompanywithover12,000employeessellingaproductthatischeaperandcleanerthanthealternative.WeinstalloneoutofeverythreehomesintheUS.Wealsohavethebestsafetyrecordandthelowestcostinthecountry.Whenwedeployawatt,wecreateacashflowstreamof$0.07peryear.Ifyoudiscountthatback,it'sworthalittleover$1awattforourequityholders.Overthelastsixmonthswe'vedeployed342megawattsandcreated$343millionofvalue.

Wekeepthisvalueinourparentbalancesheet,andthenweputitontothePowerCompany.Fortheyearweplaninstall920to1000megawatts,whichshouldcreatearound$920millionto$1billionofvaluegrowingat86%.WefeelreallygoodabouttheCompany,andalsofeelreallygoodabouttheCompany'spost-ITCreduction.Webelievethatourcoststructurewillallowtothrivepost-ITCreductionandgenerate$0.60perwattforequityvalue.Iwillopenuptoquestions.

QUESTIONS&ANSWERS




Operator :

(OperatorInstructions)

PatrickJobin,CreditSuisse.

PatrickJobin (Analyst-CreditSuisse):

AsonthenewrecordsandtheIRRs.Firstquestionformejuston,Iguess,thecashflownumber.Lookatthatbeforedeductingtheamortizingdebt,orpartiallyamortizingdebt.Iguessit'sabout$185millionannualizedinQ2.IguesssomeofthosemegawattshavebeenaddedlateQ2aswell.SoIguess,one,isthattherighttothinkaboutit?Andthentwo,lookingatthecapitalstructureforthePowerCo,justhelpusunderstandkindofhowyou'rethinkingaboutoptimizingthatcapitalstructureandanythingtodoforequitythere.Thanks.

BradBuss (CFO):

Hey,thanks,Patrick.It'sBrad.SoIthink--yes,ImeanyourquickmathonyourintrotoyourquestionIthinkisagoodwaytolookatit.Andremember,withtheratethatwereaddingstuff,stuffisconstantlyaddedthroughoutthequarter,right?Sowe'vegivenhistoricalstuff.Imean,obviouslywe'llstartlookingatsomemoreforward-lookingstuffonagoing-forwardbasis.I'msureyou'llallbeaskingforthat.

Wethinkit'sveryimportantthatyoukindofyougetgroundedinkindofthepast.There'salotofassumptionsyoucandoandwe'llprovidesoyoucanseeitgoingforward.AndIthinkasfarasthecapitalstructure,right?Imeanwe'reveryflexible,asyoucansee.We'veledthewayinthesecuritizations.We'vegotacoupleofotherthingsthatwearelookingthrough.Ithinkyou'llcontinuetoseeusdriveinnovationwhereitcan,becauseourfocusisonnotonlyloweringthosecostsbutloweringthatcostofcapitalaswell.


Gotit.Thenmysecondquestion,justthinkingaboutorganizationalconstraints.So260megawattsforQ3installation.Iguessthatimpliesabout360megawattsatthemidpointforQ4.Justlevelofcomfortaroundtheorganizationalcapacity,givenyou'redoingsomemoreofthecommercialworkyourself.

Andthenasubpartofthatquestion,justthinkingaboutthemixofcommercialinbackhalf,givensomeofyourcommentstherewouldbehelpful.Andthen--sorry,lastsub-point.Ithinkyou'vealreadybroughtthisup,but$900millionto$1billioninvalue,orequityvalue,creditthisyearimpliessomeprettystablereturns.JustwanttomakesureI'minterpretingthatcommentcorrectly,giventhemix.Thanks.

LyndonRive (CEO):

Tanguy,whydon'tyougoaheadandanswerthe(multiplespeakers)questionsandI'llgoaheadandtalkabouttheequityvalue.

T anguySerra(COO):

Sure,Yes,thanks.Wefeelverycomfortableonscaling.Wehavebeenscalinghistoricallyatthatgrowthrate.Andthemostimportantpieceofwhenyouscaleistobuildtheinfrastructuretobeabletoscale.Andsothingsliketrainingcenters,trainingprograms,[closetothe]university,they'reallbuiltout.Andsoweareabletohire,onboard,trainandgetinstallsontheroofsinawaythatmakesalotofsense.Andthere'safairbitofsoftwareandalgorithmsgointopredictingwhereandwhenthosecrewswillbeneeded.Andsowefeelvery,verygoodaboutbeingabletodoscalingaswehavehistorically

LyndonRive (CEO):




OnethingI'daddonthataswellisthecommercialbookings.WehadearlycommercialbookingsinQ1,andnotsogoodcommercialbookingsinQ2.Andthebigdelayforcommercialisthepermits.Andofcoursewebookedthemearlyintheyear,thepermitsshouldcomeoutintimeforustogetit.Sothat'sanotherreasonitmakeseasiertorampupbytheendoftheyear

T anguySerra(COO):

Toansweryourquestion.Themixofcommercialasapercentagewillincreaseinthebackhalfoftheyear

LyndonRive (CEO):

Andregardingtheequityvalue,thisiswhywe'veaddedtheextradisclosures.Soyoucancalculatethe$0.07perwattthatwegenerate.That'sroughly,ifyoudiscountitbacktotoday,it'sroughlyabout$1awatt,alittleover$1awatt.Andit'slessthereasonfortheextradisclosure.TheCompany'sgrowingextremelywellanditcreatestremendousvaluewitheverywattwedeploy


Thankyou

Operator :

BrianLee,GoldmanSachs

BrianLee (Analyst-GoldmanSachs):

Hey,guys.Thanksfortakingthequestions.SoifIlookatyouraveragemegawattsinstallbaseoverthepast12monthsonthissametrailing12-monthbasisthatyou'relookingatthiscashavailablefordistributionmetricthatyou'redisclosing,itimpliesanunleverednumberofsomewherearound$0.14to$0.15awatt.Andthenleveredperwattrightataround$0.10.Isthatafairwaytothinkaboutthegenerationpotentialandfuturemegawattgrowth?AndthenIhadafollow-up.

BradBuss (CFO):

Yes.Imean,it'sdefinitelyintheballpark,There'sdifferentthingsthatimpactthat,dependingonsomeofourstructuresandprepayments,yada,yada,yada.Butyou'realwaysgoingtohavethat.That'swhywethoughtIwantedtogiveyouthattrailing12soyoucangetaviewseasonality,yada,yada,yada.You'reconcept'stherightwaytolookatit.


Okay,fairenough.That'shelpful.AndBrad,follow-upforyou.Andyoukindofalreadyalludedtoit,butlastquarteryoucitedthattheavailabilityofcapitalwasatanall-timehigh,andyouguyshaveobviouslydoneagreatjobinaddingsometaxequitycapacitysincetheendoflastyear.Butaswemovecloserto2016,howshouldwebethinkingaboutgeneraltaxequityavailabilityfornewfunds,whichIwouldpresumearegoingtostartbeingslatedfor2017volumes?Soquestionwouldjustbeabouthowthe10%creditimpactsthevolumeoftaxequityandalsothecost?Andmaybeifyou'regettinganyearlyindicationsfromthebanks.Thanks.

BradBuss (CFO):

Yes,Ithinkthebigthingyou'llseeisobviouslyalotofstuffontheutilityscalesexpectedto--it'sobviouslydryupprettyheavy.We'veseendollarsthatwereallocatedtowindmovingover,andwe'reactuallyseeingsomepeoplethatwereplayingmoreinthelowincomehousingcreditscomingintothismarket.SoifIthink--ifanything,Ithinkthemovestowardsdistributedsolararepickingupmuchquicker




thanweexpected.Thecompanieswe'redealingwithhaveremainedveryprofitable.Alotofbanksthatwereunderwaterforawhilearecomingbackandnowhavetaxableincomethattheywanttomanage.

SoIthinknet/netthemarketisactuallybetterandbigger.AndIthinktowhereyou'regoing,Ithinkterms,andwithoursize,andmoreimportantlythefrequencyandconsistencythatwecandeliverisbeingverywellnoticed.Andwegetalotofpeoplethatarelike,whywouldIwanttodealwithanybodyelse,becauseyouguyshavegotthetrackrecord.Wehaveagreat[machine]onthefrontandbackend.Andwe--mostimportantly,wedelivertotheseguyswhentheyneedit.I'mverycomfortablefor2016.Andwhoknowswhere2017willgo.ButIdon'tthinkthatwillbeanissue.


Okay,Thanks,guys.

Operator :

PhillipShen,RothCapitalPartners.PhillipShen,yourlineislive

PhillipShen (Analyst-RothCapitalPartners):

Canyouhearmenow?

Operator :

Yes,wecan.


Hey,guys.Thanksfortakingmyquestions.Itlookslikeyou'vereducedyou2015outlookbyanimplied6%byshiftingguidanceintheunitsfromdeployedtoinstalled.Andwhatdrovethedecisiontochangetheunits,andwhatwouldittakeforyoutohitthehighendofthereviseguidance?Andcanyouelaborateabitmoreonwhatyourbottlenecksmightbecausingtheshift?Thanks.

LyndonRive (CEO):

Yes,wedidchangethat.Wechangeditfromdeployedtoinstall.Wecancontrolinstall.Andwhatwenoticedhappenedlastyear,aswehaveinthelastvolume,themadrushgoingintoNovember/December,thecitydepartmentsandtheutilityinspectorscannotkeepupwithus.Andthat'stheconstraint.Inordertohitthatyouhavetothentakeintwoweeksoramonthearlier.Andifyoulookatourmonthlyrunrate,itwouldn'tbeabletogetthatdeployednumberbytheendoftheyear.Althoughtheinstallnumberwefeelverygoodabout

BradBuss (CFO):

Ithinkfrommyperspective,wejustwanttobeveryconsistent.Wehavehadafewpeoplethatinconversationsandmodelingofinstallsdeployed,andwewanttobeonthesamepage.Wecancontrolit.Andagain,weareveryconfidentintheinstalls,whichisamostimportantthingfromourperspective,becauseifwedon'tgetinstalled,nothingelseisgoingtomatter.

T anguySerra(COO):

IagreewithBrad.Justcouldusesomecolor.Wefeelvery,verygoodaboutthedeploymentnumbersandtheinstallnumbersthatwe'regivingouthere.Thingsthatcouldswingitbetweenthebottomendandthetopendoftherange,asLyndonsaid,attherunratethatwe'llbeattowardstheoftheyear,it's50megawattsistwoweeks'worthofvolume.Permittimesextendingtwoweeksonagivenprojectcould




swingitbetweenthebottomandtopendoftherange.Butitreallydoesn'tchangethefundamentaleconomics.It'sreallyisweeksoftimingasopposedtowhetherwewillinstallthemarenot.


Great.Thanks,everyoneAsformyfollow-up,canyougiveusyourlatestviewonhowyouexpectmegawattstoscalein2016,andpotentiallyinto2017aswell?

LyndonRive (CEO):

Yes.Goodquestion.We'renotreadyyettogiveafullcostfor2016,butweareconfidentthatourgrowthwouldbeabouttheindustrygrowthfor2016.Sowe'rejustnotyetreadytogiveamegawattinstallfor2016.

Operator :

SankarKrish,BankAmerica.

Unidentif iedPart icipant :

Hey,guys.ThisisAndrewonforKrish.Quickquestiononthedeploymentversusinstallbreakdown.Justcuriousifyouhadanestimateofwheredeploymentswouldbein2015.Andthemainpartofthequestionisreallyhow--whataretheimplicationsofthisgoingintonextyearwith--asfarasgettinginstallationsqualifiedfortheInvestmentTaxCredit?Willthatbeanissueifyouhavesomethingonaroofinstalledbytheendof--inmid-December2016butitdoesn'tgetapprovalorisofficiallydeployeduntilsometimein2017?DoesthatraisesomeITCissues?

BradBuss (CFO):

Letmetakethefirstpart.Inourpressreleaseweshowyouinstallsanddeployed.Andwe'regoingtocontinuetoshowyouthoseinformation.We'rejustgoingtoguidetoit,justsoweareclear.Youwillalwaysseethatinformationwhenithappens.Andwe'llputitoutthere.Justsowe'reclearonthat.Butit'stoohardtoguidetorightnow.Imean,theamountofcommercialandthenthehundredsofjurisdictionswe'redealingwith,it'sallovertheplace,especiallywithChristmas.Sowe'dbegladtoprovidetheinformation,talkaboutithistorically,butit'stoohardtopredict.

LyndonRive (CEO):

It'stwo[grains]betweentwotothreeweeksanddelay.Soroughlyspeaking.Sowhateverthe--thatnumberwillgrow,butyouhavetolookatitweeksofmegawattsinstalledversustotalmegawattsbeingdeployed.There'sadifferencebetweeninstalledanddeployed.

Intermsofthesecondquestion,yes,absolutely.ThiswouldbeaconcernonespeciallylargerprojectsthathavetoPTOintimefortheITC.Sothiswillhavetobeincludedintoourguidance.Andhastobebuiltinaswelookat[ceiling].Thewaywewouldlookatit,formostoftheproject--thisismoreapplicableforthecommercialprojectsthatdon't[pencil]withoutit.Butformostoftheprojectsthatweweredeploying,wewillcontinuetojustinstallandhavea$0.60perwatteconomicvaluecreationinsteadofover$1.Butyes,we'lljustcontinue


Great.AndthenjustonthePowerCocashflowmodel,andthanksforthatandalltheincrementaldetail.Whenyoulookinto2017,justcuriousifyouguyscancommentonhowquicklydotaxequityobligationsrampdownversushowquicklysortofinterestandamortizationmightrampupasthefinancingmixfornewinstallschanges?Inotherwords,doyouhavelegacytaxequityobligationsthatyou'llhavetopay,




butsincenewsystemswillbepotentiallymoredebtfinanced,theinterestandtheamortizationrequirementsincrease?Thanks.

BradBuss (CFO):

Waytoointhefuture.

LyndonRive (CEO):

ButI'mnotsureIunderstandyourquestion.

BradBuss (CFO):

Andrew,areyouaskingtheextenttowhichyourpre-30%ITCstuffkindofrollsoffasthe10%rollsin,andthepacewithwhichthathappens?


Yes,exactly.Ifyourobligationstotaxequitystaykindofwheretheyareentering2017forawhile,asthoselegacy30%dealscontinuetogetpaidoff,butasnewinstallsarebeingdebt-financedyourinterestandamorpaymentsmightincreaseaswell.

LyndonRive (CEO):

Soessentiallywhatwillhappenediswe'lldolesstaxequity,moredebt.Nothingchangeswiththe[past]system.Thoseobligationsstayexactlythesame.Allthesystemswedeployin2016aregoingtohaveasimilarobligationstowhatyou'reseeingin2015.In2017ona10%ITC,we'llberaisinglesstaxequityso[we'llbegiving]lessofthecashflowstothetaxequityinvestorsandthenmorethecashflowtodebtproviders.Ithinkthat(multiplespeakers).


Thanks,guys.

Operator :

VishalShah,DeutscheBank.

VishalShah (Analyst-DeutscheBank):

Thanksfortakingmyquestion.Intheneartermhaveyouseeanychangeinthemodularpricingenvironmentbecauseofthechangeinthetradecase[willlink]withallChinesecompaniesthatpricesinthe[stabilized]havegoneupalittlebit?Andthenwhat--canyoumaybetellusaboutyourinternationalstrategy?Areyoustartingtolookatthoseinternationalmarketsasyou'relookingoutinthe2016timeframe?Thankyou.

T anguySerra(COO):

Sure.I'llanswerthefirstoneandthenLyndonwillanswerthesecondone.Butonthefirstone,yes,weareseeing--we'reclearlyseeingexactlywhatyoudescribed,modularpriceshavebeenflattishforthelastseveralquarters,lastfivetosixquarters.Andwe'reseeingnowpricingstartingtocomedown.There'sanumberofreallyhigh-qualitymodulemanufacturers,bothinChinaandoutsideofChina,forwhichwe'regratefulpartnersthatareseeingtheirpricereductionsfromthesequarters.Sothatfeelsreallygoodwhenwelookatourcosttarget.

LyndonRive (CEO):




Yes.Andontheinternationalmarkets,we'reabsolutelyveryinterestedinlookingatinternationalmarkets.Therearemanyinternationalmarketswheretheequityvaluecreationisreallygoodwithoutanyincentives.Soit'sjustpureonthefundamentals.Wearelookingatthose,andstaytuned.

Operator :

EdwinMok,NeedhamandCompany.

EdwinMok(Analyst-Needham&Company):

SoIunderstandyouguyshavetheABSontherowandcan'ttalktoomuchaboutit.Butcanyouactuallyclarifytwothings?FirstisthisABSisonlyforthehistoricalleaseproject.Doesn'tincludeanyMyPower.Thenkindofrelatetothatquestion,howmuchMyPowercontractdoyouthinkyouneedyoubilluptobeforeyoucanactuallydoaMyPowerABS?

BradBuss (CFO):

Edwin,wereallycan'ttalkaboutthatdeal.Iwouldsuggestmayberealignyourquestion.


ButthenmyquestionrelatetoMyPowerABS?Anywayyoucanquantifyhowmuchyouthinkyoucanbillup--youneedtobillupinMyPowercontractsbeforeyoucandoaMyPowerABS?

BradBuss (CFO):

Wedon'twanttotalkaboutABSrightnow,ifyoudon'tmind.


Okay,Ithinkthat's--

LyndonRive (CEO):

OnMyPower,justwhenwedo--ifwewereanABSonMyPower,yes,ithastoworthwhiletogetintoalargeenoughsizetogothroughthesetransactions.

BradBuss (CFO):

It'seasier,andlikeLyndonsaid,we'rebuildinguptheassetsandthenwe'lllookatthebackleveragingatthetimeasappropriate.AndifABSistherightvehicle,awayitgoes.


Isee.Yes,Ikindofagreewiththat.Itseemslikeitshouldbemucheasier.AndthenthanksforprovidingthePowerCocashflowinformation.Thatwasveryhelpful.Anywaywecankindofthinkabout--asIwalkthroughthat,obviouslyyouguysarefinancingalotofitwithdebt,right?Anywaywecankindofthinkabouthowmuch--whatkindofinterestrateweshouldexpectaswelookforward?Howwethinkaboutinterestratethatweshouldexpectthatneeds--youguysneedtopaytofinancethosecashflow?Anykindofwayyoucanhelpusthinkaboutthat?

BradBuss (CFO):

Canyouclarifyexactlywhatyou'reasking?

LyndonRive (CEO):




Wediscloseourinterestrates.Youhavethat.

BradBuss (CFO):

I'malittleunclearwhatexactlyyou'reasking,Edwin.


Soyouguysdisclose.Icanusethis[realgoal]informationtogetaroughideaofwhatrate,whatisyourplan,theinterestraterightnowforyourdebtthatyouhave,right?Isthereawaywecanthinkaboutthatlongerterm,whatrateisit--becauseyouguyshavealotofdifferentdebt,differenttypeoffinancing,debtfinancing.Soit'skindofhardforustofigureouthowmuchofwhich--eachcomponentofthatisbakedintotheMyPowerdebt.

BradBuss (CFO):

There'stwoelements,obviously,right?Whathappenswithratesandthenthecorrespondingoffset,hopefully,iswheredoesourcreditspreadcontinuetogo?Ourpaper'sdoingreallywell.We'lltalkaboutthesecuritizationonceit'sdone.Butwe'removingintherightdirection.Theassetsaregreat,soweareinthatlow4%snow,andit'sjustareflectionofwherethosetwonetout.Ithinkwe'regoingtobecomfortablywellbelowallourcompetitorsoutthere,andmoreimportantlybelowthe6%we'vebeenusingforalotofourpresentvaluecalculations.YoutellmewhereratesaregoingtogoandthenI'llfillintherest


Yes.Okay,thanksverymuch.Appreciateyouranswer.

BradBuss (CFO):

Allright.Thankyou.

Operator :

[TollyFrank]fromRobertWBaird.

BenKallo (Analyst-RobertW.Baird&Co.):

Hey,guys.It'sBenfromBaird.Thanksforallthedisclosuresthere.Myquestionwasonanykindofbottlenecksyou'reseeinginconstructioncrewsoutthere.We'veheardsomeofthat,andIjustwanttoseewhereyouguysareinyourhiringforinstallationcrews.Andaswelookaheadinto2016,howyoufeelversussomeofthecompetitorsouttherethataren'tverticallyintegrated.

T anguySerra(COO):

Ithinkyouansweredyourquestion.I'mreallygratefulforthat.Beingverticallyintegratedisthekeytothisstuff,whichiswecallit--youcanuseabicyclechainanalogyorwhateveranalogyyouwanttousefortension,whichisifyou'vegotapipelineofsalescomingthrough,andthenafastdeploymentandahigh-qualitydeploymentofaudit,andthenacallcenterinLasVegas,whichisover1000peopletakingthecalls,handingthecustomercareissues,goingthroughthepaperworkandthenpushingthatouttothefieldwithpermittingandultimatelycreatingjobsforinstallers,thattensioniswhatcreatessuccess.

Sowhatthatdoesisthatitallowsustopaypeoplewell,obviously,becausewe'vegotareallysophisticatedformofincentivepayforourinstallers.Andthemorejobsthattheyfilterthrough,themorejobstheygetpaid,whichcreatesareally,reallypositivesenseintheorganization.Andthentheother




thingitdoesisthatbecauseweareabletopayhigherwagesthantheindustrycomparablesatalowercostbecauseourutilizationissignificantlyhigher,itallowsustoattractandrecruitthebestintheindustry,aswellasfromotherindustriesbecauseasIsaidwe'reabletopaymorethancomparablejobs.

Ithinkthat'skeytoallofthisstuff,whichisinstallers'allaboutreally,reallyhavingarealstrongfocusonproductivity.Ifyoufocusonproductivityandyoufocusonkilowattsinstalledpercrewandkeepthatreallyhigh,youcanpaypeoplemore.Ifyoucanpaypeoplemore,youtendtoattractthebest.Andifyouattractthebest,thenyourproductivityishigh.Thatpositivecycleassociatedwiththeverticalintegrationthatyoumentionedisthekeytoallthis.

LyndonRive (CEO):

Intermsofourbottleneck,thehiringinstallcrewsisnotthetopofthelist.Thebiggestbottleneckthatwefaceistakingitfrombookingtogettingitreadyforinstallation.Andthat'swithdealingwithallthepermitting.That'sgoingbacktothecustomers,finalizingthedesign,backandforthcustomdesign,backandforthcustomer'sonvacation.Thattousisourbiggestbottleneck.Andtakingitfromabookingtoactuallygettingitreadyforinstallation.TheinstallationitselfasTanguymentioned,beareallygoodprocesstorampthatup.

BenKallo (Analyst-RobertW.Baird&Co.):

Great.Thankyouverymuch.

Operator :

PaulCoster,JPMorgan.

PaulCoster (Analyst-JPMorgan):

Yes.Thanksverymuchfortakingmyquestion.Justonfromtheeconomicvaluecreationpage,page8or9.Thatyourcapacityfactorsseemtogodownalittlebit.Isthisbecauseofageographicsortofmakeshifttowardsnortheast,oristheresomethingelsegoingon?

LyndonRive (CEO):

Idon'tunderstandyourcapacityfactor.Whatdoyoumeanthere?

BradBuss (CFO):

Howareyoucalculatingthat,Paul?


Morehoursperannum.Seemstohavecomedownwhilebitrelativetothe(multiplespeakers).

LyndonRive (CEO):

Okay.That'samix.EastCoastisincreasingintermsofpercentageofourinstallations.That'sjustamix/


Okay.AndthencanyoutellusanythingaboutFICOscoresandwhereyou'reheadedultimatelyhere?Andmaybealsowhatkindofdefaultratesyou'reseeingatthemoment,ifanything?

LyndonRive (CEO):

OntheFICOscore,ourgoalasaCompanyistogettoapointwhereawecanmakesolaraffordableto




everyone.Sothat's--we'regoingtotryanddo--we'regoingtodomoreandmoreinnovationtoachievethatgoal.Andthat'smakessolaraffordabletoeveryone.RightnowifyoutakethehistoryoftheCompanywewentfrom725FICOdownto700downto680downto650.AndnowwehavetofigureouthowwemakeitpossibleforeverybodyinAmericatogetcheapercleanenergy.Andsothat's--wejusthavetosolvethat.Intermsoftheactualdefault,it's--

BradBuss (CFO):

They'reminiscule.

LyndonRive (CEO):

Bestthingtolookatisourlostsecuritizationsthatwe'vedone.Thatdescribesitrealwell.

T anguySerra(COO):

Quick,Paul.JusttoclarifyLydon'scomments.Thenumberhegaveyouwereourbottom,ourminimum.Theydon'trepresentouractualaverage.Ouraverageisstillcomfortablyinthe700.730,740.Soyou'renotgoingtoseethat,itchangetooquickly.Thedelinquencies,evenjustaging,iswellbelownormal.It'ssub1%.Justagestuff.Andasfarastruewrite-offs,it'sacoupleofhandfuls.Andit'susuallyduetoanunfortunatecircumstance.


Right.Okay,gotit.AndthenlastlyifyoucouldgiveusaquickupdateonthemanufacturingcapacityupinNewYorkStateSilevo,andwhat'syourlatestthinkingonwhenthatcomesonlineandstartscontributingtowardsthelowercosts?

T anguySerra(COO):

Yes,we'reexcitedaboutthat.Wearestillontrack.We'llhavethebuildingsreadytowardtheendofthisyearandequipmentgettinginstalledinH-1nextyear.Andthenrampingupandbeingatfullcapacityin2017.Andthatwillsignificantlycontributetoreductionincosts,bothbecausethepanelsthemselvesonadollars-per-wattbasiswillbecheaper,butalsobecausethey'rehigherefficiencypanels.Andasaconsequencealloftheper-panelcostswillcomedownonaper-wattbasis.


Okay.Thankyouverymuch.

Operator :

PavelMolchanov,RaymondJames.

PavelMolchanov(Analyst-RaymondJames):

Thanksforincludingme,guys.CanIaskaboutthesmallbusinessopportunity?Youtalkabouthowit'sinthedonuthole.TherearenoFICOscoresthewayyouhaveinresi,butyoudon'thavecorporatecreditratingseither.Sohowareyougoingtodecidewhichsmallbusinessesarecredit-worthytosignaleaseandwhichonesarenot?

LyndonRive (CEO):

That'sareallygoodquestion.Sothere'sthisnewprogram.It'sactuallynotthatnewbutit'snewtoleasesand[pal]purchaseagreements.It'scalledthePACEprogram.That'sessentiallyaprogramthatallowsyou




totietheleasepaymentstothepropertytaxofthebuilding.Andsowiththatyouessentiallytakeabuildingowneroracustomerthatitwashardtounderwritethecredittoautomaticallyaninvestment-gradecredit.Soit'sreally,reallystrongcredit.Infact,strongerthanmostinvestment-gradecredits.

Andsonowyoucanusethatandthenyoucanfinancethesystems.Andsothenthekeythingistotieittothat.It'savailablerightnowinCalifornia.Weexpectthattheresultsofthiswillshowotherstatestofollowit,becausethePACEprogramisactuallydeployedtoabout14states,butCaliforniaisthefirsttoallowleasesunderthatprogram.Andthewholepurposeoftheprogramistoallowbuildingownerstomakeanoperational--abuildingupgradetothebuildingthatwillreduceitsoperatingcost.Soanybusinessthatactuallydoesthis,thebusinessactuallybecomeshealthierandusingthetax--propertytaxtopayforit.


Okay,understood.Andisthisviable?Sothisapproachthatyououtlined,thisisapplicableinallofthestateswhereyou'regoingtoberollingoutthesmallbusinessproduct?

LyndonRive (CEO):

Weneedthelawstochangetoallowlease--SoPACEprogramisinabout14states.WhatchangedinCalifornialastyearwastoallowaleaseprogramunderthePACEprogram.Sothat'sakeychange.Soit'sonlyavailablerightnowinCalifornia.Andweexpectthattorollouttootherstatesasthestatesseethejobgrowthandthemovementofsmallcommercial,becausePACEhasbeenaroundforcommercialforfourorfiveyears.Andadoptionhasstillbeenverylower.IfyoucombinePACEandlease,we'reconvincedthattheadoptionwillincreasedramatically.

TheexampleIcouldgive,it'sactuallyverysimilartowhattheresidentialbusinessmarketwasbackin2007.Therewasfinancingavailableforresidentbackin2007,butyouhadtogogethomeequityloanandfinancethesolarsystem.Reallyhardandlowergrowthtodotopayingforcommodity.Nowwemakeiteasy.Wetakecareofeverything,andwejustprovidethemalowercostsourceofenergy.

Oneotherkeythingwhichyoumayhavepickedupinthemediareportsistheleasepaymentislocked.Sothevaluepropositionforthesmallbusinessesistremendous.Theysavemoney,callitabout5%to25%fromdayone.Thentheirleasepaymentislockedinatthatrateforthenext20years


Okay.Andthenjustquicklyonthegeographicfootprint.Ithinkyouwentintothreenewstatesjustinthepast90days,NewMexico,NewHampshireandRhodeIsland.Shouldweexpectasimilarpaceofnewstateentries,orareyoukindofreachingamore,maybeanaturallimitatthispointinyourfootprint?

BradBuss (CFO):

AsLyndonsaid,ourambitionistoprovidesolartoeveryone.Andwearereallyworkinghardonthat.Thekeytoprovidingsolartoeveryoneiscontinuingtolowercosts.Asandwhenwecontinuetolowercost,thenwehavearegulatoryregimeinstatesthatallowustocreateeconomicvalue,wewillopeninthosestates.Asyousay,weopenedthree.We'vegotacouplemorethatwe'reevaluatingandlikelytoopenprettyquickly.Andthenaswecontinuetolowercosts,we'llbeabletoopenmorestates.Fornow,thosearetheoneswe'regoing[tobeabletoopen].

LyndonRive (CEO):

Somestates'policyneedstochange.LikeyouhaveFlorida,whichwouldbeagoodmarket,butthereneedstobesomepolicychangetheretomakeSolarworkinFlorida.Asthosethingshappen,we'll




[updatethefinancial].


Appreciateit,guys.

Operator :

ColinRusch,NorthlandCapitalMarkets.

NoahKaye (Analyst-NorthlandCapitalMarkets):

Hi,gentlemen.ThisisNoahKayeinforColin.Let'sjustpickuponthelastquestion,whichturnedtoadiscussionofpolicy.IthinkinyourletteryoumentionedNevadaandHawaiiaskindofanear-termpolicyfocuswhereIguesstheindustry'splayingabitofdefenseonthenetmetering.Sowheredoyouseetheincrementalopportunitiesforprogressivepolicy?Andwhatareyouputtingmostofyourfocusonthesedays?

LyndonRive (CEO):

SoI'mhighlyoptimistwhereweendupinHawaii,CaliforniaandNewYork.Ithinkthesearethethreestatesthataregoingtolookathowdoestheutilityandthesolarindustryofthefuturelooklike,andthey'regoingtocomeupwithprogramsthatallowandcontinuetoacceleratetheadoptionofrenewableenergy.Thosearethethreestatesthatsay--havetheclosestunderstandingofitandthesolutionswillbequiteexciting.


Okay.Turningtoadifferenttopic.Lookingatsalescostandthinkingaboutsalescostefficiency,youhadarecordbookingsnumberinthequarter.That'sahighdenominator.Ithinkyear-over-yearsalescostsarestilltickingup.Canyouhelpusunderstand,andmaybebetterteaseouthowyou'rethinkingaboutdrivingdownthosesalescostsovertime,andwhatyourexpectationsaretolowertheacquisitioncostprocess?

LyndonRive (CEO):

Theacquisitioncostisactuallyquitetiedtoourgrowthaswell.Ifyoulookatourlowestacquisitioncosttodayisreferrals.Andit'sthelargestsourceofournewcustomers.Andsoifwewereto[start]onthegrowth,theacquisitioncostwouldcomedowndramatically.Soit'sthatlastmileinreachingthoseextracustomerswhohaveneverthoughtofsolarbeforeandthenspendingmoneytogetthemexcitedaboutit,oratleastforthemtoatleastunderstandit.

WearegoingtostarttryingtosellovertheWeb.Weareestablishingnewpartners,asyoumaysee.We'veestablishedapartnershipwithDirecTV.WehaveonewithnowBestBuyandHomeDepot,andthosepartnersarestillgoingdoingwell.Buttheacquisitioncostisseeminglytostayflattish,aslightincrease,butflattish.AndunlesswesucceedatreallyfollowingitthroughtheWeborchangingthesalesprocessandgettingmoreunitsthroughthesamesalesteam,that'sthewaywehavetogetthere.It'snotideal.I'dlikeittobealittlelower.


Understood.Thankyou.

Operator :




MichaelMorosi,AvondalePartners.

MichaelMorosi(Analyst-AvondalePartners):

Hi,guys.Thanksfortakingmyquestion,andappreciatetheincrementaldisclosureshere.First,costperwatt.Installationcostswereupquarteroverquarter.AndIwaswonderingifyoucouldmaybehelpquantifytheimpactfromtheinvestmentsthatyou'remakingincapacity,andmaybeanyunder-absorptionthathappendthereasthosecostswereupquarteroverquarter.AndthenalsoC&Iwascalledoutasbeingadriverofhighercostinthequarter,whichkindofsurprisedmebecauseIwouldhaveexpectedC&Iinstallationcoststobeloweronaper-wattbasis.AndIhavefollow-up.

BradBuss (CFO):

Sure.Acoupleofthings.Oneisonalike-for-likebasis,ifyoulookathousing,rooftopsforcommercial,groundmountsforcommercial,carportsforcommercial,onalike-to-likeallthecostsaredownsequentially.Housingisdown.Itcostuslessthisquarterthanlastquartertoinstallagivenhouse.ThisquarterinQ2wehadanumberofhighercostprojects,includinginparticularcarports,whichhaveahighercostperwattthantheaverageblend.Andsowhenyoupullthosethroughthefinancials,theblendedcostgoesup.It'samixeffect.

AsImentionedearlier,theprice--thePPApriceofthosecarportsisalsohigher.Andsoeventhoughthedollars--thecostsarehigher,therevenueassociatedwiththatisalsohigher.Soit'ssomewhatofa--it'samixeffectonthecosts.Onalike-for-likebasisthecostarecontinuingtodecline.Wereallycrackedthecodeonbeingabletogrowwithouthavingexcesscapacityandhiringjust-in-time.Ifyoudon'tdothat,yourcostarejusttoohighreally,reallyquick.Andsoweareveryfocusedonthat.Thatwas,Ithink,thefirstpartofyourquestion.Didyouhaveasecondpart?


Yes.Ithinkyoutouchedonitalittlebit,butjustthemixofC&Iandwherethosehighercostscomefromand(multiplespeakers).

T anguySerra(COO):

Soit'scounterintuitive,butwhenyousubcontractoutacommercialinstall,itactuallycostsyoumorethanitwouldcostustodoaresidentialinstall.Ithinkthatspeaksmoretoourresidentialqualityandthequalityofourinstallteams.Alotofourinstallersaretrulyheroesandwe'reabletogetamazingcostontheresispace.Andsothe[counterintuitively]ourcommercialcostshavehistoricallybeenhigherthanourresicosts.Andwhenwe'rein-sourcingthecommercialjobs,we'reseeingsomephenomenalcostsonthecommercialside,whichwefeelreally,reallygoodaboutit.Andthat'sgoingtodragdowntheblendedcostsverysubstantially,Ithink,whichgivesusalotofcomfortinthe$1.90buildcostfor2017.

LyndonRive (CEO):

Andwhichopensupawholenewmarketforus.

T anguySerra(COO):

That'sright.AndIthinkLyndonraisedakeypointhere,whichisthere'sanumberofroofsincommercialthatwehaveaphenomenalproductforbecausewe'vebeenabletocrackthecostoncode--crackthecodeoncosts.

LyndonRive (CEO):

Intermsofroofspace,smallcommercialisabiggermarketthanlargecommercial.Soit'sabigmarket.





Thanksforthat.(Multiplespeakers).

T anguySerra(COO):

Onepointjustforfun.Whenwedothecommercialcostsourselves,we'reabletouseZSPeak,oranumberofourZedproducts.Sothat,wereallygetthebenefitofhavingabettermountinghardware,whichalsoispartofthetrickhere.


Thanks,guys.Appreciatethatcolor.Thenasafollow-up--

LyndonRive (CEO):

Onemorethingonthatsamepoint.Notgivinguponthisthing.(Laughter)wantforustogivea[education]ofhowitusedtotakeuswhenwesubbeditversusifwedoitourselves.

T anguySerra(COO):

Yes.Thisisafascinatingtopic.Wespentalotofourtimeonit.Wereally,reallythinkwecantakealotofcostoutcommercial.Atypicalbig-boxretailerusedtotakeabout26,27daystoinstall.Andwithgreatsubcontractorssuper-highquality,butwhenwedothejobourselveswithourpeople,SolarCityemployees,allawesomepeople,ourtraining,ourmethods,ourapproach,ourcultureittakesthreedays.

Andthat'sadramaticdifference,obviously,infixedcostbecausethecraneandallofthesortofassociatedfixedcoststhatyoupayperdayjustdramaticallycollapse.Andtheotherthingitdoesisforabig-boxretailerwhoobviouslyeverydayofconstructiononaroofisapain,beingabletotakethatfrom27daysto3dayshasbecomeacompellingandpowerfulsalesargumentforoursalesteam.Andsowe'rewinningalotofbusinessonthatbasis,justbeinglowercost,faster,better,saferthancompetitorsoutthere

LyndonRive (CEO):

Infact,peopledon'tbelieveus.Sowecreatedavideotoshowyouhowwecandoitin3daysversus27days.Youwillseeit.

BradBuss (CFO):

We'llbepostingitonourWebsite.


Verygood.AndIhaveafeelingthisanswermightbealittlebitshorter.ButIcan'thelpbutnotice(laughter)Ican'thelpbutnoticethatyoucalledouttheCAFDsharesofbeing$1.18.Sothatbegssomeobviouscomparisonsacrossthe[oco]space,andahealthydiscussionaroundanypremiumsmaybeassociatedwiththelackofdilutionthatittakestogrowthatCAFD.Butalsoitmaybebegsthequestionofwhetherorhowclosewemightbetoseeinganykindofcashreturnedtoshareholders.

LyndonRive (CEO):

CashreturnedtoaSolarCityshareholder,Idon'tthinkyou'regoingtoseeitforalong,longtime.Ourgoaliseverydollarwearemaking,we'regoingtoreinvestingitasfastaswecan,drivingthegrowth.It'sallsolarpenetrations,50%or60%oftheworld.Ithinkthereturnstotheshareholdersaregoingtobefargreaterifwecontinuetogrowandspreadthesolarlove.





Allright.Iappreciateit.Thanks,guys.

Operator :

JulienDumoulin-Smith,UBS.

JulienDumoulin-Smith (Analyst-UBS):

Goodafternoon

BradBuss (CFO):

Hi,Julien.


Firstquickquestion.ABS.Nottogettootouchy,buthowfrequentlydoyouguysexpecttocometothemarketnow?Justhopefullyironingouttheissuesassociatedwithit.Butshouldweexpectaprettyregularfrequencyatthispoint?

BradBuss (CFO):

We'rereallynotgoingtocommentontheABS.

T anguySerra(COO):

Julien,Brad'slookinglike,no,we'renotgoingtoanswerthatquestion.

BradBuss (CFO):

Yes.I'mgettingthedeathlookfromthelawyer.


Itried,right?

BradBuss (CFO):

Askanotherone,though.


Fairenough.Andthenonthecommercialefforthereyouguysaretalkingabout.Obviouslysomewhatexciting,butcouldyouhelpquantifythatintermsofamegawattopportunityintermsofleveragingpace?Itseemskindoflikeofastepchange.Ifyoucankindofprovidesomeperspective,bothmaybeinthebackhalfofthisyearasyouthinkaboutthatcontributingtoyourtarget,andthensubsequentlyinyearsonwardsifyoucankindoftalktoit.Maybewhilewe'reatit,margintotheextentpossibleaswell.

LyndonRive (CEO):

Sure.Ithinkthenextquarterisgoingtobeverytelling.Wecrackedthenutonthecodeonthecost.We'vecrackedthenutonfinancing.Nowwehavetocrackthenextnut,andthatisevery--it'sgoingtobethesameprocessasourresidential.Everybodysignsthecontract.There'snonegotiating,nothing.Thisiswhatyouget,thisiswhatpayforthem,andweloweryourcostofenergy.Sothatsalesprocess,we




justlauncheditonTuesday.Wehavetoexperiencethatsalesprocesstoreallygiveyouabetterforecast.Sothenextearningscallwe'llbeabletogiveyoualotmoreinsightintowhat--howthatdivision'sdoing.

Butintermsofmarketsize,itisthesecondbiggestmarketinthecountry.Residential,numberone.Smallcommercial,numbertwo.Andthenlargecommercial,numberthree.Soithasamazingpotentialandifwecrackthat--ifweproveitout,we'llcreatethesimilartypeoffactorywhereyousellon-site,youselloverthephone,yougetcustomerstosignup,wedothedesign,wedotheinstalls.Weleverageourexistingoperationalstandards,wecreatethecrewswithinthatsameinfrastructure.Andwejustscaleit.AndwetakeitfromCaliforniaandtheneventuallytakeittotheEastCoastandexpandittotheotherstates

BradBuss (CFO):

Andmoreimportantly,thereturns,they'reonparrightwithourresibusiness

LyndonRive (CEO):

Grossretainedvaluesshouldbearoundthe$1.90orso.


Okay.Soit'ssimilar.

LyndonRive (CEO):

Yes.


AndthenjustyoukindofalludedtoitearlierintermsofpolicyforPACE.Areyouseenadoptionelsewhere,ifyoucanspeaktothat,andwhere--whatisyourexpectationfortheadoption,ifyouhaveoneinotherstates?

LyndonRive (CEO):

OfPACE?


Yes.

LyndonRive (CEO):

PACEhasagreat--it'sagreatstory.Itcreatesalotofjobsandreducestheoperatingcostofthebuilding.Andit'sagoodprogramtoenablesmallbusinessestousecleanenergy.AndsoI'mconvincedthatassoonaspolicymakersseetheamountofjobgrowthwe'recreatingwiththisprograminCaliforniaandtheamountofsavingswecangivetotheirsmallbusinesses,then--thattheywouldjustchangetheirpolicy,becausetheyalreadyhavetheprograminplace.They'vejustgottosaythatit'sallowedforleases.Soit'snotabiglift.It'snotbringingawholenew--it'snotcreatingthePACEprogram.It'sjustmakingamodificationtoincludeleases.


Butnonecessarytimelineofforecastorexpectationsonspecificadditiondates,etcetera?

LyndonRive (CEO):




I'mexpectingfirsthalfofnextyear.


Gotyou.Allright,great.Thankyou.

Operator :

PatrickJobin,CreditSuisse.


Thanksfortakingthefollow-up.Ireallyappreciateit.Sothe[bolish]feeison2017atthecosttarget,whichIguessisonlya14%costdeclinetogettothat$0.60of[event]PV.Lookslikethemarketdoesn'tgiveyougettingmuchcreditpost2017.Butwhatotherassumptionsaregoingintothat$0.60?AmIcorrecttoassumeyou'rejustlookingatisolatingthatITCimpactandyou'renotincludinganyutilityrateincreases?Andthenmysecondquestionkindofalignswiththat.HaveyouseenanytractionwithalargersetofcustomersinCalifornia,giventheAB327ratetiercompression,havingmorecustomerspotentiallyviableforsolar?

LyndonRive (CEO):

Firstoff,you'recorrect.Weassuming--there'snotmuchmovementonpricing.It'sacombinationofcostreductionandlesscashgoingtothetaxequityinvestors.Thatgetsustothe$0.60awatt.IntermsofmarketingcreateinCalifornia,thepeopleintheknow,knowit.Mostoftheconsumersdon'tquiteknowityet.We'reexcitedaboutit,asitwillincreaseourupbase.Thechallengehasneverbeenthetoptier.Thechallengehasalwaysbeenthesmallerhomesorthehomesthatuselessenergy.Nowatour$0.15offering,everycustomerwillseeasavings.Sowelikeit.


Thanks.Greatquarter.

AaronChew(VPofIR):

Thanks,everybody.

LyndonRive (CEO):

Thankyou,andhaveagreatday.We'redone,operator.

Operator :

Ladiesandgentlemen,thisdoesconcludetoday'steleconference.Thankyouforyourparticipation.Youmaybedisconnectyourlinesatthistimeandhaveawonderfulday.

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SolarCity (SCTY) Earnings Report: Q2 2015 Conference...

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