Jul 31, 2014
Executives
Robert Okunski - Senior Director of Investor Relations Thomas H. Werner - Chairman, Chief Executive Officer and President Charles D.
Boynton - Chief Financial Officer and Executive Vice President Howard J. Wenger - President of Regions
Analysts
Vishal Shah - Deutsche Bank AG, Research Division Brian K. Lee - Goldman Sachs Group Inc., Research Division Tyler Frank - Robert W.
Baird & Co. Incorporated, Research Division Krish Sankar - BofA Merrill Lynch, Research Division Patrick Jobin - Crédit Suisse AG, Research Division Stephen Chin - UBS Investment Bank, Research Division Colin W.
Rusch - Northland Capital Markets, Research Division Pavel Molchanov - Raymond James & Associates, Inc., Research Division
Operator
Good afternoon, and welcome to SunPower Corporation's Second Quarter 2014 Results Conference Call. Today's call is being recorded.
If you have any objections, please disconnect at this time. I would like to turn the call over to Mr.
Bob Okunski, Senior Director of Investor Relations at SunPower Corporation. Sir, you may begin.
Robert Okunski
Thank you, Sheila. I'd like to welcome everyone to our Second Quarter 2014 Earnings Conference Call.
On the call today, we will start off with an operational review from Tom Werner, our CEO; followed by Chuck Boynton, our CFO, who will review our second quarter financial results. Tom will then discuss our updated 2014 guidance before opening up the call for questions.
As a reminder, a replay of this call will be available later today on the Investor Relations page of our website. During today's conference call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the Safe Harbor slide of today's presentation, our 2013 10-K, as well as in our quarterly reports on Form 10-Q.
Please see those documents for additional information regarding those factors that may affect these forward-looking statements. To enhance this call, we have posted a set of PowerPoint slides, which we will reference during this call, on the Events and Presentations page of our Investor Relations website.
In the same location, we have posted a supplemental data sheet detailing some of our historical metrics. Finally, I would like to announce that we will be hosting our 2014 Analyst Day on November 13 in New York City.
We are in the process of finalizing the logistics for the event and will provide additional details on the event during our Q3 earnings call in October. With that, I'd like to turn the call over to Tom Werner, CEO of SunPower, who will begin on Slide 4.
Tom?
Thomas H. Werner
Thanks, Bob, and thank you for joining us today. I'll start with a brief overview of the quarter and then review our strategic position and opportunities.
First, our results. For the quarter, we delivered earnings at the high end of our forecast, while adding assets to our holdco strategy.
Demand remains strong for our industry-leading high-efficiency solutions across all geographies and end channels. ASPs were stable in all markets, and we expect this trend to continue in the second half of the year.
In our distributed generation business, we continue to benefit from our strong position in Japan, which counted for 26% of our shipments. In the U.S., our residential business remained robust, and we announced 2 financings during the quarter.
First, we signed our second back-leveraged agreement with Hannon Armstrong to drive positive cash flow for our leases, and we also announced a $200 million solar loan agreement with Admirals Bank that will further increase financing flexibility for our customers. In commercial, we added projects from both new and existing customers in Q2, and with the North American commercial project pipeline exceeding $1 billion, we see continued strong demand in this channel.
In our power plant business, we executed well, installing our millionth panel at the 579 megawatt Solar Star project and reaching 228 megawatts of grid-connected capacity. Construction at our Quinto project has also commenced.
With respect to backlog, we added a 60 megawatt project for Xcel Energy in Colorado, as well as our second project at Nellis Air Force Base. Internationally, we completed 33 megawatts of projects in South Africa during the quarter, while laying the groundwork for our next 85 megawatt project there.
In Chile, construction is on plan, and we expect to energize our 70 megawatt merchant plant by the end of the year. For APAC, we expanded our footprint in Japan with a 29 megawatt power plant supply agreement and shipped 15 megawatts of C7 cell packages to China.
We also executed well on our technology roadmaps during the quarter and expanded our technology portfolio with 2 acquisitions that will provide reductions in both DG and ground-mount balance of system cost. Progress on our ESP strategy is going extremely well, as we launched our KB Home's pilot program incorporating battery storage.
SunPower now offers solar systems with KB in more than 150 new home communities and plan to expand our storage program to other KB communities this year. In Australia, our residential storage pilot is going well, and we expect to expand storage to the commercial channel in this market next year.
Also, we would like to announce that we have been selected among multiple industry-leading global automotive companies as their exclusive solar provider to its U.S. customers.
This partnership will offer customers the energy savings and power management capability of SunPower's energy service solutions. We will formally announce this relationship in the near future.
Finally, we are continuing to develop our holdco strategy, and indications are that project values are significantly higher in sale at NTP. I would now like to update you on some of our strategic initiatives.
First, our capacity expansion. Please turn to Slide 5.
Fab 4 remains on track for first silicon early next year, and we expect 50 megawatts of production for 2015 and more than 250 megawatts for 2016. If you include the full ramp of Fab 4, our total capacity will reach approximately 1.8 gigawatts in 2017, a 40% increase versus current capacity.
In our existing fabs, we remain focused on driving improvements with respect to yield, equipment effectiveness and output. We are also still evaluating locations for capacity expansion beyond Fab 4 and plan to update investors on this initiative by the end of the year.
In relation to cell efficiency, approximately 25% of our 2016 total capacity will comprise next-generation cell technology and manufacturing processes, enabling us to drive increases in cell and panel efficiency at reduced cost. This improvement can be seen in the chart as we will extend our cell lead with average solar cell efficiency from our best production line increasing significantly through 2016.
With 1.3 gigawatts of production capacity already in place and significant expansions planned using next-generation technology, our upstream position is extremely strong. I'd now like to provide a brief update on our global power plants business.
Please turn to Slide 6. First, let me provide a short update on our Solar Star project, where construction remains on plan with completion scheduled for the second half of 2015.
At 5 square miles, the 579 megawatt Solar Star project comprises the world's largest PV system today. What sets SunPower apart as a leading solar EPC company is our Oasis power block product that decreases BOS cost, while maximizing energy production.
To put the importance of Oasis into perspective, utilizing traditional technology at Solar Star would require a site more than 7 square miles in area to drive the same energy production while incurring a higher globalized cost of energy. At Solar Star, we have completed the installation of more than 270 Oasis power blocks comprising over 1 million solar panels and have connected 228 megawatts to the grid.
We are also leveraging our Greenbotics acquisition at Solar Star. By utilizing this robotic technology, we can clean panels at 3x faster than traditional methods, while reducing water usage by 90%.
We're also looking at ways to leverage this success for our C7 product. Moving on to our international power plant business.
We're seeing further traction with our C7 concentrator technology in China, as you can see on Slide 7. As you know, China remains the largest and fastest-growing solar market in the world, and for a Western company to be successful in this market, we felt it required a specific technology and go-to-market strategy.
Our approach for C7 in China was to structure a joint venture with 3 local partners, each of whom brought unique capabilities in terms of technology, manufacturing, finance and utility industry expertise. Our JV is now well underway with more than 115 megawatts of projects in development and construction in Inner Mongolia.
We are also expanding our partnership with the TZ Group to other regions in China, and with the pipeline of approximately 1 gigawatt, we see significant opportunity in this market. We'll provide a more detailed look at our China business at our Analyst Day in November.
Now I would like to provide a brief update on our project pipeline. Please turn to Slide 8.
Since our last call, our pipeline has grown to more than 8 gigawatts as we have added power plant opportunities in a number of geographic regions and increased our North American commercial pipeline. A significant portion of our incremental pipeline was in Asia Pacific, as well as the Middle East and Africa where we continue to leverage our partnership with Total.
We were jointly pursuing many projects with Total in a number of promising emerging markets and expect to add more opportunities throughout the year. Growing our global project pipeline is important our holdco strategy and a key element supporting any eventual formation of a SunPower Yield Co.
In all cases, our differentiated high-performance, high-reliability technology is a significant advantage to drive long-term retained project value. Before handing the call over to Chuck, I would like to touch briefly on one of the acquisitions we made during the quarter and explain how it will help drive efficiency in our residential channel.
Please turn to Slide 9. Earlier this quarter, we acquired a DG project management and CRM software suite that we call SunPower Spectrum.
This comprehensive suite simplifies the sales, installation and service processes for our dealers. With the combination of its CRM and product management capabilities, dealers now have a tool that helps them improve the customer experience from prequalification through installation and post-sale support.
We acquired this platform to help our dealers increase their operating efficiency and to improve the uniformity and quality of our customer experience. With these tools, we believe we will be able to accelerate customer acquisition velocity, enhance customer satisfaction, and ultimately, drive down soft costs, such as customer acquisition and system installation.
We plan to offer this platform to our dealer partners in the U.S. starting later this year.
In summary, Q2 was a solid quarter for SunPower. As we look to the second half of the year, we are committed to delivering continued strong financial performance, driving significant growth in 2015 and beyond.
With that, I would like to turn the call over to Chuck to review our financials. Chuck?
Charles D. Boynton
Thanks, Tom. Good afternoon, and please turn to Slide 10.
I will comment on a few key items from our Q2 performance on Slides 10 and 11, and then spend the balance of my time updating our performance related to the strategic priorities I detailed last quarter, primarily our lease performance and holdco strategy. As Tom noted, Q2 was a strong quarter as we added assets to our holdco strategy, while achieving the high end of our forecast.
Our non-GAAP gross margin for the quarter was 19.5%, driven by solid execution in our global projects business, including Solar Star. We also benefited from stable ASPs in all global residential markets.
Americas margin was on plan as we continued the construction of our Solar Star projects, met our project commitments in commercial and benefited from strong demand in residential. EMEA revenue and margin were down sequentially, though in line with our expectations, as Q1 results benefited from the sale of a higher-margin power plant project.
Margins in APAC declined sequentially as a result of a higher mix of power plant and commercial projects, as well as pre-op and factory charges due to increased volumes in the region. It should be noted that one of the large commercial bookings in our mix was a legacy project developed in 2012 at a lower margin.
This project will be mostly completed this year, and we expect APAC margins to return to historical levels of high teens to low 20s over the next few quarters. Our North American residential business was solid, with total deployments of 40 megawatts with 65% from cash sales.
Lease bookings for the quarter were 12 megawatts, with 184 booked to date, representing $683 million and net contracted payments, excluding the residual value. Megawatts recognized, installed and lease bookings were all up sequentially.
The higher mix of cash sales again played an important role in our cash conversion cycle and earnings for the quarter. In addition, NCI for the quarter was $13 million, in line with forecasts.
Q2 was also another solid quarter for our global DG business, where demand continues to outpace supply. In total, we deployed 108 megawatts of residential products, including 46 from APAC, 22 from Europe and 40 from North America.
For Q2, EBITDA was $82 million. For the quarter, our factories ran at full utilization.
Additionally, our construction of Fab 4 remains on plan, and we continue to implement our new technology in Fab 2. Inventory was down for the third quarter in a row.
Our cash conversion cycle was 14 days, though DSOs rose as part of the EPC retention receivable for Solar Star was moved from long-term to short-term AR. This will temporarily inflate our DSOs until the cash is collected when the project is complete.
There will likely be an additional impact in Q3 when the balance of the retention receivable is reclassified from long term to short term. We closed the quarter with $1 billion in cash and more than $1.2 billion in liquidity.
As you are aware, we successfully retired our 4.75% converts in April for $42 million in cash and 7 million shares. Following this retirement, we also completed a $400 million convert offering with a 7-year maturity, 42.5% premium and a coupon of 0.875%, 390 basis points below the convert we retired in April.
The last item in the financial section relates to the GAAP real estate accounting for our Solar Star projects. Once we reach a certain level of cash receipts, there is a potential for a significant acceleration in GAAP revenue and margin.
This is not currently in our 2014 GAAP guidance. We will provide more information on next quarter's earnings call.
Before turning the call back to Tom for guidance, I will spend a few minutes discussing the economic optimization of solar assets. First, lease.
Please turn to Slide 12. As we stated in the past, without debt, residential leases consume cash since tax equity financing does not cover the full cost of hardware and installation.
We are pleased to report that we closed our second back-leveraged transaction with Hannon Armstrong during the quarter. This financing gives us additional flexibility through a nonrecourse debt structure that minimizes interest rate risk, maximizes the value of our existing lease assets and drives cash flow.
We continue to monetize and analyze the ABS markets for debt and are making progress on this front. We expect to provide more color on our approach and strategy at our November Analyst Day.
Similar to last quarter, to provide more transparency on our leasing program and to support the various metrics calculated by the investor community, like retained value, we are showing our most recent lease data for Q2 activity. We believe we have a significant advantage versus our competition and average system size due to our industry-leading efficiency.
Further, while reporting a higher average price per kilowatt hour, we are very focused on making sure customers save money, both now and in the future. That is why we use a conservative approach to lease price escalators.
No escalator exceeds 2%, and we have an average annual escalator of 0.3%. We believe this approach is good for customers, significantly reduces default risk and positively impacts our residual value.
I would now like to provide an update on our holdco strategy. Please turn to Slide 13.
We continue to see strong progress in the development of alternative financing structures for the industry, developments that are having a significant impact on how solar projects are developed, financed and sold. We believe employing these structures will significantly reduce the overall cost of capital for the industry and for SunPower specifically.
Additionally, we believe that the combination of our product reliability, lower annual degradation, longer system life, best energy performance and lowest risk positions us well to capture greater value from each project that we develop. As Tom mentioned earlier, we continue to see significant demand for our high-quality projects, and competition continues to drive down required rates of return.
It's a great time to be a project developer and we will benefit whether we decide to do a yield co or not. We are also pursuing our project co-development strategy where we may take small equity stakes in certain projects that we can also add to our holdco assets in the future.
As you can see from our chart, we have updated our holdco assets to more than 600 megawatts, which includes additional residential lease signings, signed commercial PPAs, as well as power plant projects, such as our 60 megawatt project for Xcel Energy we announced in May. Our goal is to maximize shareholder value for all our projects, and we continue to analyze all aspects of the strategy.
We will provide a further update on our holdco strategy and positioning at our Analyst Day. In closing, our Q2 performance was solid and reflects strong demand for our integrated solutions.
With our more than 8 gigawatt pipeline and plans to leverage our holdco strategy, we remain confident that we'll be able to significantly grow long-term shareholder value. With that, I'll turn the call back to Tom.
Thomas H. Werner
Thanks, Chuck. I would now like to discuss some of the highlights of our guidance for the third quarter, as well as our 2014 earnings outlook, which remains unchanged.
Please turn to Slide 14. For Q3, non-GAAP guidance is as follows: we expect revenue of $600 million to $650 million; gross margin of 17% to 19%; net income per diluted share of $0.15 to $0.35; and megawatts recognized in the range of 325 to 360 megawatts.
On a GAAP basis, the company expects revenue of $575 million to $625 million; gross margin of 18% to 20%; and net income per diluted share of breakeven to $0.20. Capital expenditures in the third quarter are expected to be in the range of $30 million to $40 million as we continue to ramp construction of Fab 4.
For fiscal year 2014, our expectations are unchanged and are as follows: non-GAAP revenue of $2.5 billion to $2.65 billion; gross margin of 19% to 21%; and income per diluted share of $1.10 to $1.40; capital expenditures of $150 million to $170 million; and gigawatts recognized in the range of 1.225 gigawatts to 1.3 gigawatts. On a GAAP basis, the company expects revenue of $2.55 billion to $2.7 billion; gross margin of 20% to 22%; and net income per diluted share of $0.75 to $1.05; though, as Chuck mentioned, our GAAP earnings remain dependent on the accounting treatment of Solar Star.
We will provide our first look at 2015 guidance at our upcoming Analyst Day in November. We'll now open the call to questions.
In addition to Chuck, we also have Howard Wenger, President of Regions; and Bob Okunski, our Senior Director of Investor Relations. First question, please.
Operator
[Operator Instructions] Your first question comes from Vishal Shah.
Vishal Shah - Deutsche Bank AG, Research Division
Deutsche Bank. Tom, I just wanted to get some thoughts on how you think about the yield co strategy and appreciate the guidance around how many megawatts you can drop down.
But can you talk a little bit about how the economics work of some of these projects that you have in your balance sheet, what kind of cash on a per megawatt basis you expect to generate from these projects? And also, on the capacity expansion plan, I know you said you're evaluating different sites.
Can you talk about what kind of capacity you can bring online and what your thoughts are around additional capacity that needs to come online to take advantage of some of the options to these?
Charles D. Boynton
Vishal, this is Chuck. I'll start.
So the holdco strategy, we built up almost 100 additional megawatts this quarter. And your question on the cash flow profile, it's different for each category.
So as an example, residential lease unlevered with tax equity, most of that cash tends to be free cash. Now we've levered some, so there could be less cash.
However, for the PPAs, for commercial PPAs, those are -- generate very good free cash. On the utility side, Quinto, Henrietta and the new project with Xcel, generate significant free cash.
We're not disclosing because, obviously, of PPA confidentiality, the details of those PPAs, but we have -- we're generating or will generate a very significant cash flow from the holdco assets. They may not all going into a yield co, if we decide to do a yield co, though.
Thomas H. Werner
And Vishal, I'll take the capacity expansion. We are doing some engineering work, as we speak, on the next fab.
We're still preserving options geographically. The capacity expansion will be significant because we're using the 350 megawatt Fab 4 as the first implementation of our next-gen cell technology.
And as we perfect it in Fab 4, we can "go big" in Fab 5. Go big is on the order of at least twice as big as Fab 4.
Vishal Shah - Deutsche Bank AG, Research Division
That's helpful. And just a little follow-up on the margins in the APAC region.
Can you talk about what's driving the weakness there?
Charles D. Boynton
Sure. As I mentioned in the prepared remarks, there's a mix issue, so residential ASPs remain stable and are very strong.
On the project side, we did develop a large-scale project in 2012 at a lower margin. So it's a mix issue.
ASPs and margins, though, are strong and will revert to higher margins in the next few quarters.
Operator
The next question comes from Brian Lee.
Brian K. Lee - Goldman Sachs Group Inc., Research Division
Goldman Sachs. Maybe as a follow-up there on the APAC margins.
I was just wondering if you guys had any concerns at all around pricing competition potentially heating up, particularly in Japan, given the recent U.S. decision to put duties on Taiwan imports?
I suppose there's a viewpoint out there that some of those manufacturers could start to move more toward Japan because of the decision, and so wondering how you think about that potentially impacting your margin outlook in APAC.
Thomas H. Werner
Brian, this is Tom. So we've built in the -- our thinking on the feed-in tariff changes and increased competition and to the way we think about Japan over the next few years.
And because of our product advantages, our product is extremely well suited to Japan, and so we're in a market share of 10 points, plus or minus. We're in a position that our product fits so well that we're, to a degree, insulated from increasing competition, although I agree with your thesis.
We do expect that to happen. We also think we have a preferential go-to-market channel through our partnership with Toshiba.
That's gone extremely well. And so the combination of the unique high-efficiency product and our go-to-market channel and our cost reduction roadmap that fits expectations consistent with your comment.
We're bullish on Japan and as Chuck mentioned, we expect margins to turn around in a few quarters.
Brian K. Lee - Goldman Sachs Group Inc., Research Division
Okay, great. That's helpful, Tom.
I appreciate the color. Second question was more of a high-level, big picture question.
Just around the residential strategy in the U.S., if you guys could maybe dive into that in a bit more detail. It seems like a very high-growth, high-margin opportunity where you guys might not be growing as fast as some of your peers.
So just trying to get a sense of whether this is a capacity constraint issue or maybe a business model issue, given your go-to-market strategy is a bit different than peers. And if that is the case, if you have any thoughts around potentially restructuring that segment in any way.
Thomas H. Werner
On -- so I like the last part of your question. So let me address the first part first, this is Tom.
So North America is our home. California, which is the dominant part of the North America, is home base for us.
We launched our dealer channel in 2005. We have a great position in California and throughout America.
Our product works great. The more sun you have, the more high efficiency matters.
And even with the new technologies coming to market, we have the highest efficiency product. So we are here and we will expand our footprint and our share over time.
The challenge is exactly as you have described, which is we are fully allocated, and we've had a long history of a strategy of not being overly allocated to one market. We have that option because we are international.
And so we choose not to be overly allocated to one market. It's a near-term decision.
It does not influence our thinking long term, which is that we are very bullish on this market and we expect to expand share. The second thing I'd say is we're investing in a energy service provider platform in California.
We mentioned our storage pilot with KB Homes. We're bullish on the future of our ESP offering in North America, so we're here and we're going to expand.
We've made investments in the channel also. We mentioned software in our prepared remarks.
So we will be more heavily tied into our go to market. In other words, the independent channel still will be independent, but will be more involved with the go to market and the software that we purchased is a step in that direction.
So those are a few things that we're doing. And in terms of how we look at go to market, we're adding resources or we -- how we think of isolating that channel.
Our intention is to add resources and create more focus on that channel within our company. And we think that as we add Fab 4 and then Fab 5, we'll have sufficient capacity, and we add our ESP strategy, that it will continue to be part of the company, although focused differently with additional resources.
Operator
The next question comes from Tyler Frank.
Tyler Frank - Robert W. Baird & Co. Incorporated, Research Division
I'm with Robert Baird. I was hoping you could comment on sort of what you're seeing in the global marketplace, if you could essentially touch on the U.S.
and then Europe and Japan as well, for just prices and how you're seeing things fluctuate. And do you expect to benefit from any of the tariff situations going on?
Thomas H. Werner
Let me just say a really quick comment and then I'll give it to Howard. Broadly speaking, there's a marginal upside to the tariffs in North America.
So what we've seen is stability or slightly rising prices, and so there's a modest upside for us. Across the world, we see something similar.
I'd say stable, but I'll let Howard give a little more color.
Howard J. Wenger
Yes, this is Howard. That's right.
I'll just complement what Tom said, which is we have a very robust demand for our products across all the geographies you mentioned, U.S., Europe and Japan, as well as each of the channels, residential, commercial and then in the power plant segments. Right now, pricing is very stable.
If not, they're having an upward lift to pricing as we enter the second half of the year. Tom referenced that as upside.
I'd call it the same thing to our plan. And so we're pleased with how things are going on the demand side.
And we could sell more of our product in particular segments such as Japan especially, as well as in certain markets in the U.S., if we have more capacity. And as Tom mentioned in the prepared remarks, we're going to be increasing capacity by 40% with our new fabs, so that's going to give us a significant increase in our supply and keeping pace, if not faster, than the pace of the market to gain share.
Tyler Frank - Robert W. Baird & Co. Incorporated, Research Division
And to follow up on that, can you comment on when you look out for the remainder of this year and then next year, what does your, I guess, pipeline look like in terms of capacity? Have you essentially allocated your future capacity to projects already and to markets?
Or is there still room there for you to move around?
Thomas H. Werner
Yes, when we look to beyond '14, allocated is the right word. Not all of it is purchase orders.
And of course, the residential business is a turns business so it turns within a quarter. So we have optionality in 2014, certainly, probably half of our output.
So we have choices on where to allocate that still. But it would be fair to say that we have a first pass at allocation in all markets, in all segments through 2015.
Operator
The next question comes from Krish Sankar.
Krish Sankar - BofA Merrill Lynch, Research Division
It's Bank of America Merrill Lynch. A couple of them.
Tom, can you break down the 8 gigawatt pipeline you have, the opportunity in terms of what is contracted, what amount is already sold and the [indiscernible] ? And also, the second follow-up would be, can you help us size the opportunity for C7 in China and what the margin profile will look like for that?
Thomas H. Werner
Yes, sure. So first, we don't put sole projects in pipeline, so that's 0.
On -- and the profile, I'll let Howard give you a little more thought so that he might have a little more thoughtful response in the profile with the 8 gigawatts. Approximately a gigawatt, plus or minus, is fully contracted, what we call close to perfected.
But I'll turn it back to Howard here in a second to talk about the profile of the 8 gigawatts. On China, as we mentioned, we have 150 megawatts that we're constructing in Inner Mongolia.
We're expanding our partnership with TZ Group to other parts of China, which we expect to -- we're already taking positions that we expect to fulfill in terms of a gigawatt. You can think of those numbers just like you think of Solar Star, except that most of that will be fulfilled as our concentrated projects -- or product.
So it will take 1/5 -- a little more than 1/5 or a little less than 1/5 of cell capacity to produce that much in terms of energy-producing power plants. Now we sell a, what we call, a laminate or a cell package into the joint venture.
So that is a subset. Think about it as a subset of a module, or certainly, a subset of EPC.
So that will have a lower selling price but at similar margin profile to what your used to in our power plant business. And there's just really, really big upside in China and things are going really well.
Howard, do you want to say something about the 8 gigawatts?
Howard J. Wenger
Sure. So probably 90% of the 8 gigawatts is larger scale, 10% or so is of commercial variety, distributed generation pipeline.
So by larger scale, typically, 20 megawatts on up for every opportunity. As we mentioned before, what we're seeing is that we're converting about 25% of our pipeline as we move it forward from early stage to later stage.
This does not represent super early stage in this pipeline, meaning, just a possible opportunity these -- the projects that are in this pipeline actually have a line of sight to a land position, to an interconnection position. So if you take 25% of that, you can think of it as we'll be able to convert approximately $4 billion worth of opportunity out of the current pipeline.
Of course, some is coming off where we're perfecting it, and then we're adding to it all the time.
Thomas H. Werner
And I just wanted to add that there is no residential in that number as well.
Operator
The next question comes from Patrick Jobin.
Patrick Jobin - Crédit Suisse AG, Research Division
Crédit Suisse. So I think last quarter, you talked about 50% EPS growth potential in 2015.
Is that something still that you're targeting at this stage? Or can you talk through that?
Then I have a few follow-ups.
Thomas H. Werner
Sure, Tom, I'll take this. We did say that and we said also that it depended on our yield co -- holdco/yield co strategy.
Since we made that comment, we've put another 100 megawatts into our holdco. And so the decision we made for this call is, rather than you give broad guidance with caveats, we would cover it at our Analyst Day.
By then, we will have a clearer picture on holdco. So it's really the evolving picture of holdco that influence our comments and nothing else.
So 2015 still looks very strong. And it still a question of how we execute on our holdco strategy, and again, we'll cover that significantly in our Analyst Day.
Patrick Jobin - Crédit Suisse AG, Research Division
Great. And just a few follow-ups.
First, I think I missed the point on the auto manufacturer contract that you'll be announcing soon. Just want some color on that.
And then from a kind of digging more in the numbers here. Just thinking about a legacy project in the APAC region with a low margin.
Can you maybe break that out, how large that project was? And I would have thought a legacy project might have a higher PPA term versus delivering on today's cost structure.
Just help me reconcile that difference.
Thomas H. Werner
Yes. So let me take a first pass on both questions.
First, the reason why the auto manufacturer wasn't clear is because I was unable to read clearly, and so let me clarify that we have won a contract with multiple automotive companies, of which we will be able to formally announce sometime soon. And so more to come.
In terms of Asia, it's not -- when you think of legacy projects, it's not like Solar Star or Quinto in this context. In Japan, we're actually selling modules.
So it's really a legacy module deal. I think, Chuck, you may want to add something?
Charles D. Boynton
Yes, so it's approximately a 100 megawatt legacy deal back that we didn't -- developed in 2012 when factories were underutilized.
Howard J. Wenger
And this is Howard. I would just add that we're shipping a disproportionate amount of that project this quarter, so that's why you have that mix impact.
The other thing I just want to add to Tom's comment is on the auto manufacturers. We currently have relationships with Ford and Nissan that we've announced previously.
This is in addition to those relationships.
Operator
The next question comes from Stephen Chin.
Stephen Chin - UBS Investment Bank, Research Division
UBS. So just a quick follow-up again on the holdco aspect.
Just as we think about it, we have the addition, the 605 megawatt pipeline for holdco projects. Going forward, should we understand that any project that you contract will be a holdco -- earmarked as a holdco project?
What's the differentiation, I guess, between a project that will be a sole project or -- and/or a holdco project and kind of, I think, help with thinking about 2015 EPS perhaps?
Charles D. Boynton
Sure, Stephen. So as we announced our kind of Phase 1 of our holdco strategy was taking a PPA project and developing it and not selling it at NTP but holding it through COD.
We see a significant value uplift just eliminating construction risks, financing risks, et cetera. Phase 2 would be either selling part of that holdco to a partner or launching that holdco as a public vehicle, i.e.
a yield co. And so when we talk about our holdco strategy, it's sort of in that evolution.
We have not committed to doing a yield co, but we're seeing significant uptake in the value by executing on our holdco strategy and building up the value of these assets. They're not all going to be holdco, and some of those, as they get built, we would sell those and they would come out of our holdco assets.
In addition, some items, residential, as an example, we might choose to finance via ABS and keep those on our balance sheet and not put those into a yield co or sell those and take them off of our balance sheet.
Stephen Chin - UBS Investment Bank, Research Division
Okay. So it seems like it can go either way, depending what's optimal for the asset.
I guess, a quick follow-up. I think last time, you guys made it clear that your product is differentiated and has higher energy production, lower degradation rates.
Have you been getting credit for that on project sales as people start to understand your -- the nuances of SunPower's product?
Thomas H. Werner
Yes, the answer is incrementally yes, but not completely. So the interesting thing in the yield co is that there are ways that we could get the additional benefits of our product so that we would get the complete benefit in a yield co, or alternatively, there may be enough yield cos that would compete for the project and that would pay full value for the advantages of our product.
And of course, we'll see how that plays out over the next few quarters. And I just want to be clear on holdco.
When we say 600, it means they're on our balance sheet. So it means they're not going through our P&L.
Operator
The next question comes from Colin Rusch.
Colin W. Rusch - Northland Capital Markets, Research Division
Northland Capital Markets. On Solar Star, can you help us understand the magnitude or the potential change in guidance?
And what needs to happen for you to hit those key metrics to recognize that revenue this year?
Charles D. Boynton
Sure. So under non-GAAP, we recognize Solar Star in percent complete and there'd be no change to non-GAAP.
The difference would only in our GAAP results. And effectively, once we receive a certain portion of the cash, it would flip to percent complete, and there would be a fairly significant pickup in the progress that we recognize to date versus the actual percent complete.
That will not happen in Q3. It could happen in Q4.
And so we'll give you a deeper update on the next quarter's earnings call. We just wanted to make sure that there is no surprises and that if there is a significant acceleration on revenue and margins from a GAAP standpoint, that you weren't surprised and make sure that it was known and it was not in our guidance for GAAP results.
Colin W. Rusch - Northland Capital Markets, Research Division
Okay, great. And what's the holdup with making the decision on the yield co strategy at this point?
Love to understand what you guys need to figure out and what you're waiting on. And then just a follow-up on that.
Would Total potentially be participating in this -- in a yield co strategy? And do you have a preference as to where you would potentially list yield co, whether it be in Europe or in the U.S.?
Thomas H. Werner
On -- so the -- this is Tom, I'll do an overview, and Chuck, you may want to add on. The decision of when to -- first, if and then when to do a yield co is, of course, based on pipeline and comfort.
The more you've built out the pipeline, the faster you can drop them down. There are ways of doing that earlier, and of course, you can build it out and do it later.
So we have flexibility, and that's good news. And our view is time is on our side.
There's no reason to hurry. The upside of waiting things out is more yield cos come to market.
They have an appetite for projects and the value of our projects go up. And we could not do a yield co and get the benefit of almost of doing a yield co, or alternatively, we will be in a conservative position where we'll have the assets mostly built.
And then it will facilitate a very straightforward launch of a yield co. Our view is time is on our side, so we're not slowing things down and we are purposely using time to our advantage.
Charles D. Boynton
And then location of one, if we did a yield co, like they would be in North America where the company's home base is and we have a stronger presence.
Thomas H. Werner
And if the board is -- we're fully engaged with the board, but any -- there's -- it would be way premature to talk about any structure of the yield co. We're going to take one more question.
We really appreciate it, but we'll do one more question.
Operator
The last question comes from Pavel Molchanov.
Pavel Molchanov - Raymond James & Associates, Inc., Research Division
Raymond James. 2 quick ones about Total.
One is, if you can just give us a breakdown of how much of your project pipeline is attributable to Total-backed or Total-sponsored projects? And secondly, a little broader.
As we're getting to the close of that period where Total could, in theory, bring SunPower into full ownership, have you gotten any suggestions that they may perhaps pull the trigger on that?
Thomas H. Werner
Sure, this is Tom. Thanks for the questions.
First one is this is a small percentage of the pipeline. I believe it's -- they've taken a small equity position in the first Chile project and a small equity position in South Africa, and those are small equity positions.
What is more relevant is we've collaborated from a go-to-market standpoint and so Total has been quite helpful in terms of market presence and awareness of how to most effectively go to market. But in terms of pure equity ownership, it is very small.
And as we look forward, it's not clear how much the equity ownership will be SunPower versus Total. In fact, if anything, we're probably thinking more SunPower because that is in more direction with the holdco strategy.
In terms of full ownership, no, I don't have an update on that. I would say that after 3 years and 2 months, things are going exceptionally well with Total, and I would say both parties are quite happy with the way things are working today.
And that would be the only update I have. I appreciate the question.
And Pavel, unless you had a follow-up?
Pavel Molchanov - Raymond James & Associates, Inc., Research Division
That's all set.
Thomas H. Werner
Okay. Thank you, Pavel.
Thank you all very much for your time. We will have a short earnings call prior to our Analyst Day, and then we'll have a robust Analyst Day, which we look forward to seeing you at both of those.
Thank you.
Operator
That concludes today's conference. Thanks for participating.
You may disconnect at this time.