Bob Okunski - SunPower Corp. Thomas H.

Werner - SunPower Corp. Charles D.

Boynton - SunPower Corp.

Tyler Charles Frank - Robert W. Baird & Co., Inc.

(Private Wealth Management) Hank Elder - Goldman Sachs & Co. LLC Rachel Lei - Deutsche Bank Securities, Inc.

Jerimiah Booream - Merrill Lynch, Pierce, Fenner & Smith, Inc. Michael Weinstein - Credit Suisse Securities (USA) LLC Pavel S.

Molchanov - Raymond James & Associates, Inc. Colin Rusch - Oppenheimer & Co.

Inc. Paul Coster - JPMorgan

Thank you, Gilly. I'd like to welcome everyone to our fourth quarter 2017 earnings conference call.

On the call today, we will start off with an operational and strategic review from Tom Werner, our CEO followed by Chuck Boynton, our CFO, who will review our fourth quarter 2017 financial results. As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.

During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the Safe Harbor slide of today's presentation, today's press release, our 2016 10-K and 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 also posted a set of PowerPoint slides, which we will reference during this call, on the Events & Presentations page of our Investor Relations website. In the same location, we have posted a supplemental datasheet detailing some of our historical metrics as well.

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

Thanks, Bob, and thank you for joining us. On this call, we will review our fourth quarter 2017 financial performance and report on progress against our strategic initiatives.

I will also provide our initial thoughts on the Section 201 trade case. Q4 execution was solid with strong segment performance across the board.

In our U.S. DG business we solidified our number one market share position, while meeting key milestones in our power plant business.

We exceeded our Q4 cash generation targets, posted solid EBITDA results for both Q4 and full year 2017, and reduced our expense structure by more than 20% year-on-year. I'll now move on to our segment performance.

Please turn to slide 4 for a review of our residential business. We executed well across all markets and channels.

ASPs remained stable and Q4 bookings exceeded our targets. In the U.S., we gained share in the residential retrofit market and saw record deployments and strong bookings in our New Homes business during the quarter.

Given our Q4 performance, we now believe we are the leader in the U.S. residential market.

Outside the U.S., we again beat plan in both Europe and Japan as demanded and pricing in both markets remains favorable. We have discussed in the past our plan to monetize assets and recently announced the sale of our ownership stake in 8point3 with expected proceeds of more than $350 million dollars resulting from the sale.

In addition, we are in the process of monetizing our lease portfolio and hope to close this transaction in the first half of this year. We expect this transaction to generate more than $200 million in cash.

And more than $550 million in combined proceeds from these transactions will delever the balance sheet, fund areas of growth and simplify our financial statements. Looking forward, we expect continued growth in all of our residential markets during 2018.

Moving on to slide 5, I would like to provide an update on our industry-leading commercial business. As we discussed last quarter, commercial remains a core market segment for us.

We executed well during Q4 with record installation volume and completed our 28-megawatt Vandenberg Air Force project, our largest behind-the-meter commercial project to-date. For the year, we posted 34% growth in deployed megawatts.

Additionally, we continue to see particularly strong interest in our solar-plus-storage solutions. In the coming weeks, we will be launching our newest commercial product offering in the Helix family, Helix storage.

Helix storage is first purpose-built solar-plus-storage offering of its kind focusing on co-optimization of PV and battery to deliver maximum guaranteed bill savings to our customers. This new product is the direct result of our investment in software development over the past two years to create a flexible control platform to manage battery and PV.

Also, with experienced deploying approximately 1 gigawatt of commercial projects, we are well positioned to leverage this expertise in expanding our storage footprint. For example, the recently completed 13-megawatt Redstone Arsenal project incorporated a storage system with a 1-megawatt capacity, 2-megawatt-hour storage battery.

Additionally, approximately 30% of our commercial pipeline already has Helix storage attached. And our pipeline of high-margin storage projects now totals $60 million.

We also have the opportunity to expand the addressable market for the software platform we developed our Helix storage by deploying it into our Equinox residential product with minimal additional development. We expect to see a rapid transition to financial viability for solar-plus-storage products in the U.S.

residential market over the coming quarters. Going forward, we are bullish about the commercial market with a solid pipeline of more than $2.5 billion, approximately 85% of our 2018 plan already booked or awarded, we are well positioned to increase our share in commercial again this year.

Now let's review our power plant and SunPower Solutions business. Please turn to slide 6.

We continue to see strong growth in our SunPower Solutions equipment business. For example, in the first full year for this new BU, deployments were up 125% year-on-year.

We plan to more than double volume again in 2018 to close to 1 gigawatt. Bookings now exceed 600 megawatts, including 115 megawatts of DG projects awarded in the most recent French (06:47) tender.

Also, our power plant team has executed well. Our 69-megawatt Gala project reached commercial operation during the quarter, and we completed and sold the 110-megawatt El Pelicano project in Chile.

Looking forward, we will continue to transition away from power plant development while further ramping our global SunPower Solutions business. Moving on to upstream and technology.

Please turn to slide 7. We again achieved our overall yield and OEE targets for the quarter.

In particular, the Fab 4 outperformed with record output to an annualized production rate 15% above nameplate fab capacity. As we discussed last quarter, we are aggressively developing our next generation IBC technology.

We are on plan with our roadmap, and recently started to install tools for our first full-scale line in Fab 3. We expect first silicon in Q2 with volume productions starting in Q4.

NGT is a significant technology improvement as it preserves our world-record IBC efficiency and durability attributes in significantly reduced costs. Initial results on our pilot line in San Jose are ahead of plan and we are already producing 23% efficient NGT panels.

We expect NGT to be a major profit growth driver for SunPower in the coming years. Now, I'd like to comment on the recent 201 ruling.

Please turn to slide 8. On January 23, President Trump signed the proclamation that put tariffs on all foreign produced cells and modules coming into the U.S.

An important part of this declaration is that it includes provisions therefore allow our companies to request specific product exclusions that if successful will exempt these products from the tariffs. This process was announced earlier today.

We will continue to work through the product exclusion process with the Administration to convey that only SunPower can make a copper-plated, interdigitated back contact solar cell and that with exclusion, SunPower can further invest in research and development to improve on its market leading efficiency and performance, while demonstrating America's continuing leadership in solar energy innovation. Unfortunately, we are already seeing a negative near-term impact from the ruling as the increased costs due to import tariffs have delayed certain 2018 projects and made other projects uneconomical.

Additionally we have also put our planned $20 million U.S. employment expansion on hold and are considering other significant cost saving initiatives to lower our overall expense structure and improve our financial performance.

In the meantime In the meantime, we are taking the following actions to minimize the impact of 201. First, we have built up a significant level of safe harbor inventory in the U.S.

to support our distributed generation customers. Second, we will institute additional initiatives to further materially lower our operating expenses across the company.

So far, we have implemented a hiring freeze and have reduced some discretionary programs, and we'll provide an update on these initiatives when completed. Third, we will accelerate the growth of our international business, including both key overseas DG markets and our global SunPower Solutions business, now serving more than 30 countries.

Given the early stages of this review, we are not prepared to discuss the overall program at this time, but we'll communicate our formal plans on or before our next earnings call. In summary, our focus is to simplify our business, improve liquidity and return to sustained profitability.

Despite near-term industry challenges and policy volatility, we see tremendous growth potential for solar power around the globe and our focus on structuring our business to profitably capitalize on this opportunity. With that, I would like to turn the call over to Chuck to review the financials.

Chuck?

Thanks, Tom, and good afternoon. I will first review our fourth quarter results and then discuss certain financial highlights for the quarter.

I will then turn the call back over to Tom for our guidance. Please turn to slide 9.

We are pleased with our results for the quarter as we met or exceeded our forecasts on most of our key metrics while focusing on cash generation. Our non-GAAP revenue was in line with guidance as we executed well in all segments.

In power plants, performance was primarily driven by the completion and sale of projects. We saw strong sequential revenue growth and volume growth in both our residential and commercial segments.

We successfully completed our highest ever quarterly volume of commercial projects, including our 28 megawatt Vandenberg Air Force project and 13 megawatt Redstone Arsenal project. Overall, our consolidated non-GAAP gross margin was approximately 12% in line with our plan.

Non-GAAP margins were negatively impacted by onetime charges related to our manufacturing operations and incremental freight costs in advance of the tariff implementation that reduced our residential margin by approximately 4%, our commercial margin by approximately 2% and power plant by 1%. In the power plant segment, our margins improved sequentially due to strong execution and the sale of our 110 megawatt El Pelicano project.

In residential, Europe and Japan were again ahead of plan. Excluding onetime charges mentioned earlier, our non-GAAP residential margins were in line with Q3.

In North America, cash and loan sales were 66% of our shipments while 34% were leased. Overall, we deployed 101 megawatts of residential products globally in line with our forecasts.

Net contracted lease payments are approximately $1.7 billion, excluding any renewal or residual value. We recognized $318 million of non-GAAP revenue during Q4 in our commercial segment which was more than double Q3.

The resulting margin was 10%, down sequentially due to project mix and the onetime charges. Non-GAAP OpEx was $80 million for the quarter, down more than 20% for the year.

Finally, CapEx for the quarter was $12 million. I would now like to discuss a few financial highlights for the quarter, please turn to slide 10.

We had a very strong cash generation quarter as year-end cash came in better than planned at $435 million primarily due to project completions, our expense control efforts and focus on working capital. In addition, as we stated in the past, we plan to generate more cash through asset divestitures.

We were happy to announce our proposed transaction with Capital Dynamics last week to acquire 8point3 and had made significant progress on the potential sale of leases currently on our balance sheet, more on this shortly. In relation to our timber (14:11), we believe we are well positioned to pay it off with cash given our current cash level, the pending sale of 8point3 and monetization of our lease portfolio.

I would like to touch on our recent announcement to sell our ownership stake in 8point3. Please turn to slide 11.

As Tom mentioned, this transaction is part of our overall efforts to monetize assets, delever our balance sheet and fund our growth initiatives. The agreement with Capital Dynamics was the result of a comprehensive and competitive review process, including contacting more than 130 potential partners, and after all this, we felt that Capital Dynamics had the best overall offer for all shareholders.

It's also important to point out that with committed financing and our proven track record on renewable acquisitions, we are confident that they can close this transaction. This is an all-cash transaction with estimated proceeds of more than $350 million plus accrued distributions.

From an accounting perspective, I want to explain a few key points. Over the last few years, the sale of projects to 8point3 were never fully recognized due to real estate accounting.

As such, our current book value for 8point3 is a negative $83 million. With the adoption of the new revenue recognition standard and with the sale, our net equity position will improve significantly and we will ultimately reflect the cash that we receive from the sale.

As a reminder, because of this treatment, the gain will not flow through the P&L. Moving on to the sale of our leasing portfolio, please turn to slide 12.

In our transformation of the company, we plan to simplify the financials and sell assets to delever the balance sheet and fund areas of growth. As a result, we have made the decision to sell our lease portfolio.

Given the high quality of these assets as well as the strong performance of the portfolio, we have already received indications of interest and expect the sale to net us approximately $200 million in cash. However, once we made the decision to sell, it triggered an evaluation of the portfolio for potential impairment.

This evaluation resulted in a net non-cash GAAP impairment charge of $474 million. The company currently holds close to 400 megawatts of residential leases through more than 45,000 customers with these leases representing approximately $1.4 billion of long-term cash flows.

We now intend to deconsolidate these leases through the sale of the equity while retaining a minority interest in the ongoing portfolio. The advantage of deconsolidation is that the P&L presentation will now be the standard revenue, margin and operating income presentation along with a cleaner balance sheet and statement of cash flows.

In relation to the impairment, it is driven primarily by GAAP lease accounting rules which use a very low implicit discount rate plus a residual value to value the assets on the balance sheet. As part of our sale process and impairment analysis, we have applied a market discount rate to the long-term consumer receivables consistent with the indicative bids we have received.

We believe if we held the portfolio to maturity there would not have been an impairment to these assets. We also expect to incur additional GAAP-only impairment charges in the first and possibly second quarter reflecting leases that are placed in service prior to the close of the proposed transaction.

We believe that this transaction will generate meaningful cash, delever the balance sheet, fund areas of growth and simplify our financial statements. In summary, we're pleased with our performance in Q4, the progress we made in the transformation of SunPower and further position the company for the long-term.

With that, I'll turn the call back to Tom for our guidance. Tom?

Thanks, Chuck. I would now like to discuss our guidance for the first quarter as well as provide some color on fiscal year 2018.

As a reminder, guidance includes the impact of seasonality in Q1 as well as our estimated impact of the Section 201 ruling for Q1 and 2018 as a whole. Please turn to slide 13.

First quarter fiscal 2018 GAAP guidance is as follows; revenue of $280 million to $330 million, gross margin of negative 2.5% to 0.5% and a net loss of $110 million to $90 million. First quarter 2018 GAAP guidance also includes the impact of the company's HoldCo asset strategy, revenue and timing deferrals due to real estate accounting as well as the impact of charges related to the company's restructuring initiatives.

On a non-GAAP basis, the company expects revenue of $300 million to $350 million, gross margin of 4% to 6%, EBITDA of $5 million to $25 million and megawatts deployed in the range of 275 megawatts to 305 megawatts. For 2018, please turn to slide 14.

We expect revenue of $1.6 billion to $2 billion on a GAAP basis and $1.8 billion to $2.2 billion on a non-GAAP basis with gigawatts deployed in the range of 1.5 gigawatt to 1.9 gigawatt. The balance of the company's fiscal year 2018 guidance is as follows: non-GAAP operational (sic) [operating] (19:42) expenses of less than $290 million, capital expenditures of approximately $100 million and adjusted EBITDA for the year, positive adjusted EBITDA for the year.

With that, I would like to turn the call over for questions.

Robert Baird. Thank you, guys for taking the question.

Can you maybe discuss your NGT technology and how we should think about volumes ramping in the back half of this year and then maybe in 2019 as well as 2020? And how should we think about that technology on a cost basis?

And maybe if you can give us specific details at least on a competitive basis to other items that are out there?

Sure, Tyler. This is Tom Werner.

So our next-generation technology is something that we plan on speaking about quite a bit on our next call, which will either be the next earnings call or we might have a call in between. And so, I expect to give more complete answers on that call.

Our first lines are being installed as we speak. We expect first silicon in the second quarter, we will make low double-digits volume this year and next year we'll be at a capacity of over 100.

And so we start ramping in earnest next year. Not prepared to forecast beyond that.

In terms of cost, the efficiency, it's the same or better, and the size of the product is larger. And we can process more wafers simultaneously in the equipment and we get capital cost down, so there's a number of factors there that cost will be down significantly.

I'm not going to – I appreciate exactly what you said of comparing it to the other technologies like (22:06) and First Solar, we will certainly do that between now – either now – in next earnings call or the call in between.

Great. Thank you.

And then can you provide us with an update on P-Series and what sort of volumes we should expect there?

Sure. So P-Series is ramping in two places, both in our Mexicali Marco (22:35) which is several hundred megawatts of capacity, and then ramping more significantly in our joint venture in China, which currently has a capacity of close to 1 gigawatt, about 700 megawatts.

And by the end of the year, we'll have a capacity closer to 2 gigawatts. So it's ramping quite fast.

In that joint venture in China, to remind everyone, is to shift to countries that are mostly regional and that would be the Chinese market and other markets like India and other places in Asia. And so both supply and demand are ramping quite well in the joint venture in China.

Okay. Thank you.

Hi. Goldman Sachs and this is actually Hank Elder on for Brian.

Can you guys talk about how much or clarify how much of the debt is related to the residential assets and then if that would be deconsolidated once you sell?

Certainly. Thank you, Hank, for the question.

The debt that we'd intend to deconsolidate – debt and other liabilities is about $436 million.

Got it. And then, going forward, what would you do with leased residential assets?

Would you look to build up and then monetize again or are you going to monetize every quarter?

Yes. So our strategy would be to effectively do a vendor leasing model which effectively, we are not the owner of the lease.

One of our partners would be. And so, we'd be originating the lease, and it would be a cash sale presentation and a much simpler P&L.

So if an investor looks at SunPower, leasing would look just like cash sales do and our partner would be the owner of those leases at the time of origination.

Got it. Okay.

Thank you. I'll hop back in the queue.

Thanks.

Thanks, Hank.

Deutsche Bank. Hi.

It's Rachel on for Vishal. Thank you for taking our questions.

First question is about your margin expectations in the power plant segment going forward. Can you give us some color on that?

Sure. This is Tom.

So as I mentioned in my prepared remarks, the power plant segment is converting significantly to SunPower Solutions. And so my comment is on selling complete solutions to the power plant market and there's quite a range, that's a high-volume, low-OpEx business and therefore, the margin are going to be high-single digits, plus or minus, is what I think we can think of, but very low OpEx associated with that business.

Okay. Great.

A follow-up would be your – just margin on the other two segments, residential and commercial. So we see a little bit of a decrease this quarter, so what's kind of the outlook going forward?

Thank you, Rachel. This is Chuck.

Margins were impacted in Q4 by some one-time upstream items. And so, I'd characterize we had fairly strong margins overall in Q4 after adjusting for those items.

In residential, longer term, I think we still continue to believe it should be low-20%s to mid-20%s, and in some cases, low-30%s. And those have been consistent over time.

And so we believe residential margins will be consistent. Commercial, there's a little bit of volatility based on mix and type of transaction, but we think about those as low-teens to high teens.

And there is some volatility in commercial tied to the size of projects, as you noticed Q4 was almost double the volume of Q3. But we believe, this year, you'll see some strong commercial margins.

Great. That's it for me.

Thank you.

Thanks, Rachel.

Yeah. Hi.

It's Merrill Lynch. Hey.

Good afternoon. Could we just delve into the 201 a little bit here?

I think you said you announced the negotiations or process today to try to get an exemption. What is the timeline exactly, basically when you'd be able to do that or is there a timeline?

Yeah. So, the United States Trade Rep Office published the product exclusion process into the Federal Registrar.

And in that process it's described the criteria and the timeline, you have 30 days to file for exclusion and then 30 days for public comments, then they will make a decision. The criteria include impact on the domestic industry and impact on the domestic supply chain, which includes all parts of the supply chain, including R&D.

And it also includes criteria that if other people can make the product and is the product necessary for the U.S. market.

As I described those criteria, a number of those criteria really describe what SunPower is uniquely differentiated. We're the only ones who can make our product.

It fits the U.S. market excellently.

And we are the largest investor and the largest R&D expenditure is tied with perhaps one other company in the world, and therefore huge in America. So what we've read so far suggests that we're a good fit for exclusion.

We'll see. We have to go through the process and the answer to your question is 30 and 30.

And then they give the decision immediately or it's unknown after that, just to be clear?

There is not a defined timeline. It depends on the volume that they receive.

But in our discussions with USTR, they expect to act promptly and to be accurate; by the way, it's a committee of USTR, DOE, and Commerce. And the committee exists, people are in place, and so there's a reason to believe that it will be pretty efficient.

Got it. And then just one other unrelated question.

Can you just help me bridge the gap between the $1.7 billion of leased value and the $684 million of asset value? Are those comparable, like are you selling the entire portfolio?

So the $1.7 billion are total contracted contracts, including leases that are countersigned but not yet started in construction, those that are in construction, but not placed in service, and then those that are placed in service. The $1.4 billion are the ones that are placed in service as of 12/31.

And so, that's what we're talking about in terms of the overall impairment and what we're selling is those that are placed in service as of 12/31. And then we provided in the supplemental materials a chart that shows you the exact balance sheet before and after the impairment, representing those $1.4 billion of contracted payments, how much they're on the books for in terms of asset value, and what the corresponding liabilities are in terms of back-leverage and tax equity.

Got it. Thank you very much.

Thanks, Jerimiah.

Hi. Credit Suisse, and thanks, guys, for taking my question.

Can you talk about the EBITDA run rate for the residential portfolio after the monetization?

Certainly. Thanks for the question, Mike.

So we expect our residential business to maintain a strong EBITDA profile after the transaction. I'll just remind you again what's in residential.

We had a very strong franchise in Japan, across Europe, and then in North America. In Japan and Europe, those are cash sales.

There's no change. And in the U.S., roughly two-thirds of the sales are cash sales, one-third are loan.

So, what you'll see is a transition where the one-third loan lease sales will turn into cash sales and we expect margins to roughly be consistent with that change. Now, the P&L presentation will be quite a bit simpler.

We won't have NCI and we'll have upfront GAAP sale treatment and then you'll have a cleaner balance sheet and statement of cash flows.

So, basically similar EBITDA is what you're expecting?

Yes.

Okay. And how many megawatts or how many quarters of modules are safe harbor as you indicated?

So, we have a mix of modules, so it depends on the SKU. And I would say to you – and it also depends on supply-demand matching.

But it's anywhere from three-and-a-half to six months.

Okay. And yeah, one last question is, the gross margins that you presented for first quarter, they looked pretty low.

Is that extrapolated out to 2018 or what's driving that?

So, there's a number of factors in Q1. And so the primary one is it's a low-volume quarter.

It looks a lot like Q1 of 2017 where effectively you have lower volumes. So, the overhead is absorbed into a smaller base of revenue.

And so that's a key factor, plus we've incurred additional logistics charges to safe harbor materials for 201 in the month of January.

What kind of gross margin percent are you looking at for 2018 guidance?

We haven't guided full year 2018, and we'll do that either on the next call or at our Q1 earnings call.

All right. Got you.

Thank you very much.

Thanks, Michael.

Thanks for taking the question. In the press release, you remarked on your fabs running at 100% of capacity, but you also pointed to some of the tariff-related headwinds in the U.S.

So, where is the product going? Is it all going primarily to the U.S.

or is it international that's driving the 100% utilization?

Pavel, thank you very much for the question. So, the answer is that predominantly, international markets, in order to have more safe harbor, frankly, we were biasing product to a degree to the non-U.S.

or to the U.S. over international markets.

And so now, we're catching up in other parts of the world. And I'd have to say that our plan is to succeed in the exclusion process in which case, we think we can manage through the timeframe that's indicated.

Otherwise, we are prepared. Because our DG business is so important in the long run, we will continue to ship from on our non-U.S.

locations into U.S., and we'll have to pay the tariff. We don't expect that to be that long.

Okay. And then secondly, I know you don't guide to the geographic mix of revenue.

But is it safe to say that your international top-line component will increase year-over-year because of the tariff?

I'd say yes. The thing we have to be careful of a little bit is that we have historically been very power-plant-driven, self-developed power plants.

For example, we closed El Pelicano in Q4, and so that can really increase the percentages. If you took out the large projects, then the answer is yes and particularly driven by the SunPower Solutions business.

Okay. Appreciate it.

Oppenheimer & Co. Guys, maybe I missed it here, but can you give us the delta in terms of the unlevered IRR assumptions on this lease portfolio where you were at and where you're at now and why there is such a large delta?

Sure, Colin. I can't give you specific numbers, but what I would tell you is the charge you're referring to is driven by the GAAP lease accounting.

And in GAAP lease accounting, you're effectively booking the lease at a very low implicit discount rate plus a residual value. And all companies do it this way, and you're effectively putting on the balance sheet long-term assets that are burned down via depreciation.

And then, when you collect the cash, you're effectively offsetting those two. And so, if we didn't sell, there would have been no charge.

We would just have run the lease portfolio for 25 or 30 years. With this transaction, we're taking a market discount rate for the receivable, the consumer receivables, not much value on the residual and getting that cash up front.

And then we maintain an equity ownership position that will be on the balance sheet as a minority investment that we'll effectively be able to monetize some of that residual value over time. And so, we think it's a great structure.

But the accounting charge is really driven by the change of the discount rate – of a market discount rate versus an implicit low discount rate based on lease accounting.

Great. And then I guess the next question is just really about the integrated home solution and how sticky that's proven for you guys with the micro-inverter AC module?

Obviously, the backlog number on the energy storage is helpful, but if you could give us a percentage breakdown in terms of market share for that product within your residential sales, that would be super helpful.

Yeah. So the micro-inverter chip is part of Equinox, and Equinox is the mounting system plus the micro-inverter plus the module.

And we're in the high-80s in terms of our dealers buying Equinox solutions from us. So the attach rate is quite high.

Equinox has not included storage yet. The equivalent solution for commercial is called Helix and that does include storage going forward.

And 30% of what we're booking into our pipeline – more accurately, what we're putting into our pipeline includes Helix storage in – the residential number is very low now, but we project it to ramp quite rapidly.

Great. That's super helpful.

Thanks, guys.

Okay. We're willing to take one more and then we'll wrap it up.

JPMorgan. Thanks for taking the question.

So, I just want to make sure I understood this. The 8point3 sale will not run through the income statement, but the lease sale will.

So, it's in the revenue guidance for 1Q or for the full year?

Yes. Let me explain the lease sale will not run through the P&L either.

We have taken an impairment charge and that will effectively not run through revenue and margin, if any kind of residual gain on the sale or loss on the sale would flow through, but there would not be a revenue and margin on the sale of the lease portfolio. And 8point3, you're correct.

Because of the adoption of the new revenue recognition standard, 606, that effectively gets adjusted in equity when we convert to 606 in Q1. So, you'll see effectively a reduction in equity for the charge that you saw in Q4 for the sale of a lease portfolio and that will somewhat get replenished by the adjustment for 606 when equity has increased about $480 million for the adoption of 606.

Okay. Thank you.

And then, if you do get remediation of 201 tariffs and you're able to go back into market without the tariff, are you able to recapture any of the lost business or is that just gone now?

No, we would be able to recapture the majority of the lost business. And it's also – I think just to scale the impact of 201 for 2018, it depends on mix, of course, and the safe harbor material and all those sorts of things, but the impact on EBITDA is between $50 million and $100 million.

Wow. Okay.

So, I mean, arguably (41:30) get remediation, a good chunk of that could be added back in on a 2018 basis, is that a correct statement?

That is a correct statement.

All right. Thank you.

Okay. Paul thanks very much.

And we appreciate everybody joining the call. We will have – look forward to seeing you and hearing you on our next earnings call or we may have one in between depending how our programs develop.

Thank you.