Steve Haymore - Investor Relations James Alton Hughes - Chief Executive Officer & Director Mark R. Widmar - Chief Financial & Accounting Officer.

Vishal B. Shah - Deutsche Bank Securities, Inc. Ben J. Kallo - Robert W. Baird & Co., Inc. (Broker) Paul Coster - JPMorgan Securities LLC Krish Sankar - Bank of America Merrill Lynch Jon Windham - Barclays Capital, Inc. Sven Eenmaa - Stifel, Nicolaus & Co., Inc.

Maheep Mandloi - Credit Suisse Securities (USA) LLC (Broker) Julien Dumoulin-Smith - UBS Securities LLC Sean He - RBC Capital Markets LLC.

Good afternoon, and welcome to First Solar's Third Quarter 2015 Earnings Call. This call is being webcast live on the Investors section of First Solar website at firstsolar.com. At this time all participants are in listen-only mode. As a reminder, today's call is being recorded.

I would now like to turn the call over to Steve Haymore from First Solar Investor Relations. Mr. Haymore, you may begin..

Thank you. Good afternoon, everyone, and thank you for joining us. Today the company issued a press release announcing its preliminary financial results for the third quarter of 2015. A copy of the press release and the presentation are available on the Investor section of First Solar's website at firstsolar.com.

With me today are Jim Hughes, Chief Executive Officer and Mark Widmar, Chief Financial Officer. Jim will provide a business and technology update, then Mark will discuss our third quarter preliminary financial results and provide updated guidance for 2015. We will then open up the call for questions.

Most of the financial numbers reported and discussed on today's call are based on U.S. generally accepted accounting principles. Please note this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.

We encourage you to review the Safe Harbor statements contained in the press release and the slides published today for a more complete description. It's now my pleasure to introduce Jim Hughes, Chief Executive Officer.

Jim?.

Thanks, Steve. Good afternoon and thank you for joining us today. As indicated in our press release, we have issued preliminary financial results for the third quarter while we completed an analysis of a discrete income tax matter related to a foreign tax jurisdiction.

While Mark will discuss this matter in more detail later I wish to emphasize that this matter does not have any adverse impact of the ongoing operations of the company. We are working towards a full and timely resolution of the issue. Now let me turn to an update on the business and the outstanding performance of this past quarter.

In the third quarter, we had tremendous execution across all parts of the organization, which has resulted in strong results from a financial, bookings and technology standpoint. Before further discussing these points it is worth taking a moment to reflect on the progress we have made as a company over the past several years.

In 2012, First Solar and the entire solar industry faced a period of disruption resulting from declines in unsustainable subsidized solar markets. At our Q1 2012 earnings call, we laid out a five-year plan and identified key 2016 financial targets to focus the organization and create value for our shareholders.

As we near the end of year four of this plan with year-to-date bookings of 3.1 gigawatts, earnings guidance of over $4 per share and the strongest technology position in our company's history, it warrants recognizing the tremendous progress that has been made towards these objectives since 2012.

With the Vision 2020 plan that we introduced last quarter, we will continue this pattern of setting challenging goals and working to achieve them. Turning to our technology performance in the third quarter, our fleet average efficiency improved to 15.8%, a 40 basis point improvement from the second quarter.

Our lead line efficiency averaged 16.4%, a 20 basis point improvement quarter-over-quarter and a 210 basis point improvement versus Q3 2014. The more modest improvements in the sequential lead line efficiency relative to prior quarters is a reflection of an intentional and temporary pause in new technology implementations.

As we stated previously, we are completing the rollout of our technology upgrades across the entire fleet this year. In the first half of 2016, we will prioritize full production utilization in order to meet strong demand and then resume the implementation of new module efficiency programs thereafter.

Next, we are very pleased with our progress in securing new business for the future. Slide five highlights our year-to-date bookings, which now stand at 3.1 gigawatts. With two months left in the year, we have already set a new annual bookings record and anticipate adding to this total before the end of the year.

With at least 3.1 gigawatts of bookings for the year and projected full year shipments of approximately 2.9 gigawatts, we will once again exceed our goal of a one-to-one book-to-bill ratio.

Our total 1.7 gigawatts of bookings since last earnings call are not only impressive in size, but also reflect some positive indications of utility-scale solar demand in the U.S. after 2016. Approximately 60% or over 1 gigawatt DC of the total 1.7 gigawatt DC booked are projects in the U.S. that have commercial operation dates after 2016.

Approximately 630 megawatts DC of this volume represents PPAs that has been signed with a leading utility in the western United States and span across four projects which are anticipated to commence delivering power into the utility grid in late 2019. As with other PPA awards, these projects are subject to final utility commission approval.

More details will be made public at a later date regarding these projects. We also signed an incremental 400 megawatt DC module supply agreement with Strata Solar. All of this volume is scheduled for delivery to Strata in 2017 and 2018.

We have now signed agreements with Strata for over 1 gigawatt of volume, which signifies the growing importance of our relationship and also demonstrates the strength of demand for solar in the southeastern United States.

We are encouraged by these bookings with longer-dated CODs and see this as an initial positive indication, particularly with respect to volumes.

We still remain cautious on expectations regarding margins after 2016, given the limited visibility we have into the solar business segment mix and the systems margins given recent uncertainty and volatility in respect to cost of capital for solar projects.

However, we continue to believe that the growing affordability of solar, which is enabled by our cost roadmap, is an attractive value proposition for utilities.

We also believe that the characteristics of utility-scale solar plants as long-term contracted assets with no commodity price risk will increasingly represent a compelling investment opportunity for a wide variety of investors and continue to drive low cost of capital for the industry.

Looking at the remaining portion of the 1.7 gigawatts in new bookings since last call, approximately 650 megawatts are for projects with CODs during 2016. With the addition of these projects, we have nearly 2 gigawatts of 2016 volume fully contracted.

When taking into account the significant number of mid to late-stage opportunities on a probability-weighted basis, all of our supply is fully allocated for 2016. The 650 megawatts of bookings are for projects that are primarily in the United States, but have a diverse geographical dispersion.

In Texas, we have signed a 119 megawatt AC PPA with Austin Energy. This is encouraging progress in a state with excellent solar resources and significant growth potential.

Additionally, this is our first major domestic PPA award outside the western United States and is evidence of the high priority we are placing on development activities in the south and eastern portions of the country.

With a number of other potential bookings opportunities that we continue to pursue, we expect more success in this region in the future. Going further east from Texas, we are continuing to see even more success across the South and Southeast.

Under a nearly 200 megawatt DC Module Plus agreement with Silicon Ranch, we will be supplying projects across states such as Georgia, Mississippi and Tennessee. In Florida, we will be supplying 163 megawatt DC of modules to Coronal (8:46) for three projects that will each utilize land leased from the military.

These new bookings in addition to the volume we have contracted with Strata is growing evidence that customers recognize the strength of First Solar module technology in hot and especially humid environments.

As we highlighted on last quarter's call, at the end of 2015 we expect to have a total energy density advantage as compared to multi-crystal and silicon of around 5% in parts of the South and Southeast. This energy density advantage represents a real increase in a solar power plant's output, which in turn translates to greater value to our customers.

Also highlighting the increasing interest in solar across the United States is our signing of EPC agreements to construct three projects in Indiana with American Electric Power.

While the combined volume of these sites is smaller relative to other bookings in the quarter, it is significant in that we are seeing utilities demand for solar continuing to spread across new regions of the country. It also marks the beginning of a new relationship with another leading utility.

Earlier this month, we announced a supply agreement with Clean Energy Collective to provide modules and other equipment to four projects in Colorado and Texas. Combined together, these projects introduce the concept of community solar to nearly 1 million potential residential users.

Last December we entered into a strategic partnership with CEC and this is a further step in that ongoing relationship.

With a superior cost structure as compared to rooftop solar and an offering that greatly spans the potential for residential or business users to access solar power in collaboration with their electric utility, we remain extremely optimistic about the long-term potential of community solar.

Finally, international bookings this past quarter included third-party module supply agreements in India, Vietnam, Turkey and Malaysia. Moving on to slide six. Our bookings in terms of expected revenue have increased to $7.4 billion.

The revenue increase is due to the strong bookings for the year partially offset by a higher mix of module and Module Plus deals in the new bookings as compared to the year-to-date revenue, which has a higher systems project mix. Turning to slide seven.

I will now cover our potential bookings opportunities, which have further increased to 17.4 gigawatts DC, an increase of approximately 700 megawatts from the prior quarter. The increase in potential bookings is especially impressive in light of a couple of factors.

First, our bookings opportunities were reduced by the 1.7 gigawatts of projects contracted. Second, we removed projects from the potential bookings list that we will not be able to contract due to supply constraints in 2016.

The fact that our bookings opportunities still increased despite these other items is a testament to the intense effort by our global sales teams. Continuing on, our mid-to-late stage bookings now stand at 3.9 gigawatts DC, an increase of 900 megawatts and a record number of advanced stage opportunities.

International bookings now make up over 85% of the potential mid-to-late stage bookings. Moving onto slide eight, our updated potential bookings opportunities by geography show a significant mix shift to international opportunities.

The opportunities outside of North America are now 13 gigawatts or 75% of the total, the largest growth of bookings opportunities since the prior quarter were in India and Latin America. Lastly, as we mentioned on our last call, we're planning to hold our next Analyst Day in 2016.

We expect that timing to be in the first quarter of next year following our Q4 earnings release. The specific date and webcast availability of the event will be shared at a later date. Now I'll turn it over to Mark, who will provide detail on our preliminary third quarter financial results and discuss updated guidance for 2015..

All right. Thanks, Jim. And good afternoon. Let me first address why we issued preliminary Q3 results today. As Jim indicated, there is a discrete income tax matter related to a holding company we have in a foreign jurisdiction. This item has recently come to our attention and we are working to complete our assessment as quickly as possible.

It is important to note, this item is not a subject of an active audit or controversy with tax authorities, rather this is an internal evaluation of required mainly administrative compliance. Based on our preliminary analysis, the tax matter could have an adverse impact of up to $40 million.

This issue is discrete and does not have an impact on our ongoing operations. Finally, it is important to highlight this matter does not affect any of our foreign tax holidays in place. We anticipate releasing complete financial results and filing our Form 10-Q on or prior to the filing deadline of November 9.

Now turning to slide 10, I'll discuss our third quarter operational performance. Production in the quarter was 654 megawatts DC, an increase of 16% from the prior quarter due to higher module efficiency, increased manufacturing capacity and less downtime for technology upgrades.

Production was 46% higher year-over-year due to the restart of manufacturing lines, higher efficiency and the addition of new capacity. Our factory capacity utilization increased by 9 percentage points from the second quarter to 94% due to the lower upgrade activity across the fleets.

Our best line average efficiency was 16.4% during the quarter, an increase of 20 basis points from the prior quarter and 210 basis points year-over-year. Going forward, our lead line efficiency will remain essentially at this level until the next scheduled technology upgrades are rolled out after the first half of 2016.

Our third quarter average module efficiency for the entire fleet was 15.8%, an increase of 40 basis points quarter-over-quarter and 160 basis points higher year-over-year.

Second quarter end or since quarter end, we have made good progress rolling out the efficiency improvements across our production line and currently the fleet average efficiency is 16.1%. I'll now turn to slide 11 to discuss the preliminary P&L.

We had record quarterly net sales in the third quarter of $1.27 billion, an increase of $375 million from the prior quarter. The increase in sales resulted primarily from the sale of majority interest in the partially constructed Desert Stateline project to Southern.

This is the first quarter we have recognized revenue in Desert Stateline and all revenue since the project inception was recognized in Q3. Essentially, approximately 45% of the total project revenue was recognized in Q3.

Going forward, revenue recognition will continue on a percentage of completion basis and our results will reflect the specific quarterly project activity until COD, which is anticipated to be Q3 of 2016. Revenue was also higher across multiple other system projects and third-party module sales.

As a percent of total sales, our solar power systems revenue which includes both our EPC revenue and solar modules used in systems projects was 95%, a decrease of 3 percentage points from the prior quarter.

Module Plus sales which also include our solar power systems revenue totaled approximately $130 million in Q3, approximately 30% higher quarter-over-quarter. The increase in third-party module sales was related to volume shifts to India and revenue recognized on module sales to projects in the UK.

Gross margin for the quarter was 38.1% compared to 18.4% in the second quarter. The significantly higher gross margin percentage resulted from a sale of majority interest in Desert Stateline, improvements in system project cost and a $70 million benefit from a decrease in our module collection and recycling obligation.

Since the inception of the module end-of-life program, we have continued to pursue engineering and process improvements to reduce the cost of collecting and recycling the modules. Our continuous improvement efforts have resulted in an automated and continuous flow process, which is significantly lowering the cost of the end-of-life program.

In Q3 we completed a cost study for our module collection and recycling program and determined the estimated future EOL obligation should be reduced based on our new continuous flow recycling process.

While reduction in the current period is primarily related to module shift in prior fiscal years, the improved process represents a significant cost savings that benefit both First Solar and its shareholders. Additionally, in the third quarter we achieved significant reduction in our fleet average module cost per watt.

While we no longer provide specific module cost per watt information, the impact of continued efficiency and throughput improvements are resulting in a substantial benefit. This can be seen in our Q3 component segment gross margin of 22% excluding the impact of the EOL change.

Third quarter operating expenses, including plant startups decreased by $20 million from Q2 to $87 million. In addition to benefiting cost of goods sold, the reduction of our EOL obligation previously discussed benefited Q3 operating expenses by $10 million. In addition, startup expenses decreased associated with the 10% production ramp.

Lastly, G&A expenses were also lower versus the prior quarter. The third quarter operating profit was $398 million compared to operating profit of $57 million in Q2. The improvement was driven by higher revenue, improved gross margin and lower operating expenses. The preliminary tax rate for the quarter was 13%.

We had preliminary quarterly earnings of $3.38 per fully diluted share on net income of $346 million. This compares to earnings of $0.93 per share in the prior quarter. Moving onto slide 12, I'll now discuss the selected balance sheet items and cash flow summary.

Cash and marketable securities increased slightly by $34 million and remained at $1.8 billion. Our net cash position was unchanged at $1.5 billion.

The increase in cash during the quarter resulted from the sale of a majority interest in Desert Stateline, partially offset by cash used for the ongoing construction of the projects that are being built on balance sheet.

Note; on balance sheet we're currently constructing 1.2 gigawatts AC of projects, which will achieve commercial operation over the next five quarters. Our net working capital including the change in non-current project assets and excluding cash in marketable securities increased by $55 million from the prior quarter.

The increase was attributed to the increase in trade and unbilled accounts receivables, partially offset by reductions in inventories and payables. Total debt decreased from the prior quarter by $14 million to $286 million primarily due to scheduled payments on our Malaysian loan, partially offset by an increase of project level debt of $16 million.

Cash flow from operations was $21 million compared to cash flow used in operations of $17 million in the second quarter. Free cash flow was a negative $17 million compared to negative free cash flow of $47 million in Q2. Capital expenditures were $45 million, an increase of $6 million from the prior quarter.

Depreciation for the quarter was $61 million or $2 million lower than the prior quarter. Turning to slide 13, I will now discuss our updated and preliminary full year 2015 guidance. The following guidance is preliminary pending the determination of the financial impact of the tax matter discussed previously.

First, we have left our net sales range of $3.5 billion to $3.6 billion unchanged. We continue to expect our systems revenue, which includes both EPC and solar modules used in system projects to be in the range of 90% to 95% of the total revenue for the year. We are raising gross margin guidance 300 basis points to a revised range of 24% to 25%.

This is a result of the favorable cost improvements achieved in Q3, as well as the benefit from the decrease in our EOL obligations. Operating expenses including plant startups have been lowered by $20 million to a revised range of $395 million to $405 million.

In addition to the $10 million reduction from a decrease in EOL obligations, we are lowering operating expense guidance to reflect lower R&D testing costs and greater cost control focus. Our preliminary projected effective tax rate has increased to a range of 4% to 6%, reflecting our latest view of jurisdictional income mix.

Note that this rate incorporates on a full year basis a $28 million net tax benefit associated with a favorable ruling from a foreign tax authority. As discussed in our last call, the benefit of the favorable ruling in Q2 was $42 million.

However on a full year basis the benefit is now estimated to be $28 million due to the decrease in our EOL obligation recognized in Q3. Preliminary earnings per share guidance at the midpoint has increased by nearly $1 per share to a revised range of $4.30 to $4.50 per fully diluted share.

The increased earnings guidance reflects the $0.60 benefit net of tax from our lower EOL obligation, balance of the higher guidance is from operational improvements realized in Q3 results and included in our Q4 forecast. Capital expenditure guidance is unchanged at $175 million to $200 million.

The guidance range for our net ending cash and change in working capital have changed slightly as we have narrowed the previous range provided. Shipment guidance is unchanged from our prior expectation. Lastly, consistent with prior indications, our guidance for the remainder of the year does not anticipate any drop downs of assets into 8point3.

Looking forward to 2016, we are planning to host a mid-December call to provide guidance for the 2016 calendar year. Given the level of visibility we have into 2016 at this point, we feel that this would be an appropriate time to share our outlook with the investment community.

The date and specific details of the call will be made available in the coming weeks. Turning to the next slide, I'll summarize our progress during the past quarter. First, we delivered outstanding financial results for the quarter, with sales of $1.3 billion, gross margin of over 38% and preliminary earnings of $3.38 per share.

We have raised our full-year preliminary guidance range to $4.30 to $4.50 on the strength of our Q3 earnings and ongoing operational improvements. Our technology continues to improve rapidly, with the Q3 fleet average efficiency of 15.8% and a best line of 16.4%.

Our pipeline continues to grow, with record year-to-date bookings of 3.1 gigawatts and the book-to-bill ratio for the year will be greater than 1-to-1. Potential bookings of 17.4 gigawatts has grown approximately 700 megawatts, even as we recorded record bookings.

Our mid to late-stage opportunities are also the strongest they've ever been, with 3.9 gigawatts of projects. With this, we conclude our prepared remarks and open up the call for questions.

Operator?.

Thank you. Our first question comes from Vishal Shah with Deutsche Bank..

Yeah, hi. Thanks for taking my question. Great progress on the bookings and the cost front. You guys talked about 1-plus gigawatts of bookings beyond 2016.

Can you maybe just talk a little bit about how you think the margins and the backlog would look like beyond 2016? Given the efficiency improvement, can you maintain 15%-plus margins in the Systems business beyond 2016 or not? Thank you..

Yeah, Vishal, I think I made the comment that while we're getting increasing confidence with respect to volumes, I think it's still a little early for us to have a firm view on margins.

And primarily because with respect to the Systems business, that's going to be dependent upon ultimate realization of those projects, which is going to depend upon the relevant discount rates and/or cost of capital.

And with the dislocation we've seen in markets recently, I think my frank view is that through the end of this year there's going to be a degree of uncertainty on that. So I don't think we would want to comment.

I think as we move into 2016, the capital markets should calm down and we should begin to get some visibility into where those discount rates are going to end up and that will give us better visibility into the margins on the Systems business..

The other thing I would say, Vishal, is that the portion of that business on the Systems side, those that are projects that have CODs that are towards the latter part of this decade, which we've demonstrate with our past that when we are able to get control of assets with long-dated contracting periods like that with PPAs that are off into the horizon, that we've been able to increase significant value over that horizon as it relates to benefits that we've seen through introduction of our technology and other enhancements that we've made.

So we feel confident with the large long-term margin capture that we'll capture on those assets. It's just a matter of, as Jim indicated, understanding how cost of capital evolves and how things in the market evolve over the next year or so. We'll probably get a better picture for how we've realized margin on those assets out further in the decade..

Could we move to the next call?.

Our next question comes from Ben Kallo with Robert W. Baird..

Hey, guys. Congrats on the quarter. A couple questions. First on the YieldCo front, how are you guys viewing the YieldCo at the current price? What can you do to support it? Second, some people will say Stateline helped you in this quarter and the cost cutting is done.

Can you just talk about what more you can do to expand margin going forward? And I'll leave it there. Thanks, guys..

Yeah, Ben. It's Mark. I'll take the YieldCo question and let Jim take the Stateline question. From YieldCo's standpoint, as we said on the 8point3 call a month or so ago, is both sponsors at this point in time are committed to the dropdowns that we would envision in the first half of 2016.

We've also indicated that we do not have a need to raise capital at this point in time. We've left enough capacity in 8point3 to manage those anticipated dropdowns with the revolver, the late draw on the term loan plus the accordion features that we have embedded in the term structure.

So what I would say we're still moving forward and we believe we'll be able to drop down those assets to create the right value equation to the sponsors and create accretion to 8point3. We'll continue to evaluate how the equity trades over time and we'll continue to assess how we would structure assets beyond, say, the first half of 2016.

As we said before, we may look to put leverage on these assets, which would then allow us to create a levered yield to the 8point3 shareholder that is accretive. So there's other structuring options that we do have and we're continuing to look at, but beyond the first half of 2016, we would say we're committed on the dropdowns.

We'll continue to evaluate the market and ensure that the dropdowns makes sense in the latter half of 2016..

Yes. And on the other, while clearly we benefited from a project that's been part of the portfolio for a long time and everybody is known about, the operational performance this quarter clearly extends well beyond that.

That's clearly had no impact upon the bookings side of the equation, which was the strongest quarter in our history from that standpoint.

In terms of can we continue to drive margin and competitiveness through cost reductions? As I have stated regularly that's the religion around here and we have a cost roadmap that we remain committed to that extends well beyond where we are today.

We've never backed away from that roadmap, and we've continued to hit the roadmap that we laid out several years ago. Further, we continue to spend robustly on R&D and we continue to build opportunities that will allow that roadmap to extend beyond the commitments that we have today, particularly outside of the module and into the balance of system.

And then at the corporate level we continue to have a focus on growing the business, while at the same time getting leaner.

And so we want to see our OpEx come down, not only on a unit basis but also on an aggregate basis, and so given how radically we've changed the business, the fact that we've maintained cost control from an OpEx standpoint I think is a notable accomplishment for the organization.

So there's no doubt on our part that we have the ability to continue to drive competitiveness and not in some narrow fashion but broadly across the entire business, being very reflective of the decision to be vertically integrated and to give us the ability to target all aspects of the value chain..

The other thing I would say is that, if you look at it, we took the guidance up as we indicated by about a $1, call it $0.35 or so of that being operational. None of that $0.35 had anything to do with Stateline.

So if you want to look at it discreetly, we've always said that there's been lumpiness around the timing of revenue recognition in the Systems business in particular.

You can look at it and say there was strength in the quarter supported by Stateline, but as it relates to the upside to the year, the operational benefit is not reflective of Stateline..

We'll hear next from Paul Coster with JPMorgan..

Yes, I have two questions unrelated. I'll just throw them in at the same time. The first one relates to the business you're starting to see in the Southeast and particularly U.S. projects that you might be seeing post 2016.

What's driving it? Is it state level RECs? Is it renewable portfolio spend? Is it fuel replacement? Is it some combination of all of the above? And then the other question is you're obviously taking a break on upgrading the capacity because you're fully deployed.

Does this also mean that we see a sort of break in the progress in terms of energy efficiency? Will you at the end of the hiatus come back and there'll be a step improvement in line efficiency at that point?.

So I'll tackle the first – the Southeast. I think there's a broad set of reasons. It has less to do with state RECs and more to do with cost structures getting down to a point where they represent a compelling value within the energy mix in that part of the country.

As I've consistently said, there is a broad awakening on the part of utilities to the value that solar represents, and in particular as they look forward to the Clean Power Plan, as they look forward to constraints on the ability to operate existing coal plants or construct new coal plants, they see an increasing shift towards natural gas and accordingly a significant exposure to natural gas commodities.

And while natural gas is very, very inexpensive today, everybody remains cautious and worried about future increases in that commodity.

So it's broadly the ability to diversify their generation mix into a technology that is cost effective and affordable in the context of today's prices and also offers a significant hedge against future commodity prices.

I think that it's that broad package of characteristics that is really what is compelling people to procure and utilities in particular to include photovoltaic in their generation mix. Your other question....

...is on the efficiency.

On the efficiency. So there won't be a step function because when we, again, we will continue to be working.

We're continuously working from an R&D standpoint, but when it comes to implementation of each new advance, you can't initiate it across the entire fleet at the same time, and we're also very cautious about implementing too many advances in a single moment, because you have a great deal of difficulty.

It's more challenging to track and determine that it is performing at production scale exactly the way you anticipated, and to make sure that from a quality standpoint you're delivering what you promised. So there's a risk management aspect to how many new advances you can throw into each iteration of the product.

So you will see it go from flat to back to a relatively steep curve in terms of the advances, but I wouldn't describe it as a step function..

Our next question is from Krish Sankar with Bank of America Merrill Lynch..

Yes, hi. Thanks for taking my question. Two quick ones. Good job on execution and numbers for the quarter.

I'm just wondering, the focus to go more international, is it part of the reason because the development landscape has cooled off a bit in the U.S.? And if so or if not so, what is the primary reason? And what kind of returns or margin should you expect on these international projects?.

The reason for going international is that the last two and half decades that I've spent in the power industry have taught me that the power industry tends to be cyclical on a regional basis.

Oftentimes those cycles tend to be non-correlated, and if you want to build a smooth, steadier business profile, you need to participate in multiple geographies, multiple economies, so that you have the ability to shift to whatever happens to be the area of greatest need. So it says less about the U.S.

and more about the desire to grow, the desire to diversify the markets in which we can play.

It also speaks to the fact that as our product has improved, as our efficiency has improved, as our spectral response has improved, we're just increasingly competitive across a broader set of geographies and that makes it possible for us to go out and compete in these geographies. So it's not one single discrete reason.

It's part of a broader strategy to build what we believe will be a robust, growing, and steady business in the future..

And I think just the other question you had on the returns, I look at it as a portfolio.

So every region, every market has its own unique, I'll call it, margin entitlement for solar in general in terms of what it's competing against in terms of alternative sources of energy, other dynamics around how competitive our technology may be in a specific market given hot climate conditions, given humidity, given spectral response, given fuse lite (37:51).

So if you look at it from a portfolio standpoint and you'll find in some markets the returns that we would see are a multiple higher than what we would see here in the U.S.

In some markets they may be lower than what we see in the U.S., but on average, I would say that we're finding very robust returns that are comparable and generally could be stronger than U.S. Again, you have to look at it on a market-by-market basis, though.

Thank you, Mark..

Next is Jon Windham with Barclays..

Hey, guys. Thanks for taking (38:26). Just quickly, I don't want to put words in your mouth, but I think you had raised 2015 EPS guidance by about $1.00 and you said $0.35 of that was related to operational efficiency and cost-cutting.

Am I right to assume that the other $0.65 is related to Stateline?.

No, so what that is the other – and it's actually $0.60. I think we said approximately $1.00. I think the actual midpoint is probably $0.95. But $0.60 is the end-of-life obligation liability change. So it's based off a change in estimate. If you tax effect that benefit, it's around $0.60. The other $0.35 is just true operational performance.

About $0.20 or so, $0.25 of it sits up in cost of goods sold as we're seeing continued improvements around costs per watt. Our engineering, EPC business and our overall ability to drive costs of our balance of system is improving better than we had anticipated, and then as Jim indicated, we're increasingly focused on managing our operating expenses.

So we brought that down by another $0.10 or so. So it's a combination of great performance around manufacturing, EPC and then managing our operating expenses..

Maybe if I can ask....

Sorry, we lost you..

Next we'll hear from Sven Eenmaa with Stifel..

Hi. Thanks for taking my question and congratulations on a very strong quarter.

First I wanted to ask in terms of the commercial and industrial markets, what are you seeing there or what are the prospects there for you guys in 2016 and 2017? And second, in terms of your cost roadmap towards $1 a watt, what are the biggest levers here beyond the module cost reductions?.

First, on the commercial and industrial front, we do have some customers that are integrators and developers that will use our modules on commercial and industrial rooftops. It's not a gigantic focus, but there are some volumes. I think on ground-mount commercial and industrial, we see a robust set of opportunities.

It's very hard for us to differentiate in the sales chain with a lot of our developers between utility direct purchases and purchases that are bilateral to commercial and industrial customers. Those two business classes look and feel exactly the same to us, there's not a big distinction.

But we know there is a fair bit of it out there in the contracts that have been booked and signed recently. In terms of what levers do we pull other than the module, it's the balance of System. And it's all aspects of the balance of System from the structures to materials to material costs, to the means and methods of construction.

When you look across labor and materials, they are both significant contributors to the balance of System cost.

And we're spending a lot of time and effort on reducing labor, not just in terms of labor rate, but actually changing the means and methods of construction to reduce the number of actions and amount of time it takes to install, and reducing materials on the rest of the balance of Systems.

So it's all about the balance of System when you get past the module..

I think the other thing to point out in that regard, though, is that the balance of System is synergistic to the module. So as we drive up the efficiency of the module effectively, it reduces the variable balance of System that is needed to install every megawatt of energy that we put into the system. So you can't look at them in isolation.

As we continue to drive efficiency up, it will naturally drive down the balance of System costs, and that will help us move towards the cost roadmap that we've laid out..

Our next question is from Patrick Jobin with Credit Suisse..

Hi. This is Maheep on behalf of Patrick. A quick question on third-party sales for systems and modules.

With more supply of projects seeking third-party buyers instead of being dropped down into YieldCos, has pricing dynamics deteriorated in the last few months for you?.

Clearly there's a number of YieldCos that have indicated that at this point in time that they don't anticipate being aggressive or acquisitive in looking for projects. In some cases, they've indicated it could be over in the next year, it could be longer. But we have historically not sold to YieldCos or traditional tax equity structures.

We've chosen to partner strategic with tax capacity. And so I would say that part of the market is still very robust, as you can see with our ability to sell down Stateline with Southern.

Now what that means, though, is that more and more people will be looking to try to engage with the Dominions, the Southerns, the Berkshires, you can go on down the line, because they may be the most active buyers in the market. And what position of strength that we're in is that we have very strong relationships with a number of those parties.

They obviously love the First Solar brand, they love the First Solar relationships, the level of comfort. And so I'm sure that there will be some impact in the market. I think we're in a fortunate position because we have very strong relationship with a number of those parties. But the other thing I would say is that these assets are very attractive.

There's a number of parties that want to have solar assets, long-dated contracted assets with investment-grade counterparties, and the ability to acquire – or what will come to market in 2016 relative to potentially what could be in the market in 2017 and 2018 is there's a window that may be closing in terms of the number of projects that can be acquired.

And I would expect at least a lot of our traditional buyers, strategic with tax capacity, it will be very aggressive throughout 2016..

We'll hear next from Julien Dumoulin-Smith with UBS..

Hi. Good afternoon..

Hey, Julien..

Hey. So perhaps first quick question. As you think about the international mix here, can you comment about module versus self-developed projects, particularly in the new geographies and how you think about the incremental margin on those geographies? I know you got at that a little bit before.

But are you thinking about these, have you've added new contracts as being truly development opportunities? Or for the most part should we be thinking about, especially India, as more of a module or Module Plus kind of opportunity? And then perhaps as a second unrelated question, I'll throw it out there now, the Southeast activity, et cetera, how much of that is PPP driven? And how much of an overhang is the early action credit being all the way out in 2020 limiting procurement? I just wanted to get your thoughts on that..

So let's step back to development on the international side. So we look at each market discretely. One of the I think learnings over the last several years is that you cannot generalize about even within the same region, even neighboring countries, oftentimes you can't generalize about what the business mix for us is going to look like.

So the way we think about development is, if we do development, we want to get paid for it, and when we say that, what that means is, is that we want to earn a return that's above and beyond whatever we believe the margin or Module Plus type of entitlement would be, if we're going to engage in the development process.

And there are markets where we go and we see the opportunity to get paid for being a developer. And there are markets where we absolutely do not see that opportunity. So when you look across the world, Japan is a market where we have felt that we can get paid for being a developer, and we're very active in the development.

India is a market where we feel we can get paid for being a developer, and we are active as a developer. What the difference is there are capital constraints in India that don't exist in other markets, that limits how much development we're going to be able to do. So we also were very aggressive on the module and Module Plus front in India.

As we look at new and different markets around the world, there is an initial process that it takes us a little while to get on the ground and spend enough time in the market to really figure out whether there's an entitlement that's going to justify development.

I think it's fair to say that at this point, our method of operation is let's lead with the module and then as we begin to establish a market share, get some resource on the ground and get a greater understanding of the market. We'll look hard at whether we think there's a development opportunity.

But I don't think you can generalize, I don't think you could say, oh, all of the incremental demand internationally is going to be module only. That's certainly not what we're thinking about it, but I also think it's safe to say it's not all going to be development. Development is OpEx intensive.

It is always complicated in a new market, and so we can only take on so many new markets at a time without driving our OpEx to unacceptable levels.

And so it's going to be a balance between, okay, let's take the OpEx resources that we chose to live within, and let's apply those in the markets where we're going to get the greatest bang for our buck from a development standpoint, and then let's go with a lesser scope in other markets where we can capture market share on an OpEx light basis, admittedly at probably a lower margin, but still accretive to the overall outcome for the company..

Next we'll hear from Brian Lee with Goldman Sachs..

Thanks. Thanks, guys. This is Hank (49:25) on for Brian. My question was around nat gas prices and the trend we've seen in the recent months. How is that impacting the pricing discussions that you're having with customers for U.S.

projects that could be potentially 2017 or 2018? I think there's a belief that PPA prices might go up in 2017 with the IDC, but what does lower gas do to that? Thanks..

Quite frankly, the front-month of natural gas doesn't really enter into the discussions. All of our conversations in the U.S. are 25-year – between 15-year and 30-year PPAs. So the utilities are looking in their integrated resource planning at their long-term curves, and I don't think their longer-term analysis has changed.

If you assume that these low prices are going to pull rig counts down, when you look at the production cost and stack up the basins against that production cost, I think everybody gets to the same kind of levels when you get out 5 years to 10 years, and that is the point on the curve that is more impactful.

If you got to a position in the United States where people believe that $2.50 gas prices were going to be the norm for the next 15 years, then I think that might change the discussion. But I don't think that's what people have in their mind at this point..

Our next question is from Mahesh Sanganeria with RBC Capital Markets..

Hi. This is Sean He for Mahesh. Thanks for taking my question. On the Stateline project sales, I just wonder because we look across some other transactions Southern company has done, typically they require majority stake and take all the tax equity benefit.

I just wonder if it's the same arrangement, maybe you can share more details on the transaction? And then as a follow-up, the minority interest in Stateline project, is this your plan to be dropped down to 8point3?.

The way we structured Stateline is very comparable to the way that we structured some of our other assets where we sold the majority interest. So the structure is the same.

Again the tax attributes are being monetized, 51% of the cash flows go with the majority owner, and then the 49% of the cash flows would come to First Solar, and again that's over the flip horizon, after the flip horizon that the tax and the cash are split the same way.

At this point in time, Stateline is a (51:59) asset for 8point3 and we anticipate to achieve COD for Stateline in Q3 of 2016. We'll continue to evaluate the market, assuming the market economics makes sense and clearly that would be the intent of what we would do is we would drop Stateline into 8point3..

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation..