Aaron Chew - Vice President, Investor Relations Lyndon Rive - Chief Executive Officer Bob Kelly - Chief Financial Officer Tanguy Serra - Chief Operating Officer.

Philip Shen - Roth Capital Patrick Jobin - Credit Suisse Brian Lee - Goldman Sachs Edwin Mok - Needham & Company Vishal Shah - Deutsche Bank Pavel Molchanov - Raymond James Andrew Hughes - Bank of America/Merrill Lynch Mark Strouse - JPMorgan Chase.

Greetings, ladies and gentlemen and welcome to the SolarCity’s First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Aaron Chew, Vice President of Investor Relations. Please go ahead sir..

Good afternoon. Thank you, operator and welcome everyone to SolarCity’s first quarter 2014 earnings conference call.

Leading the presentation on today’s call will be Co-Founder and Chief Executive Officer, Lyndon Rive; Chief Financial Officer, Bob Kelly, and for the first time, on one of our calls, be introducing our new Chief Operating Officer, Tanguy Serra as well. Do note, our other Co-Founder, Peter Rive will also be in the room for any questions if need be.

As a reminder, today’s discussion will contain forward-looking statements that involve risks and uncertainties, including forecasts regarding SolarCity’s 2014 and 2015 financial and operating results and forecasts.

Words such as believe, may, estimates, continue, anticipate, intend, expect predict, potential and similar expressions as they relate to SolarCity it’s business and its management are intended to identify forward-looking statements.

Forward-looking statements should not be considered a guarantee of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved, if at all.

Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, including risks identified in SolarCity’s earnings press release issued today as well as in the slides accompanying this presentation, as well as additional risks and uncertainties identified in the section entitled Risk Factors in our quarterly report on Form 10-Q, which has just been filed with the Securities and Exchange Commission.

We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise. In addition, during the course of this call, we will use a number of specially defined terms relating to our business metrics and financial results.

We refer to these definitions included in the slides accompanying this presentation, which are available on our Investor Relations website at investors.solarcity.com. And with that long introduction behind us, I would like to introduce SolarCity’s Chief Executive Officer, Mr. Lyndon Rive..

Thanks, Aaron. So, we are off to a great start in 2014. We’ve invested into the sales team and are starting to see the results. Here are some highlights for Q1. We booked 136 megawatts, well above our 100 megawatt forecast. Our installs came in at the high end of the guidance. We have expanded into Nevada.

Nevada, the primary focus is going to be Las Vegas. This is a great solar region, because of the amount of sun that Las Vegas gets. We entered into our second securitization and Bob will cover this in more detail. Moving to Slide 5, our contracted cash flow is now $2.5 billion. The amazing part is we added $500 million in one quarter.

These are starting to become big numbers. We also note 100,000 energy contracts when we added over 17,000 customer contracts this quarter. We are well on our way for 1 million customers. Moving on to Slide 6, I am pleased to say we are going to increase our guidance for 2014. The new guidance is 500 to 550 megawatts.

We are comfortable with this increase based in the bookings momentum we have seen earlier in the year. Now, we are not going to slowdown, we are going to continue to invest in sales and marketing. Based on these investments, we are now forecasting 2015. The forecast for 2015 is going to be 900 megawatt to 1 gigawatt.

The reason for giving you 2015 guidance this early is we’ve got to make those investments now and you will see this in the OpEx numbers. If we meet this forecast by the end of 2015, we will have over 2 gigawatts of deployed solar and a historic growth rate of 98% for the last five years, that will be an amazing achievement.

I am now going to pass it on to Tanguy Serra, our Chief Operating Officer..

Thank you, Lyndon. Moving to Slide 7, so we deployed 82 megawatts in Q1 2014 at the top end of our guidance. Residential deployments continued doubling year-on-year from 30 megawatts in Q1 2013 to 67 megawatts in Q1 2014. We also had a strong 50 megawatts of commercial deployments.

Commercial deployments are somewhat lumpy and depend on inspection dates of larger contracts. As a reminder it takes on average one day to install a residential solar system and we inspect shortly thereafter, which means that residential deployment is more like a finely tuned conveyor belt, predictably delivering megawatts on a daily basis.

Moving to Slide 8, our costs continue being below our long-term cost reduction forecasts. Interestingly three factors impacted our Q1 numbers. Firstly, Q1 has seasonally less installs as you can also see in Q1 2013. This is a result of relatively less sales over the Q4 winter holiday season versus sales over the Q3 summer fall season.

However, as Lyndon alluded to given our strong sales momentum we chose the keep capacity through Q1 and absorb the additional expenses. As the second bullet point suggests, our like for like install costs were actually down.

Second, this number includes sales and marketing costs incurred this quarter and the sales (generated) by these dollars will be deployed over next quarters. However, the denominator only includes deployed kilowatts in this quarter. As such, when our sales accelerate, the number goes up in spite of strong operating performance.

Bob will elaborate on this point. Thirdly, this number includes the overhead associated with our R&D, technology, finance and policy teams which we will continue to invest in to support our 2015 goals. With less megawatts deployed, we absorb less of our fixed costs in Q1 versus Q4.

Lastly, as a proxy to think about these numbers holistically we had the same dollars per watt costs as in Q3 2013 with the same volume deployed but with significantly higher bookings, which makes us feel good about our future volume growth and the cost reductions associated with those. Economies of scale are so important in this business.

With that let me pass the floor to Chief Financial Officer, Bob?.

Thanks Tanguy. And as CFO I look forward to you pushing the increased volumes through the system over the next few quarters and lowering the all-in costs per watt. Beginning on Slide 9, let me give you an update on our financing activities.

When we completed the industry’s first solar bond securitization last November it represented the final piece of the financial strategy which was designed to increase the sources of capital and drive down the cost of capital in this asset intensive solar – rooftop solar business.

As a reminder, there are four main pieces of capital in the financial model. A construction revolver which is around – which is $200 million today, tax equity funds, aggregation facilities and long-term securitizations.

We optimized the cost of capital considering our investment activity in concert with the cash generated from operations which are predominantly our long-term contracts and the required financing. Since the beginning of this year in a little over four months, we have completed in excess of $750 million in financings.

We upsized an existing aggregation facility to $158 million early in the year and entered into a new $250 million facility led by Bank of America/Merrill Lynch. On the tax equity front, we closed three new or upsized funds including a first time investor, a Fortune 500 financial services company.

New players are important in the business as traditionally we have had success in converting first time investors into repeat investors. As of May 7, our tax equity capacity was 234 megawatts. We continue to be very active in this financial arena.

Turning to the securitization part, early April we completed our second securitization in the amount of $70.1 million. Although it’s really not a fair comparison and that the initial securitization was the first of its kind, the time from start to finish in number two compared to number one is like night and day.

You can now do these transactions on a very fast basis. Now that there is couple of bonds in the market, I thought I’d give you some stats in the bonds to see what we’re doing here.

Going back to my comments on the financial strategy in increasing the sources of capital and driving down the cost of capital as the dominant themes, I’ll start with size and price. A $54 million LMC 1 transaction priced at 265 basis points over the curve for an interest rate of 4.8% that was first of a kind of its kind deal.

The second deal was larger at $70.1 million and the pricing improved to 230 basis points over the curve for all in rates of 4.59%.

Looking at the stats on the slide, there is not a lot of difference in the two portfolios, LMC II has that slightly higher amount of resi at 87%, the weighted average power price was the same at $0.15 per kilowatt hour and both have FICOs exceeding 760. Both bonds were rated BBB plus by Standard & Poor’s.

We are continuing with our long-term financing strategy in the capital markets and we started the rating agency process to our next securitization transaction, which is expected to be considerably larger than our prior offerings and consistent with our previously stated strategy to do deals in the $100 million to $200 million range.

We expect to be back in the market when we obtain the rating. Let’s turn to Slide 10 and talk about the retained rate forecast. At the end of each period, we forecast the cash flow remaining to SolarCity after tax equity payments. What we call forecast retained value.

The growth in forecast retained value follows closely the growth in the cash payments under contract, Slide 5 which Lyndon talked about earlier, which is currently at $2.5 billion.

Forecast retained value increased to $1.3 billion as of March 31, 2014 with a retained value under contract portion as compared to the renewal portion increasing to 65% of forecast compared to 63% of the forecast and on December 31, 2013.

Incremental retained value in the quarter was a $1.83 a watt representing the resi-commercial mix during the period. Combining our incremental retained value performance with the bottom end of the 500 megawatt deployment guidance for this year, you will see considerable economic value creation during 2014.

Obviously, you can do the same math for the 2015 deployments. Let’s move on to the numbers for the quarter in Slide 11. Revenues came in at $29 million at the high end of the guidance. This reflects more installed megawatts.

Megawatts were up 108% compared to Q1 2013 and a higher percentage of PPAs versus leases in the portfolio, 55% of Q1 2014 were PPAs compared to 47% in Q1 2013. Just as a reminder, leases are straight lined and PPA is based on production.

Our OEM and our account management was less than a $0.01 a watt what resulting in a gross margin of 45% for the lease portfolio for the first quarter. Cash system sales were approximately breakeven on a GAAP basis in the quarter after backing out the contribution from non-recurring Zep sales.

I want to spend some time on the sales and marketing and OpEx numbers as Tanguy talked about with a little bit more information on Slide 12. On an absolute basis, these numbers have been growing rapidly since we went public in late 2012 as a result of our investment growth.

While these numbers are expense for GAAP purposes, the metric for evaluation is the incorporation of these numbers in the all-in cost of installation, i.e., dollars per watt. That’s why Tanguy is so focused on his Slide 8 on lowering the all-in cost per watt. A lower installed cost results in a higher ROI for SolarCity.

The sales and marketing number will grow on an absolute basis considering the anticipated growth in deployments at our company. What you want to see is the number decline on a $1 per watt basis.

As you can see on the chart when you use megawatts deployed as the denominator OpEx per watt has declined very nicely over the last four years and increased in Q1 when 82 megawatts were deployed.

On the right side of the chart since the OpEx is predominately related to future installations, not deployments and using bookings as the denominator, the Q1 number declines to $0.59 per watt. Let’s wrap up the financial section with the discussion of cash flow for the quarter on Slide 13.

We ended the quarter with just over $0.5 billion of cash, $520 million. On the operating activities the $23 million decrease in operating cash during the quarter was reflective of the higher loss related to the increased investments in sales and marketing, which resulted in the higher bookings.

We invested over $192 million in solar assets in the quarter and completed $153 million of financing activity. Although there will be cash flow swings on a quarterly basis throughout the year primarily related to the timing of installations and financings, we expect to be cash flow positive as defined for 2014.

I will turn it back to Lyndon to complete our presentation..

Thanks Bob. For Q2 guidance, there are a couple of areas I would like to highlight. We are expecting to deploy 105 megawatts to 110 megawatts that would make it the company’s largest quarter in its history. Operating lease revenue will be between $39 million and $43 million. We are expecting the (operating) lease margins to be between 50% and 55%.

For our OpEx we are forecasting $100 million to $110 million. We are making bigger investments into sales and marketing. Based on these investments we are expecting to get the sales team to a capacity by the end of the year to 200 megawatts. This capacity is important to hit our 2015 install numbers.

Our forecast for the year as mentioned is 500 megawatts to 550 megawatts and 900 megawatts to a gigawatt for 2015. As Bob mentioned we expect to be cash flow positive for the year.

Operator, why don’t we open it up to your questions?.

Thank you. Ladies and gentlemen, we will now be conducting question-and-answer session. (Operator Instructions) Our first question comes from the line of Philip Shen Shen with Roth Capital. Please proceed with your question. Philip Shen your line is live..

Hi, can you hear me now..

Yes, we can..

Great. Thanks for taking my questions.

I would like to start off with bookings in the last quarter you guys gave us a sense for what Q1 bookings might look like, can you talk to us about what Q2 bookings could be and how they are trending?.

It’s trending well. We don’t want to get into the habit of forecasting bookings. The reason why we did it last quarters is of course we gave the updates, so late into the quarter. What really matters is what we install and so I would like everybody to focus on the 500 to 550 and then the 900 megawatt to 1 gigawatt..

Okay.

And NRG is making a splash with their focus on (Brazil’s) solar the competitive landscape is evolving rapidly, talk to us about what you guys see and how you expect landscape to evolve and how do you react to the changes out there?.

So NRG that’s beginning to – in the solar industry for about four years and it recently acquired a company called Roof Diagnostics on the East Coast. So the – we haven’t read up across that much but we will continue to watch it. But the landscape has always been highly competitive. This always been hundreds of companies in the space.

We are always watching this closely, but our close rates and our growth rate has continued to increase. And our goal is actually to gain market share..

Great and thanks Lyndon. I will jump back in queue..

Thank you. Our next question comes from the line of Patrick Jobin with Credit Suisse. Please proceed with your question..

Hi, thanks for taking my question and congratulations on a strong bookings.

First question on incremental retained value per watt just want to get a sense of what drove just a minor decline, I guess down to $1.83 from a $1.88 last quarter, and it was mix or geography or is that roughly in the band that we should be kind of anticipating going forward and I have a follow-up, thanks..

Yes, it’s roughly in the band that we should anticipate it does not depending on the states and the mix of commercial and residential. But that movement will vary from quarter-to-quarter depending on the actual bookings..

Okay. And then just on the financing strategy and then a simple regulatory question on the financing strategy with LMC II just looking at during the math was a megawatts is about a $1.48 of capital being provided with the all-in gas little over $2 just thinking about your funding strategy.

Is it possible to structure the securitization on top of tax equity or how do we think about making up that gap between the $1.48 in the all-in cost and then just regulatory question on Arizona and the property tax out of discussion? Thanks..

Yes, let me take the financing one first. The financing strategy is all – always to monetize the tax equity value in the asset we get – when we get an asset you really have a tax value and a contract value, Patrick is referred to the monetization of the contract value at about 48 a watt. The tax equity value usually comes in $0.80 to $2 range.

So, when you add two of them together you’re well under – over your cost so that gives you a great deal of comfort when you look forward into business beyond the tax – where the market is going to go.

When you look at the future transactions, the first two transactions will give related to 1603 grants and moving forward if we go back into deployments for 2013, future securitizations will have a tax equity component and I’m pretty confident that we can get that done in marketplace..

The second part of the question in Arizona, so, there is no law that had changed in Arizona. In fact, the law has in place the last six years, but has recently happened is the interpretation of property tax on third-party finance is being interpreted differently this year than it has historically. So, we’re going to find it.

There is no change in law – it doesn’t make a sense – it doesn’t make any sense at the interpretation to change..

Great, thank you..

Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question..

Hey, guys, thanks for taking the questions. I guess first I’ll start on the OpEx metrics things for all the color to start off. I guess what I’m wondering is when you expect the operating leverage as you show you’re seeing in the $0.60 per watt on a book basis.

What do you expect to get down to those kinds of levels on a deployed megawatt basis given the OpEx growth here and also expectations for faster deployed growth, and then I have a follow-up?.

Yes, it’s – as our growth rate decreases in that number will get closer to one another and so bookings – then would be an equal match. But at a 98% growth rate you’re always investing into the future..

Okay, I get that, I guess Lyndon maybe a follow-up on that, went into at some point expect and maybe it’s a ways away where some of the incremental investments you’re making are, let’s call them more efficient, they’re resulting in more throughput through the deployed basis where you do start to see that leverage and they don’t have to march up one for one..

Hey, Brian, it’s Aaron. Just let me chime in on it a bit, why it’s such a hard question to answer, the answer is all about the slope of growth. Once that slope comes down, and as Lyndon pointed out, your bookings are in line with deployment, then you see the leverage immediately, but it’s just the sharp slope of growth makes it hard.

And so to make that call –it’s all about where you think that growth rate is going to be two or three quarters from now..

Okay..

Otherwise I think we come out and we see as probably guide to an OpEx for loss, but the last thing is also guide to a number we don’t have..

The one thing I do want to make sure, you will definitely get operational efficiencies. So, by pushing more volume through your fixed infrastructure costs, the costs will come down and we’re seeing those efficiencies..

So you will see that efficiency, if you normalized the booking you will see that efficiency in the next quarter..

Yes, I think that we are seeing the efficiencies on the bookings basis, I was just wondering if we might start to see play through as clearly on the deployed basis as well. But that’s helpful.

Follow-up was just on Arizona, similar to Patrick’s question, how much of your Q1 installs and bookings were in the stay and also how much of your 2014 and 2015 outlook is tied to demand there, reason being, there’s clearly a number of challenges the solar industry facing out in that stage.

And may be the last one on that point, is there way you can quantify how much of your Arizona business actually is potentially impacted, given it seems like some of this is only tied to the APS territory, thanks guys..

Yes, the state itself has seen a decline in solar adoption. The state has had many negative things happening to it and which has since have increased the cost to the customer. So unless you have significant economies of scale, it’s really hard to offer a customer value proposition that make sense so, it is a challenging state.

Now, we do have economies of scale and how value proposition is still very attractive to customers. In fact, our bookings in Arizona haven’t been – had never been higher. So, although with all these difficulties the only way to push through with an extra fees and costs is to get more volume and to get more scale.

So, we’re actually going to continue to invest in Arizona and scan until there is anything further..

Thank you. Our next question comes from the line of Edwin Mok with Needham & Company. Please proceed with your question..

Hi, thanks for taking my question so, start with full question on OpEx line, I think Lyndon you said that you will have with increased OpEx in the second quarter you expect to get capacity up to 200 megawatt of range right.

If I take that commentary, though, that would imply that you probably need to grow your OpEx a little bit more right to meet your 2015 target.

Is that how we should think about that the growth trajectory remained costs in the similar rate as to megawatt growth that we are seeing?.

Yes, just to be super clear on that. The goal is to make these investments, to get the sales team to 200 megawatt capacity by the end of the year. So, making those investments now, getting the team up and running, training them and so then that will follow through.

If you use that, then it would put us in a 800 megawatt capacity for next year, but we start to grow into 2015..

To add to that, Edwin, I mean, I think it is safe to assume that generally speaking OpEx on an absolute basis probably prices most quarters, at minimum flat.

What do you want to see is obviously the leverage on the per watt basis, where the timing could impact it, but to answer your question, OpEx is probably still going up, I just don’t think you’re going to see growth at the same pace you did the last couple of quarters..

Okay. Just a quick follow-up on that then, as you guys strive to increase OpEx – thanks for providing the OpEx deployment numbers as a metric to think about it, right.

As you drive increase OpEx, does that require you to increase monetization, maybe increase synchronization, and increase monetization to pay for that increase in comparable OpEx and would that have a negative impact with – on the retained value? And then I have a quick follow-up on the PPA that you mentioned..

No, I think that’s why when I talked about it a little bit was that the focus is on the all-in cost per watt, what is the installed cost. So, if your revenue curve continues at its phase and we drive down the installed cost. Your retained value increases and your securitization has an advanced rate actually decreases.

You have a better credit with the securitization. So, that’s why the focus really is on maximizing the price per kilowatt hour on the top line and driving your down install cost down, the sales and marketing, the OpEx are a part of your install cost.

Some of the challenges that we are talking about is what Tanguy said that it is paid today and you don’t see it until the future, but when you look at exactly what you are going to do, Edwin, it’s all on the install cost, the lower that is, the lower the securitization, the higher the retained value..

Yes. Just let me add on top of that even with the investments we are making into our future growth, our all-in cost including those investments will come down this year based on the volumes that we will be installing. So, it’s you are growing at almost 100% and yet your all-in cost is still coming down..

That’s extremely helpful. Thank you.

So one last question you mentioned PPA as a percentage of total increase to 55% this quarter, what drove that increases? Is it regional base figures of your market that you are playing in or is this – any kind of color you can provide on that?.

It’s just a customer preference. To us, there is almost no difference, but to the customer, it is do you want a fixed monthly payment or do you want a variable monthly payment.

And so ignoring the states like Arizona, we can only do a lease, but in other states, do you want a fixed monthly payment or do you want a variable monthly payment? If you want a fixed monthly payment, we do a lease. If you want a variable monthly payment, we do a PPA..

I guess, adding to that, that’s what we talked about in the last quarter of the seasonality of the business as you get more PPAs, where it’s production based, it depends on the amount of sun during the quarter and the effect on revenues..

But our customers, over a year, appear to be indifferent with the nature of the PPA or a lease..

Great, that’s very helpful. Thank you. That’s all I have..

Thank you. Our next question comes from the line of Vishal Shah with Deutsche Bank. Please proceed with your questions..

Yes, hi. Thanks for taking my questions. I was just curious to know what the mix self bookings was by regions, what percentage of your bookings get from California and what your outlook is for retained value per watt in the booked business? And then I have a couple of follow-ups..

Sure. So we don’t breakout our states..

But is it fair to say that the bookings are similar to your shipments mix with 50% being from California?.

Yes. Actually, that’s probably a – our bookings should track our installs that normalizing for times.

So absolutely, it should track one another, but what was the second part of the question?.

The retained value per watt in the book business?.

Yes. So that was – as mentioned earlier, that will fluctuate slightly depending on the growth in different states as well as the commercial residential blend..

Okay..

But the number that is right now is the capital number..

And the average PPA priced in book business similar to what you are reporting right now or is it going down?.

The overall average, I don’t have that handy right now..

Okay. Can you provide us some.....

Vishal, just to clarify you are asking is the pricing has changed in our PPAs like quarter-on-quarter?.

Yes..

Yes, I mean given the state by state basis, no, but obviously just the nature of them state mix shift will have a little change every quarter, but you are not seeing things dramatically in a market-by-market basis finding you..

Yes. I guess you see I don’t have it handy, but you will see the actual dollars to cover on the next securitization..

Okay. And then can you talk about your cost per watt trends, it might have some of the potential increase in module prices from China, what do you think your target is for the rest of the year? I mean, I know you had 25% cost direction last year.

So are you able to provide any targets for this year in terms of overall cost reduction at system level?.

At our scale, purchasing has not been a problem. We have not seen any increase in module costs. Again, we have a scale, which makes a big, big difference to buyers.

We have got a number of very active conversations with Chinese and non-Chinese suppliers for long-term volume equipments in the low $0.70 per watt for modules, which headed us very against any tariff issues. So we feel good about that.

And as I said, the operating cost on a like-for-like base will be continuing to decline quarter-on-quarter and we expect that to continue. As Lyndon said, we continue driving more volume to our fixed infrastructure or dollars per watt continue coming down..

So, can we assume a 20% reduction in system costs this year or it could be more than that?.

So we are going to come out with a cost reduction and we’re still working on few things to finalize this. For now, I’d stick to our original forecast of 5.5% a year, but once we have this all nailed down, most likely be – let me hold off on the timeframe. We will come out with a cost reduction and hopefully get it out before the next quarter..

Vishal, assuming the timeline on the tariff stays the same, we probably would be doing that next year at the latest, but there is chatter that that gets pushed off out there..

Okay, I appreciate that. Thank you. .

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question..

Thanks for taking the question.

Your willingness to raise guidance for this year and put out a pretty aggressive number for next year ago, is that a function of your thinking that the size of the market is going to be larger than you previously thought or is it a question more of you guys are taking share?.

So, the market is incredibly big so, we’ve always thought the market is 42 million homes in the state that we operate..

And growing with new home construction..

Yes, so, it’s never been a – as the market size increased. Potentially, it opens field. What we have decided to do now, is invest more into growth and capture those customers with the sales team really performing well, we then going to grow the operational team behind that and so the formula is working so we’re just investing more into the formula.

And knowing that we can pull the systems through as why we increased the guidance for this year and next year guidance is just the mathematical piece. If you end the year at 200 megawatt run rate that puts at 800 and you’ve got to go next year too. So, it’s – it will be strong..

Okay. Then on your decision to enter Nevada, pretty small market I know historically.

Other than the obvious sun light patterns, what are the key reasons that you sought to make a move there?.

Essentially one thing I do want to clarify, when you’re talking about the energy market, almost every market is a massive market so, in terms of technology or software, you may knew Nevada is a small market. Nevada is a big market for us and to-date, we’ve only cost over 100,000 customers so, they way more than 10,000 customers in Los Vegas.

So, it is a big market. So they have a market with fantastic sun exposure and awesome housing starts. The houses seem to be relatively new, so, the installation cost should be lower with a good sun exposure..

Appreciate it..

Thank you. Our next question comes from the line of Krish Sankar with Bank of America/Merrill Lynch. Please proceed with your question..

Good afternoon, guys, you have Andrew Hughes on for Krish. Thanks for putting out the 2015 target that was very helpful. Just curious as you look that far into the future.

Does your assumptions around how cash sales versus leases and finance systems change at all as we get near closer to the step down in the ITC and any interest among your customers in taking more advantage of that and owning systems rather than financing them?.

That’s a hard question to answer and we are testing a few things to see what the outcome looks like there, but for now assume the majority of the volume is leases and PPAs..

Got it.

And any – I mean is it too early to start thinking about – or is suppose – a securitization the primary answer to thinking about how you might look to financing as you sort of get towards 2016 you might have some systems and funds that have their systems interconnected on a basis where you are straddling that sort of 2016/2017 timeframe or is it too early to think to start looking that far in advance?.

No, I think the model, what we are trying to do is drive down the cost of capital in the securitization is a very size of capital market as well as the low cost.

We continually want to drive down the premium for this new asset class and hopeful that will increase or decrease I guess as we approach our next securitization, but if you look at the model, Andrew that we setup is as you do quarterly deployments as the assets get up and running, you are move them to aggregation and into securitization market.

So what you want to do as you get to 2017 is drive down your install costs and your cost of capital where you are competitive without an ITC or reduce the ITC..

And just one last, sorry, go ahead..

Yes. And then one other thing that in terms of financing of revenue see if we can get cross-funding to help with the financing as well..

Great. And then just one last one on the – fair to assume a similar geographic breakdown as we are looking at today in the 900 megawatt to 1 gigawatt in 2015 or any change there just given some of the policy dynamics that have been discussed so far and that are in play in other markets? Thanks..

From what I see right now, I don’t see it changing much. All these – most of the states will continue to double them. States like Oregon are the probably the ones that, that will not in fact that’s the only one I think they can think of it will not.

Operator?.

Thank you. Our next question comes from the line of Paul Coster with JPMorgan Chase. Please proceed with your question..

Yes, hi. This is Mark Strouse on for Paul. Thanks for taking our questions.

I think we just wanted to get your latest view on California AB 327 just relating to the rate design process and then the headroom versus the net metering capacity?.

Sure. So, two questions in there. The rate design process is still an end from what they are looking at is collapsing, potentially collapsing the tiers, bringing the two bottom tiers up and then only having two tiers instead of three or four.

And when we look at that, we actually think it’s going to increase our market size, because today, Tier 1 and Tier 2, the customers don’t see much savings or any savings or anything at all. If they do that then our customers – homes with smaller energy bills will see savings as well and then we can address them.

And even at the new tiers that we are seeing our PPAs or leases will be in the money, so the customers will see savings. And then in terms of your second quarter the headroom for the net metering in California, I just wanted to make sure that everyone understands. In California there is no net metering cap, so the caps have been removed in California.

Now for lack of better words net metering won at Durham has a 5% limitation and based on volume forecast depending on the utility that 5% should get hit in late 2015, 2017.

Then there is active discussion in what do the new rate looks like and then what’s the cost and benefit of net metering and the PUC is going to determine that and then that will be the new net metering rate..

Got it. Okay. Thank you. That’s helpful.

And then one last quick follow-up, just clarifying for us what you mean when you refer to 200 megawatt capacity for the sales team?.

So we want to invest into the sales team so they can ramp up to 200 megawatt, but there is a delay from when you can train the sales team from when the bookings come in. Commercial has a long delay. The commercial has from a person – from the time the person joined to when the person makes its first booking is probably around nine months.

So there is a lag period. We are going to whatever we can to increase that lag – reduce that lag period so we can get to those numbers faster. And having the team at that full capacity by the end – sales capacity by the end of the year is definitely achievable..

Got it. Okay, thank you very much..

To clarify, the 200 megawatt, he means quarterly..

Yes, quarterly, yes..

Right, yes, yes..

Just to make sure that (indiscernible)..

Yes, okay, thank you..

Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for any closing comments..

Everybody, thank you so much for the time. We are excited about continued momentum and looking forward to building energy company of the 21st century. And that’s it. Have a good day..

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..