posted on: April 17, 2008 | about stocks: ESLR    

Evergreen Solar, Inc. (ESLR)

Q1 2008 Earnings Call

April 17, 2008 5:00 pm ET

Executives

Michael El-Hillow – Chief Financial Officer and Secretary

Rick Feldt – Chairman, President, and Chief Executive Officer

Dr. Terry Bailey – Senior Vice President of Marketing and Sales

Analysts

Jesse Pichel – Piper Jaffray

Steve O’Rourke – Deutsche Bank

Vishal Shah – Lehman Brothers

Chris Blansett – J.P. Morgan

Kelly Dougherty – Calyon Securities

Pierre Maccagno – Needham & Company

Stuart Bush - RBC Capital Markets

Paul Clegg – Jefferies & Company

Doug on behalf of Stephen Chin – UBS

Robert Stone – Cowen & Company

Jeff Osborne – Thomas Weisel Partners

Pearce Hammond, Jr. – Simmons & Company International

Michael Carboy – Signal Hill Capital Group LLC

Presentation

Operator

Good day, everyone, and welcome to today’s Evergreen Solar First Quarter 2008 Conference Call. (Operator Instructions) I would like to turn the call over to the Chief Financial Officer of Evergreen Solar Mr. Michael El-Hillow.

Michael El-Hillow

Thank you, Kimberly. Good day, everyone. Before we begin today’s call, we’d like to remind everyone the statements that are made in this conference call that are not historical facts, such as those dealing with future financial performance and growth, future revenue and product gross margins, solar power industry trends, the demand for renewable sources of energy, capacity expansion plans, the availability of supply and cost of raw materials, product demand, the regulatory environment in certain key markets, R&D programs are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Future performance and financial results of the Company will differ from those expressed or implied in any such forward-looking statements due to various factors. Such factors include but are not limited to those described in filings that the Company makes from time-to-time with the Securities and Exchange Commission. The Company undertakes no obligation to update these statements.

I will now turn the call over to Chairman, President, and CEO Rick Feldt for his review of the first quarter. Rick.

Richard Feldt

Thanks, Mike; and once again, good afternoon, everyone. For the first quarter of 2008, Evergreen Solar had total revenues of $22.9 million, gross margin of 33.6%, and a net loss of $25,000. As Mike will detail shortly, these results were favorable as compared to our guidance primarily due to geographic sales mix, the impact of foreign exchange, and silicon scrap sales.

During the quarter, we continue to make excellent progress with the first 80 megawatt phase of our new Devens facility. Despite a difficult New England where we experienced record snowfall, the building has progressed as expected and is nearing completion. We anticipate receiving a certificate of occupancy in early June. Late last week, we received the first two new Quad ribbon furnaces that will be used for wafer production in both Devens and the next EverQ factory being build in Thalheim, Germany.

Although, we only have a few days of operating experiences or experience with these production furnaces, we are pleased with the out-of-box performance we have experienced so far in both ribbon growth and automated wafer cutting. Our furnace supplier will gradually ramp the production and delivery of furnaces from now until the end of May from 2 furnaces per week to 15 per week. By the end of summer, we’ll have our compliment of approximately 200 Quad furnaces installed for Phase 1.

To coincide with furnace installations, we begin receiving and installing cell and panel processing equipment next week. By early fall, the majority of all manufacturing equipment will be installed in our new building. We will use the fourth quarter to complete all equipment debug and operator training and qualification.

In this first quarter, we hired about 90 employees for Devens, most of whom are manufacturing support personnel. Additionally, 185 manufacturing direct labor associates have accepted job offers and will begin work between now and early summer. By the end of the summer, we’ll have about 400 employees for the first days of Devens.

From a production standpoint, we plan to build our first panels in July and produce between 8 to 12 megawatts in 2008, gradually increasing production as the year progresses, reaching full capacity of about 20 megawatts per quarter by early 2009. In summary, Devens one is on schedule.

Last week, we announced an 80 megawatt expansion at Devens, which is about 6 months earlier than we originally had planned. We began physical construction in that expanded facility just this week. Much of the building infrastructure for this Phase 2, including electrical and chemical piping, was included in the Phase 1 construction, so we have a head start on this facility. We expect to begin hiring employees and we’ll receiving equipment for Phase II in the latter part of the fall, and we expect to produce our first panels in early 2009. We believe that the second phase of Devens will be at its fully 80 megawatt capacity by the fourth quarter of 2009. When fully ramped, Devens will have an annual capacity of approximately 160 megawatts.

Turning next to our cost reduction plans: As a reminder, we currently make wafers in both our Marlboro pilot factory and at EverQ using our dual ribbon furnaces. At EverQ, factory-wide yields are close to 75%, wafer thickness is about 190 microns, cell conversion efficiency is close to 15%. Silicon consumption is less than 5 grams per watt, which we believe makes Evergreen the industry leader in efficient polysilicon consumption.

We believe our new Quad ribbon technology with automated wafer cutting gives the opportunity to gradually reduce polysilicon consumption to approximately 2.5 grams per watt over the next few years by helping to improve factory yields to approximately 90%, reducing wafer thickness to about 150 microns, and increasing cell conversion efficiency to approximately 18%. We think that our silicon consumption will continue to be less than 50% of conventional industry experience and expectations.

These improvements combined with expected material cost savings through redesign and improved supply chain leverage should bring our total manufacturing cost to about $1.50 per watt of factories in 2011 when they reach capacity. When our Devens facility is at capacity in ’09, we expect the total manufacturing cost will be approximately $2.00 per watt at Devens.

In January, we signed our second major polysilicon supply agreement with DC Chemical. In addition to our 2 contracts with DC Chemical, we have long-term polysilicon supply agreements with REC, R-E-C, Nitol, [Locker] and Silpro providing approximately 12,500 tons of silicon through 2019.

We now have silicon under contract to reach annual production levels of approximately 125 megawatts in 2009, 300 megawatts in 2010, 600 in 2011, and about 850 megawatts in 2012. We are gratified to have 100% of our silicon needs to 2012, a point in time when we believe that silicon supply will be much less constrained.

I’m also pleased to announce that we have received our first polysilicon samples from DC Chemical ahead of schedule. Although we are only partially through our acceptance testing, we are impressed with the purity of the material and how it performing in our furnaces. We will conclude our detail testing in a few more weeks.

I’d now like to talk about another raw material use in our wafer making process – string. As you are aware, we use a special form of string to make wafers. In fact, the worldwide demand is family limited for this string type and as a consequence, we procure our string from a sole source. In January, we announced that in addition to extending our purchase agreement with our current supplier who would begin the construction of our own factory to product a string, to produce this string I should say, utilizing a technology that we are licensing from a company in England. We had hoped to begin initial string production near the end of this year at Devens and gradually grow it to become a significant second source of supply to meet our expansion plans and those of EverQ.

However, string production uses different chemicals than we use to manufacture wafer cells and panels. One chemical in particular, DCMS requires special handling. By including the use of this chemical in the permanent application for Devens Phase 2, the needed approvals for the Phase 2 site expansion started to slow down as the application winded its way through the bureaucratic approval process.

Rather than impact our near-term phase to expansion we’ve decided to look for another location for our string factory. Over the last month, we have identified sites in the United States that have factories using the chemicals needed in our plan string manufacturing process. We are in discussions with the local authorities in those states for specific sites and permitting. But because of this location change, the opening of our string factory will likely be delayed by 3 to as much as 6 months.

In the interim, we have arranged with our current supplier to meet both ours and EverQ’s string requirements. We do not expect any impediment on our production and expansion plans.

Looking to the EverQ joint venture, sales for the quarter were €55 million and operating income was €6.5 million compared with €60 million in operating income [inaudible] €10.5 million in the fourth quarter of 2007.

The financial performance for the first quarter of 2008 compared with the fourth quarter of 2007 was not unexpected. Some of the sequential decline is attributable to the strength of the euro resulting in lower average selling prices; the expenses incurred in preparation for EverQ’s planned IPO, including the addition of numerous support personnel as well as costs incurred relating to the construction of EverQ-3, an 80-megawatt facility that we use our Quad furnace technology and will open late 2008 reaching full capacity in mid 2009.

Just as a reminder, in about three-years time EverQ will have gone from Greenfield operation to 2 factories with over 800 employees, annual plant capacity approaching 100 megawatts, and a third factory under construction. EverQ needs more senior leadership which in the past had been fulfilled by the 3 shareholders. As you know, we have been recruiting a new senior management team to both drive the IPO process and to provide the critical day-to-day leadership of this significant operation.

Last month, EverQ’s new chief operating office began with the Company. All 3 partners believe that he has the necessary skills to drive current operating and financial performance to its maximum levels. The partners have also interviewed 2 strong candidates for the CEO position and we have to have CEO in place at EverQ by mid year. The partners are still looking to complete an IPO for EverQ later this year or early next.

Remember, the distribution of solar panels produced by EverQ will ultimately be marketed under a yet to be determined brand name. In the interim, EverQ will continue to provide Evergreen Solar branded product in order to honor all current solar customer contracts and commitments. Our backlog of those contracts is approximately $850 million.

We believe that the solar industry will remain robust and will continue to experience rapid growth over the next several years. We believe that our String Ribbon technology will provide for a large product growth providing approximately 1.5 gigawatts by 2012 including both Evergreen and EverQ.

We expect strong market growth will continue through the remainder of 2008 with demand continuing to exceed supply for our products. Our expectation is that PV growth will continue to be led by Europe with Germany still the dominant market and now longer the sole large European market. We think the slightly accelerated declines in the German [inaudible] tariff, about 2% incrementally annually beginning in 2009 are reasonable and will continue to provide substantial support for growing market as the industry moves toward good parody.

On percentage terms, we expect more rapid growth from some of the newer PV markets in Europe. This growth has and will be led by Spain. The Spanish market was 400 megawatts in 2007; it is now estimated that it will grow to more than 800 megawatts in 2008. The government has indicated further increasing the cap on the Spanish program from 1.2 gigawatts to as much as 2.5, but nothing is official. We continue to believe the combination of significant incentive, large market opportunity, and substantial sunshine will make Spain an outstanding market.

Although over 2 gigawatt of applications have been submitted in Greece, governmental delays and bureaucracy have reduced expected business to almost zero for 2008. We continue to see strong signs of growth in the U.S. markets. Recently the Senate passed the [Cantwell Incident Amendment;; it’s the housing stimulus bill by 88 to 8 margin. It shows that there’s strong bipartisan support for extending and expanding the federal investment tax credit. It will still need be passed by the House and signed by the President; we are optimistic that some extension will be passed by yearend.

At the state level, we continue to see growth of solar programs. The vast majority of states now have some form support for solar generated electricity, with several states adopting gigawatt scale programs. Growth over the near-term will likely continue to be led by California and New Jersey. The newer programs in states such as Maryland, Arizona, and development programs in Florida, Pennsylvania, North Carolina, New York, Massachusetts offer the opportunity for significant growth in the U.S. market over the next several years.

We are also seeing early signs of significant market growth in Asia. The support in South Korea continues to create significant demand with the program volume already reaching 65 megawatts. Consideration is being given to revising the feed and tariff and [inaudible], remove the cap, lengthen the feed and tariff to 20 years and decrement the feed and tariff rate by only 2% to 3% year two years. The Japanese market continues to grow slightly, essentially without subsidies.

For Evergreen, our production volume for 2008 is almost fully committed to existing customers and partners. We tend to ship about half of our products to Europe where we expect the highest prices given the strength of the market and the euro to dollar exchange rate, with the remaining to be shipped mostly to the U.S. and a small amount to Asia.

With that, I’ll now turn the call over to our CFO, Mike El-Hillow for the financial review. Mike.

Mike El-Hillow

Thank you, Rick, and good afternoon again. Products sales for the quarter of $18.3 million were 8.3% higher than the fourth quarter of $16.9 million. We shipped 4.8 megawatts compared with 4.7 megawatts in the fourth quarter. In the first quarter, approximately 50% of Evergreen product sales were in the United States, 49% in Europe, and 1% in Asia compared to 80% in the U.S. and 20% in Europe during the fourth quarter of 2007.

Our average selling price was $3.74 per watt in the first quarter, up from $3.55 per watt in the fourth quarter of 2007, resulting from the geographic shift in sales mix and the continued weakening of the dollar. This increase in selling price combined with the slight increase in volume draw the increase in product sales.

Fees from EverQ, our joint venture with REC and Q-Cells were $4.7 million compared with $5.3 million in the fourth quarter of 2007. The sequential decrease in fees from EverQ was primarily due to a 700 kilowatt or 3% sequential decrease in shipments for reasons I will discuss later. In addition, the fourth quarter 2007 included about $300,000 of royalty and selling fee adjustments that were made to true up the full year 2007.

Gross margin was 33.6%, up from 28.1% in the fourth quarter. The sequential increase in gross margin was due to the increase in product sales as well as lower than expected silicon costs resulting from higher than expected silicon scrap sales. R&D was $4.9 million for the quarter, essentially flat with the $4.8 million in the fourth quarter. SG&A was $5 million compared with $5.3 million in the fourth quarter, down sequentially due to lower legal fees.

Plant startup costs and equipment write-offs of $5.3 million are up substantially from the fourth quarter amount of $1 million but in line with our guidance. Our cash startup costs were about $3.2 million consisting primarily of personnel and recruiting related costs. In addition, approximately $2 million of early generation Quad machines that will not be used Devens were written during the quarter. The write-off was directly linked to the successful piloting of the next generation of Quad machines that will be used in Devens.

Our operating loss of $7.5 million compared to $4.9 million in the fourth quarter, the sequential increase in operating loss was due to the expected increase in startup costs offset by the increase in gross margin already discussed.

Other income of $6.5 million which consisted of foreign exchange gains of $3.8 million and net interest income of $2.7 million. Other income in the fourth quarter of 2007 was $2.3 million, which consisted of foreign exchange losses of $167,000 and net interest income of $2.4 million. The first quarter foreign exchange gain resulted from mark-to-market adjustments of our loan to Silpro as a part of the silicon purchase agreement, other silicon prepayments and receivables that are dominated in euros slightly offset by liabilities dominating in euros.

Net interest was up sequentially due to the capital rates of approximately $167 million that occurred during the quarter. Equity income from EverQ was $950,000 versus $3.4 million for the fourth quarter. The sequential reduction was due to lower sales volume, as Rick talked about, and startup costs associated with EverQ-3 in [inaudible] preparation for the EverQ IPO. We had a slight loss for the quarter of $25,000 compared to the fourth quarter of profit of $788,000 due to items previously discussed.

Turning to EverQ in detail, during the first quarter, EverQ had total revenues of €55 million and shipped 20.6 megawatts of product at an average selling price of €259 per watt. In the fourth quarter of 2007, EverQ had total revenue of €60.2 million and shipped 21.3 megawatts at an average selling price of €268 per watt. EverQ gross margin and net income in the first quarter of 2008 was 19% and €2.7 million respectively, compared to 23% and 7.1 million respectively in the fourth quarter of 2007.

The decline in revenue and margin was primarily due to the weakening dollar and slightly lower volume associated with debugging activities that temporarily reduce factory yields. The decline in net income was due to lower gross margin and foreign exchange losses. During the quarter, approximately 54% of EverQ product was sold in Europe and 46% in the United States compared to 59% of products in Europe, 39% in the U.S. and 2% in Asia during the fourth quarter of 2007.

As we have previously discussed, EverQ agreed to pay $200 per kilogram to recon Q-Cells for the silicon it uses in EverQ-2 for about one-year after opening to allow for a more accelerated construction and ramp up of the 60 megawatt facility. This $200 price was a spot price at the time of the decision to accelerate the construction of EverQ-2. For this reason, gross margin at EverQ will be temporarily lower than can be realized as we move forward in 2008. We expect by mid 2008, EverQ will be paying the long-term contract price for all silicon purchase from REC and Q-Cells which have a significant positive impact on its financial performance.

As we have discussed in the past, we continue to expect to reach full capacity for the first 80 megawatt phase of Devens in early 2009 and achieve sustained and significant profitability beginning at that time. However, during 2008, we will continue our significant capacity expansion and will incur substantial factor startup costs, temporarily impacting our profitability but allowing us to scale our manufacturing more rapidly than previously expected.

Accordingly, operating guidance for second quarter 2008 is as follows: Revenue for the second quarter is expected to be approximately $21.5 million to $22.5 million, including approximately $4.5 million of selling fees and royalty payments from EverQ. Gross margins are expected to be in the range of 25% to 30%. Operating expenses, excluding factory startup costs are expected to be approximately $11.5 million. The sequential increase is due to depreciation of prototype R&D equipment and costs related to 2 industry tradeshows that will occur during the quarter. Factory startup costs we expect to be in the range of $9.5 million to $10 million and our operating loss is expected to be between $15 million and $15.5 million. Other income is expected to be approximately $1 million as we will have lower invested funds with the continued build out of our new factory and our share of EverQ income is expected to be approximately $1.5 million. Net loss is expected to be approximately $12 million or $0.10 per share.

Rick and I will now be happy to answer any questions so, operator, please open the lines. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from Jesse Pichel from Piper Jaffray.

Jesse Pichel – Piper Jaffray

Yes, good afternoon. Can you discuss what led to the acceleration of Devens-2, and you can discuss your current liquidity and cap ex needs through Devens-2?

Richard Feldt

Hi Jesse, this is Rick. Yeah probably the biggest thing is our ability to get more silicon. We had start out a year ago not having enough silicon to grow much at all. As the year progressed were able to bring in more silicon and we again signed another silicon contract with DC Chemical, a second one, and it’s really the ability to get more silicon’s allowing us to grow more rapidly.

Jesse Pichel – Piper Jaffray

Your liquidity and cap ex needs through Devens-2?

Michael El-Hillow

Jesse, this is Mike. We’ll need to raise about $200/$250 million to finish Devens-2. In addition to that, as we talked about in earlier calls, we have Silicon prepayments we’re making to 2008 will beginning with the string factory. So that’s going to add another $50 million, so you’re talking in terms between say $250 and $300 million. But that will allow us to get Devens-1 and Devens-2 open, pay for all the silicon, get the first phase of the string factory going, make whatever subsequent investment we may have to make in EverQ. We have said there could be a minor investment there as we move EverQ-3 forward, but that will get us to the profitability we talked about in 2009.

Jesse Pichel – Piper Jaffray

Can you remind us what the average silicon cost will be exiting ’08 after the initial $200 per kilo stage is complete?

Michael El-Hillow

That’s just for EverQ. It’ll be in the $50 to $60 for EverQ.

Jesse Pichel – Piper Jaffray

What about for Evergreen?

Michael El-Hillow

We haven’t gone to that level, but we have said that we were a bit higher than that. The contract that EverQ got from REC was incredibly favorable. You can assume that our costs are going to be north of $75 per kilogram, but less than $100.

Jesse Pichel – Piper Jaffray

That’s great. Just finally, you mentioned twice on the call – greater than expected scrap silicon sales. What’s going on there? Did the factory yield change or was it related to the Quad Ribbon ramp up?

Michael El-Hillow

It was really neither of that. We just accumulated some scrap that we sold in the first quarter.

Jesse Pichel – Piper Jaffray

Great.

Richard Feldt

As a cost of virgin material goes up, the value of scrap goes up.

Jesse Pichel – Piper Jaffray

There was some question on the SunPower call about some installation slowdown that they may be seeing in the second half. Can you comment on if you’re seeing any geographic weakness in the second half, particularly in Spain?

Richard Feldt

We’re not really seeing weakness at all. As I said, we continue to be sold out, so no we’re actually pretty pleased. Our customers would actually take more if we had more to offer. So we’re seeing no slowdown whatsoever, just the opposite. If we had more to sell, we could sell it, Jess.

Jesse Pichel – Piper Jaffray

That’s great. Thanks a lot.

Operator

Thank you. Moving on, our next question will come from Steve O’Rourke with Deutsche Bank.

Steve O’Rourke – Deutsche Bank

Thank you. Good evening. You’ve given some numbers on cost per watt expectations when Devens ramps and then a couple few years further out. How does that compare to EverQ now? Can you give us at least some qualitative understanding of how it compares to what’s being run at EverQ?

Richard Feldt

EverQ now if you disconnect the high price silicon, the $2 per kilogram silicon, is around 2.65 or so a watt using the Gemini technology. So we think with Quad, we will get improved yield and some changes to cell crossing with better efficiency. We get that from 2.65 there to $2.00 here.

Steve O’Rourke – Deutsche Bank

Is there a way to quantify the transition from Gemini to Quad? I mean is that a significant amount of that delta?

Richard Feldt

It is, but it has secondary effects. What we’re finding with Quad, we’ve talked about before, is that Quad gives us better yields. So not only do wafer yields improve, therefore wafer costs go down, but the wafers are stronger so we are really expecting and our experiments previously have demonstrated that cell and panel yields will improve. Quad also makes it easier for us to improve cell efficiency. The crystal [inaudible] is a little bit different with the wafer growing in Quad and so therefore there are a couple of effects that Quad has. But I can’t tell how many cents exactly right here on the call.

Steve O’Rourke – Deutsche Bank

Fair enough. That’s helpful. One other thing, how do you see ASPs from modules kind of trending through 2008 and into 2009?

Richard Feldt

We’ve seen virtually no decline in ’08, the first half of ’08 from the end of ’07, maybe a percent or so. We see potentially another maybe 2% decline in the balance of this year. Then next year as the feed and tariffs decline more substantially in Germany, I think the world will take its queue from that. We’re thinking that ASPs will decline in the mid to high single digits.

Steve O’Rourke – Deutsche Bank

One last question: I think you had mentioned that if I heard you correctly, that silicon remains constrained until 2012?

Richard Feldt

No that’s not exactly what I said. I said that we’re covered. Our growth is covered through 2012; we’re glad for that, and we believe by 2012 it won’t be constrained. I’m not sure when that constraint lessens. Some people predicting it’ll be 2010, others ’11, others ’12. All we know is that we have silicon to cover us through 2012 and we’re glad for that.

Steve O’Rourke – Deutsche Bank

Thank you.

Operator

Thank you. (Operator Instructions) Our next question will come from Vishal Shah with Lehman Brothers.

Vishal Shah – Lehman Brothers

Hi. Thanks for taking my question. So just to clarify, you said you have sufficient silicon supply for growth through 2012?

Richard Feldt

We are sufficient to grow the business to 850 megawatts through 2012. Our contracts go out beyond that, but we’ve targeted it 850 megawatts in size by 2012 and we have the silicon to do it.

Vishal Shah – Lehman Brothers

Perfect. What percentage of your output, 2009 output have you already contracted?

Richard Feldt

We haven’t… For the Devens facility, we haven’t contracted as much of it yet. We have lots of interest and frankly we are, we said on this last call, we are trying to determine the best place that capacity. So as we sit here today, we have no concerns about our ability to place it. The issue for us who should we place it with? We’ve talked to you in the past about our desire to try and play some with utilities, so those discussions are still ongoing. But we’re finding that the utilities are having difficulty getting through state regulators, changes to their business model and so if some that doesn’t pop soon we will start selling some more conventional our more conventional customers, and we’re happy to do that. But we really are trying to also develop this new channel.

Vishal Shah – Lehman Brothers

Great. In your discussions with your perspective customers, what kind of price discussions are you having? You looking at 15% lower prices in 2009 or even more than that or less than that?

Richard Feldt

The pricing guidance that I gave just a few moments ago is what we expect for our business. So what I said is for ’08, we’re expecting only a couple percent declines, in ’08 mid to high single digit declines and so we have discussions with customers about contracts in ’09 and beyond. That’s how we’re doing it.

Vishal Shah – Lehman Brothers

Perfect. Thank you very much.

Operator

Thank you. Moving on, our next question will come from Sanjay Shrestha with Lazard Capital Markets.

Sanjay Shrestha – Lazard Capital Markets

Thank you. Good afternoon, guys. Just a couple of quick question, one point of clarification actually. So based on what you’re what you’re seeing then right, in Spain obviously the general consensus [inaudible] is going to cut and ASP is going to come down in the second half of the year, so maybe it sounds like from what I’m hearing that demand center is probably stronger with high single digit ASP reduction in the second half of ’08 and quite frankly even in the first half of ’08. Is that the dynamics here because German’s start to pick up even faster as well ahead of ’09 reduction in EET?

Dr. Terry Bailey

Sanjay, this is Terry Bailey. You’ve got it exactly right. We’re fortunate enough in the world that these sort of high usage rate move around, so Germany is always higher in the later part of the year as everyone wants to bring volume in prior to the change in the EEG rate. The U.S. is expected to have a similar strong push prior to make sure as people are a little concerned about ITC, which we think will be passed, but nonetheless it will create a bulge of product. In addition to that, there are number of other countries that are coming up and we think that that will make up for Spain. In addition, one other thing, it’s unclear yet exactly what Spain will be. As long as it’s a rational extension, then we expect that that market will continue to hold its own.

Sanjay Shrestha – Lazard Capital Markets

One other quick question then guys. Maybe it’s more for Rick. Rick, you guys have now a great silicon position, right, great long-term sales contact; Quad seems to be working. Have you been getting an increasing level of interest or a lot of discussion coming from other folks in the solar industry as to the licensing opportunity that might even help sort of fund the expansion of some of the expansion here domestically you’re talking about or two maybe the strategic relationship as it relates to your manufacturing expansion. Can you talk about some of this kind of discussion that you guys might be having with other industry players right now?

Richard Feldt

There’s not a lot to talk about just yet, Sanjay. You and others have asked that in the past and what I continue to say is that when we have Quad up and running and if it works as well as early signs suggest, that’s when I think people will have more serious interest in talking to us and we would have some interest in having those discussions. But I think it really has to be up and running demonstrated. We’ve run a lot of tests. We are confident in ourself, but I think you’re going to have to see it in operation before people outside of the family are going to have the same degree of confidence. Our EverQ partner spent some time here months ago to take a look at the engineering results and data and concluded that this was going to work well and agreed that the EverQ-3 factory being built in Thalheim should be based on Quad. So we’ve done a lot of work. We think it’s going to be a real winner, but I think for non-family members to get real interest we’re going to have to demonstrate it’s working as well as we’re advertising.

Sanjay Shrestha – Lazard Capital Markets

Got it. Well one point of clarification, more numbers related, so you guys have talked about your silicon coverage for ’09, right, so in terms of the startup costs as you continue to ramp up, how should we be thinking about the startup costs during 2009? I just want to kind of have that clarified.

Dr. Terry Bailey

Sanjay, for about an 80 to 100 megawatt facility, you can figure it’s going to be in about the $10 to 12 million range with the quarter before we open up accounting for maybe 60% to 65% of the cost, two quarters before it opens up maybe 20% to 25% and three quarters before it opens up the rest and then it’s just pretty much straightforward. As we move forward, if we open up a 200 megawatt site, you can just double those amounts. The $10 million that we’re, $9 to $10 million we’re talking about in the second quarter of 2008 as we move Devens forward, that includes also some ramp up of manufacturing corporate overhear that’s going to allow us to support all these factories. We’ve got to ramp that up quickly because we are getting quite large quite fast. But those costs will slow down dramatically going forward as part of startup. But the direct labor and indirect labor costs associated with these factories will continue.

Sanjay Shrestha – Lazard Capital Markets

Got it. That’s great. Thanks a lot, guys.

Operator

Thank you. Our next question from J.P. Morgan is Chris Blansett.

Chris Blansett – J.P. Morgan

Hi guys. Thanks. Along the lines of the demand that you’re seeing out there, do you think there are any additional potential customers sitting on the sideline just waiting for the subsidies like the PTC or ITC in the U.S. to settle out that could actually come to the table if those things get resolved?

Dr. Terry Bailey

Chris, this Terry Bailey again. The answer to that is yes of course. There are some people that might be a might be a bit more conservative that want to have the cash flows more or less set before they would jump in and make these large investments. So we think that there are people sitting on the sideline looking very carefully. Those will pop in as soon as either the feed and tariffs in other countries or the ITC is fixed.

Chris Blansett – J.P. Morgan

Is there any kind of news flow on what’s going on in Greece?

Dr. Terry Bailey

Greece is a disappointment I think to the whole industry. It has such huge potential and has such a lucrative program. There have been over 2 gigawatts of applications made to their Greece program. But much as was true early on in Spain and especially in Italy, they did not have the infrastructure in place nor the clarity in place in order to field those and get them out and make sure they were going to people who really going to put product in. So it’s essentially ground to zero until they get straightened out.

Chris Blansett – J.P. Morgan

All right. Then kind of, Rick, you mentioned the new Quads are in, they’re ready to go. Could you give us a little more detail on where you are on qualifying those and how they’re looking?

Richard Feldt

A little more, but I actually in my prepared remarks told you most of what’s occurred. We actually took the liberty of the first 2 production machines on Saturday. We had a crew in here getting them out of boxes, assembled together, and wired. We fired them up Tuesday. We were pleased that once fired up, they worked right out of the box. We go through kind of a gasification process, so for the first 24 hours you don’t do a whole lot. You start throwing some wafers, but you don’t do much with them. Last, basically last day and a half we’ve been getting extremely good yields. The wafer area, we started making cells with those wafers. The yields have been good there, efficiency good, so we are, I mean we are pleased as punch that out of the box we’ve got these things working as expected. I mean I would anticipate as we start bringing in a couple each week, then 5, then 10, then 15, we’re going to have a few hiccups. That typically is what occurs. But from an expectation level, we couldn’t be happier.

Chris Blansett – J.P. Morgan

All right. Then one quick last one, you said you’re in the qualification process for DC Chem; I believe SunPower’s also sort of receiving product. When you will finalize that process and just be done with it and you’re ready to receive full product?

Richard Feldt

We’ll be done in the next few weeks.

Chris Blansett – J.P. Morgan

All right. Thank you.

Richard Feldt

I would add to that, again, in the few weeks of testing we’ve done, things have looked really well. We just have a very conservative way of going about insuring purity levels and efficiency of the material and use in the furnaces, so we’re fairly comprehensive. But first few weeks have been really very, very positive.

Chris Blansett – J.P. Morgan

Thanks, guys. Appreciate it.

Operator

Thank you. Moving on, our next question will come from Kelly Dougherty with Calyon Securities.

Kelly Dougherty – Calyon Securities

Thanks very much, guys. Congratulations on the quarter. Just wondering, given the recent announcements we’ve been hearing out of Q-Cells that they’re trying out metallurgical grades of silicon. I’m just wondering if there’s been any tested done yet at EverQ or if you possibly maybe interested in trying something out with String Ribbon there at Marlboro or Devens?

Richard Feldt

Earlier on, meaning I would say 6 to 9 months ago, we did some very, very preliminary experiments and don’t believe it’s likely that we’ll be using metallurgical grade silicon at either EverQ or Evergreen. After saying that, remember metallurgical grade silicon is a very generic comment or description. There are varying degrees of purity from approaching pure to as dirty as dirty can be. So once [inaudible] might be a little bit easier to define what mix we might be able to use. But broadly, we’re not expecting to use metallurgical grade silicon.

Kelly Dougherty – Calyon Securities

Q-Cells given that they’ve kind of undertaken it, they haven’t really talked about possibly pushing that down the EverQ side of things?

Richard Feldt

Well there’s no way to push it. The String Ribbon process requires a certain degree of purities, so pushing it down would just mean cell efficiency would drop tremendously, so there’d be no reason to do that.

Kelly Dougherty – Calyon Securities

Great. Then just one follow-up question on the funding that you need. You were looking at the debt markets earlier and I’m just wondering what kind of impact maybe the current market conditions have had on your plans and how you’re thinking about things going forward?

Michael El-Hillow

Well obviously the conditions are problematical to us, but I think there is money to be invested in the marketplace. We think have a good story. We tell people we’re going to do we’ve gone and done. We have a good reputation within the investment community for that. We’re getting very close to profitability obviously. We’ll be opening up Devens soon. So we plan to get out there. As we’ve talked about, the plans are still in place and we’ll just move forward. When we did the equity offering a few months ago, we had the thing fully subscribed. We cut back because of price points. The delta was not significant, but we thought we could come back to the marketplace in a few months, get the story closer to fruition and we were able to pull off that secondary when many other people were coming out of the marketplace. So good story still resonates and we expect that to be the case. Of course a day doesn’t go by where someone in the financial community is announcing bad news. It happens every day.

Kelly Dougherty – Calyon Securities

But you’re looking more, you’re leaning more towards the debt markets.

Michael El-Hillow

We’re absolutely leading more towards the debt market, correct.

Kelly Dougherty – Calyon Securities

In the next three months or in the pre short-term?

Michael El-Hillow

We said [inaudible] marketplace by midyear, so yes.

Kelly Dougherty – Calyon Securities

Great. Thanks very much.

Operator

Thank you. Moving on, our next question will come from Pierre Maccagno with Needham & Company.

Pierre Maccagno – Needham & Company

Hi Rick and Mike. In the past you used to give the sales of the Ribbon technology worldwide. I know you can do that also give us the total amount of output in terms of watts.

Michael El-Hillow

We didn’t do it this time; it’s just an oversight. Total worldwide sales was about $95 million, down slightly because quite frankly, as we talked about, EverQ is down a bit quarter-over-quarter. We did give out the megawatts during the prepared comments. I don’t want to go through that again. I’ll catch up with you after call, Pierre.

Pierre Maccagno – Needham & Company

That’s good. Then the cost of this $2 per watt at Devens, what is the expectation going forward? Is that going to decrease significantly?

Michael El-Hillow

We expect it will decrease because it depends upon the geographic region. It’s also tied to, since it’s per watt, as we increase our yield in efficiency our output goes up and so we have.. We’ve set goals that for the next factory we want to below $2 per watt, maybe $1.75 and $2 and a couple generations out with our technology as we increase yield in efficiency we’re hoping to get between $1.50 to $1.75. Of course that’s imperative by the geographic regions, there could even be some upside to that going forward.

Pierre Maccagno – Needham & Company

Does that cost include from the making of the wafer all the way to the manufacturing of the module, correct?

Michael –El-Hillow

Yes, that’s wafers, cell, and panel, correct.

Pierre Maccagno – Needham & Company

Thank you.

Operator

Thank you. Moving on, Stuart Bush from RBC Capital Markets will have our next question.

Stuart Bush - RBC Capital Markets

Yes, good afternoon. Can you talk a little bit about the string, what percentage of your cost is it and if you expect that this sole supplier is going to be increasing their cost now that you need to push forward or push back the amount that you need by 3 to 6 months?

Richard Feldt

No, the string supplier actually has agreed to as volumes have grown to reduce the cost of the string and so we’ve actually experienced over the last year a price reduction. As we increase the volume, price reduction yet again. So we’re actually… We actually have a good relationship. We try to treat our suppliers more like partners and we usually develop fairly good relationships. We’re clearly building our own factory is defensive move. We don’t want to be held liable in case there’s a problem with that factor or its operation. We tried to find other sources; they just don’t exist in the world, so that’s why we’re building our own factory. A byproduct is we think we can save a little bit of gross margin and we do that a few cents a watt, but we’re really doing it to have a second source. We’re driven more by that. We’re not really driven by cost savings, although that will be a nice byproduct, we’ll save a few cents.

Michael El-Hillow

String itself is 5% to 10% of our total cost. Just to reiterate something that Rick has said, I mean this company is a key supplier. There wasn’t ever any intention of cutting them out. In fact, we’ve increased volumes, and we extended the contract. So they will be a key partner with us going forward as we have in the past.

Stuart Bush - RBC Capital Markets

Great. Mike, I assume that you’re considering the convertible debt markets here?

Michael El-Hillow

Probably not near-term, Stuart, but anything’s available to us. We really want to focus on I’ll say the straight debt market because we do believe that our story has a lot of traction and a lot of upside. But we’ve said many times we really have to fund this story and we will do what we need to get the necessary funds to continue our factory expansion.

Stuart Bush - RBC Capital Markets

Thanks a lot, guys.

Operator

Thank you. Moving on our next question will come from Paul Clegg with Jefferies.

Paul Clegg – Jefferies & Company

Hi guys. Nice quarter. Just wanted to ask about maybe kind of hit on the point that other people have mentioned here: At what point do you actually need to fund the expansion of EverQ-3 or you start to run into a decision to slow down that expansion?

Michael El-Hillow

We [inaudible] are out by midyear and that level of granularity will get you.

Richard Feldt

EverQ-3 or Evergreen?

Michael El-Hillow

Oh, I’m sorry, I assume he meant…

Paul Clegg – Jefferies & Company

You know what; I’m sorry, I misspoke also. I did mean to say Evergreen, the expansion of Devens, exactly Devens-3.

Michael El-Hillow

It’s mid year. The [inaudible] we have things go around, but we’re comfortable for midyear.

Richard Feldt

We’re right on the verge now of achieving substantial commercial size; although, 160 megawatts isn’t overwhelming but it is a nice commercial size. It provides a really good platform to build upon. We really don’t want to slow down. I mean slowing down is an option if our access to capital is impeded, but we don’t want to slow down. We spent the last few years really going from this R&D operation to having now we think a really world class capability in making wafers. We’ve done a real good job in getting cell efficiency. We’ll open Devens up at around 15.2% to 15.5%, so we think we’re going to be in right in the sweet spot where the industry is. We made a lot of good progress. We’re going to have a good cost structure. It’s time for us to start developing real commercial capability, not just development capability. It’s time for us to start making some money and we get the Devens-1 and -2 operating, we’re going to become a really nice profitable Company. So we don’t want to slow down is the short answer.

Paul Clegg – Jefferies & Company

Very good. Maybe just another, you mentioned efficiency levels, is there a way for us to think about tracking efficiency level improvements going forward? You’ve given us some technological benchmarks that you have to get to. Is there anyway to think about in terms of timing? You obviously don’t go there in a straight line. When would we expect for example to get to say let’s 16% at Devens?

Richard Feldt

Let’s see, so we have a process now in the lab that we consistently get to 16%. We’re working at commercializing that. So you can… You should look to the factory after Devens, Evergreen-3 to be opening at 16% or better. The question is: How expensive would it be to retrofit the Devens facility? We don’t know that yet. But certainly by Evergreen-3, I’ll call it. If Devens-2 is Evergreen-2, then by Evergreen-3 we’d be at 16%.

Paul Clegg – Jefferies & Company

Great. If I may, just one quick one: Any thought given to sort of a vertical integration strategy seeing how the market’s developing in the U.S., obviously here I mean more of a forward integration strategy?

Richard Feldt

Well as we’ve said for quite some time, we do believe that it’s important to collapse the value chain. We are an integrated way cell and panel producer. We have good relationships, close relationships with silicon suppliers. We’ve pleased with our dealings with REC. We’re very pleased also now with DC Chemical. But going forward, yeah, we believe that there’s got to be some paradigm shifts and the distribution integration, balance of systems, how panels get marketed. So we have no explicit plans, as I’ve articulated for some period of time. I think one of the major distribution channels that are going to help get to [inaudible] will be utilities themselves, the public utilities. So we are working at that, but that doesn’t preclude us looking to partner with more conventional companies downstream. We are quite certain what the next best step for us is.

Paul Clegg – Jefferies & Company

Great. Thanks very much.

Operator

Thank you. Stephen Chin from UBS will have our next question.

Doug on behalf of Stephen Chin – UBS

Hi, this is Doug on behalf of Stephen. Hi mike. I had a couple of questions. How much silicon scrap was sold in dollars in the first quarter of ’08 and how much do you think it will be sold in second quarter and what is the gross margin for silicon scrap please?

Michael El-Hillow

We don’t want to go to that level of granularity. We just don’t go down that level, sorry.

Doug on behalf of Stephen Chin – UBS

So then my next question follow-up is why would [inaudible] location of string factory to be built and [inaudible], can you give us more clarity please?

Richard Feldt

Sure because there’s some places in the country where there’s lots of chemical operations. So for example, Midland, Michigan, you have Dow Chemical, Dow Corning. They deal with these materials all the time. They have building codes. They’ve got the fire department. They’ve got sort of all the infrastructure and safe precautions and populace all kind of geared to that, and then you have places where the communities aren’t geared to that. So Devens is built much more in the suburbs, although the Devens facility itself being an old army base has industrial sites on it. It’s surrounded by Boston bedroom communities, people that raise vegetables and have bunnies and so they’re just not interested in have a lot of chemicals around; and so that’s the difference. So Midland, Michigan is very happy to have the big chemical producers and the community surrounding Devens are not.

Doug on behalf of Stephen Chin – UBS

Just the last question here: You said that EverQ had lower volumes due to debugging that led to lower [inaudible] in the first quarter. Has this issue been resolved and, do you think in 2Q we will see a sequential increase of volume of megawatts at EverQ please?

Richard Feldt

I’d say pretty much so. The other thing going on at EverQ and we commented it, I’ll just try to be a little bit clearer maybe, we had an acting COO who retired, if you will, from EverQ at the end of the year. We just hired a new COO with great skills, so EverQ is a little lean on management and a little lean on management as we are trying to finish the debugging of the second factory, do some retrofitting in the first and add some capacity, get ready for an IPO, begin the construction, oversee into that construction activity for EverQ-3, so an awful lot is going on and it is a little bit management short. So the new COO has started. As I mentioned, we’re down to 2 finalists and we’re in the process of offering one an offer for CEO. We need to get some incremental bandwidth at EverQ and so that’s as big a part of [inaudible] anything right now. The 3 partners have capabilities, but we’re all engaged in major expansions ourself. I’m not, certainly not spending a week a month at EverQ as I did in the earlier days in the startup phases, and so there’s sort of a bandwidth issue as much as anything else at EverQ. We’re working hard to solve it, and we think we’re solving it. But that’s part of what’s happening also.

Doug on behalf of Stephen Chin – UBS

So do you believe that there’ll be more megawatts in 2Q versus 1Q?

Richard Feldt

I believe so, yes, but it still remains to be seen. The new person just started up and all those things are still happening, so I think there will be slight increase, yes, but I can’t guarantee that.

Doug on behalf of Stephen Chin – UBS

Just a quick last follow-up, quick one: Did REC supply a policy [inaudible] to EverQ please in the first quarter?

Richard Feldt

Yes, REC is the sole supplier to EverQ of polysilicon.

Doug on behalf of Stephen Chin – UBS

Because they had some issues and so I just wanted to make sure they were able to supply.

Richard Feldt

Yep.

Doug on behalf of Stephen Chin – UBS

Thank you.

Operator

Thank you. Moving on, our next call will come from Rob Stone with Cowen & Company.

Robert Stone – Cowen & Company

A couple of questions if I may: Rick, could you talk a little bit more about the granularity of the ramp procedure as you’re adding new furnaces week-by-week? Do I understand correctly that those can slide in a few at a time, but behind that there’s probably some smaller number of incremental units of capacity? In other words, most people talk about solar cell factories with a given line size of 25 or 30 megawatts, so what’s the increment behind the crystal growth area that capacity comes online in?

Richard Feldt

We don’t talk in those terms, Rob, because we don’t have in the wafer area such large servers. Each of our furnaces… You get around 4 to 5 furnaces produce a megawatt a year, that’s why we have about 200. So we have 2 furnaces coming in a week for the first couple weeks, then it goes to 5 and then by June it goes to 5 and 10 by the end of May, then 15 by the middle of June per week and so that’s how they come… That’s how we’re planning on bringing them into the factory. We actually start next week receiving some cell processing equipment and panel processing equipment. But I can’t give you kind of the conventional, our first line is going to be 25 megawatts and the next one 50, then the next one 70 and the next one it gets up to 80 or so. It’s just not how we do it without our process. So I’m not sure that helps you or not.

Robert Stone – Cowen & Company

Well certainly there must be some steps behind that are sort of higher throughput on a single set of machines, right? In other words diffusion of screen printing, things like that where you don’t need as many as units of machinery as the furnace. That was sort of the question I was getting to. I know module assembly is a separate activity too with the automation that you have some different number of parallel module equipment.

Richard Feldt

Maybe the better way of answering just to reinforce the fact that between now and July we’ll have installed enough equipment to begin producing panels in some volume. So we’ll have gone through each of the three fabs. We’ll put in a full compliment of equipment to allow panels to be produced, but I’m not sure… We said we expect to produce in the third quarter a couple of megawatts of output in the fourth quarter 8 to 10, so I’m not sure what other granularity I can give you or you need.

Michael El-Hillow

Because, Rob, we don’t look at our business that way, so if we’re not going to look at that way, we don’t answer the question.

Robert Stone – Cowen & Company

A second question then related to the startup costs you mentioned for the second phase of Devens, and, Mike, you gave it over a spread of 10 million over 3 quarters or so. Which is the quarter and which does the cost for second phase of Devens start up?

Michael El-Hillow

They’ll start up essentially right around a little bit this quarter. Second, third, and fourth quarter, so we expect to open Devens-2 in the first quarter of next year. So he said it typically starts about 3 quarters before.

Robert Stone – Cowen & Company

On the mix of revenues, your revenue mix and then exposure to the currency effect of that is a little more filtered toward those U.S. I think then others in the industry and EverQ seems to be as well. As you get more capacity to allocate, do you expect to have a higher mix then of non-U.S. sales in the future?

Richard Feldt

The answer to that is yes.

Robert Stone – Cowen & Company

Any rough swing at what your 2008 full year mix be by U.S., non-U.S.?

Richard Feldt

We’re a little bit earlier for that, Rob.

Michael El-Hillow

What we are planning to do is that obviously to balance or to establish [inaudible] customers and price points. We want to maximize the long-term value of the operation, so we’re hesitant to give out those particular numbers. What we will tell you is that we will maximize that top line near-term and long-term. We have flexibility all over the world. We don’t know what the year we’ll be next year. Maybe next year will be the year for the U.S. market.

Robert Stone – Cowen & Company

So I guess the right way to summarize it is because you’re going to have a rapid increase in capacity, you’ll be in a much better position to satisfy, for instance, new non-U.S. relationships than you are today?

Michael El-Hillow

That’s right.

Robert Stone – Cowen & Company

Great. Thank you.

Operator

Thank you. Moving on, Jeff Osborne from Thomas Weisel Partners will have our next question.

Jeff Osborne – Thomas Weisel Partners

Thank you. I just had a couple clarifications from the prior call. Is cap ex for ’08 and ’09 still expected to be approximately $400 million each year?

Michael El-Hillow

That’s a good estimation, yes.

Jeff Osborne – Thomas Weisel Partners

Great. I think on the last call also you talked about for Devens 2009 100 megawatts of production, in 2010 200, but just given that you accelerated things by 4 or 6 months, should we be changing those numbers?

Michael El-Hillow

The numbers we talked about 125 megawatts of production 2009, that’s a combination of Devens-1 and Devens-2. The numbers are not… The numbers that Rick gave out are still operational, 125 in 2009, 300 in 2010.

Jeff Osborne – Thomas Weisel Partners

Then Rick mentioned the $2 cost per watt at Devens, but I believe that EverQ-1 and -2 when those ramped up took about 3 quarters to reach a high 20s gross margin level. So how should we think abut the gross margin ramp with Devens-1 and -2, would that be similar to the experiences at EverQ-1 and -2 or is there something…

Michael El-Hillow

We said we’ll be at 30% gross margin, minimum 30% when the [inaudible] has reached full capacity, and that takes about 3 quarters.

Jeff Osborne – Thomas Weisel Partners

Very good. Thank you very much.

Michael El-Hillow

We’re going to take 2 more questions.

Operator

Thank you. Our next question will come from Pearce Hammond with Simmons & Company International.

Pearce Hammond, Jr. – Simmons & Company International

Thank you. We’ve noticed a big jump in materials costs, steel and cement and so forth. Do you think that Devens-2, we should use a $2 per watt type number for that plan?

Michael El-Hillow

Devens-2 is going to be a little bit higher quite frankly. It’s just not the cost of the inputs. By accelerating construction of both Devens-1 and Devens-2, our benchmark of $2 a watt is going to be a little bit higher, but it’s going to be more than offset by getting the production out earlier, getting into the marketplace. There is a lot pressure in the Northeast, the building continues in the Northeast, so a little bit higher than $2 a watt

Pearce Hammond, Jr. – Simmons & Company International

Like 10% or higher a little bit more than that?

Michael El-Hillow

10% to 15% higher.

Pearce Hammond, Jr. – Simmons & Company International

Great. Then cap ex for the quarter for Q1?

Michael El-Hillow

Oh cap, hold on, about $61 million.

Pearce Hammond, Jr. – Simmons & Company International

$61 million. Thank you.

Operator

Thank you. Our final question will come from Michael Carboy with Signal Hill.

Michael Carboy – Signal Hill Capital Group LLC

Good afternoon, ladies and gentlemen. I think a lot of the questions have already been asked and answered, but, Mike, I’d like you to elaborate a little bit if you would in terms of drawing a split please between the things that hit the gross margin here in Q1 in terms of foreign exchange and in terms of yield, can you segment the gross margin changes in those 2 buckets?

Michael El-Hillow

The impact of foreign exchange was about $0.5 million to $1 million on the margin. The yield, actually the yield was maybe a little bit less than that, and then of course we have the silicon scrap sales. So if you go quarter-over-quarter, the margin 28.1 to about 33.6, I mean the biggest impact was silicon scrap sales and the other 2 impacts will be the selling price for the foreign exchange and that will get you there.

Michael Carboy – Signal Hill Capital Group LLC

Got it. Just lastly on the utility issue, Rick, you had mentioned the utilities have been somewhat slowed down here and there, plans to move with solar in the U.S. Is it confusion over the process of rulemaking? Is it sort of a governor’s office level concern about what should our objective be or is it people trying to figure out how to address the RPS requirements that are suggested in the energy policy act of ’07?

Richard Feldt

It’s all of the above and then some. It’s a little bit dependent on the utility and where they operate. In some cases, utilities are prohibited from owning power asset, power generation assets. They can only have transmission assets. In some cases they can have both generation and transmission. In some cases, the utility is very interested in doing something and they can’t own asset generation or they can’t… Sorry, I’m saying it backwards. They’re prohibited from doing it because it would interfere with a smaller installers getting started up. So there’s a myriad of regulations that these companies have to wind their way through depending on the state or the area that they serve. My view also is there’s secondary effect because they’ve had to deal with myriad regulations and the public utility commissions that set their rates, the PUCs, there is certain hesitancy to try to get out in front and lead in some of these others because they’ve got to get through the regulators. So I think the very practical problem is dealing with al the regulators. The secondary problem is the mindset that sets in when after 80 years that’s how you’ve run your business just having rate discussions with regulators. I will say this: We have found a couple of CEOs who are I think genuinely enthused. They’re working hard at changing their business model. They are starting to lobby the governors and the PUCs. But it is a slow process that I would certainly like to see. But I do think ultimately it has to happen. Ultimately it’s hard to believe that utilities who lose revenue every time someone puts solar on the rooftop will sit by and let that revenue be lost. It’s hard to believe that they’re going to let all their installed overhead just sit fallow when others are putting in overhead to do the same thing these guys concurrently do. That is market, sell, install, read meters, and service. So we really do think that long-term that’s going to be a very effective channel, not the only channel of course. We’re really pleased with our current customer set, but we do think that long-term a lot of the utilities are going to get involved. We are really trying to help the early adopters adopt earlier. It’s just harder to do than I would’ve thought when we started.

Michael Carboy – Signal Hill Capital Group LLC

Last question, Mike: In referring to the EverQ number, would you mind telling us what euro dollar exchange rate you were using?

Michael El-Hillow

I think it was around 152, nope 148. Somebody just wrote the number down for, 148.

Michael Carboy – Signal Hill Capital Group LLC

Thank you very much.

Michael El-Hillow

We want to thank you all for joining us today. We will be hosting a Capital Markets Day on June 19^th. It was rescheduled from March. We appreciate the patients you had on the rescheduling. You will get a tour of the Devens facility, which we think you will find exciting. As Rick said, much of the equipment will be in there. So we hope to see all of you there. Thank you again.

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