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Canadian Solar Inc. (CSIQ) Q2 2023 Earnings Call Transcript

Canadian Solar Inc. (CSIQ)

Q2 2023 Earnings Conference Call

Company Participants

Isabel Zhang - Director, IR

Shawn Qu - Chairman, President & CEO

Yan Zhuang - President, CSI Solar

Ismael Guerrero - President, Recurrent Energy

Huifeng Chang - SVP & CFO

Conference Call Participants

Brian Lee - Goldman Sachs

Matt Koranda - ROTH MKM

Colin Rusch - Oppenheimer

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar Second Quarter 2023 Earnings Conference Call. My name is Melissa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Isabel Zhang, IR Director at Canadian Solar. Please go ahead.

Isabel Zhang

Thank you, operator, and welcome everyone to Canadian Solar second quarter 2023 conference call. Please note that we have provided slides to accompany today's conference call, which are available on Canadian Solar's Investor Relations website, within the Events and Presentations section.

Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar's majority-owned subsidiary, CSI Solar; Dr. Huifeng Chang, Senior VP and CFO; and Ismael Guerrero, Corporate VP and CEO of Canadian Solar's wholly-owned subsidiary, Recurrent Energy, also formally Global Energy. All company executives will participate in the Q&A session after management's formal remarks.

On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will respectively review the highlights of the CSI Solar and Recurrent Energy businesses, followed by Huifeng who will go through the financial results. Shawn will conclude the prepared remarks with the business outlook, after which we will have time for questions.

Before we begin, may I remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risks and uncertainties. The company claims the protection of the Safe Harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations.

Any projections in the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found in the company's Annual Report on Form 20-F filed with the Securities and Exchange Commission.

Management’s prepared remarks will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.

Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

And now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Shawn Qu

Thank you, Isabel. Hi, everyone. Welcome and thank you for joining us today. Please turn to Slide 3. We achieved strong financial and operating results in the second quarter of 2023. We delivered record module shipments of 8.2 gigawatt with $2.4 billion in revenue and gross margin at 18.6%. Importantly, we delivered record total net income for Canadian Solar shareholders of $170 million or $2.33 (ph) per diluted share.

Let me share a few key Q2 messages before Yan, Isabel, and Huifeng review our performance in more detail. Please turn to Slide 4. First, we successfully completed the IPO of our CSI Solar subsidiary on the Shanghai Stock Exchange Power Board. This was a major achievement, and I would like to thank our entire team for their efforts in reaching this goal.

Investor demand was strong and we raised approximately $975 million in gross proceeds, 17% (ph) more than our original target. These funds will be used to support our growth plans across both our solar and energy storage businesses, including our strategic investments in vertical integration to further drive tech knowledge (ph) and cost improvements. This is the latest example of how we are building long-term value for the company and shareholders.

Please turn to Slide 5. Second, under the backdrop of the Inflation Reduction Act, we continue to strengthen our competitive position in the U.S., one of our core markets. In June, we announced the establishment of a solar PV module production facility in Texas. This plant while have an annual output of 5 gigawatt and represents an investment of over $250 million. Production is expected to begin near the end of this year with approximately 1,500 skilled jobs created once fully ramped up.

We are proud to be embarking on these growth initiatives with long-term partners such as EDF Renewables, with whom we signed a multi-year module supply agreement of 7 gigawatts of high efficiency N-type TOPCon solar modules. We expect this to be the first of many important partnerships. We also continue to solidify our market position in the U.S. in downstream project development business.

Recurrent Energy is developing some of the most valuable solar and battery energy storage projects, including the 1.2 gigawatt hour Papago standalone storage project in Arizona. At the same time, our e-STORAGE team will be supplying the equipment integration services and the long-term services for Papago. This is another great example of how we focus on capturing more value of each project over its lifetime.

Of our 6.6 gigawatts of solar PV development pipeline in the U.S., we have over 2 gigawatt of projects with interconnection agreements, of which 45% are sited in energy communities. Likewise, 45% of our advanced storage pipelines in U.S. are also cited in energy communities. We see significant potential in the U.S. market, particularly after the passing of the IRA and we'll continue to build on our competitive [Technical Difficulty]

Hello, am I still online? Hello?

Unidentified Company Representative

Shawn, you're still on.

Shawn Qu

I'm still online, right? Okay. All right. We see significant potential in the U.S. market, potentially, particularly after the passing of the IRA. And we'll continue to build on our competitive position and track record in this market....

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