Q2 2021 Canadian Solar Inc Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by welcome to Canadians. All this second quarter of 'twenty 'twenty. One earnings conference call. My name is Rachel and I'll be your operator for today at this time all participants are in listen only mode. Later, we'll conduct a question and answer session.
This conference is being recorded for replay purposes, I would like to turn the call over to either those young IR director at.
Canadian Solar please go ahead.
Thank you operator, and welcome everyone to Canadian Solar second quarter 2021 conference call.
Please note that we have provided slides to accompany today's conference call, which are available on Canadian <unk> Investor Relations website within the events and presentations section.
Joining us today are Dr. Shawn Qu, chairman and CEO UN drawn.
And so whereas majority owned subsidiary CSI solar Doctor equivalent trend senior VP and CFO.
It is Myles Laredo for BP.
Right.
Yeah.
Welcome and 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 and it is my little Irrespectively of review the highlights of the CSI solar in global energy businesses, followed by Paul who will go through the financial results. John will conclude the prepared remarks, the business outlook after which we will have time for questions.
Before we begin I'll 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 is contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ from management's current expectations and projections of the company's future performance represent managements 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.
<unk> filed with the Securities and Exchange Commission.
<unk> 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.
<unk> 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 is chairman and CEO, Dr. Shawn Qu Shawn. Please go ahead. Thank you.
Hi, everyone.
And thanks for joining us today.
During the second quarter, so trying to 'twenty one.
Delivery record module shipments and a record revenue.
Also delivered gross margin while I had.
All of our guidance.
We are focused.
<unk> and <unk>.
Pools with the pro forma as of our DSI is solar business Division, which helped us deliver net income.
$11 million.
I alluded earnings per share of <unk>.
Before I turn to yen.
Mail either for your phone will go over a more detailed review of our performance.
I'd like to highlight three key messages.
Please turn to slide three.
The first point.
I'm pleased that our CSI a solar business.
Our corner in the margin so Josh right.
Delivering Canadian solar group gross margin of 31%.
We're just well.
Our guidance.
We expect Q3 margins to be better than Q2.
Back to the mid teen range.
We are focused on the factors under our control and especially <unk>.
<unk> ability, even if it meant that we had to forego certain short term opportunities.
We expect profitability.
Sigh of solar to continue to improve through the year.
Demand remains strong and Canadian solar has the leadership position give us.
Prior to Covid advantage.
Actual profitable growth opportunities.
We will continue to gain market share this year and believe that any demand push out due to supply chain, because it's trends well set the stage, but even stronger tonnage went into and beyond.
Let's turn to slide four.
The second point.
Global our first tour, our clean energy transition by generating a surge in demand, but battery storage capacity.
Pour more reliable power grid.
We've made big progress in Q2 by delivering our first battery storage shipments.
Approximately 300 megawatt hours.
<unk> $17 million.
Revenue.
At the same time, we continue to grow our global energy total pipeline of storage projects reach.
Region 19 gigawatt hours in Q2 of which one five gigawatt hours, yes under construction.
Tal rich represent.
Other major long term growth opportunity for us.
We are well positioned with bankable solutions.
Strong customer demand and expect meaningful growth.
The third point.
Please turn to slide five.
We recently published our latest U S G sustainability report.
Our team has been analyzing understanding and improving.
Sure, Yes G practices.
We have setup struck trolls.
To incorporate environmental social and governance factors in all our major business decision.
For example, one of these decisions yes the.
Sanchez.
Sure.
Cream yogurt manufacturing capacity.
Were decided what kind of structure this facility in Shanghai.
This progress is nearly fully powered by renewable energy.
Almost 90% of installed power capacity, yes, solar wind our hydropower.
Finally, locating energy intensive in good manufacturers there.
Can further reduce the carbon footprint for our solar module.
Actually based on our estimates.
Greenhouse gas emissions payback guidance.
While our existing molecule, yes, one one years.
This means all of them.
Modules become.
Carbon neutral asset that can last well.
30 to 40 year or even longer.
We are now making further effort.
The molecule greenhouse gas payback pattern, even lower.
This is just one of the many examples that underscore us Canadian soldiers commitment to sustainability and ESG improvement.
Now, let me turn it over to Ian who will talk about the performance of our CSI as solar business in more depth.
Please go ahead.
Thanks, John in.
In Q2, we delivered three seven gigawatts.
Module shipments and one $1.8 billion from revenue.
Both record quarterly highs.
Gross margin improved by 340 basis points to 13, 1%.
Which was above our expectations.
<unk> by our team's strong execution in challenging market circumstances, and thank them for their relentless efforts.
Please turn to slide six as Sean said, we remained focused on factors within our control navigating the current supply chain environment.
A big part of this is executing on the margin improvement roadmap, we previously laid out.
First we continued to lease prices on our solar module in Q2.
We are now 15% to 20% higher than the lowest points last year.
We believe module pricing is likely to remain strong for the rest of the year as well.
We also expanded our market presence in China, which was our top market by shipment volume during the quarter.
This helped us mitigate some of the pressure from higher shipping costs and uncertainty over foreign exchange moves.
We're also starting to benefit from our investment team state of the art capacity in upstream integration.
And we continue to focus on the higher value distributed generation segment.
Which accounted for more than 50% of our Q2 shipments.
Together these factors have allowed us to deliver a notable improvement on last quarter's performance.
We also adjusted our procurement strategy given the turn of events from a deflationary to an inflationary market environment, we have tactically.
Proactively built inventory from raw materials to finished goods to take advantage of more favorable costs and continued ASP increases.
This has provided this is proving to be critical in our supply chain and margin management.
At the same time, we're also holding more inventory due to the global logistic bottleneck.
So more inventory is waiting to be shipped or in transit.
Overall larger shipment volume also requires inventory so our turnover dates have not moved up much.
Longer term, we are executing on our capacity expansion and vertical integration strategy to better control, our costs and ensure greater supply chain stability.
Slide seven please.
Importantly, we continue to focus on strengthening our long term competitive positioning even as we navigate a dynamic near term near term supply chain environment.
On the module side.
We unveiled our new feature junction module product during the snack exhibition in Shanghai.
And we're now making final certification and production preparations.
<unk> to start deliveries in <unk>.
October.
Battery storage in the system integration, Sean mentioned that we delivered our first batch of 300 megawatts hour battery storage shipments last quarter on.
On the next slide you can see pictures of our Mustang Solar plus battery storage project located in King County, California.
As a reminder, this was a 100 megawatt solar project developed and built by return to a few years ago, which Canadian solar sold back in 2019.
Last year, we signed the 300 megawatt hour battery storage retrofit contract and last and last quarter in Q2, we delivered on the battery shipments.
Oh, the equipment has been installed and the team is finalizing the project due to commission this month.
Turning to slide nine this is the slate solar plus battery storage project of 300 megawatts, plus 561 megawatts hour, which is currently under construction.
<unk> been delivering the battery shipments.
The current quarter and expect to complete the project before year end 2021.
This adds to our confidence that our bet our battery storage shipping volume will reach 861 megawatt hour for 2021.
Overall, our team continues to do a great job in a fluid market will continue to leverage our competitive advantage.
Long brand bank ability.
And well established global market channels, while expanding our technological moat to bring additional value to our customers.
With that let me pass it onto Ismail, who will talk about Canadian solar global energy business.
Please go ahead.
Thanks, Jim.
This quarter, we closed 300 megawatts in product sales.
$291 million in revenue.
This is in line with our forecast.
We are having a very solid year from a project execution standpoint on experiencing significant growth.
Please turn to slide 10.
One of the key trends we've seen over the past several quarters is the large increase in demand for solar and battery storage projects.
Both from existing and new investors, who have low cost of capital and ambitious climate mandates.
And we believe this is a sign that the capital pool.
Clean energy infrastructure assets is broadening and deepening us.
Quote unquote big money.
He is now coming into the clean energy sector.
We are strongly positioned to benefit.
We supply the market with quality solar and battery storage projects, which are becoming increasingly a score Sussex.
Strong underlying demand large cup you don't have any liquidity on low cost of capital in our business means that we can capture more of the value creation from the project.
Exiting earlier.
By reducing our capital needs.
Meanwhile, PPA side are starting to move up across various markets, which is helping to offset the impact from Hayward hydro to equipment cost.
Moving to slide 11.
All in all the structural market forces had a very strong.
And we plan to develop projects fast enough.
Our total pipeline currently stands at 22 Gigawatts for solar on 19 gigawatt hours for battery storage.
We kind of both significant increases compared to this time last year, which 115 gigawatts.
This gigawatt hours respectively.
In Japan, we reached.
Only 186 megawatts and the latest solar auction.
This accounted for approximately a quarter of the total volume auction.
Solidified our position as the number one solar developer in Japan.
Thanks to our strong market presence on execution, we are not.
Now negotiating new Ppas in Japan.
Attractive opportunities for growth once the market is truly transitioned away from subsidies in sealing products.
That's it.
We still have a meaningful portfolio of projects under construction or development, which have secured the highest fit into that.
With nearly 50% of our total portfolio of over 400 megawatts contracted at more than 20 U S dollar cents per kilowatt hour.
In the EMEA region, or Europe, Middle East and Africa.
We also signed several new Ppas.
Has it been meaningfully growing our pipeline.
The total of over four Gigawatts from two one gigawatts this time last year.
We are already seeing an acceleration in demand growth for noble energy.
Particularly in light of the recent European Union claim on climate related legislation.
Importantly.
We continued to make significant progress on our battery storage projects.
Few days ago.
We announced the signing of the phase two of our clean some project also located in California.
Green some standalone utility scale battery storage project of one four gigawatt hours.
One of the largest in the world.
We previously signed and 800 megawatt hour storage contract with Southern California Edison.
In a few days ago, we signed a resource adequacy agreement with Pacific gas and electric or <unk>.
The project is set to start commercial operation by the summer of 2022.
<unk> improved California grid reliability.
So we have a very tight deadline for a project of this magnitude.
We see significant growth in demand for batteries historic cycles, all global markets.
In the U S is currently the largest most advanced market, but with the significant opportunities worldwide given the widespread need for grid reliability.
And particularly with growing penetration of clean energy and decrease the increasing occurrence of extreme weather events.
For instance, we won the first thought that he started deploying again, Colombia, a few weeks ago.
The project has a capacity of 45 megawatts and 45 megawatt hour.
It will help us strengthen Mercer Columbia transmission network and support greater share of renewable energy.
Most of our work in battery storage project development to date has been in the contracted markets to provide capacity of resource adequacy services.
We are also exploring alternatives to participate in and contracted markets such as power trading where we believe that is more long term button.
Separately turning to slide 12.
We continue to make progress on our strategy to raise the share of recurring income in our global energy business.
We continue to proactively grow our services platform in operations and maintenance or O&M business and investment vehicles in Brazil and Europe.
Both vehicles remain on track to be launched as planned.
Now, let me turn the call over to Japan.
Who will go through the financial results in greater detail.
Please go ahead.
Thank you Mel.
Please turn to slide 13.
In Q2, we delivered record quarterly revenue of $143 billion.
Gross margin was 12, 9%.
Well ahead of our guidance of nine five to 10, 5%.
Q1 benefited from both volume and pricing increases in module shipments as well as greater contribution from battery storage shipments and beyond the module sales.
We also made significant efforts to improve manufacturing efficiency.
And reduce unit costs.
Selling and distribution expenses were flat quarter over quarter.
But up year over year due to higher shipping costs.
G&A expenses will also flattish quarter over quarter due to continued tight control on discretionary costs.
Total operating expenses were up only 5%.
Fight much faster revenue growth and now accounts for 11% of total revenue.
The net foreign exchange loss in the second quarter was $3 million.
From a $7 million loss in the first.
We continue to optimize our currency hedges.
The income tax benefit was $2 million in Q2.
Impact to tax expense in Q1 of $14 million.
<unk> was driven by a lower effective tax rate and a lower impact from high tax jurisdictions.
Net income attributable to Canadian solar shareholders.
$11 million or <unk> 18 per diluted share.
Slide 14 please.
Now turning to cash flow and the balance sheet.
As Yan mentioned previously we have adjusted our procurement and our working capital management, a strategy to hold more inventory than we have traditionally.
As a result, we increased the inventory by nearly $200 million this quarter.
This strategy has helped us better manage our costs and mitigate supply chain pressures.
We also had an increase in accounts receivable, which is reflective of higher shipments to China based customers, who generally require longer receivable days many.
Many of the out by increase in notes payable.
After netting all of the moving parts, we used approximately $61 million of cash in operating activities.
Q2, Capex was $138 million.
We expect full year capex to be approximately $650 million unchanged from our previous guidance.
As we support the higher global demand, we are seeing across all markets.
At the end of the second quarter.
Approximately $60 million from the at the market equity offering program.
And to date.
Have you raised around 110 million roughly.
Program is progressing well.
Overall, our total cash position remains strong at one $3 billion.
Giving us the financial flexibility to fund capital expenditures and a long term growth investments.
Total debt declined moderately to $2.2 billion as we optimized our financing sources.
We also lengthened the overall maturity profile of our total debt with long term debt, including all long term borrowings on project assets accounting for only 40% of our total debt down from 60% just two years ago.
Net debt to EBITDA in Q2, excluding restricted cash remains at a healthy level of three eight times.
Now, let me pass it back to Sean will conclude with our guidance and the business outlook Shaw.
Thanks go ahead well.
Let's turn to slide 15.
Now for the third quarter of China into NOI, We expect total module shipment to be in the range of three eight total two four gigawatt.
<unk> approximately 275 megawatts of.
Module shipment to our own project.
Total revenue.
Expect it to be in the range of $1 to $1.4 billion U S dollar.
<unk> margin is expected to be between 14 six.
<unk> per se.
The wider than usual revenue and profit.
The ability of range for the third quarter.
The timing of certain project sales, which maybe recognized towards the end of this quarter or early in the following quarters.
She'll be recognized.
The year of trying to generalize.
For the full year, China is your NOI.
Great.
Reiterate the revenue guidance of $5 six six.
<unk> U S dollar.
With project sales of one point.
Two to three gigawatt total battery storage shipment of.
810 to 868 megawatt hours.
We are slightly reducing module shipment guidance from <unk>.
Aegean to.
Trying to gigawatt to the new range of 16 to 17 gigawatt.
We expect full year revenue guidance unchanged.
We expect higher module ASP too.
Offset the impact of the slightly lower shipment guidance.
This is reflective of marginally lowered global demand.
As a response to higher solar system equipment cost.
We remain highly optimistic of the overall demand environment and expect growth to accelerate in tonnage on it too tend to be out.
Now, let's turn to slide 16.
Finally, let me give a update on the progress of the planet.
Carve out lifting of CSI.
We have now moved toward the question and answer our stage with Shanghai stock exchange.
The feedback process typically takes couple of months. So we are well on track.
Zach.
To open the call to questions operator.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key.
Once again, if you wish to ask a question star and the number one on your telephone keypad.
Your first question comes from the line of J B Lowe of Citi. Please ask your question.
Hey, good morning, everyone.
My first question is on the the module shipment guidance reduction I'm. Just wondering if you could kind of give us a sense if you could break it down between.
How much of the reduction was foregoing sales.
Because you wanted to keep pricing higher how much of it was was demand driven and how much of it.
If any was due to timing if some shipments do you think are being pushed from 'twenty one into 'twenty two.
Yeah.
Yes, so if I'm hearing.
Hearing your question correctly.
Uh huh.
I think a majority of the projects coming to our inflammation in our market feedback that's going to be still planned to be connected this year.
So are.
We have a observing some.
Some signs of the market where mark.
And.
Although the module demand it's actually.
Change the change on module side is always behind the upstream.
Suppliers upstream our materials so.
We think that in second half.
The demand will remain to be strong strong much stronger than first half.
Right, but I guess the reduction in guidance I guess, what was the main driver of it.
Reductions yeah, yeah, so the reduction.
We actually.
I think that the second half, especially in Q4, we are expecting a very tight balance between.
ASP and supply chain costs so.
So we believe to maintain the right balance and optimize our.
Our margin, we need to have a more controlled pace.
On sales.
So that's.
That's what we.
Estimated in also.
Yes, indeed, there are some more even pushing off next year.
But still we need to make sure that the pricing can give us the volume with balanced pricing can give us the right margin.
Hi, Jamie this is vishal.
<unk> speaking.
See you when we reduce the.
And your shipment guidance out of that event from previous AGM to trendy gigawatt.
Two six single sovereigns in Q1, so well just like two gigawatt.
That's all.
I would say.
Probably one third of the reduction is due to our insistence.
ASP and profit.
Another one third is due to sub customers say, okay. We're still want Canadian solar module, let's wait for next year. So as you said.
Some project some demand push out to next year and maybe another one third is due to logistics.
Because of the Golar global logistic.
Issues.
The shipping time.
The time to deliver from <unk>.
Factory.
The project site.
GAAP.
Much longer so some of the December or even the lumber shipment.
Now in the customer site.
Before December as our universe, but not become a trend the trend the true.
Shipment, so I would say maybe the third one is otherwise I hope this.
Ill give you more color.
Hi.
Other than whats, Sean what the yen just discussed.
Yeah, No that's exactly what I was looking for thank you.
My other question was just.
Gross margins on the storage side is obviously, becoming a bigger part of the business.
What would the gross margins on storage and <unk> and what do you expect them to be to trend over the next couple of quarters.
Well so.
First of all.
The storage revenue.
<unk>.
Sat Fi solar site is.
Essentially right now mostly integration business.
And usually project.
Yes.
A deal actually into two parts one is the upfront installation system integration and installation of the other one is a long term service agreement to both have their revenue is in.
And the profit so by nature of the system integration business.
In terms of Capex and <unk> are both low much lower than module business. So.
On the gross margin side, it may not be that high but the proportion of net profit.
Actually.
A significantly better the module business.
So.
Yes.
So of course from project to another cut from project to project you may see some variations on the on the profitability, but in general they are significantly better than module business.
Hi, Jamie this is Kevin again.
This is Sean again, again, I would like to add some color.
Other than what you had just discussed.
Pure gross margin wise.
Battery storage.
The EPC and total solution business.
At this moment.
Will give us.
Low teen to mid teen gross margin, however, aussie asset it's different because there's no capex therefore, no depreciation.
Cost for this business so.
We can occur.
Low to mid teen gross margin into a high single digit.
Net margin contribution so it's pretty good.
Our business the module.
The net contribution is very good and there is also to highlight that this is only the beginning.
At the beginning.
With a higher cost.
Product certification.
In bank competitors, all of that kind of stuff.
Also.
We are taking.
One problem some product.
The <unk> product.
Now as we continue to grow this space and you also continue to bring more of the manufacturing in house.
Expect the margin both gross margin and that margin.
Our battery storage business yet.
To increase.
Alright that was excellent. Thank you so much.
Thank you Jamie.
Your next question comes from the line of Philip Shen of Roth Capital. Please ask your question.
Hi, everyone and thank you for taking my questions as a follow up on the margins for.
The energy business I was wondering if you could just talk about.
Give us a little bit more color on what happened with the 4%.
The global energy business margin in Q2, historically, you've gotten as high as 32%. So just a little bit more color as to why it may have been so low in Q2, and then how do you expect that overall margin trend.
Q3, and four and also for the global Energy business can you talk about which countries you're in you sold projects in Q2.
Hi, Philip.
Let us now too.
Wholesale classroom.
Thank you Sean Thank you Felipe for your question.
Looking in our relates to gross margin to project sale in India is very tricky because he is.
It is fully dependent on how did you do the accounting treatment, so what youre seeing.
Then beginning in Q2, the last stage of projects that were under construction. So most of the margin of those projects was already booked.
What you should expect to see out on the year. These are the typical solely at the gross margin that we usually get.
The average of the year. So please don't get don't get fooled by by the accounting treatment on Q2.
All the projects that we booked were weighted to the U S and they were all under construction already.
Okay. Thank you Michelle.
In terms of the module business. So was wondering if you could comment on that.
The geographic mix of the $3 seven Gigawatts shipped in Q2, and then how do you expect that mix to change in Q3, and four and what are your expectations for the Geo mix geographic mix in 2022. Thanks.
Any guidance.
So.
First of all.
In terms of a split of the shipment.
I want to add that.
It is as huge as in the past quarters that around half of the volume goes to the DG market residential and DG market in terms of geographical.
So we have the leading the leading market is like.
Is China actually in Q2, we expanded our presence in China.
To deal with.
Switching to some exchange rate and also the higher shipping costs Ocean shipping cost. So China became number one in Q2. So this is a little different.
From past quarters, and secondly, North America.
And in EMEA are both more than 20%. So the rest is in the APAC and Latin America.
Yes.
Thanks Sharon.
Can you share what the percentage was in Q2 for <unk>.
China.
It was 27%.
Great and then looking into Q3 and four do you expect those.
Mixes to percentages to remain the same.
Similar.
Great and what about 2022.
When they don't need to I think.
It will probably.
Stable or maybe slightly higher that's my estimate.
But I cannot be so clear for now.
In general we want to increase our <unk>.
License in China.
Given the.
The higher shipping cost and also the exchange rate.
Trent.
But however, I don't have detailed number for you it's going to be like similar.
Got it and then.
As it relates to the U S which is.
It sounds like it might be even more more than 20% can you talk about if you've seen any changes in the U S market, whether it's with customers or with.
Other aspects of shipping into the U S. Since the W. R O on her schein was put in place.
Again, whether it's customers or if you've changed your approach to the market.
Talk about the U S market a little bit thanks.
The demand we're seeing is high.
Strong demand from U S and the <unk>.
<unk>.
Many customers.
Talking discussing ddos or try to sign a supply agreement with us a multiyear large volume deals.
We see the demand is very strong.
And in terms of.
So we're actually.
<unk> been working very hard to deal with that and.
We're pretty confident that we can overcome that.
Strained.
Okay. Thanks for all the detail I'll pass it on.
Once again, if you wish to ask a question. Please press star and the number one on your telephone keypad.
Your next question comes from the line of Colin Rusch of Oppenheimer. Please ask your question.
Thanks, So much guidance could you give us some insight into how non silicon costs are trending and availability of materials are you seeing any.
Tightness or changes in terms of cost and availability.
So.
You're talking about processing cost non silicon processing cost.
Right now im talking about glass aluminum silver paste, all those sorts of things that are going into the Bachelor materials.
Yes, yes, it was going up pretty fast from Q4 to Q1 and in Q2 actually came down.
Stabilizing going down a little bit so.
That said over our trend.
Okay, and then in terms of your strategic focus around different system sizes, you talked about the distributed power market handheld with better pricing.
Going forward.
On the development side are you looking at the.
Community solar kind of 10 to 50 megawatt type projects being a real growth market or are you still really highly focused on somewhat larger systems.
I think in second half we are observing that in mature developed market that the rooftop market is actually warming up is coming back it was affected more more than the utility scale because of covid.
Now, it's actually coming back so.
That market will continue to be.
Better profit so we will continue to be our focus.
So you talked about like a one or two megawatts ground mounted you did you say that.
Couldnt hear now more and more like more like $10.10 to 15.
I'm talking about kind of a medium size.
Not systems, and whether that's a real growth market, where you can plug into the 65 kv lines short kv lines.
And support the grid and a little bit different way.
Yeah those size of project in terms of.
If you're talking about.
<unk> module cells. So we don't see that anything better than the large projects in terms of the pricing for module.
But on development side, Ethan who may have a different light in.
In terms of development and investment.
Okay. That's super helpful guys. Thanks, so much.
Okay.
Once again, if you wish to ask a question you met the star and the number one on your telephone keypad.
Yes.
Your next question comes from the line of Max tranche of Jpmorgan. Please ask your question.
Yes. Thank you very much for taking my questions.
Most of them have been answered I just wanted to see if you could give a bit more kind of high level color on your capacity plans right. So you are.
You're taking down your module capacity in the second half of this year, but increasing your wafer and cells.
As we think about that over the next several years as this whole supply chain disruption kind of made you rethink your historical methodology of having significantly more module capacity.
Well.
We actually.
Continue to believe in.
What do you call that.
Flexible what screen integration.
We believe that the industry is in the in the in the stage that.
The P type the existing PERC technology has reached to a limit while we still do not have consensus on the N type and starting from next year were going to see that.
Probably a strong oversupply on some of the materials.
So we actually of course, we will continue to go to execute on our existing Capex plan as we have published in the past however, we're not.
So in terms of next year. So the additional capex, we still don't have.
Tangible plan, yet we tightly we want to be more cautious.
<unk>.
While we will still grow our market share next year. So we had market share of 8% last year, 10%. This year and now market share will continue to grow year by year.
Okay. That's it for us Thanks Sam.
Yeah.
Your last question comes from the line of Philip Shen of Roth Capital. Please ask your question.
Hi, everyone and thanks for taking my follow ups here.
In terms of storage.
How much of a.
Well in terms of the one five gigawatt hours.
Under construction can you give us a sense for how much might.
Either C O D or be sold by quarter in the coming quarters.
Oh.
Israel.
Yes.
Okay. My question, Okay. So in terms of Saudi time, Okay. So we have but we had the three hunt.
No we had a 300 megawatt hour shipped and installed.
In Q2 and the.
The rest of the almost 900 megawatts hour would be.
Connected in the second half of the year. So in terms of Q3 and Q4 I don't have the.
Exact split yet and so the timing can be somehow.
Uncertainty.
Great. Thanks, Paul.
With the fed up.
Philip This is Charlie.
We have the numbers, but.
We'll follow up with you later.
Did you have some.
More detailed.
It's down by water.
Okay.
Okay. Thank you Sean and then.
In terms of the cost inflation that we've seen.
You guys, obviously saw the modules in but then you also build the build projects.
And we've seen inflation across the board.
Just wondering if.
<unk> delayed.
Any of your projects.
As a result of higher input costs.
And if so.
What kinds of delays that we're seeing you know, maybe a quarter or maybe longer.
And then are you as a project developer are you seeing.
Asset owners.
Are they willing to take.
Less return, you know 50 basis points or something.
Meaningfully less too.
To help absorb some of this cost inflation or are you seeing pushback from them.
Is the preference again.
To delay projects and pushed out to <unk>.
Yes.
Sure.
Yes, Philip this is Shawn speaking.
Sure.
Fortunately, we don't have.
Much.
Solar project.
Sure start NTP. This year. So we are not in homage air pocket so far.
By the equivalent cost increase we do have some project.
May reach NTP.
By the end of this year.
<unk>.
In that tenant will receive.
We think we'll go ahead.
Yeah.
With those project.
Because.
The investors.
Investors.
The project buyers also willing to pay.
Higher cost to us now.
Now this was to our situation.
In terms of third party project developers and guests we see both we do see some.
Develop Paris.
Delay that project to next year, but we also see some.
Developers.
Willing to taking a higher cost.
Do the project this year.
So.
Yes.
We showed you in one of our site.
Actually start to see the PPA.
The.
Power purchase agreement.
We'll move up.
In recent months as you said.
<unk> change that we're aware of so the inflation is.
The electricity power price as well so we seem to see the doctor.
The PPA for renewable also responded.
Great. Thank you for the color Sean and.
Pass it on.
Seeing no more questions in the queue, let me turn the call back to Dr. Shawn Qu Chairman and CEO for closing comments. Please go ahead.
Yes, Thank you and thanks, everyone for joining us today.
Also thank you for your continued support.
Part of it.
And your question.
Set up a call please contact <unk>.
The relations team take care and have a nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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Okay.
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Ladies and gentlemen, thank you for standing by welcome to Canadians. All this second quarter of 'twenty 'twenty. One earnings conference call. My name is Rachel and I'll be your operator for today at this time all participants are in listen only mode. Later, we'll conduct a question and answer session.
This conference is being recorded for replay purposes.
Like to turn the call over to either those young IR director at Canadian <unk>.
Please go ahead.
Thank you operator, and welcome everyone to Canadian Solar second quarter 2021 Conference call. Please note that we have provided slides to accompany today's conference call, which are available on Canadian <unk> Investor Relations website within the events and presentations section.
Joining us today are Dr. Shawn Qu, chairman and CEO UN drawn.
Canadian Solar is majority owned subsidiary CSI solar Dr. Europe with my trend.
Senior VP and CFO and he's my Laredo.
Peter.
Yeah.
Yeah.
Polka many 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 and then it will it respect because we review the highlights of the CSI solar in global energy businesses, followed by Paul who will go through the financial results. John will conclude the prepared remarks, the business outlook after which we will have time for questions.
Before we begin I'll 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 is contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ from management's current expectations and projections of the company's future performance represent managements 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.
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 is chairman and CEO, Dr. Shawn Qu Shawn. Please go ahead. Thank you.
Hi, everyone.
And thanks for joining us today.
During the second quarter.
'twenty one.
Delivered record module shipments and a record revenue.
It also delivered gross margin well ahead of our guidance.
We are focused.
Hey.
<unk> the pro forma is.
Our DSI solar business Division, which helped us deliver net income of $11 million.
Diluted earnings per share of 80%.
Before I turn to yen Israel, Idaho your phone will go over a more detailed review of our performance.
I would like to highlight three key messages.
Please turn to slide three.
The first point.
I am pleased that our CSI as solar bid and yes.
Third corner.
Margin, Yeah, Josh right.
Delivering Canadian solar group gross margin of 31%.
Well hi.
All of our guidance.
We expect Q3 margins to be better than Q2 back to the mid teen range.
We are focused on the factors under our control.
Especially.
Profitability, even if it meant that we had to forego certain short term opportunity.
We expect profitability at CSI of solar to continue to improve through the year.
Demand remains strong and Canadian solar has the leadership position gives us.
A competitive advantage to capture profitable growth opportunities.
We will continue to gain market share this year.
We believe that <unk>.
Demand push out due to supply chain guidance trends well set the stage, but even stronger tonnage went into <unk> and beyond.
Let's turn to slide four.
The second point.
Global our first tour.
In energy transition.
Annual rating surge in demand, but battery storage capacity to support more reliable power grid.
We've made big progress in Q2, but delivering our first battery storage shipments.
Approximately 300 megawatt hours.
Our of $17 million in revenue.
At the same time, we continue to grow our global energy total pipeline of storage projects.
Reaching 19 gigawatt hours in Q2 of which one five gigawatt hours, yes under construction.
Hello, rich represent another major long term growth opportunity for us.
We are well positioned with bankable solutions.
Strong customer demand and expect meaningful growth.
The third point.
Please turn to slide five.
We recently published our latest.
S G sustainability report.
Our team has been analyzing understanding and improving.
Our ESG practices.
We have set up structurally.
So incorporate environmental social and governance factors in all.
Our major businesses Asia.
For example, one of these decisions yes the.
<unk>.
Sure.
Great.
Manufacturing capacity.
We have decided to construct this facility in Shanghai.
This province, yes, nearly fully powered by renewable energy.
Almost 90% of it.
Power capacity, yes, solar wind our hydropower.
Finally, locating energy intensive in good manufacturing there.
Further reduce the carbon footprint for our solar module.
Actually based on our estimates greenhouse gas emissions payback guidance.
While our existing molecule, yes, one one years.
This means our modules become carbon neutral asset.
That can last well.
For 40 years or even longer.
We are now making further our efforts to bring the molecule greenhouse gas payback time, even lower.
This is just one of the many examples that underscore as Canadian soldiers commitment to sustainability and ESG improvement.
Now, let me turn it over to Ian who will talk about the performance of our CSI as solar business in more depth.
Please go ahead.
Thanks, John in.
In Q2, we delivered three seven gigawatts.
Module shipments and one $1.8 billion from revenue.
Both record quarterly highs.
Gross margin improved by 340 basis points to 13, 1%.
Which was above our expectations I'm.
I am pleased by our team's strong execution in challenging market circumstances, and thank them for their relentless efforts.
Please turn to slide six as Sean said, we remained focused on factors within our control navigating the current supply chain environment.
A big part of this is executing on the margin improvement roadmap, we previously laid out.
First we continued to raise prices on our solar modules in Q2.
Which are now 15% to 20% higher than the lowest points last year.
We believe module pricing is likely to remain strong for the rest of the year as well.
We also expanded our market presence in China, which was our top market by shipment volume during the quarter.
This helped us mitigate some of the pressure from higher shipping costs and uncertainty over foreign exchange moves.
We're also starting to benefit from our investment team state of the art capacity in upstream integration.
And we continue to focus on the higher value distributed generation segment.
Each accounted for more than 50% of our Q2 shipments.
Together these factors have allowed us to deliver a notable improvement on last quarter's performance.
We also adjusted our procurement strategy.
Given the turn of events from a deflationary to an inflationary market environment, we have tactically and proactively built inventory from raw materials to finished goods to take advantage of more favorable costs and continued ASP increases.
This is provided this is proving to be critical in our supply chain and margin management.
At the same time, we're also holding more inventory due to the global logistic bottleneck.
So more inventory is waiting to be shipped or Adas in transit.
Overall larger shipment volume also requires inventory.
So our turnover dates have not moved up much.
Longer term, we are executing on our capacity expansion and vertical integration strategy to better control, our costs and ensure greater supply chain stability.
Slide seven please.
Importantly, we continue to focus on strengthening our long term competitive positioning even as we navigate a dynamic near term near term supply chain environment.
On the module side.
We unveiled our new feature injunction module product during the snack exhibition in Shanghai.
And we're now making final certification and production preparations aiming to start deliveries in October.
Battery storage and system integration, Sean mentioned that we delivered our first batch of 300 megawatts hour battery storage shipments last quarter.
On the next slide you can see pictures of our Mustang Solar plus battery storage project located in King County, California asset.
A reminder, this was a 100 megawatt solar project in development.
Built by returned to a few years ago, which Canadian solar sold back in 2019.
Last year, we signed the 300 megawatt hour battery storage retrofit to contract and last and last quarter in Q2, we delivered on the battery shipments.
Oh, the equipment has been installed and the team is finalizing the project due to commission this month.
Turning to slide nine this is the slate solar plus battery storage project of 300 megawatts, plus 561 megawatts hour, which is currently under construction, we have been delivering the battery shipments from the current quarter and expect to complete the project before year end.
2021.
This adds to our confidence that our bet our battery storage shipping volume will reach 861 megawatt hour for 2021.
Overall, our team continues to do a great job in a fluid market will continue to leverage our competitive advantage strong brand bank ability and well established global market channels, while expanding our technological moat to bring additional value to our customer.
<unk>.
With that let me pass it onto Ismail, who will talk about the Canadian solar global energy business.
Ismael. Please go ahead.
Thanks, Jim.
This quarter, we closed 300 megawatts in project sales.
Another $291 million from revenue.
This is in line with our forecast.
Having a very solid year from a project execution standpoint on experiencing significant growth.
Please turn to slide 10.
One of the key trends we've seen over the past several quarters is the large increase in demand for solar and battery storage projects.
Both from existing and new investors, who have low cost of capital and ambitious climate mandates.
We believe this is a sign that the capital pool for clean energy infrastructure assets is broadening and deepening.
Quote unquote big money is.
No comment into the clean energy sector.
We are strongly positioned to benefit as.
As we supply the market in which quality solar and battery storage projects.
We are becoming increasingly scarce assets.
Strong underlying demand large cup you don't have any liquidity on low cost of capital in our business means that we can capture more of the value creation from the projects.
Exiting earlier, thereby reducing our capital needs.
Meanwhile, PPA side are starting to move up across various markets, which is helping to offset the impact from <unk> hi, good equipment costs.
Moving to slide 11.
All in all the structural market forces had a very strong.
And we plan to develop projects fast enough.
Our total pipeline currently stands at 22, Gigawatts for solar and 19 gigawatt hours for battery storage.
We kind of both significant increases compared to this time last year, which 115 gigawatts.
Gigawatt hours respectively.
In Japan, we recently won 86 megawatts and the latest solar auction.
This accounted for approximately a quarter of the total volume auction.
Solidified our position as the number one solar developer in Japan.
Thanks to our strong market presence on execution, we are now negotiating new ppas in Japan.
Truck give opportunities for growth once the market is truly transitioned away from subsidies in sealing products.
That's it.
Still have a meaningful portfolio of projects under construction or development with tough secured how it fit into this.
With nearly 50% of our total portfolio of over 400 megawatts contracted at more than 20 U S dollar cents per kilowatt hour.
In the EMEA region, or Europe, Middle East and Africa.
We also signed several new Ppas and has been meaningfully growing our pipeline.
The total of over four Gigawatts from two one gigawatts this time last year.
We are already seeing an acceleration in demand growth for renewable energy.
Particularly in light of the recent European Union clean climate related legislation.
Importantly.
We're continuing to make significant progress on our battery storage projects.
Few days ago.
We announced the signing of the phase two of our cleaning. Some project also located in California.
Green some standalone you didn't scale battery storage project of one four gigawatt hours.
One of the largest in the world.
We previously signed and 800 megawatt hour storage contract with Southern California Edison.
In a few days ago, we signed a resource adequacy agreement with Pacific gas and electric or <unk>.
The project is set to start commercial operation by the summer of 2022.
To help improve California grid reliability.
So we have a very tight deadline for a project of this magnitude.
We see significant growth in demand for batteries.
Tycho So global markets.
<unk> is currently the largest most advanced market, but we see significant opportunities worldwide given the widespread need for grid reliability.
Particularly with growing penetration of clean energy.
The increase in equivalents of extreme weather events.
For instance, we.
We won the first thought that has started to bring again, Colombia, a few weeks ago.
Project has a capacity of 45 megawatts and 45 megawatt hour.
It will have helped strengthen northern Columbia transmission network and support greater share of renewable energy.
Most of our work in battery storage project development to date has been in the contracted markets to provide capacity of resource I think we'll see services.
We are also exploring alternatives to participate in unconstructed markets, such as power trading where we believe there is more long term button.
Yeah.
Separately turning to slide 12.
We continue to make progress on our strategy to raise the share of recurring income in our global energy business.
We continue to proactively grow our services platform in operations and maintenance or O&M business and investment vehicles in Brazil and Europe.
Both vehicles remain on track to be launched as planned.
Now, let me turn the call over to <unk>.
Who will go through the financial results in greater detail.
Please go ahead.
Thank you Mel.
Turning to slide 13.
In Q2, we delivered record quarterly revenue of $143 billion.
Gross margin was 12, 9%.
Well ahead of our guidance of nine five to 10, 5%.
Q1 benefited from both volume and pricing increases.
Module shipments as well as greater contribution from battery storage shipments and beyond a mock yourselves.
We also made significant efforts to improve manufacturing efficiency.
And our reduced unit costs.
Selling and distribution expenses were flat quarter over quarter.
But up year over year due to higher shipping costs.
G&A expenses will also flattish quarter over quarter due to continued tight control on discretionary costs.
Total operating expenses were up only 5% despite.
Despite much faster revenue growth and now accounts for 11% of total revenue.
The net foreign exchange loss in the second quarter was $3 million down.
<unk> from a $7 million loss in the first.
We continue to optimize our currency hedges.
The income tax benefit was $2 million in Q2.
Compared to a tax expense in Q1 of $14 million.
The balance was driven by a lower effective tax rate and a lower impact from high tax jurisdictions.
Net income attributable to Canadian solar shareholders.
It was $11 million or <unk> 18 per diluted share.
Slide 14 please.
Now turning to cash flow and the balance sheet.
As Yan mentioned previously.
We have adjusted our procurement and our working capital management strategy to hold more inventory than we have traditionally.
As a result, we increased the inventory by nearly $200 million this quarter.
Our strategy has helped us better manage our costs and mitigate supply chain pressures.
We also had an increase in accounts receivable, which is reflective of higher shipments to China based customers, who generally require longer receivable days now.
Many of the out by increase in notes payable.
After netting all of the moving parts, we used approximately $61 million of cash in operating active temperatures.
Q2, Capex was $138 million.
We expect full year capex to be approximately $650 million unchanged from our previous guidance.
As we support the higher global demand, we are seeing across all markets.
At the end of the second quarter.
Approximately $60 million from the after market equity offering program.
And to date.
Have raised around $110 million run rate.
Program is progressing well.
Overall, our total cash position remains strong at one point, so we have been giving.
Giving us the financial flexibility to fund capital expenditures and a long term growth investments.
Total debt declined moderately to $2.2 billion as we optimized our financing sources.
We also lengthened the overall maturity profile of our total debt with long term debt, including all long term borrowings on project assets accounting for only 40% of our total GAAP down from 60% just two years ago.
Net debt to EBITDA in Q2, excluding restricted cash remains at a healthy level of three eight times.
Now, let me pass it back to shore will conclude with our guidance and the business outlook Shaw.
Thanks, Paul.
Let's turn to slide 15.
Now for the third quarter of China to NOI, we expect total module shipment to be in the range of three eight to four gigawatt.
<unk> approximately 275 megawatts of module shipment to our own project.
Total revenue is expected to be in the range of $1 to $1.4 billion U S. Dollar.
Gross margin is expected to be between 14% to 16%.
The wider than usual revenue profitability range for the third quarter reflect the timing of certain project sales, which maybe recognized towards the end of this quarter or early in the following quarters.
But she'll be recognized in the year I'll try to generalize.
For the full year, China is your NOI weighted rate, we reiterate our revenue guidance of $5 six 6 billion U S dollar.
It was project ourselves so one.
Two to three gigawatt and total battery storage shipment.
810 to 868 megawatt hours.
We are slightly reducing module shipment guidance from <unk>.
Aegean to trying to a gigawatt.
The new range of 16 to 17 gigawatt.
We expect full year revenue guidance unchanged.
We expect higher module ASP to offset the impact of the slightly lower shipment guidance.
This is reflective of marginally lowered global demand.
Response to higher solar system equipment cost.
We remain highly optimistic of the overall demand environment.
Expect growth to accelerate in China intended to tend to be out.
Now, let's turn to slide 16.
Finally, let me give a update on the progress of the planet.
Carve out lifting of CSI.
I have now moved toward the request.
<unk> stage.
Shanghai stock exchange.
The feedback process typically takes couple of months. So we are well on track.
With that.
To open the call to a question either.
Okay.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key.
Once again, if you wish to ask a question star and the number one on your telephone keypad.
Your first question comes from the line of J B Lowe of Citi. Please ask your question.
Hey, good morning, everyone.
My first question is on the module shipment guidance reduction I'm. Just wondering if you could kind of give us a sense if you could break it down between.
How much of the reduction was foregoing sales.
Because you wanted to keep pricing higher how much of it was was demand driven and how much of it.
If any was due to timing of some shipments do you think are being pushed from 'twenty one into 'twenty two.
Yes.
Yes, so if I'm hearing.
Hearing your question correctly.
Hi.
I think a majority of the projects coming to our inflammation in our market feedback that's going to be still planned to be connected this year.
So.
We have observing some.
Some signs of the market where mark.
<unk>.
Although the module demand is actually.
Change the change on module side is always behind the upstream.
Suppliers upstream our materials so.
We think that in second half.
Demand will remain to be strong.
So much stronger than first half.
Right, but I guess the reduction in guidance I guess, what was the main driver of it.
Reductions yeah, yeah, so the reduction.
We actually.
I think that the.
The second half, especially in Q4, we are expecting a very tight balance between ASP and supply chain cost. So.
So we believe to maintain the right balance and optimize our.
Our margin, we need to have a more controlled pace.
On sales.
So that's.
That's what we.
Estimated now so.
Yes, indeed, there are some more even pushing off next year.
But still we need to make sure that the pricing can give us the volume.
Balance to pricing can give us the right margin.
Hi, Jami this is vishal.
<unk> speaking.
When we reduce the.
And your shipment guidance out of that event from previous agent to trendy gigawatt.
Two six single sovereign Nicaragua, so well just like two gigawatt.
That's all.
I would say.
Property, a one third of the reduction is due to our systems.
ASP and profit and maybe another one third is due to sub customers say, okay. We're still want Canadian solar module, let's wait for next year, So as Joe said.
Project, some demand GAAP push out to next year and maybe another one third is due to logistics and.
Because of the Golar global logistic.
Issues.
The shipping time.
The time to deliver from.
Our factory to the project site.
GAAP too much.
Much longer so some of the December or even the lumber shipment it may not.
Customer site.
Before December 31, so that become a Chinese trendy Chu.
Shipment.
I would say, maybe one third several et cetera, I hope this.
We'll give you more color.
Alright.
Yes.
Other than whats, Sean what the yen just discussed.
Yeah, No that's exactly what I was looking for thank you.
My other question was just.
Gross margins on the storage side is obviously, becoming a bigger part of the business.
What would the gross margins on storage and <unk> and what do you expect them to be to trend over the next couple of quarters.
Well so.
First of all.
The storage revenue.
So CSI.
Sat Fi solar site is.
Essentially right now mostly integration business.
And usually project.
A deal actually include two parts one is the upfront installation system integration and installation of the other one it's a long term service agreement to both have their revenues and profit so by nature of the system integration business.
Yes.
In terms of Capex and Opex are both low much lower than module business. So.
On the gross margin side, it may not be that high but the proportion of net profit.
<unk>.
A significantly better the module business.
So.
Right.
So of course from project to another cut from project to project you may see some variations on the on the profitability, but in general they are significantly better than module business.
Hi, Jamie this procurement again.
This is Sean again, and again I will add some color as to other than what <unk> just discussed.
Pure gross margin wise.
Battery storage.
EPC and total solution business.
Yes.
This moment will give us.
Low teens to mid teen gross margin, however, aussie asset it's different because there's no capex therefore, no depreciation.
Cost for this business so weak.
We can occur.
Low to mid teen gross margin into a high single digit.
Net margin contribution so it's pretty good.
Visiting as the module.
The net contribution is very good and there is also to highlight that this is only the beginning.
At the beginning.
We always had a higher cost.
Product certification.
And bank competitors or that kind of stuff.
Also.
We.
Taking some problems some products.
The battery storage product.
Now as we continue to grow this business also continue to bring more of the manufacturing in house.
Back the margin, both gross margin and that margin.
Our battery storage business yet.
To increase.
Alright that was excellent. Thank you so much.
Thank you Jamie.
Your next question comes from the line of Philip Shen of Roth Capital. Please ask your question.
Hi, everyone and thank you for taking my questions as a follow up on the margins for the.
The energy business I was wondering if you could just talk about.
Give us a little bit more color on what happened with the 4%.
The global energy business margin in Q2, historically, you've gotten as high as 32%. So just a little bit more color as to why it may have been so low in Q2, and then how do you expect that overall margin to trend.
Q3, and four and also.
For the global energy business can you talk about which countries you sold projects in Q2.
Hi Phillip.
Yes sure.
Also our classroom.
Thank you Sean Thank you Felipe for your question.
Looking in relates to gross margin to project sales.
It's very tricky because this is.
It is fully dependent on how do we get to the accounting treatment, so what you're seeing.
Beginning in Q2 is the last stage of projects that were under construction. So most of the margin of those projects was already booked.
What you should expect to see out of the year.
The typical solely at the gross margin that we usually get.
The evidence of the year. So please don't get don't get fooled by by the accounting treatment on Q2.
All the projects that we booked were worried in the U S and they were all under construction already.
Okay. Thank you Shlomo.
In terms of the module business. So was wondering if you could comment on that.
The geographic mix of the three seven Gigawatts shipped in Q2, and then how do you expect that mix to change in Q3, and four and what are your expectations for the Geo mix geographic mix.
22 thanks.
Hi, David.
Guidance.
Yes.
So.
First of all.
In terms of the split of the shipment.
I want to add that.
It is as huge as in the past quarters that around half of the volume goes to the DG market residential and DG market in terms of geographical.
So we have the leading the leading market is like.
Is China actually in Q2, we expanded our presence in China.
To deal with that.
Switching to some exchange rate and also the higher shipping costs Ocean shipping cost. So China became number one in Q2. So this is a little different.
From past quarters, and secondly, North America.
<unk> and <unk> are.
Those are more than 20%. So the rest is in the APAC and Latin America.
Thanks Sharon.
Can you share what the percentage was in Q2 for.
China.
It was 27%.
Great and then looking into Q3 and four do you expect those.
Mixes to percentages to remain the same.
Similar.
Great and what about 2022.
When they don't need to I think.
It will probably.
Stable or maybe slightly higher that's my estimate.
But I cannot to be so clear for now.
In general we want to increase our <unk>.
License in China.
Given that.
The high shipping costs and also the exchange rate.
So, but however, I don't have detailed number for you it's going to be like similar.
Got it and then.
As it relates to the U S which is.
It sounds like it might be even more more than 20% can you talk about if you've seen any changes in the U S market, whether it's with customers or with.
Other aspects of shipping into the U S. Since the W. Aro on her schein was put in place.
Again, whether it's customers or if you've changed your approach to the market.
Talk about the U S market a little bit thanks.
The demand we're seeing is high so.
Strong demand from U S and the <unk>.
<unk>.
Many customers.
Talking discussing ddos or try to find supply agreement with us a multiyear large volume deals.
We see the demand is very strong.
And in terms of.
So we're actually.
<unk> been working very hard to deal with that and.
We're pretty confident that we can overcome that.
Constraint.
Okay. Thanks for all the detail I'll pass it on.
Once again, if you wish to ask a question. Please press star and the number one on your telephone keypad.
Your next question comes from the line of Colin Rusch of Oppenheimer. Please ask your question.
Thanks, So much guidance could you give us some insight into how non silicon costs are trending and availability of materials are you seeing any.
Tightness or changes in terms of cost of telephony.
So.
You're talking about processing cost non silicon processing cost.
Right now im talking about glass.
Silver paste, all those sorts of things that our guidance natural materials.
Yes, yes, it was going up pretty fast from Q4 to Q1 and in Q2 actually came down.
Stabilizing going down a little bit so.
That said over our trend.
Okay, and then in terms of your strategic focus around different system sizes, you talked about the distributed power market handheld with better pricing.
Going forward.
On the development side are you looking at.
Community solar kind of 10 to 50 megawatt type projects being a real growth market or are you still really highly focused on some of the larger systems.
I think in second half we are observing that in mature developed market that the rooftop market is actually warming up is coming back it was affected more more than the utility scale because of Covid and.
Now, it's actually coming back so.
That market will continue to be bad.
At our own profit. So we will continue to be our focus.
So you're talking about like a one or two megawatts ground mounted did you say that.
I Couldnt hear now more and more like more like $10.10 to 15.
I'm talking about kind of a medium size crown.
Ground Mount systems, and whether that's a real growth market, where you can plug into the 65 kv lines short kv lines.
And support the grid and a little bit different way.
Yeah those size of project in terms of.
If you're talking about.
If you see in module sales. So we don't see that anything better than the large projects in terms of the pricing for module.
But on the development side Eastman I may have a different light.
In terms of development and investment.
Okay. That's super helpful guys. Thanks, so much.
Yes.
Once again, if you wish to ask a question you met the star and the number one on your telephone keypad.
Sure.
Your next question comes from the line of Max Trouser Jpmorgan. Please ask your question.
Yes. Thank you very much for taking my questions.
Most of them have been answered I just wanted to see if you could give a bit more kind of high level color on your capacity plans right. So youre.
Youre, taking down your module capacity in the second half of this year, but increasing your wafer and cells.
As we think about that over the next several years as this whole supply chain disruption kind of made you rethink your historical methodology of having significantly more module capacity.
Well.
We actually.
Continue to believe in.
What do you call that.
Flexible what's pre integration.
We believe that the industry is in the in the stage that.
The P type the existing PERC technology has reached to a limit while we'd still do not have consensus on the N type and.
Starting from next year were going to see that.
It's probably a strong oversupply on some of the materials. So.
So we actually although of course, we will continue to go to execute on our existing Capex plan as we have published in the past however, we're not.
So in terms of next year. So the additional capex, we still don't have.
Tangible plan, yet we try we want to be more cautious and.
While we will still grow our market share next year. So we had market share of 8% last year to 10%. This year and now market share will continue to grow year by year.
Okay. That's it for us Thanks Sam.
Yes.
Your last question comes from the line of Philip Shen of Roth Capital. Please ask your question.
Hi, everyone and thanks for taking my follow ups here.
In terms of storage.
How much of a.
Well in terms of the one five gigawatt hours.
Under construction can you give us a sense for how much might.
Either.
Or be sold by quarter in the coming quarters.
Oh.
Israel.
Yes.
Okay. My question, Okay. So in terms of Vod time, Okay. So we have but we had the three hunt.
No we had a 300 megawatt hour shipped and installed.
In Q2 and.
The rest of the almost 900 megawatts hour would be.
Connected in the second half of the year. So in terms of Q3 and Q4 I don't have the big.
Late yet so the timing can be somehow.
So uncertain.
Great. Thanks, Paul.
With furniture.
Yes, Phil this is Charles.
We have the numbers, but.
We'll follow up with you later.
Did you have some.
More detailed.
Style by water.
Okay. Thank you Sean and then.
In terms of the cost inflation that we've seen.
You guys, obviously saw the modules.
But then you also build the projects.
And we've seen inflation across the board.
Just wondering if.
<unk> delayed.
Any of your projects.
As a result of higher input costs.
And if so.
What kinds of delays are we seeing maybe a quarter or maybe longer.
And then are you as a project developer are you seeing.
Asset owners.
Are they willing to take.
Less return 50 basis points or something.
Meaningfully less to.
To help absorb some of this cost inflation or are you seeing pushback from them.
Is the preference again too.
To delay projects and push out the crts.
Thank you.
Yes, Philip this is Shawn speaking.
Yes.
Fortunately, we don't have.
Much.
Solar project.
To start NTP. This year. So we are not non module market so far.
By the equipment cost increase we do have some project.
We may reach NTP.
By the end of this year.
In that tenant will receive.
We think we'll go ahead.
Okay.
With those project.
<unk> costs.
The investors.
Investors.
The project buyers also willing to pay higher cost to us now.
Now to our situation.
In terms of third party project developers and guests we see both we do see some.
Develop Paris.
The delay that project to next year, but we also see some.
Developers.
Willing to taking a higher cost.
Due to project this year.
So.
Yes.
We showed you in one of our slide.
Actually start to see the PPA.
The.
Power purchase agreement.
We'll move up.
In recent months.
As Joe said.
The inflation that we're aware.
Inflation is on the electricity power price as well so we seem to see that.
The PPA for renewable also responded.
Great. Thank you for the color, Sean and I.
I'll pass it on.
Seeing no more questions in the queue, let me turn the call back to Dr. Shawn Qu Chairman and CEO for closing comments. Please go ahead.
Yes, Thank you and thanks, everyone for joining us today.
And also thank you for your continued support.
Do you have any questions.
<unk> set up a call. Please contact our investor relations team take care and have a nice.
A nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.