Q1 2022 Canadian Solar Inc Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by.
Welcome to Canadian <unk> first quarter 2022 earnings.
Yes.
For today 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.
Now I'd like to turn the call over to Isabella Zhang Investor Relations director.
Please go ahead.
Thank you operator and welcome Mike.
We wanted to Canadians.
Quarter 2020 conference call.
Please note that we use provided slides to accompany today's conference call, which are available on Canadian soldiers Investor Relations website.
You bet and presentations section.
Joining us today, a doctor Sean.
Chairman and CEO .
I'm, John <unk> President of Canadian Solar is majority owned subsidiary CSI solar.
Got to keep them to them.
P M P F L X.
Not at all.
Corporate EVP and president of Canadian Solar is a wholly owned subsidiary of global energy.
Oh 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.
Yeah. It is Mike.
Okay.
Highlights of the CFO .
The energy business.
I think people, who will go through the financial results.
John will conclude the prepared remarks with the business outlook.
To which we will have time for questions.
Before we begin the management prepared remarks today.
Two 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 1985.
Actual results may differ from management's current expectations any projections of the company's future performance represent management's estimate 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 S&P.
G regarding generally accepted accounting principles or GAAP.
Some financial information presented during the call will be provided on both the GAAP and a non-GAAP basis.
By disclosing certain non-GAAP information management intends to provide investors with additional information to conduct further analysis of the company's performance and underlying trends.
These are non-GAAP measures to better assess operating.
Performance I just got this operational goals.
non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.
And now I'd like to turn the call over to Canadian <unk>, Chairman and CEO , Dr. Shawn Qu.
Shawn Please go ahead.
Thank you ladies apparel, however was okay. Thank you for joining us today.
Please turn to slide three.
In the first quarter of <unk>.
We delivered 3.63 gigawatt of module shipments.
<unk> two $5 billion in revenue and 45% gross margin.
We also achieved net income attributable to Canadian solar shareholders.
$9 million.
Diluted earnings per share.
14%.
These are resolved.
Well in line with our guidance.
Even though the operating environment was very challenging.
I want to thank our global team for their <unk>.
<unk> and.
Execution.
Our strategy.
Building Canadian solar is long term competitive position.
Oh, yes.
Businesses, including solar module battery storage system solutions and global project development.
Please turn to slide four.
One of the things I would like to highlight this quarter, yes, our decision.
Accelerated upstream capacity expansion plan.
With the latest state of art technologist.
Pacifically, we expect our ingot and wafer.
Cell capacity to reach approximately try and take it by the end of 'twenty two.
Which is meaningfully higher than what.
We previously communicated.
Our module capacity will be 32 gigawatt in line with our prior target.
This will meaningfully increase the level of vertical integration.
Our manufacturing capacity.
Allowing us to better control.
<unk> technology and product quality.
Thereby further improving our pricing power and margin.
Our plan is to strategically.
Shift capacity from the current Paramount structural to a chopper as always it structure.
We are pushing our vertical integration level to 32%.
The highest in the Canadian solar industry.
This trapper Zoe it's structural.
Allow us to strike a good balance between greater control over production cost, while still being flexible and responsive to market changes.
This flexibility has given us.
Palliative advantage in the past and even more important today.
Please turn to slide five.
Secondly, the registration.
<unk>.
China Securities Regulatory Commission <unk>.
Our CSI, our solar subsidiaries carve out IPO remains on track. This is despite the slowdown due to the Kobe lockdowns in China, and especially in Shanghai.
The listing will support our growth strategy.
Further unlock value for shareholders. However continue to update you all.
As we move forward.
Please turn to slide six.
Lastly.
I would like to comment on a particular resolution passed by our board of directors.
Last week.
This resolution mandates third party audit of Canadian soldiers operations and supply chain with respect to the effectiveness of our anti modern slavery policy.
Suppliers code off calling back and the human rights policy.
Management team proposed the resolution to the board as a response to <unk>.
Shareholder proposal <unk>.
Fully support the resolution.
We have clearly stated prior.
Prior calls.
Canadian solar does not tolerate forced labor or any form of modern slavery.
Is committed to ensuring that modern slavery does not take place anywhere.
Including our supply chain.
We implemented policies and procedures addressing this.
And with this board resolution, we expect to further increase our <unk>.
At reasonable cost to conduct third party assessment.
Report to the board of directors.
On the extent to which our policy and procedures.
They protect against both labor operations supply chain and business relationships.
This remains a top priority for our management and board.
We look forward to engaging with our investors customers and partners during this process.
With that let me now turn it over to Yan, who will go through our CSI our solar business.
Greater detail Yan. Please go ahead.
Thank you Sean please turn to slide seven.
In Q1 in the CSI as solar Division we.
We delivered 363 gigawatts of solar module shipments.
One point to $1 billion in revenue.
And 14, 5% in gross margin.
Year over year, this represents 74% revenue growth and 161% gross profit growth.
And while we are pleased with the strong performance.
The operating environment remains challenging going into Q2.
Please turn to slide eight.
First let me give you an update on the latest supply chain and market situation.
As you know polysilicon cost inflation came back in early Q1 due to the strong demand in China and India.
While we already anticipated upstream costs to remain high in the first half of the year. The magnitude of the cost increase was greater than expected and therefore, we had to react quickly.
We continued to raise prices where possible optimize capacity utilization and further reduce our processing costs.
As of now as of now we believe polysilicon pricing will come down gradually.
Second half of the year.
Once capacity maintenance activities are over and more supply is added to the market.
We expect demand to remain strong.
Especially once pricing starts to come down.
Q1 was also affected by the Covid related Lockdowns in China.
Which were particularly severe in the retail Shanghai region.
On the positive side.
The reduced overall shipping activity in the region has triggered a decline in shipping costs.
Which finally seem to have turned.
Warner.
Unit transportation costs are still significantly higher than historical levels.
But have come down close to 20% from their peak.
We expect that trend to continue gradually through this year as the war recoveries from Colby.
Shipping congestion has also improved although certain ports skew more congested than the pre COVID-19 normal levels.
Finally currencies are starting to move into our fever after two years of headwinds.
So we then are preaching landscape that is improving but still challenging.
Our focus remains on our long term strategy.
Please turn to slide nine.
At our core solar module business.
Our goal is to expand capacity increase the level of vertical integration.
As Sean discussed gain.
<unk> global market share and improve our long term, earning power.
Vertical integration allows us to further internalize our supply chain.
Reduced market risk and drive innovation and product leadership.
Growing from a lean asset base with limited legacy assets, we have an advantage as we implement our growth plans to reach 15% market share in three to four.
<unk>.
We're also excited about the significant.
In our battery storage business in Q1, we shipped 290 megawatt hour of storage systems, and we expect a significant ramp up from Q2 onwards.
We're also expanding our market reach.
From mostly selling to the U S market too.
U S market to entering new markets, such as the UK and China.
And we're starting to provide a wider range of value added services and solutions, including battery storage solutions for capacity services and shorter duration frequency regulation.
On the product side, we're very close to launching two major battery storage products.
Our utility scale product designed to be one of the safest and most competitive in the market and a beautiful sleek battery storage system for residential applications, which will enhance our distributed generation market offering.
Both products are expected to launch shortly.
<unk> to start selling them across all major markets in the second half of this year.
Now, let me pass it on to you smell for an overview of the global energy business.
Please go ahead.
Thank you Dan.
Please turn to slide 10.
In Q1, we delivered <unk> $93 million in revenue.
A 19, 2% and gross margin.
We delivered approximately 350 megawatts of project sales in the U S.
Which would all three or early construction projects.
Hence why the dollar per megawatt was relatively lower but margin was healthy.
We took advantage of a strong.
Buddy and interest that provided us high price offers for our projects, even though they were relatively early stage.
This helped us avoid placing high amounts of interconnection bonds.
As it would be covered by the buyers.
And we could recycle that capital for higher returning investments.
So revenue was softer this quarter due to project monetization cycled Francis commodity.
Including certain projects that we accelerated into Q4 last year.
But we expect Q2 to pick up.
This quarter, our global project pipeline remains stable with 24, Gigawatts of solar and 27 gigawatt hours of battery storage.
The contracted pipeline was approximately five gigawatt figure what hours respectively.
Which is all construction projects.
More than 90% of backlog projects on this slide.
It is also important to note that the value of our pipeline is not only in its contracts.
But also on the quantity and quality of interconnection agreements we have in hand.
Which currently at 12 Gigawatts for solar.
On 11 gigawatt hours for storage.
In most markets interconnection is increasingly the greatest hurdle for developers.
But we have a global volume of this magnitude.
Is testament of our pipeline, our ability to capture value and sustained growth over the long term.
And speaking of growth I'd like to reiterate our growth strategy.
Which is consistent with what we've been communicating with the market over the past several quarters.
Please turn to slide 11.
First.
We will continue to grow our development platform through project origination development on sales brought deeply managing risk and working with potential partners to leverage our different areas of expertise.
We are taking a portfolio management approach.
We are solidifying our market share in places, where our position is very strong.
And growing our market position in other places where it makes sense.
For example.
We currently have a double digit market share in places like Brazil and Italy.
We were one of the first of all we are seeing the market and have now amazed deep market knowledge and expertise.
On the other hand.
We see significant upside potential in markets such as Spain.
The UK, Chile, Australia, South Korea, among others.
The U S is also one of our key strategic markets, especially in the battery storage space.
Second.
We are aggressively growing our operations and maintenance platform.
By contract and projects developed by Us and by third parties.
By the end of last year, we had just over two gigawatts of operational assets under one name agreements.
We are now meaningfully increasing our targets.
We expect to more than double this number by the end of this year to Fortinet health Gigawatts.
And grow it by 10 times by 2026, reaching 20 Gigawatts.
Okay.
We set ambitious goals.
But we are building our capacity to achieve them. So that the share of our government revenues will be much higher in a few years' time.
Third.
It's retaining ownership of our project assets, mainly through long term investment vehicles, which will also allow us to increase the share of recurring income.
Regarding earnings from long term asset owner ships will be above or below the line on our P&L.
Pending on whether we'll retain majority or minority owners.
This will be determined by our goal of maximizing the value of our pipeline subject to risk and.
Capital constraints.
Retaining ownership of projects will also allow us to explore an accelerated the learning curve of unconstructed distorted to development assets.
To summarize we continue to execute on our strategy that is to grow our development platform with quality assets and to increase the longer term sure of our recurrent income as we work to create lasting value for our shareholders.
Now, let me pass it on to <unk>, who will go through the financial results in greater detail.
Please go ahead.
Thanks Eastern Mal.
I am please turn to slide 12.
In Q1, we delivered $125 billion in revenue.
15% year over year.
Down 18% from the previous quarter due to business seasonality.
Gross margin was 14, 5%.
This roe higher material costs.
Tightening control on many other operating expenses and eventually.
However in the guidance range.
It is important to note that our operating expenses were lower by almost 30% sequentially.
Well <unk> got 30% decrease selling and distribution expenses declined 16% quarter over quarter.
Most of it due to lower transportation costs.
General and administrative expenses declined 30% quarter over quarter due to tightened control.
Research and development expenses also declined somewhat this quarter due to the timing of our R&D activities.
The foreign exchange positions.
$3 million compared to $1 million in Q4, 2021.
The brand what it.
It was mainly driven by the strong appreciation of the Brazilian real and the Ara currency fluctuations such as the appreciation of the Australian dollar.
As he had mentioned.
Currencies are starting to move in our favor.
After two years of headwinds.
Our reporting currency is in U S. Dollar while costs are mostly renminbi and revenues are in many currencies, including the U S dollar Euro Brazilian real Japanese yen renminbi and more.
Thus we are currently.
From the recent sharp depreciation of the renminbi relative to the U S dollar, which was partially offset by other currencies also depreciated against the U S dollar.
Q1 income tax benefits was finally compared to 27 million tax expense.
In Q4 2021.
The patent assets.
Due to lower income before tax and the tax refund in Canada.
Our annualized basis.
The effective tax rate this year will be around 22%.
Total net income.
And net income attributable to Canadian solar shareholders was $9 million due to a few offsetting factors.
This quarter, both numbers were very close but please note that the variance between the total on the core net income will increase going forward. Once we complete the call by IPO of CSI solar.
Canadian solar ownership with CSI solar will decline from 80% to approximately 64%.
Basic and diluted earnings per share both 14th.
Please note that the diluted share count did not include the adjustment for the outstanding convertible bond.
Yes.
Now turning to cash flow and the balance sheet next slide please.
In Q1, we strategically increased our inventories in both raw materials as well as finished goods anticipating.
Anticipating the inflationary environment to continue and the higher demand.
Q1, Capex was $90 million.
Given the accelerated capacity expansion plans.
We expect 2022 full year capex to be approximately $115 million up from our prior expectation of $700 million.
We ended the period with a healthy cash balance of $1 7 billion.
Giving us financial flexibility to manage unexpected risks.
Total debt increased to $2 7 billion.
Mainly driven by increases in London valves.
Financing partners continue to support our growth opportunities despite the tightening financing environment.
12 months trading.
EBITDA, excluding restricted cash increased to two <unk> on a one time, one three points from the prior quarter.
Now, let me pass it back to Charles who will conclude with our guidance and our business outlook.
Please note that this quarter, we are slightly adjusting our shipping the disclosure to ensure consistency in future Canadian solar and the CSI So disclosures.
Our shipment forecast reflects that.
Total shipments recognized revenues bump that CSI solar standpoint.
Includes both shipment to third parties and to global image projects that are fulfilled CSI solus revenue recognition <unk>.
The CSI.
<unk> level.
Internal global shipments should be eliminated.
The profit from internal module shipments is only recognized once which is at a time when the project is sold.
Please go ahead.
Thanks, Paul Let's turn to page 14.
The second quarter of trended Jimmy Choo, we expect solar module shipment to be in a range of $4 nine or 501 gigawatt.
Approximately 150 megawatt to our own project.
So if one GAAP measure from the quarter hall or disclose churn on the volume based on what <unk> solar expect to Brooklyn.
Revenues in the quarter.
Total revenue expected to be in the range of two to $4 3 billion U S dollar.
Driven by higher volumes.
Lower volumes and battery storage shipments as well as project sales.
Gross margin.
Packet of EBIT train 14, five to 15, 5%.
<unk> higher.
Yes.
Our guidance remains unchanged for the full year of China agenda too.
With total module shipment.
China 24 gigawatt.
Auto is thorough shipment of one eight gigawatt.
Okay.
And total project.
401 for four six gigawatt.
Total revenue guidance for Chinese 22 also remains unchanged.
Factor to be in a range of seven <unk>.
$1 5 billion U S dollar.
Despite the continued market challenges.
Our business outlook remain strong led by robust demand for renewables and Greenfield battery storage.
Our strong market position from focus bill.
Building long lasting shareholder value.
With that I would now like to open the call to a question.
Later.
Thank you, ladies and gentlemen, if you like to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone.
First question coming from the line of <unk> Satish.
Fargo. Your line is now open.
Hi, Good morning, I guess, just first to start off on the capacity expansion can you maybe just give us a sense of how much capex you'll spend this year to increase manufacturing capacity and also on financing would you need to.
Use the at the market program to help fund the increase in Capex.
I believe <unk> already.
Address this question and so.
Yes.
Franco you operate.
Hi, yes, the top box.
Okay.
Our expected.
And then.
This increase first of all the top box is to meet the demands when all the global demand almost doubled from slightly above 100 gigawatt in 2019 pre pandemic to now more than 200 gig why yet. So we are investing mainly to meet that additional demand.
You can take take Ford escape.
We're taking market share.
And the topics.
Scale and that is for us to remain cost competitive and we aim to remain in Q1, not really to be the largest one in the.
Third we believe the timing to ramp up of capacity is now relative to our peers we expanded.
Our cost for new capacity is cheaper.
We're taking the second mover advantage because all the equipment that have become cheaper in the last couple of years.
More importantly, our Capex plan is dovetailed with our IPO in China.
<unk> posted will give us the financial firepower to do so and of course on the.
Our global energy business side.
Financing need.
All go with the product development and for example, we're doing a lot of projects in Brazil, and as a product takes off.
I'll take the financing.
As at the project level.
Sure.
Okay that makes sense.
And then just broadly I was wondering if you can give an update on the solar development market in Europe , whether you're seeing any acceleration there and whether the governments are accelerating permitting.
New projects, just given everything that's going on in Russia and Ukraine.
Yes.
Now to address this question.
You Smile.
Hello, Thank you for the question.
Lucas.
Energy is.
Yes.
Weapons will inevitably dumps into geopolitical multi months right. So Europe in general is taking the approach of.
Being independent from the energetic point of view.
There are no resources in Europe beyond renewables, so what do we see some shift on all the governments trying to push other two renewables the blade.
Much bigger volume and also quicker. This is what we are seeing and of course the immediate result this wholesale.
The spike in the in the electricity pricing.
So those are the main two two.
Sure.
Two things that we are seeing and we believe that you are going to last for quite some time, it's not going to be something that will go away easily.
I don't know if this answers your question.
Okay. Thank.
Thank you.
And our next question coming from the line of Philip Shen with Roth Capital. Your line is open.
Hi, everyone. Thanks for taking my questions.
I wanted to check in with you on the U S market in Q1, you had 29% of your shipments to North America and it sounds like.
Based on our checks that you are still shipping into the U S.
Meaningfully.
Despite the anti circumvention risk.
As the importer of record I was wondering if you could talk through for some of us.
Around the details.
Of the contracting.
For example are you the importer of record how much risk are you taking on here.
And.
Ultimately, how youre structuring these deals and how much of it is for serving the DG market versus <unk>.
Thanks.
Okay Philip.
This is the end to answer your question first of all we're actually.
We're well aware of all the risks so we had a thorough analysis and we.
Actually first of all we're shipping to the U S continuously and.
With a different basket.
So some customers with some customers, we're taking the risk but with conditions. So we sell actually at a premium.
To cover the risks and we also re 10 hour.
Right to terminate shipment in case of the policy goes.
It goes out of certain lines. So we have.
Conditions in the contracts and some customers are willing to take that risk to themselves by a clear customer themselves and in.
In some cases, we share the risk.
And for distribution channel, we obviously selling add at a higher premium so that can well protect us from the risks.
On top of that.
So we actually also diverted some volume from.
<unk> from U S to other markets like Taiwan and.
Are we exploring different.
Possibilities and we also have some of the product actually.
Made from hemlock silicon so arista silicon that can also mediate the risk.
So.
So a combination of many different measures and we're confident that the risks are well hedged.
Sure.
Great. Thank you again for sorry, let me correct.
Countless wacker is not hemlock sorry.
Okay got it.
Important index.
So can you talk about the profitability of.
This opportunity in the U S. So as you balance all of the different risks.
I guess two questions here.
How many gigawatts of product do you think you send to the U S in 2022, and what kind of profitability could.
The U S.
North America.
Sales have for you.
Well, so I would not I think the volume was shifting to the U S.
It's not the entire capacity.
Talent, so it's less.
We're having gone undergoing some upgrading and we diverted some volume.
That number actually not 100% sure.
<unk>.
So around three gigawatts more or less im not sure Im not I don't have exact number it is more profitable than some other markets.
Depends on the channel.
The DG market is actually to have a higher and higher pricing.
So I hope I'm answering your question.
Alright.
Hi.
Personally I'm more profitable, it's just that we have to add a risk premium.
Okay. Thank you Shawn one last one for me in terms of capacity expansion.
<unk>.
I missed the Capex I think it was unclear on my side at least.
Could you remind us again how much.
Weighing on spending this year, but then bigger picture.
I was wondering if you guys could talk through.
The timing of making this decision.
To become a trapezoid structure from your historic pyramid structure after being public for.
Close to maybe 15 years.
What are you guys have historically always kept this pyramid structure.
So what are the conditions in the market today.
Sure.
Driving you to make this decision.
Because historically you are.
We're evaluating it I'm imagining every year, maybe multiple times a year and so what is it about today's environment that makes the shift necessary from the pyramid structure.
Trapezoid structure. Thanks.
It's.
Okay.
The total <unk> that's go ahead.
$850 million.
So the decision is made and we are going ahead.
So no.
No conditions, so we talked about <unk> around 20, gigawatts level for ingot wafer and cell that's going to happen.
So.
<unk> already just it takes time to two.
To complete.
Right. So yes, this year Youll spend $850 million I guess my question is.
Go ahead.
$850 million covers everything so that include what we done last year and also the operator, we're going to do this year and new capacity expansion. This year and the part of the spending for the project Thats going to be realized next year. So it's a combination of everything.
Can you share how much will be spent in 'twenty two.
Well the total budget is $850 million, so thats where were going to pay.
Okay, and then I guess my question was.
Round why make the decision I know you mentioned the decision is made I get that my question is what is special or different about the conditions in the market today or for now okay. So we will shift from pyramid trapezoid.
The history of 15 years of being.
We believe we believed we believe the industry has come to the stage that we're experiencing.
Very sustainable growth.
Solar cost.
Not a conditioning for growth anymore.
No.
So.
We already reached a scale.
That we need the stability and.
Need more control on the cost side and so we can plan our growth. So the stability is becoming incrementally important for our business as far as four and also for us to compete against our peers. Just now the industry is so big and four.
For our business.
You cannot speculate anymore because of the margin.
Getting thinner as well.
The game is more on the vertical integration and scale site. So this is the game that this is now <unk>.
<unk> very clear that's why we're making this decision.
Okay. Thank you for the detailed answer and taking all the questions I'll pass it on.
And as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press star one.
Our next question coming from the line of Colin Rusch from Oppenheimer. Your line is open.
Thanks, So much guys could you just talk a little bit about the geographic mix.
As well as the kind of project size mix that youre seeing with the business right now I know you've got the direct too.
Still our channel that has been a good.
Margin driver for you historically, but I'm wondering if you're able to push more volume through that on an overall basis from a percentage perspective.
And how much of.
Your volume is starting to move into Europe and other geographies.
Given what's going on from a demand perspective.
So you're talking about shipment volume in two different geographies right.
Yes, and the mix of utility scale versus rooftop.
Okay.
So we first of all we continue to ship more and more into C&I and the residential market.
So.
Well there is certain volatility is on the utility side due to the impact of multiple factors such as.
Koby control inflation.
Utility skill project has lower tolerance on cost increase.
So that's why I recently actually the DG market is getting more and more volume.
But I think.
So.
In terms of stable pattern for us I would say, we will probably continue to maintain.
More than 50% into the utility.
DG market that includes C&I and residential the rest has seen two utility scale and in terms of geographical location shipment.
For Q1.
We're actually shipping the European market is growing and this will continue into Q2 Europe will maintain we will continue to be strong.
And for.
For Q3, Europe for me slow down a little bit because of the vacation time, but Q4 will come back strong and.
Sure.
Japan.
Korea and APAC.
It was high in Q1, because Indian number was high.
So I think for Q2 and rest of the.
The rest of the year.
Asia Pacific, Excluding China will come back to a 20% level and North America right now is slow due to the circumvention investigation.
However, we believe that.
In August if we actually receive more friendly.
The findings.
Preliminary findings I think the market will come back so we expect the U S.
There are certain uncertainties there for sure but.
Likely to go up or after August .
Latin America is the recovery.
So.
Remains to be strong, but right now due to the <unk> control.
And also the high cost.
Manufacturing site silicon prices, So high China project is actually showing no sign of slowing down temporarily but.
But we believe that.
I think moving to September October China demand will come back strong because by then we believe silicon price should come down before that.
That's super helpful. Thank you and then on the energy storage side of things can you talk a little bit about the technology development.
That you are engaged in and valuation of other technologies, obviously, there's a very tight market for chemical storage in Montana and batteries year.
Are you looking at additional.
Versions of Chemistries or things like flow batteries other other.
Configurations that could supplement the portfolio and derisk some of that cost structure.
So for battery cell, we do have a lab and we're actually research in two different directions.
However for the next couple of years, so we still rely on RFP technology.
So.
However, we're actually moving pretty quickly.
Other part of this value.
Value chain for example, our.
Integrated containers for for storage for utility storage and we have around 20.
Different patents that are some already we received the brand. Some some of them are still under application. So we have a lot of innovation in that product. So we're launching the product were sent start to ship the product starting from Q3.
I believe in June and July timeframe.
We have confidence that the product is actually one of the best in the industry and on the residential side.
Our product is also has a lot of innovations this actually.
Upgrade based on today's market offerings.
It has a lot of innovations from different angles.
It's a lot of details I don't have time to really look.
Talk into all the details.
We can talk about that product launch in July in the U S. It's really a lot of innovation since its upgrade based on today's market offering.
That's super helpful. I will take it offline thanks guys.
And our next question coming from the line of Brian Lee with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking the questions.
Had a couple of more I guess Monday modeling ones.
First.
For wafer.
You mentioned the Opex was was.
<unk> control pretty well here this quarter.
If I look at it on a percentage of sales basis, you haven't really been the slow in a while how should we be thinking about opex trends.
Just given the environment given.
The cost of shipping, even though they've come off the peaks still elevated just whats the trend line here.
As we move into the next couple of quarters on an opex, whether it's on a percentage of sales basis or how we should be thinking about maybe absolute dollar growth of the base in Q1 here.
Hi, Susan.
Oh.
Okay.
Hi, Brian .
Just last week.
Maybe.
We address your second balance trend.
Oh did you get the question.
No I didn't get a question what is the question.
Hi, This is Brian .
Asking about Opex.
Q1 was a good quarter for you guys in terms of Opex control a lot of other of your peers have not been able to control opex that well here.
In this environment, so wondering what's.
What should we be thinking about for Q2 in terms of Opex.
And then I guess moving to the rest of the year, just sort of as a percent of sales or what sort of.
Cost mitigation.
<unk> efforts you have that'll spill over from what you were able to achieve in Q1.
The whole package right OPEC youre asking OPEC.
Correct, Yes, yes.
Yes so.
I mentioned.
Hi.
A cost flipped.
Today on the call today that the biggest driver of Opex.
Decrease.
Is the transportation cost.
And now we are seeing that.
Especially on the international routes everything is returning to normal.
In the U S. There's a decrease and other Ross also that decrease.
And so we expect that to continue.
The largest factor.
We are also tightening.
Talking about protein.
Yeah.
Okay.
Personnel costs and other expenses.
We are cutting every corner so.
And all business volume has almost.
Doubled.
Over the last.
Three yes.
Al.
Our team all of these operating costs remained almost unchanged. So we will continue to be very disciplined in terms of expenses.
And that low.
How pilots to keep.
Keeps surprise.
Less change that cost and it remained competitive.
The capacity expansion plans.
We'll make more profits for the company.
Okay fair enough and just maybe one one housekeeping item I think last quarter.
You guys had talked about.
A one time incentive plan related to the IPO here IPO still on track for Q.
Q1, Q2, so I would assume.
This is going to be a number that ends up in Q2, so will that be sort of a $40 million showing up in opex. In Q2 is that the way we should be thinking about.
At least a one time bump up in Opex for this quarter.
Yes, Doug.
Will be determined by the it goes back a tiny.
China IPO because a lot of iqs are dependent upon the success of IPO right now we are in the last Ah.
H.
Chasing of the CSR.
We remain on track.
Unfortunately, the ongoing shut down in China slowed down that many things in China.
We remain optimistic but lifting will be done we haven't seen any red flag it just waiting.
And also it depends on the vesting schedule I guess.
Yes, yes fair enough fair.
Fair enough.
That will be basically cost will will see flow through the model in the next couple of quarters, whether it's all concentrated in Q2 or over the next few quarters is that fair.
Yeah either.
We hope will happen in Q2.
Also very possible it will be.
Jack into Q3.
Okay, Great and then maybe two last ones from me one on revenue seasonality.
If I if I take your full year guidance and I look at what you did in Q1 and what you're guiding for Q2. It does suggest a pretty.
Sizable.
Downtick implied for Q3 and Q4, if I just kind of flatline at so I know this has to do with project timing, but anything else in sort of.
Revenue seasonality here and it looks like Q2 actually will be potentially the peak quarter for the year, and then a little bit softer topline trends through Q3 Q4.
Maybe speak to that a little bit.
Yes, hi.
Hi, This is Charles on the CSI solar side, we actually expect to.
The shipment continue to grow in Q3 and Q4.
Of course that also.
Also if you're a panel with some other factors for example, the Covid Lockdown in China.
Yes.
Back to the scheduled Chino project.
But other than that we expect CSI solar.
Volume growth.
In Q3 over Q2, and then growing in Q4 over Q3 in terms of project Indeed it depends.
Sure.
Scott on the project schedule.
Okay.
And then maybe last one for me just on the gross margins.
Whether this is for Sean or away from the CSI solar margins have been pretty pretty consistent here, except for maybe one quarter out of the past four or five <unk> bin.
Hanging around the mid teens gross margin.
Percentage range, you're guiding for that again in Q2, and then you've got this.
Increasing capex budget and increasing vertical integration should we be.
Assuming that you get some gross margin expansion benefits from that vertical integration in 2022, or I guess, what I have seen with some companies as they go through a larger capacity ramps up times, they take a little bit of a.
Step back in the early ramp up.
On margins before they before they see the full margin benefits.
Realized after the capacity ramp up is more fully.
Materialized, how should we be thinking about the impact on your gross margins.
As you.
A word on this.
Vertical integration of the capacity ramp over the next few quarters.
Well.
We believe our margin will continue to improve.
Our rest of the year and even move into next year.
Multiple reasons for that so far.
First of all our improved integration and Capex capacity expansion.
Improve our cost structure.
So we actually perceive that the the upstream cost although it will go down over time with the increasing capacity of silicon.
It will go down, but we will stay at a relatively higher level. It will go down gradually it will not go down suddenly dramatically.
So going upstream and improve full vertical integration will help us a margin and secondly, as I said.
The demand is very strong the current <unk> situation on the power market.
Any just security concerns we believe that we can actually we can.
Can command.
Premium pricing from the project site the tolerance to cost increase on the project side as there has been a has been a high has been improved significantly so silicon prices will go down so upstream costs will go down and.
Project side, the tolerance to cost increases going up and we see that shipping cost is going to go down.
We also observing.
That.
The overall.
The size of demand is also going up so.
So that will help to reduce the percentage bottlenecks. So overall speaking I think the profit will continue to improve into.
Second half of the year and even into next year.
Okay sounds good thanks, guys I'll pass it on.
Yes.
And we have time for one last question coming from the line of Mark Strouse with Jpmorgan. Your line is now open.
Great. Thank you very much for taking my questions.
I am sorry, if I missed this but excuse me.
They are coming online this year.
Are you going to say where that is located.
And then just kind of a high level follow up to that would be.
With all of the focus lately on energy security what are your thoughts over time, eventually expanding more more significantly in European or U S. Manufacturing. Thank you you're talking about the growth.
Main growth.
Out of which the geographical location right.
Repeat your first question.
Yes, yes.
Sorry.
Okay.
Yes, Im sorry, so the first part of the question was just more near term the incremental capacity that you're bringing on this year for for ingots wafers and cells will that be located will that capacity.
In Asia, Oracle would that be some new new market new area.
No not necessarily the customers, but just the manufacturing itself.
Yeah. So.
We have sell in that we have endured and capacity.
Buildup in Xining, and we have cell heating and volatile and we also have cell expansion in <unk> and <unk>.
But yet for next year.
Sure.
We also have some capex.
The expansion in Thailand.
So.
But we're also studying closely monitoring the situation then.
We have a lot of discussions on overseas manufacturing other.
Geographic locations such as.
Sure.
U S and Europe , and so a lot of discussions, but we're actually Monte.
Monitoring the situation until it's ready.
So hope that answer your question.
Mark.
The capacity plan announced.
This earnings call.
Okay.
In Asia.
Okay do you say I mean, it maybe it's hard to say, but do you think tariffs alone are enough to influence behavior or do you need to see some kind of a.
Domestic manufacturing tax credit.
So kind of incentives.
Well, that's a very good question.
I believe that tariff alone alone if you're talking about manufacturing.
Yes.
Right.
Don't think tariff or law.
Fourth manufacturer into U S.
Good.
Good.
Long lasting local incentive may be able to attract.
Capacity into U S just tariff.
It's not enough.
Yes, so another.
Another topic is once we have a factory in the in the in the U S and it will take long time for the U S to build a complete value chain.
During which we still have to import.
Upstream components from China or other countries, we want to make sure that is secured right. So otherwise we're going to have continuous problem, even will have factory in the U S.
Right, Yes that makes sense. Thank you very much.
Alright, Thank you Mark.
Okay.
Turn it back to management.
Alright, thank you.
Thanks to everyone for joining us today.
For everyone's continued support.
If you have any question or like to set up a call. Please contact our.
The investor relationship team take care and have a nice day.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect and speakers. Please hold your line.
Jonathan.
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