Q2 2022 Canadian Solar Inc Earnings Call

August 18, 2022

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's second quarter 2022 earnings conference call. My name is Sherry, and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Q2 2022 Earnings Conference Call. My name is Sherry, and I will be your operator today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Isabel Zhang, Investor Relations Director at Canadian Solar. Please go ahead.

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Isabel Zhang, Investor Relations Director at Canadian Solar. Please go ahead.

And that's your relation director at Canadian Solar. Please go ahead.

Isabel Zhang: Thank you operator, and welcome everyone to Canadian Solar's second quarter 2022 conference call.

Isabel Zhang: Thank you operator, and welcome everyone to Canadian Solar's Q2 2022 conference call. Please note that we have provided slides to accompany today's conference call, which are available on the webcast as well as Canadian Solar's investor relations website within the events and presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO, Yan Zhuang, President of Canadian Solar's majority-owned subsidiary, CSI Solar, Dr. Huifeng Chang, Senior VP and CFO, and Ismael Guerrero Arias, Corporate VP and President of Canadian Solar's wholly-owned subsidiary, Global Energy. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will respectively review the highlights of the CSI Solar and Global Energy businesses, followed by Huifeng, who will go through the financial results.

Please note that we have provided slides to accompany today's conference call, which are available on the webcast as well as Canadian Solar's Investor Relations website within the events and presentations section.

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

Jim Jones President of Canadian Solar is majority owned subsidiary CSI solar.

Doctors Neupogen, senior VP and CFO and.

And if my Laredo, corporate VP and President of Canadian Solar is a wholly owned subsidiary global energy.

All company executives will participate in the Q&A session after management's formal remarks.

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

Mobile energy businesses.

By phone.

Go through the financial results.

Isabel Zhang: Shawn Qu will conclude the prepared remarks with the business outlook, after which we will have time for questions. Before we begin, may I remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risks and uncertainties. The company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future, unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found on the company's annual report on Form 20-F, filed with the Securities and Exchange Commission.

John will conclude the prepared remarks.

This outlook after which we will have time for questions.

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

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, the and 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.

on form 20-F filed with the Securities and Exchange Commission.

Isabel Zhang: 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 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. Now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

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 a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Financial information presented during the call will be provided.

GAAP and a non-GAAP basis.

Certain non-GAAP information.

<unk> 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 Chairman and CEO . Dr. Shanxi Shawn. Please go ahead.

Shawn Qu: Thank you, Isabel, and hi everyone. Welcome and thank you for joining us today. Let's start on slide three.

Shawn Qu: Thank you, Isabelle, and hi everyone. Welcome and thank you for joining us today. Let's turn to slide 3. This slide provide us a summary of our key performance metrics. We achieved a strong result in Q2 2022, with record solar module shipment of 5.1 GW. Revenue for CSIQ came in at $2.3 billion, and gross margin was 16%. Our results were all at or exceeded the high end of our prior guidance. We also took another major step forward in cementing our leadership in the fast-moving storage segment, with over 1 GWh of battery storage shipment in H1 2022. During the quarter, we remained focused on profitable growth, which has been a core tenet of Canadian Solar since its founding.

Aloha, everyone and.

Thank you for joining us today.

Let's start.

On to slide three.

This slide provides us a summary of our key performance metrics. We achieved strong result in the second quarter of 2022 with record solar module shipment of 5.1 gigawatts. Revenue for CSI Q came in at 2.3 billion US dollars, and gross margin was 16%. Our results exceeded the high end of our prior guidance.

We achieved a strong result in the second quarter, all the China agenda two with.

Record solar module shipment.

541 gigawatt revenue for CSI Q came in at two points.

U S dollar and gross margin was 16%.

A result, well Oh Oh.

Oh Wow.

Yeah, Hi, Oh, our prior guidance.

We also took another major step to move forward in cementing our leadership in the fast moving storage segment with over one gigawatt hour of battery storage shipment in the first half of 2022.

Another major step towards.

For.

Cementing our leadership in the fast moving.

Storage segment waste over one gigawatt hour of.

Battery storage shipment in the first half.

Trying to trying to do.

During the quarter, we remain focused on profitable growth, which has been a core tenant of Canadian Solar since its founding. I am pleased to report that we achieved Q2 net income attributable to Canadian Solar shareholders of 74 million US dollars, with diluted earnings per share of $1.07. Yan, Ismael, and Huifang will go through our performance in more details.

Profitable growth, which has been a core tenet of Canadian solar since its founding.

Shawn Qu: I am pleased to report that we achieved Q2 net income attributable to Canadian Solar shareholders of $74 million, with diluted EPS of $1.07. Yan, Ismael, and Huifeng will go through our performance in more details. Before that, let me highlight three key messages. Please turn to page 4. First message, our capacity growth strategy, as highlighted last quarter, is firmly on track. We are expanding our strategy to incorporate upstream polysilicon capacity, which is expected to start production in 2024. By the end of 2022, we expect our ingot, wafer, and cell capacities to reach approximately 20GW each, and module capacity to reach 32GW. We are also introducing our capacity expansion plan through the end of 2023.

I am pleased to report that we achieved Q2 net income attributable to Canadian solar shareholders.

74 million U S dollar.

Diluted earnings per share of $1 seven.

Seven cents.

Yeah, you asked me what are your phone well go through our performance in more details.

Before that, let me highlight three key messages. Please turn to page four. The first message: our capacity growth strategy as highlighted last quarter, is firmly on track. We are expanding our strategy to incorporate upstream [inaudible] capacity, which is expected to start production in 2022. By the end of 2022, we expect our ingot, wafer, and cell capacities to reach approximately 20 gigawatts each and module capacity to reach 32 gigawatts.

Sure sure.

Page four.

First message all capacity growth strategy as highlighted last quarter, yes firmly archrock.

We are expanding our strategy to incorporate upstream silicon capacity.

<unk> is expected to start production in trying to trying to fool.

And I was trying to trim their true, we expect our ingot wafer and cell capacities to reach approximately.

Trying to gigawatt each.

And module capacity to reach surgery to pick one.

We are also introducing our capacity expansion plan through the end of 2023. We expect the ingot and wafer capacity to reach 25 gigawatts, cell capacity to reach 35 gigawatts, and module capacity to reach 50 gigawatts.

Shawn Qu: We expect ingot and wafer capacity to reach 25GW, cell capacity to reach 35GW, and module capacity to reach 50GW. We are still finalizing shipment guidance for 2023, but the magnitude of the planned capacity expansion should give you an indication of the significant growth we are planning for next year and beyond. The rationale for this more aggressive growth strategy is that we are seeing a significant acceleration in global demand. This growth is driven by multiple catalysts, including clean energy economics, energy security, and decarbonization. For example, we are particularly excited to see the passing of the Inflation Reduction Act, or IRA, in the US. We believe it will drive a significant acceleration in demand for clean energy in the US, solar energy and battery storage in particular, and we are one of the best-positioned companies to capture this growth.

<unk> 15 gigawatt.

We are still finalizing shipment range for 2023 but the magnitude of the planned capacity expansion should give you an indication of the significant growth we are planning for next year and beyond. The rationale for this more aggressive growth strategy is that we'll see a significant acceleration in global demand. This growth is driven by multiple catalysts, including clean energy economics, energy security, and decarbonization. For example, we are particularly excited to see the passing of the Inflation Rate Action Act or IRA in the US. We believe it will drive a significant acceleration in demand for clean energy in US solar energy and battery storage in particular, and we are one of the best-positioned companies to capture this growth.

The rationale for this more aggressive growth strategy is that well see a significant acceleration in global demand.

This growth is driven by multiples.

Multiple continents, including clean energy economics.

And then just security and the carbonization.

For example, we are.

I'm, particularly excited to see the passing of the inflation rate action Act or I are eight in U S. We believe it will drive a significant acceleration in demand for clean energy in Europe .

Yes.

solar energy and battery storage in particular, and we are one of the best-positioned companies to capture this growth.

Canadian Solar is one of the strongest global clean energy brand with established channels, large project pipeline, strong customer relationships, and an unparalleled track record. We believe we are seeing once in a decade opportunity to gain global market share and further enhance our long-term defensive, competitive advantage. To achieve that, great control over all attacking technology, cost, and supply chain is critical there. That's why we made the strategic decision now to invest in polysilicon capacity as well while we are still believing that polysilicon pricing will ultimately come down. We believe that actually controlling our supply chain is critical to our long-term competitiveness from a cost, supply security, and decarbonization standpoint.

Shawn Qu: Canadian Solar is one of the strongest global clean energy brands, with established channels, large project pipeline, strong customer relationships, and an unparalleled track record. We believe we are seeing a once-in-a-decade opportunity to gain global market share and further enhance our long-term defensive competitive advantage. To achieve that, great control over our technology, cost, and supply chain is critical. This is why we made the strategic decision now to invest into polysilicon capacity as well. While we are still believing that polysilicon pricing will ultimately come down, we believe that directly control our supply chain is critical to our long-term competitiveness from a cost, supply security, and decarbonization standpoint. Now, this bring me to my second point. Please turn to slide five. Our new poly facility will be located in Qinghai Province. We selected this location after careful evaluation.

Strong customer relationships and an unparalleled track record.

We believe we are seeing a rise in decade opportunity to again global market share.

And further enhance our long term.

The fantasy competitive advantage.

Two are cheap that great control over all attacking holiday call.

Yeah, Yes critical there.

That's why we made the strategic decision now to invest into polysilicon capacity, that's well well we are still.

Believing that polysilicon pricing.

Well ultimately it comes down we believe that they're actually control our supply chain is critical to our long term competitiveness.

From a cost.

Surprise security and deep Carbonization stand, where you stand point.

Now this brings me to my second point. Please turn to slide five. Our new facility will be located in Shanghai Province. We selected this location after careful evaluation. Of note, renewable energy accounts for approximately 90% of the electricity in this province. This will be our second facility in Shanghai after our new Inga plant which started operation several weeks ago.

Uh huh.

Please turn to slide five.

A new party facility will be located in Qinghai Province, we selected this location after careful evaluation of node renewable energy accounts for approximately 90% of the electricity.

Shawn Qu: Of note, renewable energy accounts for approximately 90% of the electricity in this province. This will be our second facility in Qinghai after our new ingot plant, which started operation several weeks ago. Poly and ingot manufacturing are the most energy-intensive parts of the solar supply chain. Using renewable energy to power these processes will contribute to our decarbonization goals and reflect our position as an industry leader. We expect to power our entire global operation with 100% renewable energy before 2030, which will serve as an important milestone in our drive to reach carbon neutrality. You can find additional details of our environmental efforts and performance in our latest ESG sustainability report, which we published last month, which is available to download on our website. Now please turn to slide 6.

In this province.

This will be our second facility in Shanghai.

After our new in good times, we started operation.

Every week cycle.

[inaudible] and Inga manufacturing are the most energy-intensive parts of the solar supply chain. Using renewable energy to power these processes will contribute to our decarbonization goals and reflect our position as an industry leader. We expect to power our entire global operation with 100% renewable energy before 2030, which will serve as an important milestone in our drive to reach carbon neutrality. You can find additional details of our environmental efforts and performance in our latest ESG sustainability report, which we published last month, which is available to download on our website.

The solar supply chain using.

Using renewable energy to power these processors.

Well count your view to our decarbonization goals I reflect our position as an industry leader.

We expect to power our entire global operation, we used 100% renewable energy before trying to authority, which will serve as an important milestone in our drive to reach carbon neutrality.

You can find additional details.

Our environmental efforts and performance in our latest U S. G sustainability report, which we published last month.

Which is available to download.

Our web site.

Now please turn to slide six. In summary, our Board and management team's confidence in making these capital-intensive investment reflects the strong business case we see both over the immediate and long-term. The timing and pace of these investments will be linked to the timing of the [inaudible] IPO of our CSI Solar subsidiary. We remain in the registration process with China Securities Regulatory Commission or CSRC. The process has been delayed somewhat but we are on track and we'll update you on progress achieved as we move forward. With that, let me now hand over to Yan who will provide more details on our CSI Solar business. Yan, please go ahead.

To slide six.

Yeah, the summary al.

Shawn Qu: In summary, our board and management team is confident in making this capital-intensive investment that reflects the strong business case we see both over the immediate and long term. The timing and pace of this investment will be linked to the timing of the carve out IPO of our CSI Solar subsidiary. We remain in the registration process with China Securities Regulatory Commission, or CSRC. The process has been delayed somewhat, but we are on track, and we'll update you on progress achieved as we move forward. With that, let me now turn over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.

Board and management team's confidence in making these capital intensive investment reflects the strong business case, we see both over the immediate and long term.

The timing and pace of these investment well the link so the timing of the carve out of the IPO about CSI soda subsidiary.

We remain in the registration process with China Securities Regulatory Commission, Oh C. S. R. C. The process has been.

Delayed somewhat but we are on track and well update you on progress achieved as we move forward.

With that let me now hand over to Yan, who will provide more details on our CSI solar isn't yes. Yeah. Please go ahead.

Yan Zhuang: Thank you, Sean. Please turn to slide seven.

Yan Zhuang: Thank you, Sean. Please turn to slide seven. In Q2, the CSI Solar division delivered 5.1GW of solar module shipments, 800MWh of battery storage shipments, and $1.8 billion in revenue. These were all record numbers for us. From a profitability standpoint, gross margin improved by 140 basis points to 15.9% or up 65% sequentially to $290 million. There are several reasons for our improved performance. First, we benefited from higher than expected volumes and higher pricing. Demand from our end markets has been incredibly strong despite the increase in pricing. Second, you'll recall that we strategically increased our inventory during Q1 when polysilicon pricing was more favorable. This decision helped us support growth while keeping our cost of goods sold within control.

Please turn to slide seven.

In Q2, the CSI Solar Division delivered 5.1 gigawatts of solar module shipments, 800 megawatt-hour of battery storage shipments, and $1.8 billion in revenue. These were all record numbers for us. From a profitability standpoint, gross margin improved by 140 basis points to 15.9% or up 65% sequentially to $290 million.

800 megawatt hour battery storage shipments and $1.8 billion and remedy.

These were all record numbers for us.

From a profitability standpoint.

Gross margin improved by 140 basis points to 15, 9% or up 65% sequentially to $290 million.

There are several reasons to our improved performance.

There are several reasons for our improved performance. First we benefited from higher than expected volumes and higher pricing. The demand from our end market has been incredibly strong despite the increase in pricing. Second, we will recall that we strategically increased our inventory during the first quarter when polysilicon pricing was more favorable. This decision helped us support growth, while keeping our cost of goods sold within control. This dynamic will be more difficult to achieve in Q3, but we continue to actively manage our supply chain. They also continue to benefit from our ongoing efforts to reduce manufacturing processing costs.

Demand from our end markets has been incredibly strong despite the increasing in pricing.

Second we will recall that we strategically increased our inventory during the first quarter.

One polysilicon pricing was more favorable.

This decision helped us support growth, while keeping our cost of goods sold we didn't control.

Yan Zhuang: This dynamic will be more difficult to achieve in Q3, but we continue to actively manage our supply chain. We also continue to benefit from our ongoing efforts to reduce manufacturing processing costs. Third, our gross margin also benefited from currency fluctuations led by the strong US dollar relative to the RMB, which was partially offset by the weaker euro and other currencies relative to the US dollar. Lastly, unit shipping costs have continued to come down, but it was offset by a temporary increase in inland freight due to the COVID lockdowns in China during Q2. With higher shipping volumes, total logistic costs went up as expected. Overall, our operating profit doubled sequentially in Q2 to $62 million. Please turn to slide 8. So where are we today? Polysilicon pricing has been going up again due to a variety of events.

This dynamic will be more difficult to achieve in Q3, but we continue to actively manage our supply chain.

They also continue to benefit from our ongoing efforts to reduce manufacturing processing costs.

Third, our gross margin also benefited from currency fluctuations led by the strong US dollar relative to the RMB, which was partially offset by the weaker euro and other currencies relative to the [inaudible] dollar. Lastly, unit shipping costs have continued to come down, but it was offset by a temporary increase in [inaudible] due to the COVID lockdowns in China during Q2. With higher shipping volumes, total logistic costs went up as expected. Overall, our operating profit doubled sequentially in Q2 to $62 million.

Lastly unit shipping costs have continued to come down, but it was offset by a temporary increase in England fleet due to the Kobe Lockdowns in China during Q2.

We had higher shipping volumes total logistic cost went up as expected.

Overall, our operating profit doubled sequentially in Q2 to $62 million.

Please turn to slide eight. So where are we today? Polysilicon pricing has been going up again due to a variety of events. We believe the impact of these events will normalize soon such as the impact of a fire accident at a certain polysilicon plant.

So where are we today.

Polysilicon pricing has been going up again due to a variety of events.

Yan Zhuang: We believe the impact of these events will normalize soon, such as the impact of a fire accident at a certain polysilicon plant. Over the past few days, we have also started to see power curtailment in certain parts of China due to the summer heat wave, driving low hydroelectric energy resources and higher residential power demand from air conditioning. This curtailment will temporarily reduce polysilicon output. Given the tightness, any marginal change in supply or demand will affect polysilicon pricing. However, based on what we know today, we believe supply and demand of polysilicon will be more in balance towards Q4, as meaningful polysilicon capacity expansion will eventually drive a decline in polysilicon pricing. Logistics costs should also continue to improve, barring any unexpected shocks to the global shipping infrastructure. Please turn to slide nine. Our battery storage, as Shawn mentioned, we delivered 800 MWh this quarter.

We believe the impact of these events will normalize soon such.

Such as the impact of a fire accident at a certain polysilicon plant.

Over the past few days, we have also started to see power curtailment in certain parts of China due to the summer eight weeks driving low hydroelectric energy resources and higher residential power demand from air conditioning. This curtailment will temporarily reduce polysilicon lawsuit. Given the tightness, any marginal change in supply or demand will affect polysilicon pricing. However, based on what we know today, we believe supply and demand of polysilicon will be more imbalanced towards Q4 as meaningful polysilicon capacity expansion will eventually drive a decline in polysilicon pricing. Logistics costs should also continue to improve, barring any unexpected shocks to the global shipping infrastructure. Please turn to slide nine.

Eight weeks driving low hydro electric energy resources, and higher residential power demand from air conditioning.

This curtailment will temporarily reduce polysilicon law suit.

Given the tightness.

Any march no change seen supply or demand will affect polysilicon pricing.

However, based on what we know today, we believe supply and demand of polysilicon will be more imbalanced towards Q4.

It's meaningful polysilicon capacity expansion will eventually drive a decline in polysilicon pricing.

Logistics costs should also continue to improve barring any unexpected shocks to the global shipping infrastructure.

Please turn to slide nine.

Our battery storage as Shawn mentioned, we delivered 800-megawatt hours this quarter. This is our largest quarter to date, with over one-gigawatt hour delivered for the first six months. We remain on track to achieve our full-year target of 1.8 to 1.9 gigawatt hours.

We delivered 800 megawatt hour this quarter, our largest quote this is our largest quarter to date.

Yan Zhuang: This is our largest quarter to date, with over 1 GWh delivered for H1. We remain on track to achieve our full year target of 1.8 to 1.9 GWh. On the product side, we introduced our proprietary utility scale product in China a few weeks ago and received overwhelmingly positive feedback. Our official global launch for both our utility scale and residential products will be at the Solar Power International Conference next month. I encourage you to visit our booth to see for yourself. Besides developing products and technologies that meet customer quality, cost, and reliability requirements, our priority has been to work with partners to secure supply at a reasonable cost. This gives us significant visibility over our product delivery, product deliverability over the coming years.

With over one gigawatt of our delivered for the first six months.

We remain on track to achieve our full year target of one eight to one nine gigawatt hours.

On the product side, we introduced our proprietary utility skilled product in China a few weeks ago and received overwhelmingly positive feedback. Our officially global launch for both our utility skill and residential product will be at the Solar Power International Conference next month, so I encourage you to visit our booth to see for yourself.

Officially global launch for both our utility scale and residential products will be at the solar power International Conference next month.

So I encourage you to visit our booth to see for yourself.

Besides developing products and technologies that meet customer quality, cost, and reliability requirements, our priority has been to work with partners to secure supply at a reasonable cost. This gives us significant visibility over our product deliverability over the coming years. Now, let me pass it on to Ismael for an overview of the Global Energy business. Ismael, please go ahead.

Our priority has been to work with partners to secure supply at a reasonable cost.

This gives us significant visibility over our product delivery product deliver ability over the coming years.

Now, let me pass it down to email for an overview of the global energy business.

Yan Zhuang: Now, let me pass it on to Ismael for an overview of the Global Energy business. Ismael, please go ahead.

Yes, Ma'am. Please go ahead.

Ismael Guerrero Arias: Thank you, Yan. Please turn to slide 10.

Ismael Guerrero Arias: Thank you, Yan. Please turn to slide 10. In Q2, we delivered $554 million in revenue, with a 14.4% gross margin. This marks our highest quarterly performance since 2018. We sold approximately 880MW in power projects across Australia, the US, Japan, and the UK, monetizing both fully constructed as well as earlier stage projects. I'm grateful to lead an incredible global team for making this happen, and appreciate our equity and banking partners for their trust in Canadian Solar. We also achieved significant growth in our global project pipeline, with 26GW of solar and 31GWh of battery storage. The contracted pipeline was five point three gigawatts and three point one GWh respectively, which were all construction projects, plus more than 90% of backlog projects shown on this slide.

Please turn to slide 10.

In Q2, we delivered $554 million in revenue with 14.4% in gross margin. This marks our highest quarterly performance since 2018. We sold approximately 819 megawatts in power [inaudible] in the US, Japan, and the UK, monetizing both fully constructed as well as earlier-stage projects. I'm grateful to lead an incredible global team for making this happen and I appreciate our equity and banking partners for their trust in Canadian Solar.

14, 4% and gross margin.

This marks our highest quarterly performance since 2018.

We sold approximately 819 megawatts in our so called struggle.

U S, Japan and the U K.

Monetizing both fully constructed a swaddle us earlier stage projects.

I'm grateful to lead an incredible global team for making this happen.

I appreciate our equity and banking partners for their trust and Canadian solar.

We also achieved significant growth in our global project pipeline, with 26 gigawatts of solar and 31 gigawatts of storage. The contracted pipeline was 5.3 gigawatts and 3.1 gigawatts respectively, which were all construction projects plus more than 90% of backlog projects shown on this slide. These are late-stage projects that have close to 100% success rates.

I didn't want to be with our soap opera this storage.

The contracted pipeline was 45 three gigawatts.

One one gigawatt that were respectively, which were all construction projects plus more than 90% of backlog projects shown on this slide.

Ismael Guerrero Arias: These are late-stage projects that have close to 100% success rates. This quarter, to help you better understand the quality of our global solar and battery storage development platform, we are making a small adjustment on our pipeline definitions. We are breaking out what we previously called pipeline to advanced pipeline and early-stage pipeline. Advanced pipeline are projects that have secured or have more than 90% certainty of securing an interconnection agreement. While early stage pipeline are projects owned and controlled by Canadian Solar that are still in the process of securing interconnection. The reason we are making this distinction is that we believe access to the grid network will be one of the key drivers of competitive advantage in our business. In the past, this used to be a developer's ability to contract PPAs or FiTs.

These are late stage projects that have close to 100% success rates.

This quarter.

This quarter, to better understand the quality of our global solar and battery storage development platform, we are making a small adjustment in our pipeline definitions. We are breaking out what we previously called pipeline to advance pipeline and early-stage pipeline. Advanced pipeline are projects that are secure or have more than 90% certainty of securing an interconnection agreement, while early-stage pipeline projects owned and controlled by Canadian Solar that are still in the process of securing interconnection.

We are breaking out what we previously called pipeline to advance pipeline on early stage pipeline.

A bunch of pipeline projects that perhaps secure or have more than 90% certainty offset urinate interconnection agreement.

While early stage pipeline projects, one uncontrollably Canadian solar but are still in the process of securing interconnection.

The reason we are making this distinction is that we believe access to the grid network will be one of the key drivers of competitive advantage in our business. In the past, this used to be a developer's ability to contract PPAs or fees. However, with the growing deployment of intermittent sources of electricity and [inaudible] incidents of extreme climate events and geopolitical uncertainties our ability to secure reliable interconnection points will be a key driver of our long-term success.

In the bus business.

Used to be a developer's ability to contract ppas or fees.

However, with the growing deployment of intermittent sources of electricity and how are you doing incidents of extreme climate events and geopolitical uncertainties.

Ismael Guerrero Arias: However, with the growing deployment of intermittent sources of electricity, a higher incidence of extreme climate events and geopolitical uncertainties, our ability to secure reliable interconnection points will be a key driver of our long-term success. As of Q2, we had 15.6GW of solar and 13.7GWh of storage interconnection points globally. The pipeline expansion we are achieving give us significant runway for growth in the coming years and allow us to be more selective in developing the highest quality assets. This is particularly true in the US market with the passing of the IRA, where our Recurrent Energy subsidiary has a total of 8GW of solar and 16.5GWh of battery project, storage project pipeline.

our ability to secure reliable interconnection points will be a key driver of our long-term success.

As of Q2, we had 15.6 gigawatts of solar and 13.7 gigawatt hours of established interconnection points globally. The pipeline expansion we are achieving gives us a significant runway for growth in the coming years and allow us to be more selective in developing the highest quality assets. This is particularly between the US market with the passing of the IRA where our recovering energy subsidiary has a total of eight gigawatts of solar and 16.5 gigawatt hours of battery storage project pipeline. While it is too early to quantify the magnitude of the benefit from the IRA, it will both vertically impact our existing projects and help drive faster growth in our overall US pipeline. Please turn to slide 11.

The expansion, we are achieving give us significant runway for growth in the coming years and allow us to be more selective in developing the highest quality assets.

This is particularly between the U S market with the Boston.

Right.

Well I Wanna recovering energy subsidiary has a total of eight gigawatts of solar on 16, five Gigawatts hour.

Worse, all thought to this towards a storage project pipeline.

While it is too early to quantify the magnitude of the benefit from there you're right.

Ismael Guerrero Arias: While it is too early to quantify the magnitude of the benefit from the IRA, it will both directly impact our existing projects and help drive faster growth in our overall US pipeline. Please turn to slide 11. Let me now update you on the significant progress in our operations and maintenance, or O&M strategy, to increase our share of stable recurring income. We now manage over 3GW of operational projects under long-term O&M agreements, and have an additional 2.4GW of contracted projects expected to reach COD soon. In line with our growth strategy, we recently invested in a Spain-based O&M provider, which will allow us to further accelerate our O&M growth across Europe. Our O&M platform will continue to grow through a combination of organic opportunities and bolt-on acquisitions.

It was both vertically impact our existing projects and help drive faster growth, not where all but O U S pipeline.

Please turn to slide 11.

Let me now update you on the significant progress in our operations and maintenance or O&M strategy to increase our share of a stable recovery income. We now manage almost 80 gigawatts of operational projects under our long-term O&M agreements and have an additional 2.4 gigawatts of contracted projects expected to reach COPD soon. In line with our growth strategy, we recently invested in a Spain-based O&M provider, which will allow us to further accelerate our O&M growth across Europe.

Our share of a stable recovery income.

We now manage almost two gigawatts of operational projects under our long term O&M agreements and have an additional 2.4 gigawatts of contracted projects are expected to reach COPD soon.

And language our growth strategy, we recently invested in Spain, based O&M provider, which will allow us to further accelerate our O&M growth across Europe .

Our O&M platform will continue to grow through a combination of organic opportunities and [inaudible] acquisitions. All of these give us confidence as we execute to our target of 20 gigawatts under operation by 2026. Now, let me turn the call over to our CFO who will go through the financial results in more detail. Huifeng, please go ahead.

Ismael Guerrero Arias: All of this gives us confidence as we execute to our target of 20GW under operation by 2026. Now, let me turn the call over to our CFO, who will go through the financial results in more detail. Huifeng, please go ahead.

All of these give us confidence as we execute to our target of 20 Gigawatts under operation by 'twenty 'twenty six.

Now, let me turn the call over to our CFO , who will go through the financial results in more detail.

Please go ahead.

Huifeng Chang: Thank you, Ismael. Please turn to slide 12.

Huifeng Chang: Thank you, Ismael. Please turn to slide 12. In Q2, we delivered record quarterly revenue of $2.31 billion, exceeding our guidance. Q2 benefited from both volume and price increases in module shipments and a higher contribution from our battery storage shipments and the product sales. Q2 gross margin was 16%, which also exceeded our guidance. The margin improvement was led by a combination of higher pricing, lower manufacturing and inventory costs, and a high return on quality products. Selling and distribution expenses were up by 45% sequentially, primarily due to higher shipping costs associated with our higher sales volume. General and administrative expenses increased primarily due to a non-recurring $50 million impairment of certain aged manufacturing assets. Research and development expenses increased by 36% sequentially due to the timing of our R&D investments.

Please turn to slide Paul.

In Q2, we delivered record quarterly revenue of $2.31 billion, exceeding our guidance. Q2 benefitted from both volume and price increases in module shipments and a higher contribution from our [inaudible] property shipments and the project itself. Q2, gross margin was 16%, which also exceeded our guidance. The margin improvement was led by a combination of higher pricing, lower manufacturing, and a high return on quality projects.

Q2.

And in fact, it from both volume and price increases.

<unk> shipments and a higher contribution from our athletes property shipments and the project itself.

Q2, gross margin was 16%, which also exceeded our guidance.

The margin improvement was led by a combination of higher pricing, lower manufacturing, and a high return on quality projects.

No all manufacturing and inventory costs.

Hi, Rick trend on quality projects.

Selling and distribution expenses were up by 45% sequentially, mostly due to higher shipping costs associated with our higher sales volume. General and administrative expenses increased primarily due to a non-recurring 50 million dollar impairment of certain aged manufacturing assets.

Mostly due to higher shipping costs associated with it.

With our higher sales volume.

General and administrative expenses, Inc.

primarily due to a non-recurring 50 million dollar impairment of certain aged manufacturing assets.

Research and development expenses increased by 36% sequentially due to the timing of our R&D investments. [inaudible] foreign exchange and derivative gain was $6 million compared to $3 million in Q1. The benefit was mainly driven by the strong US dollar relative to the RMB.

Increased by 36% sequentially due to the timing of our R&D investments.

And ex foreign exchange and derivative gain was $6 million compared to 3 million in Q1.

Huifeng Chang: The net foreign exchange and the derivative gain was $6 million compared to $3 million in Q1. The benefit was mainly driven by the strong US dollar relative to the RMB. As you know, the majority of our revenues as well as our reporting currency are in US dollars, where most of our costs are in RMB. Total net income was $89 million, and the net income attributable to Canadian Solar shareholders was $74 million. As a reminder, the variance between these two numbers will become more significant upon completion of the carve-out IPO of CSI Solar. This will reflect a decrease in Canadian Solar's ownership in CSI Solar subsidiary from 80% to approximately 64%. Moving on to EPS. We achieved basic EPS of $1.16, and the diluted EPS of $1.07.

The benefit was mainly driven by the strong U S dollar to the RMB.

As you know, the majority of our revenues, as well as our reporting currency are in US dollars while most of our costs are in RMB. Total net income was $89 million and a net income attributable to Canadian Solar shareholders for $74 million.

Well most of our costs are in RMB.

Total net income was $89 million and net income attributable to Canadian solar shareholders for $74 million.

As a reminder, the variance between these two numbers will become more significant upon completion of the [inaudible] IPO on CSI solar. This will reflect a decrease in Canadian Solar's ownership in CSI Solar subsidiary from 80% to approximately 64%.

It's will reflect a decrease in Canadian solar ownership.

S I solar subsidiary from 80% to approximately 64%.

Moving onto EPS, we achieved eight EPS of $1.16 and a diluted EPS of $1.07. The variance is primarily due to the adjustments for the diluted effect of our outstanding convertible notes.

Huifeng Chang: The variance is primarily due to the adjustment for the dilutive effect of our outstanding convertible notes. Now turning to cash flow and the balance sheet. Next slide, please. In Q2, we generated around $290 million in operating cash. We maintained our inventory and accounts receivable mostly flat quarter over quarter. Despite the significant increase in sales, this allowed us to reduce our inventory days by more than a third. The Q2 net CapEx payment was approximately $130 million, making $210 million for H1 2022. Our full-year 2022 net CapEx expectations remain unchanged at $850 million, which means we expect the bulk of our spending to be in H2 this year.

Variance is primarily due to the adjustments or the diluted effect of all outstanding convertible notes.

Now turning to cash flow and the balance sheet, next slide please. In Q2, we generated around $290 million in operating cash. We maintained our inventory and accounts receivables, mostly flat quarter-over-quarter. Despite the significant increase in sales, this allowed us to reduce our inventory days by more than a third.

In Q2.

We generated around a 290 million in operating cash.

We maintained our inventory and our constant receivables, mostly flat quarter over quarter.

Despite the significant increase in sales.

This allowed us to reduce our inventory days by more than I thought.

The Q2 net Capex payment was approximately 130 million, making 210 million for the first half of 2022 partly true. Our full year 2022, net Capex expectations remain unchanged at $850 million, which means we expect the bulk of our spending to be in the second half of this year.

Approximately 130 million.

Making 210 billion for the first half of 'twenty, partly true.

Our full year 2022, net capex expectations.

The main unchanged at $850 million, which means we expect the bulk of our spending to be in the second half of this year.

We ended Q2 with a total cash balance of $1.95 billion, giving us the financial dry powder to invest in growth opportunities while managing risks. Total [inaudible] was largely unchanged at $2.7 billion, which makes the changes of some long-term project that rolled off [inaudible]. Four months trailing net debt to EBITDA [inaudible] cash declined to 2.9X from 4.1X the prior quarter.

Huifeng Chang: We ended Q2 with a total cash balance of $1.95 billion, giving us the financial dry powder to invest in growth opportunities while managing risks. Total debt was largely unchanged at $2.7 billion, with mixed changes as some long-term project debt rolled off with our product sales. Trailing twelve months net debt to EBITDA, excluding the restricted cash, declined to 2.9 times from 4.1 times the prior quarter. Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead.

That was largely unchanged at $2 $7 billion, which makes the changes of some long term project that rolled off.

The product itself.

All months trailing net debt to EBITDA.

Clothing.

Cash.

Time to two nine times from four one times the prior quarter.

Now, let me turn the call back to Sean who will conclude with our guidance and the business outlook. Sean, please go ahead.

Please go ahead.

Shawn Qu: Thanks, Huifeng. Let's now turn to slide 14.

Shawn Qu: Thanks, Huifeng. Let's now turn to slide 14. For Q3 2022, we expect total revenue to be in the range of $2 to 2.1 billion. Gross margin is expected to be between 15% and 16.5%, reflecting the positive contribution from the increased level of vertical integration, including our new ingot, wafer, and cell capacities. We expect this to be partially offset by higher polysilicon costs. As for Q3, solar module shipments recognized in revenue by CSI Solar are expected to be in the range of 6 to 6.2 GW, including approximately 140 MW to our own project. We expect higher module shipments in Q3 be offset by lower battery storage shipments and project sales due to the normal seasonality.

Now turning to slide 14.

For the third quarter, [inaudible] we expect total revenue to be in the range of 2 to 2.1 billion US dollars. Gross margin is expected to be between 15 and 16.5%, reflecting the positive contribution from the increased the level of vertical integration, including our new ingot, wafer, and the cell capacities. We expect this to be partially offset by higher polysilicon costs.

We expect total revenue to be.

In the range of two to $2 1 billion U S dollar.

Gross margin is expected to be between 15 and 16, 5%.

Reflecting the positive contribution from the increase the level of vertical integration.

Including our new ingot wafer and the cell capacities.

We expect this to be partially offset by higher polysilicon cost.

Also, Q3 solar module shipment recognized revenue by CSI Solar, are expected to be in the range of 6 to 6.2 gigawatts, including approximately 140 megawatt hour [inaudible]. We expect a higher module shipment in Q3, offset by lower [inaudible] forward shipping [inaudible] and normal seasonality.

<unk> to be in the range of six.

262 gigawatt.

Including approximately 140, a megawatt hour old program.

We expect the higher module shipment in Q3.

Offset by lower Ultra is forward shipping progesterone.

And normal seasonality.

For the full year of 2022, we raised our revenue expectation to 7.5 to 8 billion US dollars from the previous 7 to 7.5 billion. Our full-year volume guidance remains unchanged. At CSI Solar, we expect total module shipment to be in the range of 20-22 gigawatt and battery storage system sales in the range of 1.8 to 1.9 gigawatt hours.

Shawn Qu: For the full year of 2022, we raised our revenue expectation to $7.5 to 8 billion from the previous $7 to 7.5 billion. Our full year volume guidance remains unchanged. At CSI Solar, we expect solar module shipments to be in the range of 20 to 22 GW and battery storage system sales in the range of 1.8 to 1.9 GWh. At Global Energy, we expect project sales to be in the range of 2.1 to 2.6 GW for the year. Thus, the increase in revenue expectation is mainly driven by higher than expected pricing trend for solar modules. As we said previously, Q2 is likely going to be the highest quarter of the year for both revenue and profit, mainly driven by seasonality of project sales and battery storage shipments.

Our revenue expectation.

Seven.

7.528 billion U S dollar.

From the previous.

Seven to seven $5 billion.

Although full year volume guidance remains unchanged.

I'd say, it's a solar we expect total module shipment to be in the Randgold trended, So China, two gigawatt and battery storage system sales in the range of one eight to one point.

At Global Energy, we expect total sales to be in the range of 2.1 to 2.6 gigawatts for the year. The increase in revenue expectation is mainly driven by higher-than-expected pricing [inaudible] solar module. As we said previously, Q2 is likely going to be the highest quarter of the year for both revenue and profit. It's driven by seasonality [inaudible]. However, we expect solar module shipments to especially ramp up for the quarter as we execute and deliver our market share gain.

Our global energy.

I expect the progress sales to be in the range of Cove point Huang with two six gigawatt a year.

The increase in revenue expectation is mainly driven by higher than expected pricing Troy.

Solar module.

So with that previous sturdy tend to is likely going to be the highest quarter over the year for both revenue and profit.

It's driven by seasonality I would probably bet.

Bachelor of sponsorship.

Shawn Qu: However, we expect solar module shipments to steadily ramp up through the quarter, then years as we execute and deliver on market share gains. Overall, while market challenges persist, we continue to see significant near- and long-term opportunities in both our solar and battery storage business, driven by a combination of attractive economics and policy tailwinds, such as the recently passed Inflation Reduction Act. This IRA will propel the US market to the forefront of the fight against climate change. We believe Canadian Solar is strongly positioned to capture profitable growth as we continue to focus on long-term investments that help drive our success and create lasting value for shareholders. With that, I would like to open the call to your questions. Operator?

Oliver we expect solar module shipments, so, especially in a ramp up for the quarter yes.

If we execute and deliver.

Market share yes.

Overall, the market challenges persist. We continue to see significant near and long-term opportunities in both our solar and battery storage units driven by a combination of attractive economics and policy tailwinds, such as the recently passed Inflation Rate Action Act. This IRA will propel the US market for the full [inaudible]. We believe Canadian Solar is strongly positioned to capture profitable growth as we continue to focus on our long-term investment that help drive our success and create lasting value for shareholders.

We're continuing to see second African near and long term opportunities in both our solar and <unk>.

Storage isn't yet.

Driven by a combination of attractive economics and policy tailwind such as their reason to pause the inflation rate action packed.

This I R. A well propel the U S market for the full for all of the <unk>.

Against kind of nature.

We believe Canadian solar.

Strongly across Asia will capture profit profitable growth as we continue to focus on our long term investment.

Help drive our success.

To aid lasting value.

All shareholders.

With that, I would like to open the call for questions. Operator?

Later.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from Brian Lee with Goldman Sachs. Please proceed.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. Our first question comes from Brian Lee with Goldman Sachs. Please proceed.

You May press star two if he would like to remove your question from the queue.

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. He is our first question comes from Brian Lee with Goldman Sachs. Please proceed.

Brian Lee: Hey, everyone. Thanks for taking the questions. I appreciate all the updates. I know there are a lot of moving pieces here. Maybe the first big picture question for you Sean is just we've seen a handful of your peers over the years are in Asia try to vertically integrate into polysilicon. I don't think there's been a ton of successful cases though. So the question to you would be just why this strategic decision? What makes Canadian Solar different? And then from a kind of numbers perspective, can you give us a sense of what you think your processing costs will look like and what a fully burdened cost structure and margin would be on the module in let's say 2025 once you're using your own poly? Thank you.

Brian Lee: Hey, everyone. Thanks for taking the questions. Appreciate all the updates. I know there's a lot of moving pieces here. Maybe the first big picture question for you, Shawn, is just, you know, we've seen a handful of your peers over the years in Asia try to vertically integrate into polysilicon. I don't think there's been, you know, a ton of successful cases. Question to you would be just, you know, why this strategic decision? What makes Canadian Solar different? And then from a, you know, kinda numbers perspective, can you give us a sense of what you think your processing costs will look like and what a fully burden cost structure and margin would be on the module in, let's say, 2025 once you're using your own poly? Thank you.

Maybe it's the first Big picture question for you Sean It's just we've.

So we've seen.

A handful of your peers over the years are in Asia trying to vertically integrate into poly silicon I don't think there's been a ton.

Kind of successful cases, so quest.

Question do you would be just you know why why this strategic decision what makes Canadian solar are different and then from a kind of numbers perspective can you give us a sense of.

What do you think your processing costs will look like and what a.

Fully burdened cost structure and margin.

Would be on the module in let's say 2025 once youre using your own Polly. Thank you.

Shawn Qu: Hi, Brian, that's a good question. Now, I would like to provided my view and your observation is that companies go into vertical integration into polysilicon, you have not seen the success. My observation is that the effort to vertical integrate to the poly side by the module companies, that trend just started, that's why you haven't seen success for [inaudible]. Indeed poly seems to be separate stuff from the dollar module and processing [inaudible] Most of the so called virtual companies start from ingot and wafer cell and module. Poly seems to seems to be different.

Shawn Qu: Hi, Brian. That's a good question. Now, I would like to provide my view. Your observation is that companies going vertical integration into polysilicon, you have not seen success. My observation is that the effort to vertical integrate to the poly side, you know, by the module companies, that trend just started. That's why you haven't seen successful case yet. In the past, indeed, poly seems to be a separate step from the solar module processing value chain. Most of the so-called virtual company start from ingot and then wafer, cell and module. Poly seems to be a different business. That's why you haven't seen the example of that kind of vertical integration. But it doesn't mean it won't be successful. Now, we have done almost two years of feasibility study.

I would like to.

Provided my view.

The vision is not to come.

Companies go into vertical integration into polyester the K, you'll have not seen the success my observation, yes that the.

The effort to vertical integrated to the policy aside you know by the module companies not try and just started that's why you haven't see success for our case yet in the Pos Indeed holiday seems to be a separate staff from the sword.

Our module.

Processing relevant yet.

Most of the so called virtual company, Styrofoam, ingot and wafer cell and module.

<unk> seems to be a different visit yet.

That's why you haven't seen the examples of that kind of vertical integration, but it doesn't mean it won't be successful. Now we have got almost two years of visibility to study and what we observed is that, first of all, on the technology side, the Siemens method or the refined Siemens method to produce poly, that has become a standard. There are standard design institutes, for example, in China, which had [inaudible] design for almost everybody from the current poly-only maker to the newcomers. And they are also a handful of chemical production, chemical manufacturing, engineering and EPC companies that specify the subcontract work for certain parts of poly. Therefore, the business process, especially for the granular process, it's different. But for the Siemens process, the [inaudible] becomes standardized.

Shawn Qu: What we observe is that, now first of all, on the technology side, the Siemens method or the refined Siemens method to produce poly has become a standard. There are standard design institutes, for example, in China, which handles the factory design for almost everybody from the current poly poly-only makers to the newcomers. There are also a handful of chemical production, chemical manufacturing, engineering and EPC companies. They specialize in the subcontract work for certain parts of poly. Therefore, the process, especially for the, you know, the granule process is different. But for the Siemens process, the technology becomes standardized.

And what.

What we observed is that no first of all on the technology side.

D C.

Siemens method or the refined cements messages to Purdue is a party that has become a standard.

Standard.

The design Institute for example, in China for which had knows the factor of desire for almost every body from the current holiday.

Paul the O&M acres to the new E Commerce.

And they are also oh.

A handful of.

Chemical production chemical manufacturing.

The engineering and EPC companies they specifies the eating.

The.

Our subcontract work for certain part of party therefore, the basically the process, especially.

For the you know the granular process it's different.

Siemens.

Process the attack knowledge becomes standard wise.

Shawn Qu: Cost-wise, in the past, the general feeling is that per watt investment for poly, polysilicon is high. However, ever since 2020, the cost of, like per watt cost of investment, capital investment into poly has dropped to the same level of solar cell. Therefore, from the cost point of view, also from technology point of view, poly is not a forbidden part anymore. It's something technologically very accessible. As a matter of fact, there are quite a few newcomers have their capacity come online as we speak. In the next 6 months or 9 months, we'll see enough so-called newcomers' efforts to ramp up their new facilities. By the time we ramp up, we will have lots of experience.

Cost-wise, in the past, the general feeling is that per watt the investment for polysilicon is high. However, every since it's become trendy, the cost per watt of capital investment into poly has dropped to the same level as solar cell and therefore from the cost point of view, also from a technology point of view, poly is not a forbidden product anymore, it's something technologically very accessible.

The general feeling yes.

Per watt investment.

Polly polysilicon is high however.

However.

However, things change.

Trendy.

The cost of like per Watt call of investment company mezzanine to party I have dropped to the same level of solar cell and therefore from the cost point of view also from a technology point of view.

Holly.

Not off a bit on park anymore, it's something technology.

As a matter of fact, there are quite a few newcomers [inaudible] capacity have come online as we speak. So in the next six months or nine months maybe you'll see enough so-called newcomers efforts to ramp up their new facilities. So by the time we ramp up, we'll have lots of experience. We have lots of previous experience we can reference too. And also you asked me strategically, why do we have to do that. Now this is because solar is getting into a new era. In the past when we say the annual new solar installation is in the range of 100 to 200 gigawatt. However, we're seeing now near the annual installation level, we believe it will grow. It will grow significantly in the next 10 years, let's say.

Capacity come online as we speak so in the next six months are number or see you not so.

So called the newcomers.

First to ramp up their new facilities. So by the time, we ramp up we'll have lots of experience. We have we will have lots of we can see we have we have lots of previous experience. We could we can we could reference.

Shawn Qu: We have lots of previous experience we can reference to. Also, you asked me strategically, why do we have to do that? Now this is because solar is entering a new era. You know, in the past, we say the annual new solar installation is in the range of 100 to 200GW. However, we are seeing that the annual installation level, we believe, it will grow. It will grow significantly in the next ten years, let's say.

Our reference to.

Also you asked me is strategically why do we have to do with I know this is a big call.

So what are you seeing.

Getting to.

Getting into a new era.

You know in the past when we say.

A new solar installation is in the range of 100 to 200 gigawatt. However, we're seeing now to the near the annual installation level, we believe.

Well it will grow significantly in the next Oh.

And yes, let's see.

Shawn Qu: I would like to mention to you the new IEA report and also IRENA report. IRENA is the International Renewable Energy Agency. Both reports show that it will require 20,000, let me think, 20,000 terawatt, I believe, of solar installation globally, accumulated solar installation globally, by 2050 in order to, for the major countries to achieve carbon neutral. Right now, we have just passed the 1 terawatt mark. I am talking about the total, global total accumulated installation. There's still a lot of growth.

Got you.

I would like to mention to you the new IEA report and also IRENA report. The IRENA is the international renewable energy agency. Both reports show that it won't require a [inaudible]--Let me think, [inaudible] of accumulated solar installations globally by 2050 in order for the major countries to achieve carbon neutral. Right now, we have just passed the one terawatt mark. I'm talking about the global total accumulated installation. So, there's still a lot of growth but with this kind of growth, supply chain bottleneck will happen all the time, especially on the polysilicon. So as one of the top five major solar module companies, we believe we have to have control, to understand poly we have to have certain control of the poly, but it doesn't mean we will produce all the poly we use, but we would produce certain amounts and we will have the flexibility in the future to ramp up if we have to. Thanks, Brian.

To like mention to you the new.

IEA report and also Irina report Irina is the international renewable Energy agency. They are both of them report shows that it won't require a.

Sure.

Solid and.

Uh huh.

Let me think.

Trying to solve.

Terawatt I believe of solar installations globally accumulated solar installations globally by trying to 50.

Two for the major countries to achieve a.

Carbon neutral.

Right now we have just the path, there's one terawatt mark.

I'm talking about the total global total accumulated installation so theres still a lot of growth or is this kind of growth.

Shawn Qu: With this kind of growth, supply chain bottleneck will happen all the time, especially on the polysilicon. As one of the, you know, top five major solar module company, we believe, we feel that we have to have control. We have to understand poly. We have to have certain control of the poly. But it doesn't mean we will produce all the poly we use, but we will produce certain poly, right? And we will have the flexibility in the future to ramp up if we have to. Thanks, Brian.

Fly Chin.

The bottleneck well happen all the time, especially on the part of Seneca So as a one of the top five major solar module company. We believe we feel that we.

We have to have control we have to understand the quality we have to have certain control after party, but it doesn't mean, we will produce one party.

We use but we would produce sort of Boeing right and we will have the flexibility in the filter.

The ramp up if we have to.

Thanks, Brian .

Brian Lee: I appreciate all that [inaudible]. Maybe just another sort of more numbers-related question. You kind of talked about, I know the Capex for 2022 is the same, it seems like Capex for 2023 given all the new capacity expansion plus the poly is gonna be substantially higher. Can you give us a preliminary sense of how much Capex we should be budgeting in 2023 for you guys and then where the funding will come from that I guess it seems like you've got a good cash balance here, but you may be not generating free cash flow in the next couple of years with the high Capex burden. So two questions there I guess, what's the Capex for 2023 ballpark and then where's the funding that you're planning for this? Thank you, guys.

Brian Lee: I appreciate all that, Cole. That's really helpful. I guess, maybe just another sort of more numbers related question. Can you kind of talk about. I know the CapEx for 2022 is the same. It seems like CapEx for 2023, given all the new capacity expansion plus the poly, is gonna be substantially higher. Can you give us a preliminary sense of, you know, how much CapEx we should be budgeting in 2023 for you guys? Then, where the funding will come from that? I guess it seems like, you know, you've got a good cash balance here, but, you may be, you know, not generating free cash flow in the next couple years with the high CapEx burden. You know, two questions there. I guess, what's the CapEx for 2023, ballpark?

Yes.

Maybe just another sort of a numbers related question.

Can you kind of talk about I know the Capex for 'twenty. Two is the same it seems like Capex for 'twenty three given all the new capacity expansion plus the poly is gonna be substantially higher.

Can you give us a preliminary sense of you know how much capex, we should be budgeting in 'twenty three for you guys and then where the funding will come from that I guess it seems like you've got a good cash balance here, but you.

You may be not generating free cash flow in the next couple of years with the high Capex burden. So two questions. There I guess, what's the Capex for 'twenty three ballpark and then Where's the funding.

Brian Lee: Where's the funding that you're planning for this? Thank you guys.

You're planning for this thank you guys.

Shawn Qu: Thanks, Brian. I would like Huifeng to answer this question. Huifeng?

Shawn Qu: Oh, thanks, Brian. I would like Huifeng to answer this question. Huifeng?

I'm grateful to answer this question before.

Huifeng Chang: Hi, Brian. This is Huifeng. Before I talk about CapEx for 2023, let me reflect what is happening in 2022. We budgeted $850 million CapEx for this year. On this call, we confirm or restate the CapEx this year remain the same, $850. In Q1, Q2, we spent about $210 million. The major part of that $850 will be spent in Q3 and Q4, especially Q4. That CapEx number mainly is for our capacity expansion for ingot pulling, wafer, and cell. We spend some money for the polysilicon project as we announced previously. The construction for this year is very little.

Huifeng Chang: Hi, Brian, this is Huifeng. Before I talk about our Capex for 2023, let me reflect on what is happening in 2022. So we budgeted at 850 million Capex for this year and on this call, we confirmed or restate the Capex for this year remained the same at 850.

Before I talk about our Capex was 23, let me refractor what is happening in a fund V. 22, So we budgeted at 850 million Capex for this year and August call, we confirmed a restage.

The Capex for this year remained the same at August 16.

Now in Q1, Q2, we spent about 210 million. So the major part of that 850 will be spent in Q3 and Q4, especially Q4. Now that Capex number mainly is for our [inaudible] expansion, for [inaudible]. Now we spent some money towards the polysilicon project as we announced previously, but the construction for this year is [inaudible]. And of course, one factor this pace is because we are still waiting for the completion of the registration of our IPO. So we expect this IPO to be done this year, and then starting from early 2023 we will accelerate the investment in the polysilicon project. Exactly how that [inaudible] with our market expansion, we are still in the planning phase, so we'll give updates when we come close to the end of the year and also after the completion of our IPO. I hope that answered your question. Thank you.

So the major part of about 850, it will be spent.

And in Q3, and Q4, especially Q4 adopt.

Adopt capex number.

Mainly.

For our <unk>.

The expansion for English poorly I'll wait till in itself.

Now we spend some money towards the polysilicon project.

We announce a pretty nicely, but are the construction for this year, Israel Vitol and of course, one factor.

Huifeng Chang: Of course, one factor of this pace is because we are still waiting for the completion of the registration of our IPO. We expect this IPO done this year. Then, starting from early 2023, we will accelerate the investment in the polysilicon project. Exactly how that dovetail with our module expansion, that we are still in the planning stage. We will give update when we come close to the end of the year, and also after completion of our IPO. I hope that answered your question. Thank you.

This pace is because we are still waiting for the completion of the registration of all of our I P O.

So we expect that.

I T all of them this year.

And then starting from.

'twenty 'twenty three we want a satellite dish.

Investments in the polysilicon project exactly how that.

Tao.

With our market expansion.

That we are still why.

States. So we'll give updates when we come close to the end of the year and also off the completion of our IPO I hope that answered your question. Thank you.

Brian Lee: Okay, fair enough. On the funding is it all going to be with the IPO or is there some additional debt or equity being considered yet?

Shawn Qu: Yeah, Brian.

Brian Lee: Okay, fair enough. I guess on the funding, is it all gonna be with the IPO, or is there some additional debt or equity being considered here?

On the funding is it all going to be with the IPO or is there some additional debt or equity being considered yet.

Huifeng Chang: First of all, for every $100 of Capex we only need to take $30 from our bank accounts, and the other $70 can be financed with the local banks. So the Capex number sounds a big one, however, consider we have about $2 billion of cash, we still have enough capacity to fund our expansion excluding the polysilicon project. I mean, the expansion for Inga pooling, wafer, and cell, for that we have the funding prepared. Now for the polysilicon project, that's a different story. That will very much depend on the pace of the IPO.

Huifeng Chang: First of all, for every $100 CapEx, we only need to take $30 from our bank account, and the other $70 can be financed with the local banks. The CapEx number sounds a big one. However, consider we have about $2 billion of cash. We still have enough capacity to fund our expansion, excluding the polysilicon project. I mean, the expansion for ingot pulling, wafer, and the cell. For that, we have the funding prepared. Now, for the polysilicon project, that's a different story. That will very much depend on the pace of the IPO.

We only need to pick $30 from all bank accounts and if you have a $70 can be financed with the local banks. So the capex number sounds a big one however.

However, I can see that we have about $2 billion of cash.

We still have enough capacity to fund our expansion.

Excluding the polysilicon project I mean, the expansion for Inca poorly wafer and cell for that we have the funding prepared.

Now for the Polysilicon project, that's a different story that will very.

Very much depend on the pace of the I T O.

Brian Lee: Okay. Thanks a lot guys. I'll pass it on, appreciate it.

Brian Lee: Okay. Thanks a lot, guys. I'll pass it on. Appreciate it.

Shawn Qu: Thank you, Brian .

Huifeng Chang: Thank you, Brian.

Operator: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Philip Shen with Roth Capital Partners. Please proceed.

Operator: As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Philip Shen with Roth Capital Partners. Please proceed.

Philip Shen: Hi, everyone. Thanks for taking my questions. Continuing with the capacity expansion Capex theme, I wanted to see if you could talk us through with the passage of the Inflation Reduction Act, how much capacity could you bring to the US? What kind of capacity would you bring, wafer, ingot, or just module? And then can you share details around timing of when that could happen as well as the amount of capital you might want to spend, and perhaps also the location of these facilities?

Philip Shen: Everyone, thanks for taking my questions. Continuing with the capacity expansion CapEx theme, wanted to see if you could talk us through, with the passage of the Inflation Reduction Act, how much capacity could you bring to the US? What kind of capacity would it be? You know, would you bring wafer and cell or just module? Can you share details around timing of when that could happen, as well as the amount of capital you might wanna spend, and perhaps also location of these facilities? Thanks.

Continuing with the capacity expansion Capex theme.

Wanted to see if you could talk us through with the passage of the inflation reduction Act.

How much capacity could you bring to the U S O what kind of capacity would it be would you bring.

Wafer and so we're just module.

And then can you share details around timing of when that could happen as well as the amount of capital you might want to spend.

And perhaps also location of these facilities.

Shawn Qu: Hi, Philip. First of all, I want to say that the IRA is just signed into the law three days ago. It's a huge document. We haven't gone through all of it yet, so we don't have a concrete plan yet, but we are studying. I will ask Yan to provide more comment. Yan?

Shawn Qu: Hi, Philip. First of all, I want to say that the IRA was just signed into law three days ago, so it's a huge document and we haven't gone through all of it yet, So we don't have a lot concrete yet because haven't studied it. And I will ask Yan to provide more comments.

Fair enough.

First of all I want to say that the.

Are you are you just signed into law.

Three days ago. So it's a huge huge document and we haven't gone through all of them yet. So we don't have how about that.

Concrete Brian Yeah, we haven't studied it.

And Oh, Oscar yen to provide won't comment yet.

Yan Zhuang: Well, Shawn Qu, you have told us the status. Yes, we are actively assessing, you know, studying the merits on both benefit and cost side, and also the uncertainties and risks moving forward on this topic. As you know, we have people in the US who have been actively monitoring the situation. It's not that we're starting from blank, but as you know, this is quite a complex document as Shawn Qu has mentioned. I think we're gonna come up with a plan, a strategy to deal with this in a few weeks.

Yan Zhuang: Well, Sean, you told him the status. Yes, we are actively assessing the study of the members and both benefit on the cost side and also the uncertainties and risk moving forward on this topic. As you know, we have the people in the US that have actively been monitoring the situation, so it's not that we're stopped from blank but as you know, this is quite a complex document that Shawn just mentioned. I think we're going to come up with a plan, a strategy to deal with this in a few weeks.

Yeah that was told him that as the Stat is yes, we are actively assessing the study the members and both benefit and the cost side and also the uncertainties and risk because our moving forward on this topic.

As you know we have the people in the U S has been actively.

Monitored the situation so.

Its not that were stopped from Bryan Kipp at AR.

As you know this is quite a complex dot.

Document that's shall I just mentioned.

I think we're going to come up with a plan.

Our strategy to deal with this in the few weeks.

Philip Shen: Okay. Shifting to margins, I was wondering if you might be able to talk through you know with the Sichuan electricity shut down, Yan, you mentioned that just now with the heat wave that's going on. Poly pricing looks like it might go up a little bit higher. You guys actually gave a pretty healthy Q3 gross margin and so I'm guessing that the poly pricing going higher and lack of low-cost inventories being offset by lower shipping and FX. So just wanted to see if you could talk us through what the risk might be to the Q3 margin guide as well as how do you expect Q4 and Q1 margins to trend? Thanks.

Philip Shen: Okay. Thanks. Shifting to margins, you know, was wondering if you might be able to talk through, you know, with the Sichuan electricity shutdown, you know, Yan, you mentioned that just now with the heat wave that's going on, you know, poly pricing looks like it might go a little bit higher. You guys actually gave a pretty healthy Q3 gross margin. Wanted to. You know, I'm guessing that it, the poly pricing going higher and lack of low-cost inventory is being offset by lower shipping and FX. Just wanted to see if you could talk us through what the risks might be to the Q3 margin guide, as well as how do you expect Q4 and Q1 margins to trend? Thanks.

Shifting to margins are and I was wondering if you might be able to talk through you know with the Sichuan electricity shut down yeah, and you mentioned that.

That just now with the heat wave that's going on you know poly pricing it looks like it might go up a little bit higher.

I actually gave a pretty healthy Q3 gross margin and so wanted to I'm guessing.

The poly pricing going higher and lack of low cost inventories being offset by lower.

Lower shipping and FX. So just wanted to see if you could talk us through what the risk might be two to the Q3 margin guide as well as.

How do you expect Q4, and Q1 margins to trend. Thanks.

Shawn Qu: Well, as you know, we do not provide a margin forecast for the future quarters, but for Q3, it's pretty high confidence because the supply is so much fixed on both demand and supply side, it's fixed already. So we've already taken into the consideration of the possible downside causing cost by the events that happened recently on the silicone side. So for the rest of the year, I think that the [inaudible] price of silicone, but I think as I already mentioned, the events that we're seeing today recently is temporary. I think moving to September, the supply and the expansion of silicone and we'll continue studying and to come in and I think it will reach a reasonable, more rational balancing in the industry. So as you know, the market is now--our industry is quite price elastic. So I don't see extreme movement silicone pricing and installation volume. It's going to reach to a certain balancing, so so we already considered all the possibilities in our guidance.

Yan Zhuang: Well, as you know, we do not provide a margin forecast for the future quarters. For Q3, it's pretty high confidence, 'cause the supply is almost fixed. On both demand and supply side, I mean, it's fixed already. We already take into the consideration of the possible downside caused by the events happened recently on the silicon side. For rest of the year, I think the uncertainties resides on the price of silicon. I think as I already mentioned, the events we're seeing today, recently is temporary. I think moving to September, the supply, the expansion of silicon and will continue to flooding and to coming in, and I think it will reach a reasonable, more rational balancing in the industry.

As you know, we do not provide a margin forecast for the future quarters.

For Q3.

Pretty high confidence because the supply is so much to fixed on both demand and supply side to this fixed already so we've already taken into the consideration of the possible downside, causing cost by the.

Events happened recently on the Silicon side.

So so far for rest of the year I think that the surgeon histories resized sound.

Rice of Silicon, but I think as I already mentioned that the events that we're seeing today recently is temporary I think are moving to September the supply and the expansion of silicone and Oh, well continued flooding and two coming and.

I think it will reach a reasonable more.

Rational balancing in the industry. So as you know the market is now our industry is quite price elastic. So I don't see extreme movement silicon pricing and installation volume its going to reach to a certain balancing.

Yan Zhuang: As you know, the market is now. Our industry is quite price elastic, so I don't see an extreme movement on silicon pricing and the installation volume. It's gonna reach to a certain balancing. We already considered all the possibilities and on our guidance.

So so we already considered oh, the possibilities in our on our guidance.

Philip Shen: Okay, thanks again. And then one last question from me, back to the Capex in 2023 question, Huifeng, can you just give us a rough number of what that could be, I mean with the poly expansion plan and it's roughly $9 billion. And this year in 2022 it's about $850 million. I mean is 2023 a $4 billion to $5 billion number or it doesn't need or you're not going to make the decision on that until you finalize and have a very clear successful situation with the China IPO?

Philip Shen: Okay. Thanks, Yan. One last question for me. Back to the CapEx in 2023 question. You know, Huifeng, can you just give us a rough number of what that could be? I mean, with the poly expansion plan, I mean, it's roughly $9 billion. This year in 2022, it's about $850 million. I mean, is 2023 a $4 to 5 billion number? Or does it need? Are you not gonna make the decision on that until you finalize and have a very clear success situation with the China IPO? Thanks.

Just give us a rough number of what that could be I mean with with the poly <unk>.

plan and it's roughly $9 billion. And this year in 2022 it's about $850 million. I mean is 2023 a $4 billion to $5 billion number or it doesn't need or you're not going to make the decision on that until you finalize and have a very clear successful situation with the China IPO?

And this year in 'twenty, two it's about $850 million I mean is 23 of our $4 billion to $5 billion number or it doesn't need or you're not going to make the decision on that until you finalize a they have a very clear.

Our success, our situation with the China IPO.

Huifeng Chang: Phil, I think, let's do that on the next earnings call.

Huifeng Chang: Phil, I think, let's do that on the next call.

Philip Shen: Okay, got it. Thanks, guys. I'll pass it on.

Philip Shen: Okay, got it. Thanks, guys.

Huifeng Chang: Yeah.

Philip Shen: I'll pass it on.

Operator: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Colin Rusch with Oppenheimer and Company. Please proceed.

Operator: As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Colin Rusch with Oppenheimer & Co. Please proceed.

Colin William Rusch: Thanks so much, guys. Shawn, you've got a long history of de-risking the supply chain and kind of hedging through kind of partial integration and so I appreciate all of the questions on the supply side, but I'm curious about you know how active you are on the demand side and given what we expect to be a pretty aggressive push into the interconnection Qs, land positions, and things like that as you continue to grow that that project business. Just curious where you guys are at in terms of some of that pipeline and converting that into real opportunities and getting into the queue.

Colin Rusch: Thanks so much, guys. Sean, you know, you've got a long history of de-risking the supply chain and kind of hedging through, you know, partial integration. You know, appreciate all the questions on the supply side, but I'm curious about, you know, how active you are on the demand side, and given, you know, what we expect to be a pretty aggressive push into interconnection queues, land positions, and things like that, as you know, continue to grow that project business. Just curious where you guys are at in terms of some of that pipeline and converting that into real opportunities and getting into the queue.

All of the questions on the supply side, but I'm curious about you know how active you are on the on the demand side and given you know what we expect to be a pretty aggressive push into the interconnection Qs land positions and things like that as you continue to grow that that project business. Just curious where you guys are at in terms of some of that pipeline and converting that.

Into real opportunities and getting into the queue.

Shawn Qu: Colin, I think you're asking about the effort to secure the interconnection for the whole program, right? [inaudible].

Coty, and I think you're asking about the effort to secure the interconnection for the. While program right. Either of those yeah, probably again.

Yan Zhuang: Yeah, Colin, I think you're asking about our effort to secure the interconnection for our project, right?

While program right.

Either of those yeah, probably again.

Colin Rusch: Correct. Yeah.

Yan Zhuang: Either both our project and project.

Colin William Rusch: Yeah.

Colin Rusch: Yep.

Yan Zhuang: I will ask Ismael to answer this question. Ismael, please.

Shawn Qu: So, I will ask Ismael to answer this question. Ismael, please.

Sure. Thank you Colin for the question, we looked at what truck requires physical. What we are seeing is that right. We are experiencing due to the COVID-19 didn't lately some delays from Paradise and all these things but. We have two critical for them. Sooner or later, all our pipeline would have turned into successful projects. Keep on growing. So I think we have the bright future that hit.

Ismael Guerrero Arias: Sure. Thank you, Colin, for the question. Look at our track record. It's pretty good. What we are seeing is that we are experiencing, due to the COVID lately, some delays on replies and all these things. We are pretty confident that sooner or later, all our pipeline will turn into successful projects, I mean, and we keep on growing. I think we have a bright future ahead.

What we are seeing is that right.

We are experiencing due to the COVID-19 didn't lately some delays from Paradise and all these things but.

We have two critical for them.

Sooner or later, all our pipeline would have turned into successful projects.

Keep on growing.

So I think we have the bright future that hit.

Colin William Rusch: Okay. I'll ask more detailed questions offline. And then can you give us an update on what's going on with PPA pricing? Surely there's been some movement on that with inflationary pressures, demand, and whatnot. I guess I'm curious how you guys are approaching that just philosophically and strategically in terms of raising prices and you know getting yourself into a position to have some sustainable margin there at the project level.

Colin Rusch: Okay. I'll ask more detailed questions offline then. Can you give us an update on what's going on with PPA pricing? Surely, there's been some movement on that with inflationary pressures, demand, and whatnot. I guess I'm curious how you guys are approaching that just philosophically and strategically, in terms of raising prices and you know, getting yourself into a position to have some sustainable margin there on at the project level.

I'll ask more detail questions offline.

And then can you give us an update on what's going on.

With PPA pricing surely there's there's been some movement on that with inflationary pressures demand and whatnot.

Yes, I'm I'm curious how you guys are approaching that just philosophically and strategically.

In terms of raising prices and and you know getting yourself into a position to have some some sustainable margin there.

The project level.

Shawn Qu: [inaudible] You want to take it yourself?

Ismael Guerrero Arias: Look, the

Yan Zhuang: Yes, I will.

Ismael Guerrero Arias: Sorry, Shawn, I went ahead directly. You wanna take it yourself?

More.

Yes, it's a southern shanhaiguan diabetic.

And I think it yourself.

Ismael Guerrero Arias: Well, it's a question for you.

Yan Zhuang: No.

Shawn Qu: It's a question for you.

Shawn Qu: Oh, thank you. Thank you, Ismael. So what we are seeing is that the [inaudible] have gotten a little bit more complicated in their terms. And to reflect provisions to protect us mainly from inflation and interest rate drops and things like that. So the approach we are taking is we are [inaudible] at the beginning where we might find the merchant prices too high on the merchant markets and the PPA [inaudible] a year or two later, the general in terms of the PPA or the markets are very high, we have the right to negotiate the contract for those years. This is the approach we are taking, so what we are seeing is that the PPAs are getting adjusted to what is happening in the market in general and we keep on seeing the PPAs moving up. That's what we are seeing. It's true also that the terms are getting a little bit shorter. It's really weird to see now 20 years PPAs, 17 years PPAs. We are seeing much more 10 year ones.

Ismael Guerrero Arias: Oh, thank you. Thank you, Sean. Look, what we are seeing is that the PPA contracts are getting a little bit more complicated in their terms and, to reflect the provisions that protect us mainly from inflation, interest rate drops, and things like that. The approach we are taking ourselves is we are fine on having a period at the beginning where we might go merchant if the price is too high on the merchant markets. The PPA can kick in a year or two later, the general terms of the PPA. If the markets are very high, we have the right to renegotiate the contract for those years. This is the approach we are taking.

So look what we are seeing is that the vehicle trucks have gotten a little bit more complicated in their terms.

On a two to reflect the probes.

Provisions.

Uh huh.

It won't take us mainly from.

From inflation on.

And interest rate drops and things like that so what do we that the approach we are taking our souls piece, we are fine on.

One on the Harbin, a PD out at the beginning where we might go merchant prices too high on.

Martin.

Markets.

On the PPA kind of keeping a year or two later.

The general in terms of the Ppas or the markets are very high we have the right people to negotiate the contract for those years.

This is the approach we are taking so what we are seeing and they start the ppas how to get there not just at what is happening in the market in general.

Ismael Guerrero Arias: What we are seeing is that the PPAs are getting adjusted to what is happening in the market in general, and we keep on seeing PPAs moving up. That's what we are seeing. It's true also that the terms are getting a little bit shorter. It's very weird to see now 20 years PPAs, 17 years PPAs. We are seeing much more 10 years ones.

We keep on seeing that depreciation will be up.

That's that's what we are seeing Easter all sort of the terms aren't getting the children.

So you should really weird to see now 20 years Ppas 17 years Ppas, we are seeing much more than year slumped.

Colin William Rusch: That's super helpful. Thanks so much guys.

Yan Zhuang: That's super helpful. Thanks so much, guys.

Operator: Our final question comes from Praneeth Satish with Wells Fargo. Please proceed.

Praneeth Satish: Thanks, I just really just have one question. I guess with the tax credits here tied to the Inflation Reduction Act in the US, does that change your capacity expansion plans at all to maybe build some of that manufacturing here in the US versus building it all in China. How do you compare the two regions now that the US is providing a lot more support for solar manufacturing?

Praneeth Satish: Thanks. I just really just have one question. I guess with the tax credits here tied to the Inflation Reduction Act in the US, does that change your capacity expansion plans at all to maybe, you know, build some of that manufacturing here in the US versus building it all in China? How do you compare the two regions now that the US is providing a lot more support for solar manufacturing?

How do you compare the two regions now that the U S. It is providing a lot more support for solar manufacturing.

Yan Zhuang: Hey, this is Yan. Yes, we are actually reviewing once again our plan on the future capacity expansion to supply to the US market. So as you know, we're now using Thailand and Vietnam as a base to supply to the US with cell and module capacity, and the IRA just past three days ago, and it's a huge document with a lot information, details, and we're still deep diving that document. The team is working on that and we will have many meetings going through all the details and the benefits and the costs and the risks and uncertainties and we're going to have to clarify a lot of things and make judgment calls on other things. As you know, we've been monitoring the US policy trends for a few years already and so it's not something strange or shocking to us but we try to make the best decision to better support the US market and to service our customers in the US.

Yan Zhuang: Oh, hey. This is Yan. Yes, we are actually reviewing once again our plan on the future capacity expansion to supply to the US market. As you know, we're now using Thailand and Vietnam as a base to supply to the US with cell and module capacity. The IRA just passed three days ago, and it's a huge document with a lot of information details. We're still deep diving that document. The team is working on that. We'll have so many meetings going through all the details and the benefits, the costs, the risks, and uncertainties. We're gonna have to clarify a lot of things, making judgment calls on other things.

Yes, we are actually.

Reviewing again lessor was once again our plan on the future.

Capacity expansion to supply to the U S market. So as you know we have the we're now using talent.

And Vietnam as a base to supply to the U S. A we the cell and module capacity and Oh, Our ages past three days ago, and it's a huge document.

<unk> information details.

And we're still deep diving that they'll come and the team is working on that.

And we will have so many meetings going through all the details and the benefits and the costs and the risks and uncertainties and we're gonna have have to clarify a lot of things are making judgment calls on the others other things so.

Yan Zhuang: As you know, we've been monitoring the US policy trends for a few years already. It's not something strange or shocking to us, but we try to make the best decision to better support the US market and to service our customers in the US.

As you know we've been monitoring the U S.

Policy.

For a few years already and so it's not something strange.

Shocking to us about how we try to make the best decision to better support the U S market and two <unk>.

Service our customers in the U S.

Praneeth Satish: Got it. Thank you.

Operator: Thank you. At this time, I would like to turn the call back over to Canadian Solar's CEO, Dr. Shawn Qu for final closing comments.

Operator: Thank you. At this time, I would like to turn the call back over to Canadian Solar's CEO, Dr. Shawn Qu, for final closing comments.

Shawn Qu: Oh, thank you. And also thanks to everyone for joining us today and for your continuous support. If you have any questions or would like to set up a call, please contact our Investor Relations team. Take care and have a nice day.

Shawn Qu: Oh, thank you. Also thanks everyone for joining us today and for your continuous support. If you have any questions or would like to set up a call, please contact our investor relations team. Take care and have a nice day.

We don't have any question well actually set up a call. Please.

Contact.

Investor Relations team take care and have a.

Nice day.

Okay.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Hum. Okay. Yeah. [music].

Okay.

Yeah.

[music].

Q2 2022 Canadian Solar Inc Earnings Call

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