Q3 2023 Canadian Solar Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Canadian Solar third quarter 2023 earnings Conference call. My name is symbolic and I will be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay.
Purposes, I would now like to turn the call over to Isabella Zhang Investor relation director at Canadian Soldier. Please go ahead.
Thank you operator, and welcome everyone to Canadian finished third quarter 2023 conference call.
Please note that today's conference call is accompanied with Sky.
I'm Canadian Investor Relations.
They seem to events and presentations section.
Joining us today, a doctor Shanxi chairman and CEO.
Yeah, and John <unk>, President of Canadian Polish majority owned subsidiary CSI solar.
Two quick ones from me.
Our VP and CFO.
And if my.
Coffee P a M.
Ladies only wholly owned subsidiaries.
He also formerly global energy.
Oh company executives will participate in the Q&A session after management's maughan.
On this call Shawn will go over some key messages for the quarter.
Ms Madden.
This highlights for C. S. I saw that in the current energy respectively.
I'll go through the financials.
John will conclude the prepared remarks.
After which we won't have time for questions.
Before we begin I would like to remind listeners that management's prepared remarks today.
Answers to questions that could come 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.
And in the private Securities Litigation reform of 19 months.
Actual results may differ from management's current expectations.
Any projections as the company's future performance represent managements estimates as of today Maidenform assumes no obligation to update these projections in the future unless otherwise required by applicable law.
A more detailed discussion of certain fees can be found in the company's annual report on form 20-F filed with the Securities and Exchange Commission.
Management's prepared remarks will be presented within the requirement if you like that she G regarding generally.
Accepted accounting principles or GAAP, some financial information presented during the call will be provided on both the GAAP and non-GAAP basis.
By discussing certain non-GAAP information management intends to provide investors with additional information.
The analysis of the company.
Some underlying trends nationally uses these non-GAAP measures to better themselves operating performance and to establish a place you would go.
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 <unk>, Chairman and CEO Dr. Shaanxi.
Shawn Please go ahead.
Thank you I guess about thank you to have that one right.
Jogging, our truthfully coal today.
Turning to slide three.
We achieved the solid Q3 results despite continued challenging.
Alan drink environment.
During the quarter like deliberate eight three gigawatt solar module shipment, we generated yet one point a $5 billion in that rapidly.
60 points, 70% gross margin and total net income attributable to Canadian solar shareholders.
China, It's really minimum dollar Oh, what does it take two cents per diluted share.
Let me share a few key takeaways.
Please turn to slide four.
First.
Even with the challenging operating environment the industry is healthy.
He'll give you some color I have worked in the solar industry.
Well over 20 years.
Not only just the witness total cumulative solar installed capacity.
Finally reach one terawatt worldwide game trying to try and dig truth.
Absolutely and look hat strong global with Ya man, Yes, I'll chalk to drive that number up to one terawatt annually.
And new installations hi.
I strongly believe this kind of happened before the end of the basket.
Trying to 830.
That is an incredible amount of that as well.
Yeah.
Well I didn't toward that the battery energy storage system market.
Market, yes.
Yes also growing in Russia, Italy.
I believe that that smart Caf, yes also on pace to reach me.
Carol what generation over the coming decade.
Yes, yes, yes first terawatt hours.
Yep.
It probably meant.
Of course short term Mark had exactly call fluctuation.
A lot of them.
I'm not nervous about let's say, a man and a supply constantly rebalancing.
However, even with the current high cost of capital solar and energy storage project returns.
More economically attractive to date that I have.
That's helpful.
This is due to the lower equipment cost on the higher electricity prices.
The push towards decarbonization.
Zero emissions, yeah stronger than ever before and their child in just of kind of just security reman.
I strongly believe that the solutions, we provide the market.
Chile, the most compact it is impactful and scalable in the fight against climate change.
So long term, we believe the market fundamentals remain very strong.
Turning to fly Fi checking.
Second of all it remains a key driver of growth in the program in the industry over the past, they're trying to yes and works very efficiently.
Improved up from less than 15% to well over 25% now.
Okay, Yes that next big Tech knowledge driver and we have already ramped capacity.
I haven't got the top call sell capacity now accounts for half of our total cell capacity and is expected to reach 6K per se right.
At the end of this year.
This gives us a major competitive advantage over other companies that have far greater exposure to older legacy technology.
Please turn to life.
Okay.
The third point I would like to make is on the continued strategic long term investments, we are making in key premium markets, including the U S. We are we are making major anyway.
We recently announced.
U five gigawatt.
Total investment in Jackups, Evansville, Indiana Jeffersonville, yes.
North and south of the Ohio River on the border between Indiana and Kentucky.
We.
Chose this location after extensive analysis and evaluation.
18, five different sites across the U S.
It is going to be one of our largest single investment each well in April.
And not only better serve U S customers with the most advanced technology.
Oh, but Phil the local content rules I'll see inflation reduction Oh I R. A.
We're excited because our new five gigawatts cell.
Hey, well complement their new five gigawatt solar module facility, Mesquite, Texas, which we announced earlier this year.
The mesquite facility is on track.
Start producing modules in a few weeks before the end of the year. In fact I was there last week and was pleased to see the team fine tuning and working on the final preparation for.
Mass production.
I'm very proud of everyone involved in executing these two important manufacturing plants. We also think they're all fixable in Indiana and taxes and the local officials in Jacksonville and Muskie.
But yeah Oh wait.
Critical support.
We look forward to continually work with us.
We were all in these communities Kuwait.
Portland, new jobs and expand almost all of the global platform.
Yeah attrition, we also recently announced a five gigawatt solar wafer facility.
Thailand, which will complement our investment in the U S and allow us to responsibly meet the new requirements related to latest and I'd just add a D. C. D. T ruling by the U S Department of Commerce.
Currently we are adjusting their procurement all our malls you Peel off materials in accordance with the U S.
Regulation.
Overall, we are strongly positioned ourselves to deliver long term profitable growth for our shareholders.
Please turn to slide seven.
Lastly, we continue to lease.
E S T accuracy.
Recently, our E S G working group health global internal ESG town halls.
So shall I shall.
Pets and seek greater participation from all in probably east Oh.
All our regions.
In this process, we continue to gather ideas peaks and feedbacks from our great talent pool.
Over the next year, we plan to focus on attacking our S. E T. I, Oh, Wow signed space isn't necessarily can't claim a targets.
Well also be expanding recorded I know Jess yeah, it's cheap practice.
Oh, it's evolving and construction activities.
In truth standardizing, yes, two procedures to a district yesterday strip test.
Levels of biodiversity.
Thank you a logical Serbian community engagement and environmental Justice policy space.
Enhance the health and safety and so long.
Historically, we have mostly focused on the manufacturing side of the business, which naturally asked a great test environmental impact, but we are making sure that all our efforts cover every inch of our company.
We are committed to kind of general improvement.
Reflecting our leadership.
Oh, Yeah, Yes G. We recently received the death that global sustainability reporting all state year Award by Environmental Finance Congratulations to the global teams for their hard work.
Canadian Solar will continue to work all our ESG disclosures.
Strategy and execution and seek improvement every year.
With that let me turn the call over to Yan, who will provide more details on our C. S. I solar business. Yeah. Please go ahead.
Thanks, Sean.
Please turn to slide eight.
In Q3, as Sean noted earlier.
Satisfy solar division delivered eight three gigawatts in solar module shipments.
And one $8 billion seemed academic group.
<unk> margin was 16, 6%.
230 basis points higher than last quarter.
Driven by lower manufacturing costs, and the higher level of vertical integration.
This was partially offset by lower solar module price.
It also included.
A $35 million inventory write down.
Bleach was specifically for module seen warehouses intended for searching distributed generation markets.
We doubt the write down since I saw this gross margin would have been 18, 5%.
Let me now give you an update on the key drivers and market dynamics, we're seeing.
Please turn to slide nine.
First in Q3, we added.
13, gigawatts of top comm cell capacity.
We expect to add another 11 gigawatts by the end of 2023.
As we explained previously this expansion will meaningfully help us improve.
Our vertical integration I mean, hence our structural marches.
As Sean mentioned earlier, where we are big believers in N type technology and its ability to drive change in our industry. We also believe that top com. It's the most compelling to the N type technology for the next few years.
In fact, <unk> technology has accidently surprise to us since we have been adding more lines.
Over the past few months.
For example, the conversion efficiency, how flower of mass produced top come south.
<unk> reached an average of 25.65%, which is nearly three five percentage points higher.
And that approach.
We're confident we'll exceed the 26% strap holds next year. However that is still well below peak radical limit top com.
Which is currently 28, 7%.
And this number will likely increase over time as well.
Second.
Look at our capacity by region I want to highlight the implications of our capacity investments.
We believe we will meaningfully increase our U S market share.
Leads our capacity expansion in the U S and Thailand.
We're investing across the supply chain from modules to south to LIFO.
Over the past few years, we have been.
Keeping on average around three five gigawatts to the U S. S. We did not make any major investments due to the uncertain policy environment. That's.
The circumstances has obviously changed over the past 12 months.
And next year, we intend to deliver a significant growth in the U S market supported by a combination of our new local capacity in the U S as well as in Thailand.
We have also set up our own internal capacity for search and be off materially in Vietnam.
And by March of next year, we expect to meet the new requirements under four out of six routes in the newest department of Commerce ruling on a B C. D C convention.
As a percent of our solar module production in Texas.
Let me also make a few comments about our shipments to the U S.
As certain sauce inflammation, a box Canadian solar was recently brought to our attention.
In the first three quarters of 2023.
We imported approximately three gigawatts of solar modules manufacturing talent into the U S.
Over the past few weeks are simply off containers has speed he can.
Our inspection under the U F L P. A.
This is this is a small fraction of the total only amounting to approximately 115 megawatts as of last Friday.
More importantly, we believe that you can't merchandise is outside the scope of the U F. O P E and we are fully cooperating with C V. P to provide detailed information to that effect.
Absolutely have strictly.
Feasibility procedures in place.
Moreover.
Meeting solos solos comprehensive ESG protocols, and do not tolerate forced labor or any other form of modern slavery.
In 2022, we conducted one.
122 supplier ESG audience.
We believe this is one of the most rigorous E. S. T R teaching programs in our industry.
Lastly.
Turn to slide 10.
I would like to highlight our continued <unk>.
Aggress U E storage.
Our utility scale storage business.
June 30 of this year, our team has signed approximately $520 million in new contracts.
Our total contracted backlog has increased to $2 $6 billion.
Of these around half are expected to be delivered next year.
We should see equivalent to approximately six to 6.5 gigawatt hours of projects.
As we speak.
Our teams are busy with customers closing more transactions, which we expect to announce over the next few weeks.
I'm proud that we have built a very strong global team that is able to execute and deliver on some of the most differentiated storage technical solutions in the market.
Their ability to solve complex problems for our customers has allowed us to sign contracts the multiple repeat customers.
The profitability of E storage has also been improving as most of our contracts have fixed prices.
Whereas our costs have been declining alongside the decline in lithium carbonate prices.
Yes, we expect E storage to be a much bigger contributor too to CSI solar remedies, and notably profits in 2024.
Now, let me handover to email to provide an overview of recurrent energy Canadian Soulless Global project development business you smell Pease go ahead.
Yeah.
Thank you Yung.
Please turn to slide 11.
Thank you.
We delivered $64 million in revenue with a 27, 7% gross margin.
Do you think more suspect it to be.
Surely lower but still profitable quarter call. We got an argue from a gross margin standpoint, as we only monetize an 18 megawatt project in Japan.
Smaller projects in Taiwan.
However, I'll say have started emphasizing recently, we are now shifting more of our resources towards executing projects as we intend to grow our base of operating assets that generate recurring earnings.
In Q3.
Nearly 300 megawatts of fleets in the U S close financing.
Clothing, both tax equity and project finance.
Now under construction.
We expect to hold these projects longer term.
We also expect to close financing on the third one soon with construction then started.
Hence we plan to have close to 500 megawatts under construction in the U S by the end of 2023.
In Europe.
We have approximately 160 megawatts under construction with financing a lucrative ppas in place.
Over the course of the next year, we expect to see it would be around 500 megawatts of projects on the start of construction.
Approximately one seven gigawatts of solar on 800 megawatt that were sort of a stomach projects, which we intend to hold long term.
All of this means we are executing on our strategy.
We are transitioning from mostly being a pure to developer.
Developer blasts, I said owner and operator.
Overtime.
This will allow us to deliver more stable forecastable growth.
I saw where 70% of them that have been yourself with the assets, we intend to retain control of <unk>.
Fully constructed and diversified and low risk and with all of them.
We've also significantly expanded our operations and maintenance or O&M Cup abilities.
In Q3, we acquired and market leading on EM team in the U K significantly expanding our O&M and contracted capacity from six gigawatts at the end of last quarter to eight gigawatts at the end of Q3.
This brought us to top three in the world by global on end market share.
Being one of the largest and most of you, but ethically diversity Pedro our name operators, our services providers for both solar and instead of tests at.
Enables us to better understand and optimize the performance of these assets in different locations around the world.
Please turn to slide 12.
As of September 30, Yep.
Our total development pipeline grew.
So 26 gigawatts of solar and the <unk>.
55 gigawatt hours for a bucket has started to projects.
Why we are focusing our resources on executing late stage projects. We are also proactively developing new origination opportunities.
The persistently high interest rate environment has made generating high returns more challenging.
However, the decrease in system cost has also help offset this effects, including the significant decline in solar module on lithium prices as well as the lower cost of the steel that has revenues that goes off the truckers and other pieces of equipment.
Technology improvements such as top gun upholstery proof, our project economics through higher efficiency and lower degradation.
And the interest from all stakeholders for renewable assets remain our strongest civil healthy nice sign lucrative ppas.
Securing interconnections on interconnection delays continues to be the main constraints for our business today.
But having approximately 13 gigawatts of solar and 12 gigawatt hour stuff has got its interconnection secure gave us very good long term growth visibility.
One of the key advantages of being a global developer you saw where our ability to apply lessons learned.
Best practices from one region to others.
For example, we are one of the market leader soon and I just thought its development in the U S where if we develop uncompleted you gave what they were supposed to go next.
We are now applying them that vulnerable students as we pursue significant opportunities across Europe, Japan, and Korea to Latin America.
In these markets we are the only player with a significant track record and started to develop.
This lets us significant credibility uncompetitive pets to take advantage of the earliest and most profitable opportunities that will create long term value.
Similarly, being one of the few developers that compromise ppa's in different parts of the world and gave US a significant advantage with the global off takers, who are seeking a streamlined process one signing for novel projects in different countries. We have been very successful in signing contracts.
I don't get addictions with the same global customers. Thanks to this advantage.
Now, let me hand over to Christian who will go through our financial results in more detail.
If your son please go ahead.
Thank you you smell.
Please turn to slide 13.
In Q suite, where do you live at $185 billion in revenues down, 22% sequentially and up 4% year over year.
The sequential decrease was driven by lower project sales in Q3 relative to Q2.
In a declining module average selling price.
Gross margin was 16, 7% a sequential decrease from April 6% in the prior quarter.
This was mainly driven by a lower contribution from the energy segment, which monetize a large high margin projects in the second quarter of 2020 suite.
Honestly I solar side margins improved.
Due to the faster decline in costs relative to S piece.
I'm Gonna do soon.
I saw the incurred a 35 million inventory write off.
<unk> four modules.
It says tell me before certain distributed generation markets.
With all the write off of Q3 total gross margin would have been two 6%.
Selling and distribution expenses were up 14% sequentially driven by higher unit logistics costs.
General and administrative expenses declined 18% sequentially.
Share based compensation expense related to the C. S. I saw the I T O from Q2 did not reoccur in Q3.
This was partially offset by other factors, including a popcorn ramp up cost.
Research and development costs.
25% sequentially due to higher spending in <unk> com and the storage RMB.
Overall operating expenses increased by.
By 4%.
Net interest expense in the quarter was 11.
Minimum brought us down from $21 million from the prior quarter.
This was mainly driven by the higher interest income from higher cash balance during the quarter from the policy of the CSI Some IPO.
Marketing spend yet.
Net foreign exchange loss in Q3 was $17 million compared to a net loss of $34 million when the second quarter of 2020 sweep mainly driven by a weaker euro relative to the U S dollar and a headroom of office RMB.
Total income was $62 million was net income attributable to Canadian solar shareholders at $22 million or diluted EPS of 72 cents.
Now turning to the pastoral under the balance sheet. Please turn to slide 14.
In Q3, we generated approximately $168 million in operating cash and invested $305 million in capex.
Our full year 'twenty time suite Capex budgets is reduced slightly to approximately one time sleeping in Dallas.
This means that Q4 will have a significant increase in capex.
Why would sum up next to get Capex parents, we expected that number to be slightly higher but not to all.
This year's Capex level so.
So we ended the third caught out with a healthy total cash balance of $3 billion.
Our leverage is Maggie that's net debt to EBITDA, Sweden, what's your cash.
At 1.6 times.
This is higher than last quarter.
Our financing programs now include two green bonds, why you shouldn't even Europe order intake.
Can the Lotto, which we closed a lot of months ago.
So now let me turn the call back to Sean who will conclude with our guidance and I'll talk so thanks for that.
Okay.
Sorry, Paul let's turn to slide 16.
For the fourth quarter, all the time, they're done this week, we expect solar module seven Ics I solar to be in the range I'll.
7.6 till April one gigawatt, including approximately 85 megawatt true recurrent energy project.
Total E storage utility scale battery storage.
I see us at solar.
We expected it to be.
In the range of 1415 gigawatt all of this.
Of which approximately 720 megawatt hours.
<unk> had to be recognized as revenue being hurt a trendy Chinese wall.
From a financial point of view.
<unk> total revenue.
I'll be in a range of <unk>.
One six to one $8 billion gross.
Gross margin is expected to be between 14, so six Tim is that in the fourth quarter.
For the full year trying to be trying to fall, we expect total solar module shipments to grow to the range of 42 to four seven gigawatts.
We expect total battery energy storage shipments to.
To grow so they rank all fixed Paul cool so the range of six to six five gigawatt hours.
These numbers include a <unk>.
<unk> two gigawatt.
And two five gigawatt hours of storage in turnover shipment to reoccurring in nature, probably Jack respectively.
Well competition, it's always tough in this industry I'm, probably more so today than any time passed over role Canadian solar, yes, well pervasive.
Execute through near term challenges I'm July long term well there.
The strong position, we hold across our key markets.
Mens and business you in there.
Gives us a major competitive advantage. This is truth the E storage, which is one of our farthest to growing business with improving profitability.
Back to further strengthen our really our leadership position as we expect to more than triple shipment of our utility scale and they just tolerate solution.
Trying to try and therefore, gaining additional market share in the global energy storage market.
With that I would now like to open the floor for questions operator.
Thank you at this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad a.
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.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the east Darkies.
Our first question comes from the line of Colin risks with Oppenheimer. Please proceed with your question.
Thanks, so much ghansham you've been through a number of these cycles with the industry is as it's grown and gone through some down cycles.
I know that folks are really I'm trying to get some visibility into what's going on in the distribution channel with inventory can you talk a little bit about what you're saying both from our overall inventory level, but also the sell through and an expectation around cycle times, both in your own distributor business.
As well as your customers, particularly in Europe.
Ah Thanks caught it seems.
What was that I have gone through quite a mini cycles like that.
The Chinese haven't yes.
In the solar industry and actually sitting here I feel better much better this time than other.
Industry and uncertain time tough time, that's because number one we are a Canadian solar is much bigger and also ways.
The phase.
Actually I'll also sitting on a lot of cash so I don't have to worry about.
Liquidity at all now I'll talk about the inventory itself. So I see you know the distribution market.
For about a third a 3rd% to 5% of the total solar market and in this market. It seems that they are.
Some you make a choice.
In the <unk> in the channel.
Such a market, but not all of the market.
Example, in China, Mark actually I don't see my chair.
My true inventory in the distribution channel.
But the European market, maybe now actually it's also a question I received a customer.
Always our number one distributor in Europe just a.
Last a week and asked him. The question Asker look you know how do you think those inventories well in fact here how long do you think it.
It will take to sell through in Europe.
And he said Oh, maybe maybe one quarter and maybe less than I said, well I read all the time Internet news.
Yeah.
Some people are talking about.
Eight eight gigawatt mandate, what inventory did used to you'll see the hot and he said no no sure I don't know Akshay I don't know where those are information all other rumor started I certainly don't see this much inventory, they're scared of your inventory.
He is much smaller so adopting formation my customer gift to me Oh.
There's distribution customer gets to me just last week.
So yeah, then I feel to be more conservative.
We feel less.
Be prepared for more than one quarter, maybe this quarter and a leather belt and also Q1 because to your wife's winter.
Let me see that so maybe it takes two quarter two they all through so that's my.
<unk>.
Feeding Connie.
Thank you so much that's super helpful and I guess the second one is really for Ishmael.
There's a lot of discussion around interconnection and grid.
Capacity for taking on a new projects can you talk a little bit about the the cadence at which you're seeing projects move through interconnection queues and a potential for you know some of these energy storage projects tend to have a little bit faster.
Go into construction and potentially prioritizing energy storage elements of projects before the solar as you get into 2024.
And how you see that evolving.
Thank you Colin Thanks, so much for the question.
Look it remains being the miniature.
Not only are.
The separation of the agreed but also by delays on executing their expansions.
They're getting up on ignores them.
The good thing in our case, we have medical and disability for the next three or four years or whatever we're going to be.
<unk>.
But it's an issue to keep on alert and the pipeline on the left the need short term for whoever need stuff.
Hmm.
Look our transformers, our journey toward one way in advance and you want to take in a significant risk because sometimes you need to one of them before.
Fully funding all that seemed to get a permitting process otherwise you are going to be late.
In district site, we are starting to see more acceleration than before we have starting to have the first projects coming in judo.
We are just starting to receive the person interconnection. So I'll just start a change of plan.
So you're just going to accelerate albeit not as fast as we wish but it's just starting to happen.
I hope I answered the question.
Okay. Thanks, so much guys.
Our next question comes from the line of Philip Shen with Roth M. Kam. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
As a follow up to the.
The.
Question earlier around inventory and the outlook for Europe.
Sean I was wondering if you could kind of speak a little bit bigger picture in terms of your guidance.
Your your Q4 guidance.
As declining 5% quarter over quarter, and a seasonally strong quarter.
But then you're looking at 2024 and it seems like you could grow shipments maybe 50% year over year.
You have to slow down for Europe is maybe Q4 and Q1.
Expectation that there is a.
Tremendous recovery as we get through Q2.
And Q4 of next year. Thanks.
Hi, Philip this is seeing yes, a territory so I won't ask a yen to answer the question.
Hey finished as you already know that.
The Destocking actually started.
In Europe for like end of Q2, it's already started so it's been two quarters already and we believe by Q1 it should be somehow.
Finished and once that channel is coming back and we have such a dramatic price reduction over the past two years, we should see strong demand coming back.
And so lab and that's you know that we have a pretty strong presence in that channel. So we are we anticipate a strong coming back in Europe, and other markets as well so and.
This is Larry.
Price elastic market, So me such a price reduction.
The demand yeah, it's gonna be stimulated.
The much higher level, it just yet and it may not happen right away, but it's going to be maybe some delays in a few quarters a couple of quarters. It will come back on the utility side as well so we had a summer demand.
Demand to reduction on the PDP side as well over the year due to different bottlenecks I M. P C.
Interconnection on some you couldn't.
But also some speculation he thought people I expect multi packs coming down so if they decide to do that over the course of next year, we should see the OTT demand also should come back strong. So we actually see a we I actually anticipate a strong demand the copper.
Later in the second half second half of next year.
Great. Thanks for all the color Oh, yeah.
Shifting to the U S market.
And in your remarks that 150 megawatts of product was detained.
Looking ahead do you expect risk for new shipments to beat the teams.
And how many Gigawatts do you think you could ship into the U S from South East Asia in 2024.
And as it relates to the detention.
What type of bomb.
<unk> is in the module that.
That has been and how long do you expect that the attention to last and do you expect it to spread thank you.
Well so we're actively.
<unk> be the C V P.
On the sub meeting the documentation and we're actually very confident to reach our traceability procedures.
And from our knowledge that at both the non China in China silicone.
You know has a pass through that.
The customer so we're working with them and that we're confident that with to resolve this soon.
Okay. Yeah. Thank you yeah, so next year well.
So next year, we should have a strong growth as Sean has mentioned in the U S.
Can you share how many gigawatts you think could be in the U S next year.
Well.
But as you know we used to have about four gigawatt solar cell capacity U S. And we are now beauty eight gigawatts at Culp com.
Capacity.
Not in U S. I'm, sorry, our four gigawatt of solar cell capacity in Thailand, and we.
Now ramping up and that the eight gigawatt.
Pulp com saw myself now.
Most of those collapsed days debuted in order to serve the U S customer I guess, that's the information I can provide it to you at this moment.
Okay. Thank you Sean.
Another question here.
What is your base assumption of the size of the U S market overall in 2024 I've heard other Chinese companies suggest that the U S market could be 80 gigawatts of module shipments.
With it maybe 50 gigawatt.
Installation, which.
It was pretty high.
So I was wondering what you think the 'twenty 'twenty four baseline could be.
In your base case.
No our launches check Yep, our senior Vice President Palmas kernel is online almost a U.
Hi.
Thomas.
Okay forget it next time, so yeah Thomas your line is now.
Yes.
Okay. So actually we're seeing also seeing are anticipating a strong growth a few aftermarket demand next year I'm not sure about 80 gigawatt, but they should be much higher than this year, that's our estimate.
I think Thomas might be available now on what what's the basis of that strength utility scale micro 10% to 15% residential I see down.
10%, 12% actually.
And then commercial might be flat to up but it's not a big market. So just curious where do you anticipate that strong growth. Thanks.
Thomas Your line is now live well.
Hi. This is Thomas can you hear me.
Yes, yes, yeah Thomas.
But we are seeing a significant revival and ramp up I'll skip silicate phosphate.
Maybe to the end of 'twenty 'twenty four and it's also shown in yen has already outlined the deployment or distribution channel should be finished by coupon latest by Q2 next year, you'll all be seen distribution companies to reorder and we start ordering.
For the beginning in Q2 next year.
So on the inventory has been deployed in other potential channel and some rooftop market, we are seeing customers coming back and reordering product in anticipation of all it's a pretty strong.
For U S market.
Okay, great. Thank you for the color guys.
Taking all the questions I'll pass it on.
And as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question and execute.
Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Hey, guys How's it going thanks for taking the questions maybe a few follow ups to phils questions around guidance I'm, just trying to triangulate here.
Some of the moving pieces for Q4, so and maybe if you could help us out in the 14% to 16% gross margin guidance.
What does that embed for CSI solar.
Is it up flat down and as your base of reference our reported 16 six or is it the adjusted 18 and a half like are there other inventory write downs here.
Anticipating for Q4 and CSI selling maybe just you know what what's the gross margin.
Direction or range you'd expect for that segment in Q4.
Hi, Bob.
Good to hear you again now at travel will actually introduce new person well actually he is not new he has been with us for many years catalog our financial controller Carlos do you want to shed light on.
Yeah, Yeah, so be the our outlook will be driven primarily by CSI solar so that that is the basis for our present outlook.
You know in terms of.
You know the range of guidance that that Oh, just it'll be flat.
The sensitivity we have to watch the market.
The market right now in terms of the AR.
You know the price and you know how is that.
Pretty level.
Okay fair enough I'm, maybe asking it a different way.
It sounds like you're inferring that you know Q4 is going to be largely driven by CSI solar and so recurrent.
It's pretty pretty light revenues in Q3, if we presume recurrent doesn't grow significantly in Q4, I guess, the math would just imply that.
S P's, which were like low twenty's cents per watt this quarter reported.
<unk> would be like 17, or 18 cents per watt in.
In Q4 or do we.
We wrong in assuming that return is it is not growing much in Q4, just trying to triangulate the pricing I guess because.
I have a follow up question around the implications for 2024.
Hum.
Estimation.
Is that a ballpark you know the economy is not growing much.
Next caller.
I want to.
Explain it in a different way, where your current yes, a shaft him from developed and the flip to develop the whole project.
All right Cool ranch is growing but they're not notwithstanding project. What do you think we are we haven't been leaving too much money on the table I sat in the project just the after all before.
C O D. We think Oh, a project a very valuable and connection points are also very valuable.
Now going to see these kind of PPA or these kind of connection point and even more so we think that by a hold in there was pretty good you know their body of world. So just wanted to correct that.
Rick Laurent is growing because the pipeline is where are we.
Okay. Thank you, Sean knowing that that makes a lot of sense and I have a follow up question on that but maybe just quickly to round out this line of questioning.
If if youre kind of let's call it high teens a S P per watt.
Exiting 2023.
What's sort of your big picture view around 24, given we're still going through some destocking and it doesn't sound like you're going to have meaningful shipment growth.
Maybe until the back half of the year that that's what you seem to infer to an earlier question. So I E. A S. P is flat.
Oh down modestly like what kind of what's your big picture view.
Off of these levels for maybe the balance of 'twenty four.
Yeah.
Hi.
Hi, Brian as you know, we don't provide that trying to we're trying to give for marching O. S. P guidance, yet so why don't we wait you March all our May conference call and let's.
Let's see whether we can share some of the numbers are adopting.
Okay understood last one for me Shawn and I will pass it I did want to ask you kind of Big picture strategy question, you know what it's.
Recurrent is going to go into more of a.
It almost sounds like quasi IPP model.
I'm wondering can you give us a sense of.
You know what what's your average holding period target holding period with what sort of be like and the reason I ask is are you you know you're not you're not generating free cash flow. This year and if capex is up a you know more next year.
You remember you may be in a in a tight free cash flow position next year, as well and youre not selling these assets for upfront margin. So.
Does it start to strain your cash flow or balance sheet picture in terms of holding these projects longer but just kind of get a sense of the puts and takes and how you balance that thank you.
I Cleveland.
Do you can you answer this question.
Yeah, Yeah, sure Hi, Hi, Brian.
Our leverage on the recruiting side has increased over the year, because we are traveling into the U and the whole model, but Meanwhile.
One we indicated our strategy of holding our sites, we have been approached by many Oh financial part of US. So we have options going forward.
Equity Automnesia, all kinds of form to grow our assets and also will be a manager for those assets. So that future cash flow will be predictable stable. So we are we haven't seen the transition appear weird and I explained why but rather than having bought over the past.
Just a few quarters wasn't rollouts, where we kind of energy are going forward.
Let's see I, yeah, the cadence will change.
Saturday the girls only more assets and owning them all our cash flows.
Thank you.
Hey, Hey, Yes, do you want to some color.
Sure.
So let me give you I'm asking a couple of things. The first one was for how long we intend to.
To hold assets I think that's heavily dependent on what is the optimum point of selling so our intention is.
To retain for as long as we can way.
Wait for opportunities you've got other opportunities in the market to sell a portion of heightened bigger portfolios are whenever completion cycle.
Yeah.
But initially we we don't have a.
And P D ought to be holding we are signing ppas for 15 to 20 years.
So the intention is to particularly under the assets to be holding for the long run them on on how to how to get the equity I think is a good price perfectly I mean, there are many ways to get the equity we need them.
Oh, what it means that's why you see the shift so that makes things better wood plant I think.
And it looks like we have time for one more question. Our last question comes from the line of <unk> Satish with Wells Fargo. Please proceed with your question.
Thanks, Good morning, So I guess when you when you look at your your end markets. You know, we know D. G demand residential demand is weak, but I guess focusing more on the utility side have you seen.
Signs of slow down on utility scale solar demand given higher rates and then on the recurrent side. How are you seeing returns trending in the current market and what's the ability to pass on the.
Higher rates with higher Ppas, how much room is there for that.
So I I, what you might Yang to provide colors from the my module vendors and then.
E mail can add more colors outside developer, yeah, Hey, Ah well. So the answer is on the demand side. The week, we're seeing a strong potential demand.
Yeah cause Uh huh.
Our discussion with our many off the beach.
ADT is giving customers a you know a lot of those.
Those customers they have a huge pipeline that are coming.
Coming up and.
Some of them are escalate into next year, so for various reasons and pricing.
Pricing downtown trying this one reason and that's in southern regions like that delayed our interconnection and and some other permitting delays, but we know that the pipelines coming up next year. So so that's a good sign.
You smell.
Sure.
Look on the interest rates on debt related to bust all the.
You hit on the model that a couple of things that we need to understand that.
The interest rates at a higher right now, but we don't know for how long are they going to stay high.
Everybody is assuming in our modeling that sooner or later, they will refinance at better rates.
So you are having to heat up right now, but it's not the heat for the life of the asset why we all have introductions from the Capex something that project. That's tell you. They are for the life of the asset because they said one time investment.
On the P. P a M.
We still see very strong demand.
The dynamic of that market is different from the interest rates, it's basically dominated by supply and demand.
And because of that the lease up interconnection, we still see that.
The new system is significant shortage of good quality projects and.
Offtake or sort of generally.
I'm going to secure all the Ppas that you want to secure so we drink canceling a couple of somewhat films to sign once.
And right now the market is strong.
That's all I can tell you right now.
Yeah.
And we have reached the end of our question and answer session I'll now turn the call back over to chairman and CEO, Dr. Shawn Qu for closing remarks.
Thank you all for joining us today and for your continuous support if you have any questions or likes to set up a call. Please contact us.
Investor Relations team.
Hope you have a wonderful Thanksgiving holiday.
Families and take good care.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Mhm Ciao.
Hum.
Hum.
[music].
Mhm.
Hum.
Hum.
[noise] [music].
Yeah.
[music].