Q4 2023 Canadian Solar Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's fourth quarter 2023 earnings conference call. My name is Melissa, and I will be your operator for today. At this time, all participants are in a listen-only mode.
Ladies and gentlemen, thank you for standing by welcome to Canadian Solar is fourth quarter 2023 earnings Conference call. My name is Melissa and I'll be your operator for today.
At this time all participants are in a listen only mode. Later, we will conduct a Q&A session.
Operator: Later, we will conduct a Q&A session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Winna Wong, Head of Investor Relations 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 winter Wong and head of Investor Relations of Canadian Solar. Please go ahead.
Yeah.
Thank you operator, and welcome everyone to Canadian Solar fourth quarter 2023 Conference call. Please note that today's conference call is a company with slides, which are available on Canadian solar Investor Relations website, we're gonna be events and presentations section.
Winna Wong: Thank you, operator, and welcome everyone to Canadian Solar's fourth quarter 2023 conference call. Please note that today's conference call is accompanied by slides, which are available on Canadian Solar's Investor Relations website within the events and presentation section. Joining us today are Dr. Sean.
Winter Wong: Joining us today are Dr. Shawn Qu, Chairman and CEO Yang Tang President of Canadian Solar subsidiary CSI Solar Doctor Weifang, Chan senior VP and CFO and it might also at.
Winna Wong: Chairman and CEO, Yan Zhuang, President of Canadian Solar Subsidiary CSI Solar, Dr. Huifeng Chang, Senior VP and CFO, and Ismael Guerrero, Corporate VP and President of Canadian Solar Subsidiary Recurrent Energy. All company executives will participate in the Q&A session after management's formal remarks. On this call, Sean will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively, and Huifeng will go over the financial results. Sean will conclude with prepared remarks and a business outlook, after which we will have time for questions. Before we begin, I would like to 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 protection under the Safe Harbor for Forward Looking Statements that is contained in the Private Security Litigation Reform Act of 1995. However, actual results may differ from management's current expectations.
Xiaohua Qu: Corporate VP and president of Canadian Solar subsidiary recurrent energy.
Xiaohua Qu: Company executives will participate in the Q&A session after management's formal remarks on.
Xiaohua Qu: On this call Shawn will go over some key messages for the quarter, Yeah, and as Michael will review business highlights for CSI solar and recurrent energy, respectively and of course, all will go through the financial results.
Xiaohua Qu: John will conclude with prepared remarks with the business outlook after which we will have time for questions.
Xiaohua Qu: Yeah.
Speaker Change: Before we begin I would like to remind listeners that management's prepared remarks today as well as their answers. Your questions will contain forward looking statements that are subject to risks and uncertainties.
Speaker Change: The company claims protection under the Safe Harbor for forward looking statements that is contained in the private Securities Litigation Reform Act of 1995.
Speaker Change: Actual results may differ from management's current expectations.
Winna Wong: Any projections of the company's future performance represent management's estimates as of today, and Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F, filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of FTC Regulation G regarding Generally Accepted Accounting Principles, or GAP. Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable 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. However, non-GAAP information should not be used by investors as a substitute for data prepared in accordance with GAAP.
Speaker Change: Any projections of the company's future performance represent managements estimates as of today.
Speaker Change: Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law.
Speaker Change: A more detailed discussion of risks and uncertainties can be found in the company's annual report on form 20-F filed with the Securities and Exchange Commission.
Management's prepared remarks will be presented within the requirements of F. T. SEC regulation G regarding generally accepted accounting principles or GAAP.
Speaker Change: Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis.
Speaker Change: Excluding certain non-GAAP information management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends.
Speaker Change: And you did non-GAAP measures to better assess operating performance and to establish operational goals.
Speaker Change: non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.
Dr. Sean Chen: And now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Sean Chen. Sean, please go ahead. Thank you, Vena. Thank you to everyone for joining our fourth quarter call today. Please turn to slide three.
And now I would like to turn the call over to Canadian Solar Chairman and CEO, Dr. Shawn Qu Shawn. Please go ahead.
Xiaohua Qu: And thank you to everyone for joining our fourth quarter call today.
Xiaohua Qu: Please turn to slide three.
Dr. Sean Chen: 2023 marked a record year for Canadian solar energy. CSI Solar achieved a solar module shipment of 30.7 gigawatts, a year-over-year increase of 45 percent. This milestone drove our revenue to an all-time high of 7.6 billion U.S. dollars, despite challenging conditions. Our four-year net income attributable to Canadian solar shareholders was $274 million US dollars, or $3.87 per diluted share, a historic high. Before we delve deeper, let's take a moment to reflect on our journey over the past two decades. Please turn to slide four.
Xiaohua Qu: Turning to journeys three mark a record year for Canadian solar <unk> solar achieved the solar module shipment of 38.7 gigawatt.
Xiaohua Qu: Year over year inquiries.
Xiaohua Qu: 45%.
Xiaohua Qu: This milestone drove our revenue stream.
Speaker Change: Oh, Hi, all 7.6 billion U S dollar.
Speaker Change: Despite challenging conditions.
Speaker Change: Our full year net income attributable to Canadian solar shareholders was 274 million U S dollar.
Speaker Change: 3.87 dollar per diluted share a historic high.
Speaker Change: Before we delve deeper let's take a moment to reflect on all our journey over the past two decades.
Speaker Change: Please turn to slide four.
Dr. Sean Chen: Canadian Solar has evolved into a full-stack solar and battery energy storage business. Spanish Mold Manufacturing and Project Development, our strategic decision for Carvalho. CSI Solar has established itself as a vertically integrated powerhouse with 118 gigawatts of cumulative shipments. Our focus here remains on leading-edge technology and strategic sustainable expansion. Within CSI Solar, our utility-scale battery energy storage business, eStorage, is supposed to deliver on a massive $2.6 billion U.S. dollar backlog, which we continue to grow. Meanwhile, Recurrent Energy has become one of the world's largest and most geographically diverse project developers. With the recently announced US$500 million BlackRock investment, it is equipped with the ammunition to execute on its business transformation. But what does this all mean?
Speaker Change: Canadian solar.
Speaker Change: As you evolved into a full stack solar and battery storage busy span.
Speaker Change: Spanning both.
Speaker Change: Manufacturing and project development I'll watch strategic decision, so cobalt CSI, Florida.
Speaker Change: Established it as.
Speaker Change: Our vertical integrated power all of which 118 gigawatts of human ATM shipments.
Speaker Change: Our focus here remains.
Speaker Change: Our leading edge technology and strategic sustainable expansion.
Speaker Change: Within CSI of solar power utility scale battery storage arrays, and yes. Each dollar each yes post to deliver a massive 2.6 billion U S dollar backlog, which we continue to grow. Meanwhile.
Speaker Change: <unk> energy has become one of the world's largest and most geographically diverse project developer.
Speaker Change: With the recently announced 500 million U S dollar Black rock investment. It has you quit which T I'm monition to execute it isn't yes transformation.
Speaker Change: What does this all mean.
Dr. Sean Chen: We are prepared to navigate the next phase of the industry and our own evolution. Not only can we capitalize on the collaborative advantages across our business, but we also possess different levers for growth. This diversified nature, coupled with our world-class team, enables our steadfast commitment to long-term value-acquiring growth.
Speaker Change: We are prepared to navigate the next phase of the industry and our own evolution.
Not only can we capitalize on.
Speaker Change: The collaborate advantages across all our businesses.
Speaker Change: We also assess their friends and levers for growth this diversified nature, coupled with our world class team in April.
Speaker Change: Oh, Yeah, Hey, Bose or stat fast commitment to long term value a crack a crack have gross.
Speaker Change: Turning to slide five please.
Dr. Sean Chen: We see the world is grappling with a surge in clean energy demand, from data centers to electric vehicles to cryptocurrency mining. These energy-hungry sectors are stressing Asian power grids and, in some cases, even prompting businesses to construct their own power plants. According to BCG, data center share of U.S. electricity is set to triple from 2.5% in 2022 to 7.5% by 2030, reaching close to 400 terawatt hours. Moreover, the intensive requirements of these buildings, which must operate day and night, need a mix of power generation sources, including solar and battery energy storage.
Speaker Change: We see the world.
Speaker Change: Grappling with a surge in clean energy a demand.
Speaker Change: Problem data center.
Speaker Change: Check yeah calls to crypto currency mind, you these anuja hungry or sectors.
Speaker Change: Dressing H M power grids in some cases, even prop 10 business days to construct their own power products.
Speaker Change: According to a B C. G data center share of U S. Electricity is set to triple from two 5% in trying to you're trying to get to true 7.5% High Prime day 30, reaching close to four.
Speaker Change: Terawatt hours.
Speaker Change: Well over the intensive requirements of <unk>.
Speaker Change: These spilled is that lots to operate day and night need a mix of power generation sources, including solar and battery storage.
Speaker Change: Transportation is also filled in a significant increase in electricity needs.
Dr. Sean Chen: Transportation is also feeling a significant increase in electricity needs. Light-duty vehicles are expected to consume north of 30 times more electricity by 2030, according to Princeton University data. This surge is further intensified by the energy demands of computationally heavy, out of normal driving technology. Bloomberg reports that assuming energy efficiency continues to improve as it has in the past decade. The power usage by in-vehicle computers could hit 26 terawatt-hours by 2040, comparable to the usage of approximately 60 million desktop computers. Moving on to the U.S., a key strategic market fund Please turn to slide 6.
Speaker Change: Its duty vehicle expected to consume north of 30 times more electricity by trying to survey according to Princeton University Theater.
Speaker Change: This search is further intensified by the demands of computational a heartbeat.
Speaker Change: All told normal driving tackling Hollander Jess Bloomberg reports that I assume you and efficiency continues to improve.
Speaker Change: Yeah. It has in the past.
Speaker Change: Their power usage by in vehicle computers cool, yeah trying to six terawatt hours by trying to hit 40 comparable to the usage of approximately 60 million desktop computers.
Moving on to the U S. A key strategic market for US Please turn to slide six.
Speaker Change: On the left you can see our taxes factory.
Dr. Sean Chen: On the left, you can see our taxes factor, which began production at the end of last year, has been ramping smoothly, supporting local job creation. We continue to see strong interest in and demand for our locally made products. Furthermore, to support our growing market share, we have also prepared our timeline resources from wafer to cell to module. Here we note that over the past few months, certain litigation has created confusion within the industry. We reaffirm that the preliminary and final determination of the Department of Commerce set the new rules for country of origin, and Canadian Solar has responsibly adjusted its supply chain to ensure compliance with the new rules. Specifically, both the wafer and four out of six rules.
Speaker Change: Which began production at the end of last year.
Speaker Change: It's being run Kim smoothly supporting local job creation.
Speaker Change: We continue to see strong interest in and demand for our locally made products.
First of all to support our growing market share. We have also prepared our Thailand resources from wafer.
Speaker Change: Two molecule.
Speaker Change: Here, we know to that over the past afield in bags and seats third kind of litigation.
Speaker Change: As crazy as it confusion within the industry.
Speaker Change: We are far not the preliminary and final determination after department of Commerce, SEC News, Paul country of origin, and Canadian Solar has responsibly adjusted its supply chain to ensure.
Speaker Change: Sure comprised with the new rules specific lake both the wafer and for all adult six rules.
Speaker Change: Our screens.
Yan Zhuang: Our strength in the U.S. is founded on strong customer relationships and our trusted brand. For example, just last month, our solar PV modules powered the first-ever 100% renewable energy-powered super power. We also received the top brand PVUSA 2024 award from EUPD, a globally renowned authority in market research. With that, I will turn the call over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.
Speaker Change: Yeah, it's fallen dead.
Speaker Change: Strong customer relationships and our trust it Brian.
Speaker Change: For example, just last month.
Sure solar PV modules powered the first ever 100%.
Speaker Change: And is your powered Super Bowl.
Speaker Change: We also received that's helpful. Brian P V USA trying to join you for award.
Speaker Change: U P D O globally, right now and authority.
Speaker Change: Market research.
Speaker Change: With that let me turn the call over to Yan, who will provide more details on our science.
Yan: Our solar phasing yeah. Yeah. Please go ahead.
Yan: Thank you Sean.
Yan Zhuang: Thank you, Sean. Please turn to slide seven. That's noting. 2023 was a landmark year for CSI Solar. We achieved a 45% year-over-year growth in solar module shipments, reaching 30.7 gigawatts. Our e-storage segment pipeline reached a record 63 gigawatt hours, with $2.6 billion in contracted backlog as of January 31st, 2024. We reached record full-year revenue of 7.2 billion U.S. dollars. The module this is in tackled a challenging environment, with steep declines in ESP.
Yan: Please turn to slide seven.
Speaker Change: As noted.
2023 was a landmark year for CSI sonar.
Speaker Change: We achieved a 45% year over year growth in solar module shipments reached.
Speaker Change: Reaching 37 Gigawatts hour.
Speaker Change: <unk> storage segment.
Speaker Change: Climbed to a record.
Speaker Change: 63 gigawatt hours.
Speaker Change: <unk> two $6 billion in contracted backlog as of January 31st 2024.
Speaker Change: We reached record full year revenue of 7.2 billion U S dollars.
Speaker Change: The molecule this is tackled challenging environment we.
Speaker Change: Steep declines in U S P.
Speaker Change: Destocking of channel inventory in distributed generation markets.
Yan Zhuang: De-stocking of channeled human trees in distributed generation markets, and Policy Unsearched. However, we're able to mitigate impacts through structural manufacturing cost reduction. Moreover, our manufacturing and technology strategies have allowed us to differentiate ourselves in the industry. Let us take a deeper look at our transition to TopCom on slide eight. We observe increasing technological barriers in n-type technology, such as TopCom.
Speaker Change: And policy uncertainty.
Speaker Change: However, we're able we're able to mitigate impacts through structural mill.
Speaker Change: Manufacturing cost reductions.
Speaker Change: Moreover, our manufacturing and technology strategies have allowed us to differentiate ourselves he leaned history.
Speaker Change: Let us take a deeper look at our transition to top comp on slide eight.
Speaker Change: We observed increasing technological Darius in N type technologies, such as top com.
Yan Zhuang: And we're proud of the swift progress we have made. N-type top-count cell capacity now accounts for more than half of our total cell capacity and is expected to reach near 80% by the end of the year, alongside our expansion of top car manufacturing. We also continued to make yin and rong in our Mating the U.S. mulch, increased our vertical integration, and strengthened our Thailand supply chain. 15 focus on battery energy storage. Let us turn to slide nine.
Speaker Change: And we're proud of the Swift progress we have made.
Speaker Change: N type top com sell capacity now accounts for more than half of our total cell capacity and is expected to reach near 80%.
By the end of this year.
Speaker Change: Long side, our expansion off top co manufacturing.
Speaker Change: We also continued to make inroads in la.
Speaker Change: Our made in the U S mall juice.
Speaker Change: Increased our vertical integration and strengthened our talent supply chain.
Speaker Change: 15 focus to battery energy storage.
Speaker Change: Let us turn to slide nine.
Storage plays a critical role in ensuring solar energy is dispatch ability stability and security.
Yan Zhuang: Storage plays a critical role in ensuring solar energy's dispatchability, stability, and security. The storage market is projected to grow massively, exceeding one terawatt hour in cumulative capacity by 2030. We are well positioned to capture growth, especially in strategic markets like the U.S., where we have a strong track record in both solar and battery energy storage. Our differentiation lies in both product and execution; eStorage is trusted by customers for its outstanding track record in delivering turnkey solutions. This trust spans operational execution and, most importantly, safety.
Speaker Change: Storage market is projected to grow massively exceeding one terawatt hour in communities.
Speaker Change: Capacity by 2030.
Speaker Change: We are well positioned to capture growth.
Especially in strategic markets like the U S, where we have a strong track record in both solar and battery storage.
Speaker Change: Our differentiation.
Our lives in both product and execution.
Speaker Change: E storage is trusted by customers.
Speaker Change: <unk> outstanding track record in delivering turnkey solutions.
Speaker Change: This trust spans operational execution and most importantly safety.
Speaker Change: Our strong local teams are ensuring best in class service.
Yan Zhuang: Our strong local teams are ensuring the vaccine cloud service, and while our strong brand name and balance sheet from Canadian Solar make our guarantees highly compelling, customers, few at ease.
While our strong brand name and balance sheet from Canadian solar makes our guarantees highly compelling.
Speaker Change: Customers feel at ease backed by a Canadian company with more than 20 years of history are preaching in global markets.
Yan Zhuang: Backed by a Canadian company with more than 20 years of history operating in global markets, and now with the latest iteration of our utility-scale energy storage system, Silbank 3.0. We're offering one of the market's highest density products at 5 megawatt hours, with even more advanced safety features. We continue to make global breakthroughs. Q4 revenues from e-storage were more than 10 times what we did in Q3, while realizing meaningful revenue and profit from our backlog, which also continued to grow. Just between last November and January 2024, we found significant volume, including in Australia, which we entered for the first time, and the UK, where we signed the largest national BESS project. In the U.S., we're set to deliver our second massive Arizona project, following the signing of our first 1.2 gigawatt hour Papago project, which is developed by Recurrent Energy. We're proud to say that from the day in storage began operation, Every project has contributed meaningfully to profitability.
Speaker Change: Now with the latest each region of our utility scale energy storage system, So think 3.0 well.
Speaker Change: We're offering one of the markets highest density products at five megawatt hours.
Speaker Change: We had even more advanced safety features.
Speaker Change: We continue to make global breakthroughs Q.
Speaker Change: Q4 revenues from E storage, where more than 10 times, what we did in Q3, while realizing meaningful revenue and profit from our backlog. We're also continued to grow.
Speaker Change: Justine between last November and January 2024, we find significant volume, including in Australia, which we entered for the first time.
Speaker Change: And the U K, where we signed the largest national.
Speaker Change: <unk> project.
Speaker Change: In the U S. We're set to deliver our second massive Arizona project. Following the signing of our first one two gigawatt hour Pago project, which is developed by recurrent energy.
Speaker Change: We're proud to say that from the day in storage began operations.
Speaker Change: Every project has contributed meaningfully to profitability.
Yan Zhuang: Following a softer year in 2023 when we transitioned to a fully self-manufactured product, we look forward to a blockbuster 2024. In the first quarter of 2024, e-storage will deliver nearly as much as it did in the entirety of 2023. Over the rest of 2024, we expect e-storage to gradually grow through the quarters, with Q4 being nearly double Q1.
Speaker Change: Following a softer year in 2023, when we transitioned to a fully self manufactured product we.
Speaker Change: Look forward to a block Buster 2024.
Speaker Change: In the first quarter of 2024 E storage will deliver nearly as much as a deep the entirety of 2023.
Speaker Change: Over the rest of 2024, we expect E storage to gradually grow through the quarters.
Speaker Change: <unk> Q4, seeing nearly double Q1.
Ismael Guerrero: Ultimately, we expect storage to contribute significantly to both Canadian Solar's revenue and profitability. In addition, we continue to invest R&D resources into our battery energy storage facility, both upstream and downstream. Gaining a stronger control on technology is crucial for both commercial and strategic purposes. Now, I hand over to Ismael to provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead
Speaker Change: Ultimately, we expect storage to contribute significantly to both Canadian solar revenue and profitability.
Speaker Change: In addition, we continue to invest R&D resources into our battery and your storage business.
Speaker Change: Both upstream and downstream.
Gaining a stronger control technology is crucial for both commercial and strategic purposes.
Speaker Change: Now, let me handover to east now to provide an overview of recurrent energy.
East: Getting soulless global project development business.
East: Please go ahead.
East: Thank you Dan.
Ismael Guerrero: Thank you again. Please turn to slide 10. In January 2024, we proudly announced a $500 million capital commitment from BlackRock, one of the world's largest and most sophisticated renewable energy investors. The $500 million investment will represent 20% of the outstanding fully diluted shares of Ricardan Energy on a NAS converted basis. Canadian Solar will continue to own the remaining majority shares of Ricardo Energy after the closing of the investment.
East: Please turn to slide 10.
East: In January of 'twenty 'twenty four.
East: Probably announced a 500 million capital commitment from Blackhawk.
East: One of the world's largest and most sophisticated renewable energy investors.
East: The 500 million investment grade represent 20% of the outstanding purely diluted shares.
East: I don't know again on an as converted basis.
East: Canadian solar will continue to own the remaining majority shirts, hopefully got an origin. After the closing of the investment.
East: With this investment.
Ismael Guerrero: With this investment, our goal is to have 4 gigawatts of solar and 2 gigawatts of battery energy storage projects in operation by 2020. The 500 million in equity capital not only equips us with the driving power to develop and own more projects but also bolsters our balance sheet and our debt raising capacity. By owning this asset, we can retain more of the value we create during the development process and enjoy very stable cash flows since most of our revenues are contracted with top counterparts. In addition, we continue to recycle capital and drive growth organically.
East: <unk> is to have four gigawatts of solar and two gigawatt hour spoke about the DNR just thought its projects in operation by 2026.
East: The $500 million and equity capital not only keeps us with dry power to develop our own projects, but also bolsters our balance sheet and the work that's raising capacity.
East: By owning this asset we can retain more of the value we create during the development process and Joe and that is stable cash flows since most of our revenues are contracted we stopped counterparties.
East: In addition, we continue to recycle capital on drive growth organically.
East: Hence we have sufficient growth equity capital for the next two years.
Ismael Guerrero: Hence, we have sufficient growth equity capital for the next two years. Beyond that, our capital needs will depend on how aggressively we want to expand. Being able to do so, our 25% compound average growth rate without the need to raise more capital. This investment is instrumental to our transition from a pure development company to a developer plus long-term owner and operator in select markets. Enabling a more diversified portfolio and stable long-term earnings, Recurrent will concurrently push toward improving ESG standards, including across biodiversity, health and safety, community engagement, and environmental justice. Recapitalizing on 2023, please turn to slide 11. For the full year 2023, Ricardo Energy's operating contribution footprint was light, as previously guided.
East: Beyond that our capital needs will depend on how aggressively we want to expand but enable us to do so probably 25% compound average growth rate without the need to raise more capital.
East: This investment is instrumental to our transition from a pure development.
East: Two other developer plus long term owner and operator in select markets.
East: Enabling a more diversified portfolio and stable long term earnings.
With the support of Blackhawk recurrent will concurrently push toward improving ESG standards, including our Cros bio diversity.
East: So on safety.
East: Anything thats been an environmental justice.
East: Recapping on 2020 three.
East: Please turn to slide 11.
East: For the full year 2023, if we gotta do.
East: Operating contribution footprint was slight as previously guided.
Ismael Guerrero: We achieved 280 megawatts in Project SALO, $498 million in revenue, and $205 million in gross profit. Our gross margin more than doubled year over year to 41.1% thanks to a significant sale in Japan to CSIS. While certain projects meant to close in the fourth quarter have moved to the first half of this year, we have decided to hold other valuable assets over the long run. Please turn to slide 12.
East: We achieved 280 megawatts, including sales for.
East: $498 million in revenue and 205 million gross profit.
East: Our gross margin more than doubled year over year to 41, 1%.
East: Thanks to a significant sale in Japan to CSA.
East: While certain projects men to close in the fourth quarter have moved to the first half of this year.
East: We have decided to hold all the available assets over the long run.
East: Please turn to slide 12.
During Q4 2023.
Ismael Guerrero: During Q4 2023, we continue to focus on executing on one of the largest and most mature global solar installation titles. As of January 31st, our total pipeline stood at 27 gigawatts of solar and 55 gigawatt hours of battery storage projects. Of these, we have 12 gigawatts of solar and 14 gigawatt hours of battery storage interconnections secured.
East: We continue to focus on executing on one of the largest and most mature global sort of on the storage pipelines.
East: As of January 31st our total pipeline stood at 27 Gigawatts of silver and 55 gigawatt, the worst for battery storage projects.
East: These we have 12 gigawatts of solar and 14 people with ourselves about the historic interconnections secured.
East: I wanted to hop on late so they would have been construction close to two gigawatts of solar projects.
Ismael Guerrero: Today we have close to two gigawatts of solar projects under construction. This is the largest undertaking in our history. However, because we will be selling fewer projects and are swiftly building projects that will not come online until next year, 2024 will serve as a key transition year. As Sean mentioned, data centers will be driving massive energy demand. According to the International Energy Agency, data centers and transmission networks currently consume 1.5% of the world's energy. Combined, they emit roughly the same amount of carbon dioxide as Brazil does every year.
East: Is the largest funder if taken of our history.
East: Oh boy bought because we will be selling she where projects are swiftly building projects that will not come online until next year.
East: 24, it will serve as a key transition year.
East: As Joe mentioned.
East: Data centers will be driving massive energy demand.
East: According to the International Energy Agency datacenter Suntrust mission networks that are only consume why don't they help for some of the Wolfson.
East: Combined.
East: I mean, roughly the same amount of carbon dioxide as well it seems that every year.
East: The search in artificial intelligence technology is significantly challenging climate targets.
Ismael Guerrero: The search in artificial intelligence technology is a significantly challenging climate target, with the energy needed to train a single AI model exceeding that of 100 households annually. Electrification across industry is similarly driving massive energy consumption needs. Of course, electrification can only serve as an effective solution for decarbonization when it goes hand-in-hand with a significant expansion of renewable energy sources. In addition to demand catalysts, we also expect balanced microdrivers. Potentially decreasing interest rates over the course of this year will benefit financing for utility-scale projects. However, while equipment costs and overall EPC capex have come down, benefiting returns, PPAs on aggregate remain stable and have even gone up in certain geographies, while suffering a correction in others. In addition, as more solar projects come online, so too is the need for operations and maintenance, or power services, a key segment of the current energy that we have been strategically growing, both organically and through acquisitions in key markets. We now have 8.2 gigawatts of solar and battery energy storage under UN contracts across the world.
East: Do you need to train our single a modal exceeding that of 100 households annually.
East: Electrification of crossing the street, you similarly, driving massive energy consumption mix.
East: Of course electrification can only serve as an effective solution for the kind of conversation when it goes hunting pattern with a significant expansion of renewable energy sources.
East: In addition to demand catalyst, we also expect balanced micro drivers potentially decreasing interest rates over the course of this year will benefit financing for utility scale projects.
East: While equipment costs I don't know if it all EPC capex have come down benefiting returns.
East: So in aggregate remained stable.
Has he been gone up in certain geographies, while suffering a correction and others.
East: Yeah.
In addition, a small solar projects come online.
East: So two races beneath for operations and maintenance or part of our services segment of like I don't know that we have been stuff, particularly growing both organically and through acquisitions in key markets.
East: We now have eight two gigawatts of solar and battery energy storage under one and contracts across the globe.
And we expect it to become a top five global player over the next year.
Ismael Guerrero: And we expect to become a top five global player over the next year. Now, let me hand over to Huifeng, who will go through our financial results in more detail. Huifeng, please go ahead. Thank you, Ismael. Please turn to slide 13.
Speaker Change: Now, let me hand over to his son.
Son: Who will go through our financial results in more detail.
Speaker Change: Please go ahead.
Curious from now please turn to slide 13.
Huifeng Chang: In Q4, we exceeded guidance on shipments, reaching 8.2 gigawatts, a 26% increase year-over-year. We were in line with revenue at $1.7 billion, and gross margin was 12.5%. The decline was driven by lower module ASPs and an inventory writeout. As the lion's share of PERC inventory has cleared, and the popcorn ramp-up costs will decrease over the course of 2024, we expect no further sizable impairment. Selling and distribution expenses declined 6% sequentially.
Speaker Change: Paul we exceeded guidance on shipments, reaching 812, gigawatts of 26% increase year over year.
Paul: Well were in line with revenue at one 7 billion and gross margin was 12, 5%.
The decline was driven by lower module S p's and inventory write off.
Paul: Is the lion's share of pulp inventory has cleared and the popcorn ramp up costs will decrease over the course of 'twenty 'twenty four we expect no, but a sizable impairments.
Paul: Selling and distribution expenses declined 6% sequentially.
Paul: Where did that reduction was driven by lower shipping costs.
Huifeng Chang: The reduction was driven by lower shipping costs due to the ongoing global freight oversupply, with the Red Sea shipping disruption largely contained until the end of December. We foresee a slight but not meaningful increase over the course of 2024 due to the ongoing conflict. General and administrative expenses declined 5% sequentially with internal cost controls. Research and Development expenses increased by 9% sequentially, driven by high investments in new technologies. Net interest expense in the first quarter was $18 million, up from $11 million in the prior quarter.
Paul: Due to the ongoing global fleet oversupply.
With that let's see shipping disruption largely contained until the end of December.
Paul: We foresee a slight but not meaningful increase over the course of 'twenty 'twenty four due to the ongoing conflict.
Paul: General and administrative expenses declined 5% sequentially with internal cost controls.
Paul: Research and development expenses increased 9% sequentially.
Paul: Driven by higher investments in new technologies.
Paul: Net interest expense in the fourth quarter was $18 million.
Paul: Up from $11 million in the prior quarter.
Huifeng Chang: This was mainly driven by increased financing and comparatively lower interest income. The net foreign exchange gain in the fourth quarter was less than a million. Total net income was negative $3 million, with net income attributable to Canadian solar shareholders at a negative $1 million, or diluted EPS of a negative $0.02. Now, turning to Castro and the balance, please turn to slide 14. For the full year of 2023, we generated approximately $685 million in operating cash and spent over $1.1 billion in capex, a low expectation as we slow down the payment of certain capacity expansion plans. Hence, some contacts for 2023 will be realized in 2024. We ended the period with a healthy cash balance of $3 billion. And a total net debt of $1.7 billion. Leverage measured as net debt to EBITDA, excluding goods with cash, increased slightly quarter over quarter to two times, due to the incremental borrowing for working capital and additional vertical integration for CFI Solar and new project development for Recurrent Energy.
Paul: This was mainly driven by increased the financing and a comparatively lower interest income.
Paul: Net foreign exchange gain in the fourth quarter was less than a million.
Paul: Total net income was negative 3 million.
Net income attributable to Canadian solar shareholders.
Paul: <unk> 1 million or diluted EPS of negative.
Paul: Two cents.
Paul: Now turning to cash flow and the balance sheet. Please turn to slide 14.
Paul: For the full year 'twenty 'twenty, Sweden.
Paul: We generated approximately 685 million in operating cash.
Spend over one 1 billion in Capex below expectation as we slow down the payment of certain capacity expansion plans.
Paul: Hence some capex for 2020 three will be realized in 2024.
Ended the period with a healthy cash balance of sweeping.
Paul: And the total net debt of $1 7 billion.
Paul: Leverage measured as net debt to EBIDTA.
Paul: Excluding restricted cash.
Increased slightly quarter over quarter, two two times due to the incremental borrowing for working capital and additional vertical integration for CSI solar and the new project development for recurrent energy.
Huifeng Chang: For 2024, we expect the CapEx to be approximately $1.8 billion, as we further vertical integration plans and invest in U.S. manufacturing. However, we know that this number is slightly higher, also due to a timing fact, whereby certain remaining payments from the end of 2023 will be carried over to 2024. Recall that in 2023, we guided to $1.5 billion, but only spent $1.1 billion. Now, let me turn the call back to Sean, who will conclude with our guidance and business outlook. Xiaohua, please go ahead. Thanks, Huifeng. Let's turn to slide 15.
Paul: For 2024.
Paul: We expect capex to be approximately $1 8 billion.
Paul: As we further vertical integration plans.
Paul: And in the U S manufacturing.
Paul: We note that this number is slightly higher.
Paul: Also due to a timing effect whereby certain bromine payments from the end of 2023 will be carried over to 'twenty to 'twenty four.
Paul: Recall in 2020 actually we guided to.
Paul: 215 billion, but only spent one point or one big one.
Paul: Now, let me turn the call back to Sean who will conclude with our guidance and our business outlook.
Sean: Sean please.
Sean: Go ahead.
Sean: Okay.
Okay.
Sean: Thanks, Paul let's turn to slide 415.
Sean: 15.
Paul: For the first quarter of China in China for what we expect solar module shipment Ics higher solar to be in the range of six point why there were 6.4 gigawatt, including approximately 235 megawatt of solar module shipment.
Dr. Sean Chen: For the first quarter of 2024, we expect solar module shipment by CSI Solar to be in the range of 6.1 to 6.4 gigawatts, including approximately 235 megawatts of solar modules shipment to our own production. Total revenue is expected to be in the range of 1.2 billion to 1.4 billion US dollars. As Yan mentioned, in this business, we are constantly balancing between margin and volume with our focus on profitable growth. Our conscious decision to control volume will generate an improved gross margin expectation between 17 to 19 percent. This improvement is further bolstered by eStorage's more meaningful profit contribution.
Paul: To our own project total revenue.
Paul: In fact, it to be in the range of $1 2 billion to $1 4 billion U S dollar.
Paul: You mentioned, you're in this space and yes, we are constantly balancing between margin and volume with our forecast of profitable growth.
Paul: Our conscious decision to kind of chalk volume well generate and improved gross margin expectation.
Paul: 17% to 19%.
Paul: This improvement is further bolstered by your story just more meaningful profit contribution.
Dr. Sean Chen: For the full year 2024, we re-evaluate. We are CSI Solar's total solar module shipments guidance to be in the range of 42 to 47 gigawatts.
Paul: For the full year trying to 'twenty four we read it tolerate.
Paul: We are CSI soldiers total.
Paul: Total module shipment guidance to be in the range of 42 to 47 gigawatt CSI as solar battery storage shipment I expect it to be between six to six point for <unk>.
Dr. Sean Chen: CSI solar battery storage shipments are expected to be between 6 to 6.4 – 6 to 6.5 gigawatt hours, reflecting significant contribution to revenue and profitability. We also reiterate revenue guidance for the full year 2024, which we expect to be in a range of 8.5 billion to 9.5 billion U.S. dollars. Finally, let me speak to our view of market growth. Coming out of a challenging 2023, we are optimistic about 2024.
Paul: Six to six five gigawatt hours, reflecting second epic kind of contribution.
Paul: Revenue and profitability.
Paul: We also reiterate revenue guidance for the full year trying to trying to fool.
Paul: We expect to be in a range of $8 5 billion to $9 five bidding U S dollar.
Paul: Finally, let me speak to our view of the market where else to try to right.
Paul: Coming although a challenging trying to your Chinese three well optimistic about China trying to fall what do you expect to see a rebound in demand.
Dr. Sean Chen: We expect to see a rebound in demand as distributed generation markets have cleared channel inventory and emerging markets are posed to unleash its potential. As supply and demand rebalance toward the second half of the year, we expect potential improvement in pricing, especially for top-comp solar module products. We differentiate between industry overcapacity versus oversupply, as not all capacity is truly effective, possessing the technology, bankability, and reliability that our customers project need. As the market undergoes further normalization and consolidation, we see vertical integration, advanced technologies, and a robust go-to-market strategy as key to a competitive edge. With its strong global track record, Canadian solar has built unparalleled trust over the past two decades.
Paul: Distributed generation market.
Paul: Cleared channel inventory and emerging market.
Paul: Post to unleash its potential.
Paul: Supply and demand rebalance toward the second half of the year, we expect potential improvement in pricing, especially of top call solar module products.
Paul: We differentiate between industry overcapacity versus older supply us.
Paul: Not all capacity, yes, surely if active.
Paul: Processing, the attacker knowledge bank capability and reliability that our customers projected need.
Paul: As the market goes further.
Paul: Normalization and the consolidation, we see vertical integration out of bonds to attacking the outages and a robust go to market strategy is key to competitive edge.
Paul: With its strong global track record Canadian solar has built.
Paul: Parallel would trust over the past two decades.
Paul: I'll start fast commitment to profitable growth combined with our long term strategic investments in April with us to deliver enduring value to all our shareholders with that I would now like to own.
Operator: Our steadfast commitment to profitable growth combined with our long-term strategic investments enables us to deliver enduring value to our shareholders. With that, I would now like to open the floor to questions. Operator.
Speaker Change: The floor for questions operator.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session.
Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question you May press star two if you'd like to remove your question from the queue.
Colin William Rusch: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question. Thanks so much, guys. You know, and I guess the first question is really around the pricing dynamics and strategy for the energy storage business. Obviously, there's a lot that's been going on around the supply chain, and there's an awful lot of demand. So I just want to understand how you guys are thinking about passing on some of the cost reduction on the cells relative to trying to take advantage of some of the kind of intense demand that we're seeing out there. Yeah, Colin, I will give you a simple answer, and then let's see if you have anything to add. Yes, if the batteries fail or if the material, mainly the price of lithium carbonate, goes down, we always pass the value to our customers.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin William Rusch: Thanks, So much guys and I guess the first question is really around the pricing dynamics and strategy for the energy storage business. Obviously, there's a lot that's been going on around the supply chain and there's an awful lot of demand. So I just want to understand how you guys are thinking about.
Colin William Rusch: Passing on some of the cost reduction on the cells are relative to you know trying to take advantage of some of the intense.
Colin William Rusch: Intense demand that we're seeing out there.
Speaker Change: Yeah, Colin I would give a simple answer.
Colin William Rusch: Let's see if you have anything to add.
Colin William Rusch: Yes, yes.
Speaker Change: The factory itself.
Speaker Change: If the material.
Speaker Change: Mainly listen carbonate price go down we always pass.
Speaker Change: We always pass the Baidu too.
Speaker Change: To our customers all over the east storage product typically has a very long contracting period. So some of wall accurate and most of all.
Dr. Sean Chen: However, the e-storage product typically has a very long contracting period. So some of, well, actually most of our contracts, which we will deliver this year, were contracted at least 12 months ago. So we take risk, and our customers also take risk, and the price we give to our customers allows our customers to achieve their financial goals. Therefore, both sides are happy. But moving forward, if we see a long-term, Let's say a long-term trend of the easing of the lithium carbonate price, we always pass this value, pass this savings to our customers. That's super helpful.
Speaker Change: All of our contracts, which we will deliver this year Oh contract yet at least 12 months ago. So we create we talk risk and a customer also takes risk and.
Speaker Change: The pricing, we give to our customer.
Speaker Change: All our customers achieve their financial goals are therefore, both sides are happy but moving forward.
Speaker Change: If we see a long.
Speaker Change: Let's take a long term trend of the.
Speaker Change: The easing of the lithium carbonate price, we always pass the.
Speaker Change: This value will pass this avian to a customer.
Speaker Change: That's super helpful and I guess, the second part hopefully you'll correct me.
Colin William Rusch: And I guess the second question is... The second question is around interconnection queues and time frames, you know, if you guys have the right technology portfolio. So as we've seen interconnection queues extend out a little bit here over the last few years, and as you've diversified some of the end markets that you're doing some of these larger developments with, you know, are you seeing opportunities for integration of incremental technology? Would you guys start to bring that in-house? Is storage enough to really deal with that?
Speaker Change: The second question is around.
Speaker Change: Interconnection queues and time frames.
Speaker Change: If you guys have the right technology portfolio. So as we've seen interconnections use extend out a little bit here.
Speaker Change: Over the last few years and as you diversify some of the end markets that youre doing some of these larger developments where are.
Speaker Change: Are you seeing opportunities for integration of incremental technology, what do you guys start to bring that in house as storage enough. Its really you know what's out and how do you see those interconnection queues evolving here over the next couple of years.
Ismael Guerrero: And how do you see, you know, those interconnection queues evolving here over the next couple of years? Ismael, this is a question about the interconnection queue. Do you want to answer this question? Sure, happy to take it.
Speaker Change: Is now this is a question about the interconnection queue do you want to answer this question.
Speaker Change: Sure happy to ticket thank you Sean.
Ismael Guerrero: Thank you, Shen. Look, we keep on seeing delays, Colin. Hi, by the way, and thanks for the question. We keep on seeing delays. Things are getting worse and worse. In PGM, for instance, you probably saw that they stopped taking more applications recently.
Speaker Change: Locally we keep on seeing delays, calling Ah Ah hi by the way. Thanks for the question, we keep on seeing delays that things are getting worse and worse in PJM for instance, you probably saw that they stopped they can more applications recently, that's why we believe that that one gigawatts of interconnection growth.
Ismael Guerrero: That's why we believe that our 12 gigawatts of interconnection granted already have a very high value. And the 14 gigawatt hours we have of storage already granted have a huge value, too. We don't think that it's going to ease.
Speaker Change: It already has a very strong value.
Speaker Change: Before thinking what that works, we have almost got it all particularity supplemental connections has a huge value to them.
Speaker Change: We don't think that is going on I think it's gonna be get in more and more difficult and the main things that we are starting to think about is how can we start being less demanding on the network and they start to use a started behind the meter more.
Ismael Guerrero: I think it's going to be getting more and more difficult. And the main things that we are starting to think about are how we can start being less demanding on the network and start to use storage behind the meter more and even have plans that are serving an application directly, like, for instance, data centers or desalination platforms and all this kind of stuff so that we can serve the load directly. Instead of having an agreed need, those are the things we are working on. I don't think it's going to get easier.
Speaker Change:
Speaker Change: Even.
Speaker Change: Have plants that are serving vertically and application like for instance data centres or.
Speaker Change: Dissemination platforms on all this kind of stuff. So that's a weekend surface that it can be the load instead of how are you going to need it.
Speaker Change: Some of the things we are working on a I don't think it's going to get this year I think it's kind of got worse.
Speaker Change:
Speaker Change: That's my two cents.
Speaker Change: Okay I'll take the rest of it offline. Thanks, so much guys.
Speaker Change: Yeah.
Speaker Change: Thank you Colm.
Colm: Thank you. Our next question comes from the line of Vikram Barclay.
Ismael Guerrero: I think it's going to get worse. That's my concern. Okay, I'll take the rest of it offline.
Vikram Bagri: Citi. Please proceed with your question.
Colin William Rusch: Thanks so much, guys. Thank you, Colin. Thank you. Our next question comes from the line of Vikram Bagri with Citi. Please proceed with your question. Good morning, everyone.
Colm: Yes.
Vikram Bagri: Good morning, everyone.
Vikram Bagri: Hum I'm, just wondering like the implied valuation of CSI solar work in New York investment from Blackrock is significantly higher than where the stock is trading I was wondering if any any thoughts on how you can close this valuation gap do you do if theyre distracted you just lose that valuation gap.
Vikram Bagri: I was wondering, like, the implied valuation of TSI Solar and your investment from BlackRock is significantly higher than where the stock is trading. I was wondering if you have any thoughts on how you can close this valuation gap? Is there a strategy to close that valuation gap? Oh, that's a very good question.
Vikram Bagri: Yeah.
Speaker Change: Oh, that's a very good question.
Speaker Change: Actually I don't know how to answer yet.
Speaker Change: Where are we will did well.
Speaker Change: Hum.
Speaker Change: Present.
Speaker Change: This.
Speaker Change: Oh, all of our Investor Investor meetings and.
Dr. Sean Chen: Actually, I don't know how to answer it. However, we will present this at all of our investor meetings and let the investment community see this gap, see this mismatch of value. And I hope after a while people will understand that there's a big, indeed, a big gap between not only the value by block growth of our recording business but also the market cap of our DSS solar business. If you add those two parts together, it's way higher than CSIQ's market cap. Yes, we all see it.
Speaker Change: Let the investment community to see this gap to see that.
Speaker Change: The mismatch of the value.
Speaker Change: And our hope.
Speaker Change: After a while people that understand that they are it's a big indeed.
Speaker Change: Be cheering the not only the value.
Speaker Change: By block for all of our recording is anymore, but also the market cap.
Speaker Change: Stoller isn't yet.
Speaker Change: Ah adopt to park together its way higher and then so you guys had accused market cap, yes, we all see it and.
Vikram Bagri: And we are, I mean, we have been constantly looking for ways to close this gap. Thank you. And on the same topic, the storage business that you have is roughly now as large as one of the publicly traded peers and will be relatively large within the CSI segment as well. Would you look to break out this business separately this year, both on the revenues and margin for storage? And if you can share what your margin outlook is for storage, that'll be helpful as well. Well, again, another very good suggestion. As I said, we always look for ways to maximize, to increase shareholder value. However, carving out a business is not an easy task.
Speaker Change: We are I mean, we have been constantly looking for ways to close this gap.
Thank you and on the same topic storage business that you have is roughly now as large as one looks at the publicly traded peers.
Speaker Change: Relatively large within CSI segment as well.
Speaker Change: Would you look to break out this business separately this year.
Speaker Change: Importantly, revenues and margin or storage.
Speaker Change: And if you can share what your margin outlook, especially that'd be helpful as well.
Yeah.
Speaker Change: Well again I know the a.
Speaker Change: Very good suggestion.
Speaker Change: As I said Oh.
Speaker Change: So look for ways to maximize the increase their shareholder value. However, a colorado business is not a easy task. So I don't think boyfriend carve all that your storage yet this year. However, as I said moving forward, but we're always looking at.
Dr. Sean Chen: So, I don't think we can carve out e-storage this year. However, as I said, moving forward, we always look at, you know, interest in every method to maximize shareholder value. Great, and then one final question before I pass it on: Impressive module shipments in the fourth quarter. I was wondering what surprised you on the upside leading to the above guidance volumes, especially in such a challenged market. And on the same topic, can you share how much of the guided volumes for 2024 on the module side are already contracted versus what you need to still contract? Thank you.
Speaker Change:
Speaker Change: Interested in Agri.
Speaker Change: On my side too.
Speaker Change: To maximize the shareholder value.
Great and then one final question before I pass it on.
Speaker Change: Impressive our module shipments in fourth quarter I was wondering what surprised you on the upside leading to be above guidance volume, especially in such a challenged market.
Speaker Change: And on the same topic can you share how much of the guided volumes for 2020 food on the mortgage side are already contracted where it says what do you need to still contract. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Well so.
Speaker Change: 2024 is a it's actually pretty.
Vikram Bagri: Well, 2024 is actually a pretty unique year because we all know that in Q1 we're actually in the industries under pressure on margin. Prices came down pretty fast since Q4 last year. However, we're expecting the second half to bounce back.
Speaker Change: A unique year kits that we all know that in Q1 were actually in a.
She is under pressure on margin.
Speaker Change: Price came down pretty fast since the two for last year. So about however, we expecting the second half of bouncing back Q2 is likely to be a transition quarter. So if you're asking me what.
Yan Zhuang: Q2 is likely to be a transition quarter. So, if you ask me, we're kind of trying to make the right balance between margin and volume. So, we believe this year is going to be an upturn year. So, we believe that the distributed generation, which is the distribution channel, price will bounce back, and actually, we're going to have a better margin moving forward. But the contracts for that channel were always signed like a few weeks before shipment.
Speaker Change: What kind of a try to make the right balance between margin and volume so.
Speaker Change: We believe this year, it's going to be off trend.
Speaker Change: Yeah. So we believe that the distribution distributed generation Lucius the distribution channel our price will bounce back and actually we're going to have a better margin moving forward.
Speaker Change: The contracts for that channel always find like a few weeks before shipment.
Speaker Change: But we have a very loyal channel right now.
Speaker Change: Worldwide in that channel. So we have a very high confidence volume from the distributors and the installed base around the world. So for also for U S market, which is are we you know the right now the highest priced and a market with the highest margin we have a very high.
Yan Zhuang: But we have a very loyal channel worldwide in that channel, so we have a very high confidence volume from distributors and installers around the world. So also for the U.S. market, which is right now the highest-priced market with the highest margin, we have a very high proportion of our capacity signed up already. And especially for the more profitable, even more profitable U.S. factory volume. So for other markets, it really depends. So, for example, in Japan and some higher priced markets, we have a higher proportion of signed orders.
<unk> of our capacity signed up already and especially for the more profitable even more profitable U S factory volume.
Speaker Change: So for other markets it really depends so.
Speaker Change: For example, in Japan, India, and some higher price market, we have a higher proportion of signed the order if it gets low priced market, we try to manage the pace. However, we do see some market demand really coming off a very strong even now.
Yan Zhuang: If it is a low-priced market, we try to manage the pace. However, we do see some markets where demand is really coming up very strong even now, which is back to 10. So we're locking up volume at a pretty healthy price right now. All right, so I want to add a few comments.
Speaker Change: So really that's the as March which is Pakistan. So we're marching up volume at a.
Speaker Change: Ah at a pretty healthy price right now.
Speaker Change: Right, so I, what ought to view content.
Speaker Change: Our auto a few comments on <unk>.
Speaker Change: It's yes a comment.
Speaker Change: You ask how much I'll walk either volume annual volume on a contract yet.
Dr. Sean Chen: I will add a few comments. Yan's comment: you asked how much of a guided volume, annual volume, on a contract. As I mentioned in the guidance section, for Q1, we strategically decided to control the volume in order to protect the margin.
Speaker Change: As I mentioned in.
Speaker Change: In the guidance.
Speaker Change: Section.
Speaker Change: Well, we for Q1.
Speaker Change: <unk> typically.
Speaker Change: Two kind of total volume in order to protect the margin there for a while.
Dr. Sean Chen: Therefore, with this strategy, at this moment, we strategically try not to contract too much of the 2024 annual volume into long-term contracts because we believe, as Yan said, the pricing will improve. We think the module pricing in some of the markets will improve. Copyright 2020, Schenzel, travaillero.com, But we do believe that both the volume... Price. Well, actually, the volume is there, but we want a better price before we commit to the volume. Thanks, everyone.
Speaker Change: This stride at this moment.
Speaker Change: Typically try not to.
Speaker Change: China too much of the Chinese 24 annual volume.
Speaker Change: Into cutting into long term contracts, because we believe that the pricing will improve we think the molecule pricing in some of the market us.
Speaker Change: Very too depressed or chest.
Speaker Change: What dwell improved has improved so yeah, what rod one our sales team to control the volume so that we can pick up better price that contract.
Speaker Change: Later in the year.
Speaker Change: But we do believe that.
Speaker Change: Both the volume behind them.
Speaker Change: Well actually the volume is there, but we want to.
Speaker Change: That are in place before we commit to the volume.
Speaker Change: Thanks, everyone.
Speaker Change: Yeah.
Vikram Bagri: Thank you. Our next question comes from the line of Philip Shen with Roth MKM. Please proceed with your question. Everyone, thanks for taking my questions. As a follow-up on that last thread... I think Shawn and Yan, you guys have thoughts.
Speaker Change: Thank you. Our next question comes from the line of Philip Shen with Roth M. Kam. Please proceed with your question.
Philip Shen: Hi, everyone. Thanks for taking my questions as a follow up on that last thread in terms of pricing.
Philip Shen: I think Sean and Yeah, and you guys have talked about you expect pricing to improve and it has to improve Shawn as you said.
Philip Shen: Transcription by CastingWords. Can you quantify this in any way, specifically? You know, I think our rough estimate for your module is... may be wrong, but we have roughly 15 cents a watt. What do you think that module is? On an actual, Thank you.
Philip Shen: Can you quantify this in any way specifically you know I think our rough estimate for your module ASP in Q4, and it could be wrong, but it might we have roughly 15 center. What are what do you think that module S. P. A on an actual basis could be for you in Q1.
Dr. Sean Chen: Thank you. Well, we are not guiding the Q1 ASP, but we can give you the growth margin guidance, which is 17% to 19%. But in order to get this growth margin, we sacrificed volume. As Yan said, we control volume.
Philip Shen: Our two and three.
Speaker Change: Well, we're not guiding the Q1.
Speaker Change: Yes, Pete I would give you the gross margin guidance, which is 17.
Speaker Change: 19%, but in order to get this the gross.
Speaker Change: Gross margin, we sacrificed volume.
Speaker Change: Oh, yes that we control it and all of them were only planning to ship six one to 6.4 gigawatt.
Dr. Sean Chen: We only plan to ship 6.1 to 6.4 gigawatts. As you notice, we shipped over 8 gigawatts in Q4. So, obviously, we have the capacity to ship at least 8 gigawatts, if not more, but we decided to control the volume. And now moving forward. We think. The module is the, I, in later quarters. Shopee.
Speaker Change: You noticed that we ship with over eight gigawatt being Q4, so obvious that I mean, we have the capacity.
Speaker Change: The shift at least eight gateway if not more.
Speaker Change: But we decided to.
Speaker Change: To controlled of volume.
Speaker Change: Now moving forward.
Speaker Change: We think.
Speaker Change: <unk>.
Speaker Change: The module ASP.
Speaker Change:
Speaker Change: In later quarters.
Speaker Change: Should be.
Speaker Change: In par if not better than the Q4 I S T.
Dr. Sean Chen: In part, it's not better than the Q4 ASP. Let's put it that way. Yan and I have this view. Let's see whether we are right or not. Got it. Okay. And what do you think are the dynamics that result? Transcription by CastingWords. Transcription by CastingWords. And, as I said, it has to improve.
Speaker Change: And in that way.
Speaker Change: Yeah, and I have this.
Our view.
Speaker Change: Let's see whether we are well right or not.
Speaker Change: Got it okay.
Speaker Change: What do you think are the dynamics that result in.
Speaker Change: Is it better pricing.
Speaker Change: You said it.
Speaker Change: Has to improve so what are the assumptions in your conclusion that it has to improve.
Yan Zhuang: What are the assumptions in your conclusion that it has to be? We've heard that the channel inventory in Europe has cleared for DJI. We've heard... Customers in Europe want to... Order modules, they have to get a production slot. Can you talk about the utilization rates for the manufacturers in Asia, in China and Southeast Asia? Transcribed by https://otter.ai Okay, so, Philip.
Speaker Change: We've heard that.
Speaker Change: Channel inventory in Europe is cleared for D. G.
Speaker Change: We've heard are now if you if the customer.
Speaker Change: Customers in Europe want to order.
Speaker Change: Border modules, they have to get our production slots so.
Speaker Change: Is it can you talk about the utilization rates are.
Speaker Change: For the manufacturers in Asia, and China, and Southeast Asia is at substantially lower now to control the supply so.
Speaker Change: Can you elaborate Sean on why things have to improve.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Uh huh.
Sean: Well I.
Yan Zhuang: Well, I think, first of all, if you look at China and the overseas market, China's market actually, we believe this year's growth is going to be some moderate growth. Last year it just grew too much, but this year we still believe it's going to be growth. But it's going to be moderate.
Sean: I think first of all if you look at China and overseas market.
Sean: China market actually.
Sean: We believe this year's growth is going to be some moderate growth.
Sean: Because last year. It just grew too much but this year, we still believe it's going to be growth and it's going to be monitoring overseas. So we going to see strong shipments into the channel and distribution channel because that.
Yan Zhuang: Overseas, we'll see strong shipments into the channel... into the distribution channel because that's, As we mentioned already, Shang mentioned that already, capacity versus oversupply because bankable capacity is actually compared to the seasonal high demand in the second half. Remember, the second half demand is going to be much higher than the first half. So in a few months' time, you're going to see very high demand versus the supply. The effective capacity means bankable, meaning with the right cost and features and also some capacity that can maneuver around the trade barriers and traceability and ESG issues.
Sean: Channel was blocked since Q3 last year and the Destocking actually has completed and mostly so we're seeing the demand is bouncing.
Sean: But looking back I mean, the pricing improvement already in both the U S and in Europe and Australia.
Sean: We also see new markets like Pakistan, it's growing pretty rapidly and very strong demand in Q2 already starting so it can be to market.
Sean: You know we will have growth may not be a revolution of growth, but it will grow. So we expect this year are this year, so totally installation, it's gonna be like 20%.
Sean: Growth comparing to last year if that is.
Sean: The assumption then we see that moving into second half of the year, we should see the once we the Ah top comm capacity will actually have a much better pricing and we also see the capacity as we mentioned already the Sean mentioned that already capacity versus oversupply.
Yan Zhuang: So that's why we believe it will actually go up in the second half. And that's very helpful. Shifting over to the UFLPA situation in the U.S., can you talk through this if you're...
Sean: Cause a bankable capacity is actually comparing to the seasonal high demand in second half remember the second half demand is going to be much higher than first half. So in few months time, you're going to see a very high demand versus capacity effective capacity means bankable, meaning.
Ismael Guerrero: Transcribed by https://otter.ai, If so, you know, what percentage? A very small percentage, sub-10%, or... modest and maybe closer to 10% to 30% of your impact on the U.S. might be. Do you have a sense for that? If you are detained in the...
Sean: These are the right cost and the features and also some the capacity that can over a kind of maneuver around each of the.
Sean: Trade barriers centre, and traceability and DSD issues. So that's why we believe it will actually go up.
Sean: In second half.
Speaker Change: Great Yeah, that's very helpful. Thank you.
Speaker Change: Shifting over to the U F L. P. A situation in the U S.
Speaker Change: Can you talk through if your imports into the U S are still being detained.
Ismael Guerrero: Transcription by Trans-Expert at Fiverr.com. I'm going to put it back. I've only... I'm going to put it back, and say to you that we got most of our volume released and imported into the US. Now, I can't predict, however, how CBP will respond to or process every launch for which they have questions. So, this is not something I can predict, but you know the historical pattern from other suppliers. So, I suggest you go, I mean, maybe you can draw inspiration from what you see from other importers. Okay, thank you, Sean. One last one.
Speaker Change: If so you know what percentage is it like a very small percentage of sub 10% or is it modest maybe like closer to that 10% to 30% of your imports into.
Speaker Change: And so the U S might be sustained and do you have a sense for if you know if you are detained in that.
Speaker Change: At all you know, what's the timeline as to when those pensions might be released.
Speaker Change: Turning it back or only.
Speaker Change: Say to you that we got most of our volume are released and imported into U S. Now I can't predict Oh I can't protect the however, I cant predict.
Speaker Change: Oh C P C B P.
Speaker Change: Respond all process.
Speaker Change: Very large.
Speaker Change: <unk>, which they have question. So this is not something I.
I.
Kind of predict but you know the historical pattern from other suppliers. So I suggest you go.
Speaker Change: I mean, maybe you can drill reference from what Youll see from other importers.
Philip Shen: In terms of storage, can you give a little more color on the outlook for growth and margins? Some of our checks suggest you guys may have recently cut your storage pricing meaningfully, maybe 10% to 20% cheaper versus peers. We're also hearing that you're telling customers that you may want to own all the data. Can you talk about the rationale?
Speaker Change: Okay. Thank you John one last one in terms of storage can you give a little more color on the outlook for growth and margins. Some of our checks suggest you guys may have recently cut your storage pricing meaningfully maybe 10% to 20% cheaper versus peers. We're also hearing that you're telling customers that you may want to own all of the data can you talk about the rationale for some of these.
Speaker Change: Actions. Thanks.
Speaker Change: I didn't quite get your question Melissa we are cutting price.
Dr. Sean Chen: I didn't quite get your question. Who said we were cutting prices 10-15%? 10 to 20% on one of your, Well, I can't share exactly who, but somebody in the storage ecosystem, highlighted that your pricing was reduced in storage. So you might be.
Speaker Change: 15%.
Speaker Change: 10% to 20% one of one of your the well I cant sure exactly who but somebody in the storage ecosystem was highlighting that your pricing was reduced in storage meaningfully recently, and so you might be 10% to 20% cheaper versus peers.
Dr. Sean Chen: It's only from one source; I haven't fully verified everything, but just curious, have you guys recently... Well... Well... Well, if we are 10, 15 percent below peers, I'm very happy because we are still getting a very good margin on the e-storage product. That probably shows our very strong cost control and competitiveness. As I said in response to Colin's question, now when the battery cell price goes down and the lithium carbonate price goes down, we do pass on some of that savings to our customers. So it's not surprising that if some of the price we offer today is better, it is lower than the price we offered a year ago or two years ago. So that won't surprise you.
It's only from one source I haven't fully verified everything, but just curious have you guys recently, well well it meaningfully.
Speaker Change: Well, yes, we are 10 and 15% below peers.
Speaker Change: They're happy because we are still getting very good margin.
Speaker Change: Your storage product now probably shows our very strong cost control and the competitiveness I size that.
Speaker Change: Q I.
Due to called into question now.
Speaker Change: When the battery cell price.
Speaker Change: No doubt and.
Lithium carbonate prices go down we do class down somewhat but that savings to our customer. So it's not surprising that if some of the price that we offer today, yes, better it's lower.
Speaker Change: Rice, we offered a year ago, two year ago, so that.
Speaker Change: That will surprise me.
Speaker Change: So finished once again, we are not selling cheaper than our peers.
Philip Shen: So Philip, once again, we are not selling cheaper than our peers. If we're selling 10% lower, that's the market price. Great, I really appreciate the color.
Speaker Change: If we're selling 10% lower and that's the market price.
Speaker Change: Great really appreciate the color. Thank you guys I'll pass it on.
Brian K. Lee: Thank you. Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question. Hey guys, thanks for taking the questions. I had a couple of sort of modeling slash housekeeping ones.
Speaker Change: Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Brian K. Lee: Hey, guys. Thanks for taking the questions.
Brian K. Lee: I had a couple.
Brian K. Lee: Sort of modeling slash housekeeping ones.
Huifeng Chang: Huifeng, you mentioned a write-down in the quarter. How much did that impact gross margins for CSI Solar in 4Q? And it sounds like, I guess, no residual impact is expected going forward. Just a couple of points. It's a combination of subtle, one-trade case, and some write-down, and then when we ramp up the top com cell manufacturing in the process, there is an expense in ramping up the efficiency and getting know-how. So that process is also completed. So going forward, we should be okay. Okay, so a couple hundred bits.
Brian K. Lee: Away from you mentioned, a write down in the quarter, how much did that impact gross margins for CSI solar in four Q and it sounds like I guess, no residual impact as expected going forward.
Brian K. Lee: About a couple of points, it's a combination of a subtle one trade case.
Brian K. Lee: And if I'm right out and then when we ramp up the top com cell manufacturing in the process there is a.
Brian K. Lee: Expense in <unk>.
Brian K. Lee: The efficiency and getting Knowhow. So that process is also completed so going forward, we should be okay.
Speaker Change: Okay. So a couple of a couple of hundred bps understood.
Brian K. Lee: And then for your Q1 margin guidance, I had a couple questions on that. I guess first off, are you assuming either for Q1 guidance or maybe just give us your thought process around how you're guiding and embedding it in for the rest of the year? Any impact from IRA credits?
Speaker Change: And then for your Q1 margin guidance.
Speaker Change: I had a couple of questions on that I guess first off.
Speaker Change: Are you assuming either for Q1 guidance or maybe just give us your thought process around how youre guiding and embedding it in for the rest of the year.
Speaker Change: Any impact.
Speaker Change: <unk> from I R eight credits.
Huifeng Chang: Yes, the US module manufacturing started at the end of last year and is now quickly ramping up, so we'll pick up some manufacturing credits, but more important is that our top com ramp up is also completed in China, so that's very helpful. And then also battery storage will contribute a significant profit margin to CSI Solar, so everything working together, I think we have seen the worst that has passed. Okay, is there, I mean, I suppose we can kind of back into it, but can you give us the ballpark range of what the IRA impact is for Q1 guidance on gross margin and then what that could become over the course of 24 as you ramp additional volume in the U.S. I can't, we don't disclose all these details, but I can share with you the framework later on. Okay, fair enough. We'll take that offline.
Speaker Change: Yes, yeah.
Speaker Change: Module manufacturing.
Speaker Change: Started end of last year, and now quickly ramping up so we'll pick up some manufacturing credits, but more importantly is that our top calm and ramp up also complete data in China. So that's very helpful.
Speaker Change: And then also battery storage will contribute a significant profit margin to CSI solar so I always think working together I think are we have seen.
Speaker Change: The worst has passed.
Speaker Change: Okay is there I.
Speaker Change: I mean, I suppose we can kind of back into it but can you give us a ballpark range of.
Speaker Change: What I R. A impact is for Q1 guidance on gross margin and then what that could become over the course of 'twenty four as you ramp additional volume in the U S.
Speaker Change: I can't we don't disclose all these details, but I can share with you the framework you laid out.
Speaker Change: Okay fair enough, we'll take that offline.
Brian K. Lee: I guess on eStorage. If you look at the revenue breakout you guys provide, obviously, it seems like battery storage revenue was pretty significant in Q4 and CSI Solar still only managed to do a 12% gross margin. You're obviously saying eStorage margins are contributing going forward. So, this question would be, what is presumably eStorage's gross margins higher than solar module margins embedded in your Q1 guide? Is it fair to assume that for the balance of 24, eStorage gross margins would remain above your gross margins for solar modules? I cannot confirm quantitatively, but I think you are thinking in the right direction. Well, it is, I can confirm.
Speaker Change: I guess in storage.
Speaker Change: If you look at the revenue breakout you guys provide.
Speaker Change: Obviously, it seems like battery storage revenue was pretty significant in Q4.
Speaker Change: And CSI, so theres still when we manage to.
Speaker Change: Do a 12% gross margin, you're obviously, saying <unk> storage margins are contributing going forward. So.
Speaker Change: Good question would be.
Speaker Change: What is presumably east storage gross margins are higher than solar module margins embedded in your Q1 guide is it fair to assume that for the balance of 'twenty four key storage gross margins would remain above.
Speaker Change: Your gross margins for solar modules.
Speaker Change: I cannot confirm quantitatively, yes, I think if you are thinking in the right direction.
Speaker Change: Well it is I can confirm.
Yan Zhuang: Thank you, Yan. Okay, that's, that's, that's helpful. Is there any, I mean, directionally, it seems like it's above, I mean, are we talking about a meaningful delta between what you're making on storage versus solar modules only? I can say that for 2024, the gross market for e-storage is around 20%. Great, that's helpful. Last one from me, and I'll pass it on. All this color is super helpful from a modeling perspective. If I look at your storage volume targets and then I look at kind of where pricing is for solar panels versus, you know, where they started the year, it kind of, and you're basically at the midpoint implying about a billion dollars of incremental revenue growth, 24 versus 23, it seems like almost all of it is coming from storage and very little revenue growth in modules. I guess one. Is that the right assumption?
Speaker Change: Thank you God, Okay. That's that's helpful.
Speaker Change: Is there any.
Speaker Change: Yeah, I mean directionally it seems like it's above I mean are we talking about a meaningful.
Speaker Change: A delta between what you're making on storage versus solar module only.
Speaker Change: I can say that for 2024, the gross margin for your story just around 20%.
Alright, that's helpful last one for me and I'll pass it on all this color is super helpful from a modeling perspective.
Speaker Change: The if I look at your.
Speaker Change: Storage volume targets, and then I looked at kind of where pricing is for solar panels versus where they started the year.
Speaker Change: It kind of you and Youre basically.
Speaker Change: At the midpoint, implying about a $1 billion of incremental revenue growth 24 versus 23, it seems like almost all of it.
Speaker Change: It is coming from storage and very little revenue growth and modules.
I guess, one is that the right assumption and then two what.
Brian K. Lee: And then two, what should we be thinking about the energy business? You got about $500 million in revenue in 2023. Presumably, that would be flatter down given you're hanging on to some projects? Or what should the directionality of modeling for revenue across the three buckets look like? Module versus battery, obviously battery is up a lot, maybe all of it, but module versus energy in terms of revenue growth year on year. Transcribed by https://otter.ai. This is Xiaohua speaking.
Speaker Change: Should we be thinking about the.
Speaker Change: Energy business, he did about $500 million of revenue in 'twenty three.
Speaker Change: Presumably that would would be flat or down given your hanging onto some projects or what should the directionality of modeling for revenue across the three buckets look like module versus battery, obviously battery up a lot maybe all of it but module versus energy.
Speaker Change: In terms of revenue growth year on year.
Speaker Change: Yes.
Speaker Change: Yeah.
Yeah. This is Shawn speaking or see some revenue growth.
Dr. Sean Chen: We're seeing some revenue growth on the solar module side, although the module growth is not proportional to the volume growth because of the ASP job from 2023 to 2024. But meanwhile, yes, you're right, the e-storage revenue growth will be significant. The e-storage revenue, first of all, volume-wise, e-storage will grow from less than 2 gigawatt-hour in 2023 to 6 to 6.5 gigawatt-hour in 2024. Now, the ASP for e-storage also dropped a little bit compared with 2023, but not that significant. So, yes, the revenue growth of e-storage will be very strong. On the recurrence side, you are also right that we will hold on, and plan to hold on, most of our projects in the US and in Europe. We will probably sell some of our projects in Latin America and in Japan, but overall, we are holding more assets, a lot more assets this year, so you are not going to see that much revenue contribution from recurrence. However, we are building a significant... Recurring revenue by holding the projects.
Speaker Change: Solar module side, although the.
Speaker Change: The module girls.
Speaker Change: It's not a not.
Speaker Change: Not proportional to the volume growth because of the AOSP job from Chinese Giants theories are trending here in the fall and Meanwhile, yes, youre right the storage revenue growth will be significant.
Speaker Change: Celebrate your revenue for a first off well volume wise.
Speaker Change: Tolerate a will grow from less than two gigawatt hour in trying to join this three to six to six five gigawatt hour in China is trying to do for now the Asps.
Asps for your storage also dropped a little bit comparing was trying to trying to as three but not that significant so yet.
Speaker Change: Revenue World your storage won't be very strong on the recurring side. You are also right that we.
Speaker Change: Well hold all.
Speaker Change: Planning to hold down most of our project in U S and in Europe.
Speaker Change: We.
Speaker Change: Willis.
Speaker Change: Or probably sell some of our project in Latin America and in Japan.
Speaker Change: Uh huh.
Speaker Change: But overall we.
Speaker Change: We are holding why is that.
Speaker Change: Why is that so this year. So you are not going to see not much revenue contribution from <unk>.
Speaker Change: Colorado, However, well building a significant.
Dr. Sean Chen: So in a year or so in the 2025 or 2026 time zone, you will start to see strong revenue contribution from recurring. Okay. Thanks, everyone. Thank you, Sean. I appreciate it. I'll pass it on. Thank you. Ladies and gentlemen, we've come to the end of our time allotted for questions.
Speaker Change:
Speaker Change: Recurring revenue.
Speaker Change: By holding the project so in a year or so I'm trying to engender firewood trying they're trying to save time zone.
Speaker Change: You will see strong start will see strong revenue contribution from it correct.
Speaker Change: Okay. Thanks, everyone. Thank you Sean I appreciate a lot I'll pass it on.
Speaker Change: Thank you, ladies and gentlemen, we've come to the end of our time allowed for questions I'll turn the floor back to management for any final comments.
Unknown Executive: I'll turn the floor back to management for any final comments. Thank you. Thank you for joining us today and for your continued 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. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Thank you for joining us today.
Speaker Change: Continuing with the book.
If you'll have any questions or would like to set out about call. Please contact our investor relations team take care and have a nice day.
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