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Canadian Solar Reports Second Quarter 2022 Results – EQ Mag Pro

Canadian Solar Reports Second Quarter 2022 Results – EQ Mag Pro

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GUELPH, ON : Canadian Solar Inc. (“Canadian Solar” or the “Company”) (NASDAQ: CSIQ) today announced financial results for the second quarter ended June 30, 2022, with solar module shipments, revenue and gross margin all at or exceeding the high end of prior guidance.

Highlights

  • Solar module shipments of 5.06 GW, at the high end of 4.9 GW to 5.1 GW guidance range.
  • 62% increase in revenue year-over-year (“yoy”) to $2.31 billion, above the high end of $2.2 billion to $2.3 billion guidance range.
  • 16.0% gross margin exceeds the guidance range of 14.5% to 15.5%.
  • Net income attributable to Canadian Solar of $74 million, or $1.07 per diluted share.
  • Accelerating upstream capacity expansion plans to further increase control over supply chain.
  • Global Energy solar project pipeline expands to 26 GWp and storage pipeline expands to over 31 GWh, as of June 30, 2022.
  • Carve-out IPO of CSI Solar Co., Ltd. (“CSI Solar” or the “CSI Solar subsidiary”) remains on track awaiting completion of the CSRC registration.

Dr. Shawn Qu, Chairman and CEO, commented, “We achieved strong results in the second quarter of 2022, with solar module shipments, revenue and gross margin all at or exceeding the high end of prior guidance. Sequentially, we grew our module shipments by nearly 40% and battery storage solutions revenues by 2.8 times, while significantly expanding our profitability and completing a large volume of project sales. Our capacity growth strategy is also well on track, which we expanded per our recent announcement to invest in our own polysilicon capacity in a region rich in renewable energy resources. This will allow us to gain further control over sourcing, technology and supply chain, and is part of a long-term plan to increase our market share while meaningfully reducing the carbon footprint of our supply chain. We provide additional details of our environmental efforts and performance in our latest ESG Sustainability Report, published last month.

“We are also excited to see the Inflation Reduction Act, or IRA, in the U.S. coming into effect. We believe it will drive a big acceleration in demand for clean energy, especially for solar energy and battery storage.

“Separately, CSI Solar’s carve-out IPO remains on track awaiting registration with the China Securities Regulatory Commission.”

Yan Zhuang, President of Canadian Solar’s CSI Solar subsidiary, said, “CSI Solar delivered strong results in the second quarter, significantly growing volume and increasing pricing, while taking cost control measures in a difficult environment as polysilicon prices continue to go up. Our performance in the second quarter was also boosted by a substantial foreign exchange gain from a strong U.S. Dollar relative to the Renminbi. From a market standpoint, we are encouraged by signs of a shift in customer behavior driven by a growing awareness of solar energy’s attractive economics and its importance in energy security and climate change mitigation efforts, especially when paired with battery storage. Reflecting this positive trend, our battery storage shipments in the first half of 2022 have already exceeded 1 GWh, a record level for us. We will continue to build on our strong channels and relationships, especially in premium markets, and make capacity expansion preparations to accelerate our global market share gains in the coming years.”

Ismael Guerrero, Corporate VP and President of Canadian Solar’s Global Energy subsidiary, said, “We delivered significant growth in the second quarter by monetizing approximately 880 MWp of project sales across Australia, the U.S., Japan and the U.K. We also continued to expand and diversify our global project pipeline, strengthening our leadership position in key markets while allowing us to be more selective in developing the highest quality assets. We are particularly encouraged by the passing of the IRA in the U.S. as our subsidiary, Recurrent Energy, has one of the largest and best quality project pipelines, with a total of 8 GWp of solar and 16.5 GWh of battery storage. Additionally, we are making progress executing on our O&M (operations and maintenance) growth strategy to increase the share of stable, recurring income, including a recent expansion of our platform in Europe, as we evaluate complementary growth opportunities worldwide.”

Dr. Huifeng Chang, Senior VP and CFO, added, “In the second quarter, we achieved 85% sequential growth in revenue to $2.3 billion and doubled our gross profit to $371 million, achieving a 16% gross margin. We were able to support the accelerated growth rate and reduce the impact of inflation due to our prior strategic decision to increase inventory during the first quarter. We continue to prioritize cash generation and are pleased with the increase in net cash flow provided by operating activities to $293 million in the second quarter of 2022, from $159 million in the first quarter of 2022. We ended the second quarter with a total cash position of $1.9 billion, giving us significant financial flexibility to fund long-term growth opportunities, including accelerating our upstream capacity expansion.”

Second Quarter 2022 Results

Total module shipments recognized as revenues in the second quarter of 2022 were 5.06 GW, up 37% yoy. Of the total, 126 MW were shipped to the Company’s own utility-scale solar power projects.

Net revenues in the second quarter of 2022 were $2.31 billion, up 85% quarter-over-quarter (“qoq”) and 62% yoy. The sequential and yoy increases were mainly driven by higher project sales, higher solar shipment volumes and average selling price, and significant growth in the Company’s battery storage solutions business.

Gross profit in the second quarter of 2022 was $371 million, up 105% qoq and 101% yoy. Gross margin in the second quarter of 2022 was 16.0%, above prior guidance, and compared to 14.5% in the first quarter of 2022. The sequential gross margin increase was mainly driven by higher module pricing, lower manufacturing costs from the depreciation of the Renminbi relative to the U.S. Dollar and scale benefits from higher volume.

Total operating expenses in the second quarter of 2022 were $255 million compared to $165 million in the first quarter of 2022 and $158 million in the second quarter of 2021. The sequential increase was mainly driven by higher shipping and handling expenses and an impairment charge related to certain manufacturing assets.

Depreciation and amortization charges in the second quarter of 2022 were $63 million, compared to $66 million in the first quarter of 2022 and $66 million in the second quarter of 2021.

Net foreign exchange and derivative gain in the second quarter of 2022 was $6 million, compared to a net gain of $3 million in the first quarter of 2022 and a net loss of $3 million in the second quarter of 2021.

Income tax expense in the second quarter of 2022 was $28 million, compared to a $5 million income tax benefit in the first quarter of 2022 and a $2 million income tax benefit in the second quarter of 2021. The expense was a result of the Company’s higher income before income tax.

Net income attributable to Canadian Solar in the second quarter of 2022 was $74 million, or $1.07 per diluted share (“diluted EPS”), compared to net income of $9 million, or $0.14 per diluted share, in the first quarter of 2022, and net income of $11 million, or $0.18 per diluted share, in the second quarter of 2021.

For the three months ended June 30, 2022, diluted EPS of $1.07 was calculated to include the dilution effect of the outstanding convertible notes. Diluted EPS of $1.07 was calculated from total earnings of $76 million, adding back the 2.5% coupon of $1.3 million, divided by 71.1 million diluted shares, including 6.3 million shares issuable upon the conversion of the convertible notes. For the three months ended March 31, 2022, diluted EPS of $0.14 was calculated from total earnings of $9 million divided by 64.7 million diluted shares. For the three months ended June 30, 2021, diluted EPS of $0.18 was calculated from total earnings of $11 million divided by 61.3 million diluted shares.

Net cash flow provided by operating activities in the second quarter of 2022 was $293 million, compared to net cash flow provided by operating activities of $159 million in the first quarter of 2022. The increase in operating cash inflow was mainly driven by higher earnings and monetization of project assets.

Total debt was $2.7 billion as of June 30, 2022, unchanged from March 31, 2022. Non-recourse debt used to finance solar power projects decreased to $264 million as of June 30, 2022, from $550 million as of March 31, 2022, mainly due to the monetization of project assets.

Corporate Structure

The Company has two business segments: Global Energy and CSI Solar, which operate as follows:

The Global Energy segment carries out the Company’s global project development activities for both solar and battery storage project development, which include sourcing land, interconnection agreements, structuring PPAs and other permits and requirements. The Global Energy segment develops both stand-alone solar and stand-alone battery storage projects, as well as hybrid solar plus storage projects. Its monetization strategies vary between develop-to-sell, build-to-sell, and build-to-own, depending on business strategies and market conditions, with the goal of maximizing returns, accelerating cash turn, and minimizing capital risk.

The CSI Solar segment consists of solar module manufacturing and total system solutions, including inverters, solar system kits and EPC (engineering, procurement and construction) services. The CSI Solar segment also includes the Company’s battery storage system integration business, delivering bankable, end-to-end, turnkey battery storage solutions for utility scale, commercial and industrial, and residential applications. These storage systems solutions are complemented with long-term service agreements, including future battery capacity augmentation services.

Global Energy Segment

Canadian Solar has one of the world’s largest and most geographically diversified utility-scale solar and energy storage project development platforms, with a strong track record of originating, developing, financing, and building over 6.8 GWp of solar power plants across six continents. The Company has built a leadership position in solar project development with 26 GWp total pipeline, as well as in energy storage project development with over 31 GWh of aggregate pipeline.

The continued pipeline expansion and strong project development track record will support Global Energy’s growth in three key areas:

1. Project sales: The Company plans to grow its volume of project sales by a compound annual growth rate of approximately 50% to 2026, while holding and accumulating assets through investment vehicles (see below) in order to better capture asset value.

2. Investment vehicles: The Company is optimizing its project monetization strategy by establishing local investment vehicles that will help maximize the value of its project assets. The Company also intends to retain minority ownership in these vehicles. By 2026, the Company plans to reach 1.3 GW of combined net ownership in solar power projects through these vehicles. This approach will help the Company build and grow a stable base of long-term cash flows from contracted electricity. The Company plans to recycle a large portion of the capital into developing new solar projects for growth. Meanwhile, Canadian Solar expects to capture additional operational value throughout the partial ownership period, including long-term cash flows from power sales, O&M, asset management and other services (see point 3). The Company currently owns a 15% stake in the Canadian Solar Infrastructure Fund (“CSIF”, TSE: 9284), the largest Japanese infrastructure fund listed on the Tokyo Stock Exchange, and has also established the CSFS Fund I, a closed-ended alternative investment fund of a similar nature in Italy. Through launching these localized vehicles, Canadian Solar is building its expertise in designing investment vehicles in local markets that will help maximize the value of its project assets.

3. Services: Canadian Solar currently manages over 3.1 GW of operational projects under long-term O&M agreements, and an additional 2.4 GW of contracted projects that will be operated and maintained by the Company once they are placed in operation. The Company’s target is to reach 20 GW of projects under O&M agreements by 2026.

Management targets to achieve the following over the next few years:

Global Energy Targets 2021A 2022E 2023E 2024E 2025E 2026E
Annual Project Sales, GWp 2.1 2.1-2.6 2.8-3.3 3.5-4.0 4.0-4.5 4.3-4.8
Operational O&M Projects, GWp 2.1 4.5 7.5 11 15 20
Net Cumulative Projects Retained, MWp* 292 370 630 1,000 1,100 1,300
Gross Cumulative Projects Retained, MWp* 748 1,500 2,580 3,500 4,000 5,000

*Net projects retained represents CSIQ’s net partial ownership of solar projects; the gross number represents the aggregate gross size of projects, including the share which is not owned by CSIQ.

Solar Project Pipeline

As of June 30, 2022, the Company’s total project pipeline was 26.2 GWp, including 1.3 GWp under construction, 3.9 GWp of backlog, and 21.0 GWp of projects in advanced and early-stage pipelines. We have updated our project pipeline classification as follows:

Backlog projects are late-stage projects that have passed their Risk Cliff Date and are expected to start construction in the next 1-4 years. A project’s Risk Cliff Date is the date on which the project passes the last high-risk development stage and varies depending on the country where it is located. This is usually after the projects have received all the required environmental and regulatory approvals, and entered into interconnection agreements, feed-in tariff (“FIT”) arrangements and PPAs. Over 90% of projects in backlog are contracted (i.e., have secured a PPA or FIT), and the remaining are reasonably assured of securing PPAs.
Advanced pipeline projects are mid-stage projects that have secured or have more than 90% certainty of securing an interconnection agreement.
Early-stage Pipeline projects are early-stage projects controlled by Canadian Solar that are in the process of securing interconnection.

The following table presents Global Energy’s total solar project development pipeline.

Total Project Pipeline (as of June 30, 2022) – MWp*
Region In
Construction
Backlog Advanced
Pipeline
Early-Stage
Pipeline
Total
North America 601 2,767 4,736 8,104
Latin America 907** 2,469** 3,417 1,040 7,833
Europe, the Middle East and Africa (“EMEA”) 21 379 4,033 1,811 6,244
Japan 145 157 105 407
Asia Pacific excluding Japan and China 38 137 1,762 1,937
China 250 300 1,170 1,720
Total 1,323 3,944 10,354 10,624 26,245
*All numbers are gross MWp.

**Including 311 MWp in construction and 517 MWp in backlog that are already sold to third parties

Battery Storage Project Pipeline

In addition to developing utility-scale solar power projects, the Global Energy segment has also been developing hybrid solar plus energy storage projects, as well as stand-alone battery storage projects. Since the first quarter of 2021, the Company has been co-hosting energy storage facilities with solar power plants on the same piece of land for nearly all projects under development. By using a single interconnection point per project, the Company expects to significantly enhance the efficiency of its development and the value of its assets under development.

Canadian Solar’s storage development business model also includes signing storage tolling agreements with a variety of power purchasers, including community choice aggregators, investor-owned utilities, universities, and public utility districts. In addition, the Company has signed development services agreements to retrofit operational solar projects with battery storage, many of which were previously developed by the Company.

The table below sets forth Global Energy’s total storage project development pipeline.

Storage Project Development Backlog and Pipeline (as of June 30, 2022) – MWh
Region In
Construction
Backlog Advanced
Pipeline
Early-Stage
Pipeline
Total
North America 1,400 6,319 8,760 16,479
Latin America 1,300 2,806 970 5,076
EMEA 82 1,324 4,178 5,584
Japan 19 19
Asia Pacific, excluding Japan and China 20 2,320 2,340
China 300 100 1,400 1,800
Total 1,420 1,682 10,549 17,647 31,298

Solar Power Plants and Battery Storage Projects in Operation

As of June 30, 2022, the Company’s solar power plants in operation totaled 311 MWp, with a combined estimated net resale value of approximately $270 million to Canadian Solar. The estimated resale value is based on selling prices that Canadian Solar is currently negotiating or comparable asset sales.

Solar Power Plants in Operation – MWp*
Latin America Japan Asia Pacific 

ex. Japan and China

China Total
166 48 15 82 311
*All numbers are net MWp owned by Canadian Solar; total gross MWp of projects is 577 MWp, including volume that is already sold to third parties.

Operating Results

The following table presents select unaudited results of operations data of the Global Energy segment for the periods indicated.

Global Energy Segment Financial Results

(In Thousands of U.S. Dollars, Except Percentages)

Three Months Ended Six Months Ended
June 30,

2022

March 31,

2022

June 30,

2021

June 30,

2022

June 30,

2021

Net revenues 553,984 92,966 280,614 646,950 751,676
Cost of revenues 473,979 75,130 268,855 549,109 626,892
Gross profit 80,005 17,836 11,759 97,841 124,784
Operating expenses 24,326 18,847 15,632 43,173 43,576
Income (loss) from
operations*
55,679 (1,011) (3,873) 54,668 81,208
Gross margin 14.4 % 19.2 % 4.2 % 15.1 % 16.6 %
Operating margin 10.1 % -1.1 % -1.4 % 8.5 % 10.8 %
* Income (loss) from operations reflects management’s allocation and estimate as some services are shared by the
Company’s two business segments.

Company’s two business segments.

CSI Solar Segment

CSI Solar’s 2022 and 2023 capacity expansion targets are set forth below.

Manufacturing Capacity, GW*
Dec. 2021
Jun. 2022 Dec. 2022
Dec. 2023
Actual Actual Plan Plan
Ingot 5.4 5.4 20.4 25.0
Wafer 11.5 11.5 20.0 25.0
Cell 13.9 13.9 19.8 35.0
Module 23.9 27.9 32.0 50.0
*Nameplate annualized capacities at said point in time. Capacity expansion plans are subject to change without notice based on market conditions and capital allocation plans.

Operating Results

The following table presents select unaudited results of operations data of the CSI Solar segment for the periods indicated.

CSI Solar Segment Financial Results*

(In Thousands of U.S. Dollars, Except Percentages)

Three Months Ended Six Months Ended
June 30,
2022
March 31,
2022
June 30,

2021

June 30,
2022
June 30,

2021

Net revenues 1,816,410 1,209,994 1,183,958 3,026,404 1,879,110
Cost of revenues 1,526,755 1,034,165 1,028,470 2,560,920 1,656,164
Gross profit 289,655 175,829 155,488 465,484 222,946
Operating expenses 227,262 143,931 140,516 371,193 260,642
Income (loss) from operations 62,393 31,898 14,972 94,291 (37,696)
Gross margin 15.9 % 14.5 % 13.1 % 15.4 % 11.9 %
Operating margin 3.4 % 2.6 % 1.3 % 3.1 % -2.0 %
*Includes effects of both sales to third-party customers and to the Company’s Global Energy segment. Please refer to the
attached financial tables for intercompany transaction elimination information. Income (loss) from operations reflects
management’s allocation and estimate as some services are shared by the Company’s two business segments.

The table below provides the geographic distribution of the net revenues of CSI Solar:

CSI Solar Net Revenues Geographic Distribution* (In Millions of U.S. Dollars, Except Percentages)
Q2 2022 % of Net
Revenues
Q1 2022 % of Net
Revenues
Q2 2021 % of Net
Revenues
Asia 587 33 473 41 527 46
Americas 742 42 453 39 421 37
Europe and others 431 25 231 20 201 17
Total 1,760 100 1,157 100 1,149 100
*Excludes sales from CSI Solar to Global Energy.

CSI Solar shipped 5.06 GW of modules to more than 70 countries in the second quarter of 2022. The top five markets ranked by shipments were China, the U.S., Spain, Brazil and Germany.

Battery Storage Solutions

Within CSI Solar, the battery storage solutions team provides customers with competitive turnkey, integrated battery storage solutions, including bankable and fully wrapped capacity and performance guarantees. These guarantees are complemented with long-term service agreements, which include future battery capacity augmentation services and bring in long-term, stable income.

The table below sets forth CSI Solar’s battery storage system integration’s project pipeline as of June 30, 2022.

LTSA (Long
Term Service
Agreement)
Contracted/

In Construction

Forecast Pipeline Total
Storage (MWh) 861 1,892 40 8,242 11,035

LTSA projects are operational battery storage projects delivered by CSI Solar that are under multi-year long-term service agreements and generate recurring earnings. Contracted/in construction projects are expected to be delivered within the next 12 to 18 months. Forecast projects include those that have more than 75% probability of being contracted within the next 12 months, and the remaining pipeline includes projects that have received exclusivity agreements or have been shortlisted, but still have a below 75% probability of being contracted.

About Canadian Solar Inc.

Canadian Solar was founded in 2001 in Canada and is one of the world’s largest solar technology and renewable energy companies. It is a leading manufacturer of solar photovoltaic modules, provider of solar energy and battery storage solutions, and developer of utility-scale solar power and battery storage projects with a geographically diversified pipeline in various stages of development. Over the past 21 years, Canadian Solar has successfully delivered around 76 GW of premium-quality, solar photovoltaic modules to customers across the world. Likewise, since entering the project development business in 2010, Canadian Solar has developed, built and connected over 6.8 GWp in over 20 countries across the world. Currently, the Company has 311 MWp of projects in operation, 5.3 GWp of projects under construction or in backlog (late-stage), and an additional 21 GWp of projects in advanced and early-stage pipeline. Canadian Solar is one of the most bankable companies in the solar and renewable energy industry, having been publicly listed on the NASDAQ since 2006.

Anand Gupta Editor - EQ Int'l Media Network