Canadian Solar to Report Fourth Quarter and Full Year 2019 Results

Canadian Solar Inc. (“Canadian Solar” or the “Company”) (NASDAQ: CSIQ), one of the world’s largest solar power companies, today announced its financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter 2019 Highlights

  • Total module shipments were 2.5 GW, compared to 2.4 GW in the third quarter of 2019 and fourth quarter 2019 guidance of 2.3 GW to 2.4 GW.
  • Net revenue was $920 million, compared to $760 million in the third quarter of 2019 and fourth quarter 2019 guidance of $850 million to $880 million.
  • Gross profit was $230 million. Gross margin was 25.0%, compared to 26.2% in the third quarter of 2019 and fourth quarter 2019 guidance of 19% to 21%. Gross margin was 24.3% excluding the benefit of a U.S. anti-dumping (“AD”) and countervailing duty (“CVD”) true-up of $6.4 million.
  • Net income attributable to Canadian Solar was $67.7 million, or $1.12 per diluted share, compared to $58.3 million, or $0.96 per diluted share, in the third quarter of 2019.
  • Net cash provided by operating activities was approximately $247 million, compared to $22 million in the third quarter of 2019.
  • As of January 31, 2020, the Company’s portfolio of utility-scale solar power plants in operation was 880.2 MWp with an estimated total resale value of approximately $1 billion.
  • The Company’s board of directors authorized a $150 million share repurchase program for a six month-period beginning December 9, 2019.

Full Year 2019 Results

  • Total module shipments were 8.6 GW, compared to 6.6 GW in 2018 and guidance of 8.4 GW to 8.5 GW.
  • Net revenue was $3.20 billion, compared to $3.74 billion in 2018 and guidance of $3.13 billion to $3.16 billion.
  • Net income attributable to Canadian Solar was $171.6 million, or $2.83 per diluted share, compared to $237.1 million, or $3.88 per diluted share in 2018.
  • Net cash provided by operating activities was approximately $600 million, compared to $216 million in 2018.

Fourth Quarter 2019 Results

Net revenue in the fourth quarter of 2019 was $920 million, compared to $760 million in the third quarter of 2019, and $901 million in the fourth quarter of 2018. The sequential increase was due to higher shipments recognized in revenue, stable module average selling price (“ASP”) and the ongoing monetization of solar power plants.

Total module shipments in the fourth quarter of 2019 were 2,474 MW, compared to 2,387 MW in the third quarter of 2019 and fourth quarter 2019 guidance of 2,300 MW to 2,400 MW. This included 295 MW for the Company’s utility-scale solar power projects.

Gross profit in the fourth quarter of 2019 was $230 million, compared to $199 million in the third quarter of 2019 and $271 million in the fourth quarter of 2018. The benefit of the AD/CVD true-up was $6.4 million in the fourth quarter of 2019, $24 million in the third quarter of 2019 and $16 million in the fourth quarter of 2018. Gross margin in the fourth quarter of 2019 was 25.0%, compared to 26.2% in the third quarter of 2019, 30.1% in the fourth quarter of 2018 and fourth quarter 2019 guidance of 19% to 21%. The improvement was due to a stable ASP and lower manufacturing costs.

Income from operations in the fourth quarter of 2019 was $111 million, compared to $80 million in the third quarter of 2019, and $137 million in the fourth quarter of 2018. Operating margin was 12.1% in the fourth quarter of 2019, compared to 10.5% in the third quarter of 2019 and 15.2% in the fourth quarter of 2018.

Non-cash depreciation and amortization charges in the fourth quarter of 2019 were $45 million, compared to $37 million in the third quarter of 2019 and $32 million in the fourth quarter of 2018.

The Company uses derivative instruments to hedge its foreign exchange positions. In the fourth quarter of 2019, the Company recorded a $6.6 million loss on the change in fair value of derivatives used in the Company’s foreign exchange hedging program, partly offset by the foreign exchange gain of $4 million. The net effect of the currency moves and hedging was a $2.6 million loss during the fourth quarter, compared to a $0.5 million gain in the third quarter of 2019 and a net zero effect in the fourth quarter of 2018.

Net income attributable to Canadian Solar on a GAAP basis in the fourth quarter of 2019 was $67.7 million, or $1.12 per diluted share, compared to net income of $58.3 million, or $0.96 per diluted share in the third quarter of 2019, and net income of $111.6 million, or $1.81 per diluted share, in the fourth quarter of 2018. Net income attributable to Canadian Solar on a non-GAAP basis in the fourth quarter of 2019 was $63 million, or $1.04 per diluted share. This excludes the benefit of the AD/CVD true-up during the quarter of $6.4 million, net of income tax effect. For a reconciliation of results under GAAP to non-GAAP results, see the accompanying table “About Non-GAAP Financial Measures”.

Dr. Shawn Qu, Chairman and Chief Executive Officer, commented: “I am pleased with the strong 2019 results, as revenue and gross margin were both ahead of expectations. The strategic decisions we made in R&D and production capacity helped us achieve one of the industry’s highest margins, as we build upon our strong brand and maintain pricing power. We continue to be an innovation leader, recently setting another world record in cell conversion efficiency of 23.81% for N-type, large-area, multi-crystalline silicon solar cells. This further extends our competitive advantage, as we deliver modules with mono-like efficiencies at an attractive ASP. Along with the rest of the world, we have been working hard to ensure the health and safety of our employees in the face of the COVID-19 pandemic. We believe Canadian Solar’s proven 19-year track record and the robust, conservative nature of our long-term strategy will allow the Company to emerge stronger from the current period of uncertainty.”

Yan Zhuang, Acting Chief Executive Officer, commented: “We achieved strong results in Q4 and the full year 2019. On the Module and Systems Solutions side, 2019 module shipments grew by almost 30% year-over-year, while underlying gross margin increased by 480 basis points (excluding the benefit of the AD/CVD true-up), resulting in a highly profitable Q4. On the Energy side, we continue to grow and monetize our operating solar assets and pipeline, which currently stand at 880 MWp and 15.4 GWp, respectively. Strategically, we are evaluating ways to capture more value by retaining partial ownership in selected solar project assets we develop to create higher, more predictable and more profitable revenues, thereby creating additional value for the Company and its shareholders. Meanwhile, we have set up a global team focusing on system integration and energy storage, which will help to build the new technology DNA of the Company and lead the next wave of growth in this industry.”

Dr. Huifeng Chang, Senior Vice President and Chief Financial Officer, added: “In Q4, we delivered $230 million of gross profit and $67.7 million of net income, both sequentially higher than the previous quarter driven by higher module sales, stable ASPs, lower costs and increased project sales. We generated $247 million of operating cash flow and increased our total cash position to $1.2 billion. We also reduced total debt to $1.95 billion, and lengthened its average maturity. Our liquidity is healthy and our balance sheet continues to improve. We are proactively taking contingency measures to preserve cash and minimize risk, should the macro situation deteriorate further. Likewise, our financial plan has the flexibility to quickly switch gears if the global economy recovers faster than expected. We plan to continue with our stock repurchase program to create extra value for shareholders as recent COVID-19related panic-selling has brought our equity valuation below book value.”

Energy Business Segment

Operating Results

Energy Business Segment Financial Results –

(In Thousands of U.S. Dollars, Except Percentages and Unless Otherwise Stated)

Three Months Ended  Twelve Months Ended
Dec 31,
2019
Sep 30,
2019
Dec 31,
2018
Dec 31,
2019
Dec 31,
2018
Net revenues 215,370 97,550 336,214 719,445 1,575,594
Cost of revenues 182,424 77,589 243,923 635,716 1,302,779
Gross profit 32,946 19,961 92,291 83,729 272,815
Operating expenses 17,747 24,077 30,087 90,760 61,276
Income (loss) from
operations
15,199 (4,116) 62,204 (7,031) 211,539
Gross margin 15.3% 20.5% 27.5% 11.6% 17.3%
Operating margin 7.1% -4.2% 18.5% -1.0% 13.4%

Project Backlog and Pipeline

The Company’s project backlog (formerly called its late-stage, utility-scale, solar project pipeline) totaled 3.7 GW, as of January 31, 2020. The backlog includes projects that have passed their Cliff Risk Date and are expected to be built in the next one to four years. The Cliff Risk Date depends on the country where a project is located and is defined as the date on which the project passes the last of the high-risk development stages (usually receipt of all required environmental approvals, interconnection agreements, feed-in tariff (“FiT”) arrangements and PPAs). All projects in the current backlog have secured or are reasonably assured to secure a PPA or FiT.

The Company’s project pipeline (formerly called its early-to-mid-stage, utility-scale, solar project pipeline) totaled 11.7 GW as of January 31, 2020.

Project Backlog and Pipeline by Region* (as of January 31, 2020)
Region Backlog Pipeline Total
North America 1,597 5,232 6,829
Latin America 1,087 3,246 4,333
EMEA 206 2,113 2,319
Asia Pacific 806 676 1,482
China 45 410 455
Total 3,741 11,677 15,418

Note: Backlog and pipeline table represents the gross MWp size of the projects, including minority interest.

More recently, in 2018, the Energy team at Recurrent, the Company’s subsidiary in the US, secured two PPAs for a total of 150 MWac with 180 MWh of storage attached. These landmark PPA wins have allowed Recurrent to develop deep in-house expertise on everything related to energy storage, including permitting, interconnection, engineering and design, structuring of off-take agreements to meet customer’s needs, as well as plant operation. As a result of Recurrent’s early mover advantage in the promising solar plus storage space, the Energy Business has been selected and is in negotiation with multiple different off-take parties for additional energy storage projects totaling 705 MWac with 2,820 MWh of storage.

The table below sets forth the Company’s storage project backlog and pipeline as of January 31, 2020.

Backlog Pipeline Total
Storage (MWh) 320 2,500 2,820

Projects in Construction

In addition to its project backlog and pipeline, the Company has 512 MW of solar projects in construction.

Projects in Construction (as
of January 31, 2020)
MWp Expected COD
Latin America Portfolio 449 2020-21
Japan Portfolio 63 2020
Total 512
Note: Approximately 264 MWp from LatAm portfolio in Brazil sold at NTP
to Nebras, with milestone revenue recognition over 2019-2021.

Solar Power Plants in Operation

In addition to its backlog, pipeline and projects in construction, as of January 31, 2020, the Company’s power plants in operation totaled 1,023 MWp.

Plants in Operation – MWp (as of January 31, 2020)
North America Latin America EMEA Asia Pacific China Total
216 100 18 230 459 1,023
Note: 880 MWp is owned by the Company and a minority interest of 143 MWp is owned by business
partners.

Energy Business Strategy Update

The Company’s Energy business model has been to develop solar projects for sales and to selectively retain partial ownership of certain projects to capture long-term recurring cash flow and to leverage EPC, operations and management (“O&M”), asset management and other service business. Canadian Soar has one of the world’s largest solar energy development platforms, with a track record of originating, developing, financing, building and bringing into commercial operation over 5.6 GWp of solar power plants across six continents. It currently employs 400 professionals to support its integrated business model. The Energy business team includes developers with expertise in developing both greenfield and brownfield projects, engineers who can design and manage the construction of solar power plants, energy experts that specialize in power marketing who focus on negotiating power purchase agreements (“PPAs”) and hedging instruments, and experts in the O&M, as well as asset management of solar power plants. In addition, the Energy business has an in-house finance team with experience in a wide range of debt and equity instruments used to finance solar assets, including establishing private and public fund vehicles to optimize equity returns.

The Energy business has traditionally sold most of its project ownership at notice to proceed (“NTP”) or commercial operation date (“COD”), depending on the best exit point for each particular project. The Company has also retained minority ownerships in certain projects to capture additional value. A successful example is the Canadian Solar Infrastructure Fund, which is sponsored by the Company and has been listed on Tokyo Stock Exchange since 2017. The Company is evaluating the expansion of these strategies into other markets as it helps to reduce lumpiness of revenue, profit and cash flow, while increasing the predictability and stability of its business and creating long-term value for shareholders.

Module and System Solutions (MSS) Business Segment

Operating Results

MSS Business Segment Summary Financial Results* – (In Thousands of U.S.
Dollars, Except Percentages and Unless Otherwise Stated)
Three Months Ended Twelve Months Ended
Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Net revenues 765,696 674,921 629,716 2,582,635 2,413,889
Cost of revenues 551,517 493,505 472,229 1,934,062 1,923,131
Gross profit 214,179 181,416 157,487 648,573 490,758
Operating expenses 100,329 94,730 104,658 368,858 349,149
Income from operations 113,850 86,686 52,829 279,715 141,609
Gross margin 28.0% 26.9% 25.0% 25.1% 20.3%
Operating margin 14.9% 12.8% 8.4% 10.8% 5.9%
Note: *Included effects of both sales to third party customers and to the Company’s Energy Segment. Please refer to the attached financial tables for the
intercompany transaction elimination information. Income from operation amounts reflect management’s allocation and estimate as some services are shared
by the two segments of the Company.

The table below provides the geographic distribution of MSS business net revenue:

MSS Net Revenue Geographic Distribution* (In Millions of U.S. Dollars, Except Percentages)
The fourth
quarter of
2019
% of Net
Revenue
Full year
2019
% of Net
Revenue
Asia 239 34 891 36
Americas 320 45 836 34
Europe and others 145 21 754 30
Total 704 100 2,481 100
*Note: Values do not include sales from the MSS business
to the Energy business.

Canadian Solar shipped 2.5 GW of modules to more than 60 countries in the fourth quarter of 2019 and 8.6 GW to 90 countries for the full year 2019. The top five markets ranked by revenue were the U.S., Brazil, China, Japan and Australia in the fourth quarter; and Brazil, the U.S., Australia, Japan and China for the full year of 2019.

Multi-crystalline modules accounted for 68% of the Company’s module shipments in the fourth quarter and 74% for the full year of 2019, with mono-crystalline modules representing 32% and 26%, respectively. The Company’s manufacturing capacity has the flexibility to produce both multi-crystalline and mono-crystalline modules, with the mix decision depending on the relative profitability and levelized cost of electricity (“LCOE”) of the alternative products.

Manufacturing Capacity

The table below sets forth the Company’s manufacturing capacity expansion plan from December 31, 2019 to December 31, 2020.

Manufacturing Capacity (MW)

31-Dec-2019

Actual

30-Jun-2020

Planned

31-Dec-2020

Planned

Ingot 1,850 1,850 2,350
Wafer 5,000 5,000 5,000
Cell 9,600 10,100 10,100
Module 13,040 14,850 16,050

The Company’s manufacturing capacity expansion plan is subject to change based on market conditions.

Business Outlook

The Company’s business outlook is based on management’s current views and estimates given existing market conditions, order book, production capacity, anticipated timing of project sales, and the global economic environment. This outlook is subject to uncertainty with respect to, among other things, final customer demand and project construction and sale schedules, and in particular the impact of COVID-19. Management’s views and estimates are subject to change without notice.

For the first quarter of 2020, the Company expects total module shipments to be in the range of 2.15 GW to 2.25 GW, including approximately 250 MW of module shipments to the Company’s own projects that may not immediately be recognized as revenue. Total revenue is expected to be in the range of $780 million to $810 million, with gross margin expected to be between 26% and 28%.

For the full year of 2020, the Company expects total module shipments to be in the range of approximately 10 GW to 12 GW, with total revenue expected to be in the range of $3.4 billion to $3.9 billion.

Yan Zhuang, Acting Chief Executive Officer, commented: “We were experiencing strong demand across all regions until the past few days, as we started to see some delays and weakening demand. Our current guidance incorporates the estimated impact to the best of our knowledge today, but the situation is fluid and we are closely monitoring and analyzing market conditions. We have a globally diversified revenue base and tight control over the supply chain, which gives us significant flexibility and room to adjust to external changes. Our long-term outlook remains optimistic and we will continue to execute on our strategy and create value for the Company and its shareholders.”

Recent Developments

On March 23, 2020, Canadian Solar announced the closing of a 17.7 MWp solar portfolio in Italy to Sonnedix.

On March 17, 2020, Canadian Solar announced it had secured a EUR55 million bilateral revolving credit facility with Intesa Sanpaolo to fund the construction of a 151 MWp portfolio of solar PV projects in Italy.

On March 12, 2020, Canadian Solar announced that it had signed a PPA with Amazon for its 146 MWp solar power project in Australia.

On March 9, 2020, Canadian Solar announced that it had signed a 15-year PPA contract with Techgen, S.A. de C.V. for a 103 MWp solar power project in Mexico.

On March 6, 2020, Canadian Solar announced that its technology team had set a world record of 23.81% conversion efficiency for n-type large area multi-crystalline silicon solar cell. The record-setting N-type P5 cell conversion efficiency was recently tested and certified by Germany’s Institute für Solarenergieforschung GmbH (ISFH)

On February 19, 2020, Canadian Solar announced that it had commenced construction of two solar power projects totaling 26.6 MWp in Japan.

On February 18, 2020, Canadian Solar announced that it had completed the sale of the 56.3 MWp Yamaguchi Shin Mine solar power plant in Japan for an enterprise value of approximately JPY22.3 billion (US$205 million).

On February 10, 2020, Canadian Solar announced that it had secured 225.2 million Brazilian reais (US$55 million) non-recourse project financing from Nordeste do Brasil S.A. for its 152.4 MWp Lavras solar power projects.

On February 6, 2020, Canadian Solar announced that it had acquired a 47.5 MWp portfolio of solar power projects in Chile. These projects will become operational in two different stages beginning in the fourth quarter of 2020.

On February 5, 2020, Canadian Solar announced that it had signed a multi-year module supply agreement with Lightsource BP to deliver 1.2 GW of high efficiency polycrystalline solar modules for projects in the US and Australia.

On January 6, 2020, Canadian Solar announced the appointment of Lauren C. Templeton as an independent director, and Karl E. Olsoni as a strategic advisor to its Board of Directors.

On December 23, 2019, Canadian Solar announced that it had reached commercial operation on a 1.98 MWp solar power plant in Taiwan.

On December 9, 2019, Canadian Solar announced that its Board of Directors authorized a $150 million share repurchase program for a six-month period beginning December 9, 2019 and ending June 8, 2020.

On December 5, 2019, Canadian Solar announced that it had closed the sale of the 3.3 MWp Milborne solar power plant in the UK.

On December 2, 2019, Canadian Solar announced that it had completed the sale of a 10.8 MWp solar power plant in Japan to Canadian Solar Infrastructure Fund, Inc. for $42.1 million.

On November 20, 2019, Canadian Solar announced that it had reached commercial operation on a 53.4 MWp solar power project in Japan.

On November 18, 2019, Canadian Solar announced that its wholly owned subsidiary Recurrent Energy closed the sale of 99 percent of a partnership that owns the Class B membership interest in the 102 MWp NC 102 solar power projects in North Carolina, to NextEnergy Capital.

On November 14, 2019, Canadian Solar announced that it had sold a 49% interest in three solar power projects in Mexico totaling 370 MWp to Korea Electric Power Corporation (KEPCO) and Sprott Korea (Sprott). Under the agreement, KEPCO and Sprott will acquire the Company’s remaining interest in the projects following COD.

Source: Canadian Solar

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