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spk08: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's third quarter 2022 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. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Isabelle Zhang, Investor Relations Director at Canadian Solar. Please go ahead.
spk07: Thank you, Melissa, and welcome everyone to Canadian Solar's third quarter 2022 conference call. We have provided slides to accompany today's conference call, which are available on Canadian Solar's investor relations website within the events and presentation section. Joining us today are Dr. Shawn Chee, Chairman and CEO, Yan Zhong, President of Canadian Solar's majority-owned subsidiary, CSI Solar. Dr. Huifeng Chang, Senior VP and CFO, and Ismail Guerrero, Corporate VP and President of Canadian Solar's wholly owned subsidiary, Global Energy. All company executives will participate in the Q&A session after management's formal remarks. On this call, Sean will go over some key messages for the quarter. Yen and Ismail will respectively review the highlights of the CSI Solar and Global Energy businesses. followed by Huizhong, who will go through the financial results. Sean will conclude the prepared remarks with the business outlook, after which we will have time for questions. Before we begin, may I remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risks and uncertainties. The company claims the protection of the safe harbor for forward-looking statements that have continued in the Private Security Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian solar is in no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found in the company's annual report on Form KMF as amended by the Securities and Exchange Commission. Management prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Chu. Shawn, please go ahead.
spk05: Thank you, Isabelle. Hi, everyone. Welcome and thanks for joining us today. Please turn to slide three. This slide provides a summary of our key performance metrics. We achieved strong results in the third quarter of 2022. The headline for us is the 57% year-over-year revenue growth, 18.8% gross margin, and net income of $1.12 per diluted share. profitability in both our gsi solar and global energy businesses improved meaningfully as we continued to focus on solidifying our leadership position and driving profitable growth our team executed across the board and made Q3 one of our strongest quarters since the beginning of COVID. As always, Yan, Ismael, and Huifeng will go through our performance in more detail. Before that, let me highlight some key messages.
spk06: Please turn to slide four.
spk05: First, we made significant progress in our battery storage business across all our verticals. This includes CSI Solar's utility scale and residential battery storage product teams and our global energies battery storage project development teams. On the CSI solar side, we continue to be pleased with the level of engagement of our CoBank product for utility-scale storage applications, which we launched a few months ago. Yesterday, we announced a new 2.6 gigawatt-hour multi-year supply agreement. This underscores the very healthy demand we are seeing and our favorable competitive position. We will continue to provide updates for our contracted pipeline as we move forward. I'm also very pleased with the positive customer response to CSI Solar's residential energy storage product, the EPQ. This was showcased during the RE Plus conference in the US, and we expect this to be a multi-year contributor to our sales. Our global energy team, supported by our CSI energy storage team, made significant progress in completing one of the largest battery storage projects in the world, the 1.4 gigawatt hour Quinson project. I am very pleased to report that the global energy team continues to expand its storage pipeline reaching 40 gigawatt hour at the end of Q3. When you take a step back, you can clearly see that battery storage has become a very strong growth driver for our business. Our customers are excited about battery storage solutions, and we are excited about the growth opportunity ahead of us. Second, the U.S. remains one of our co-markets and we are strongly committed to serving our customers and the partners there. We believe the U.S. will remain as one of the most important and attractive clean energy markets in the world. Efforts in the U.S. to decarbonize the passing of the Inflation Reduction Act have provided important lessons for other countries in our common fight against climate change. With that in mind, we are planning on investing in U.S. domestic manufacturing across the solar supply chain. We have expanded or usc in preparation and are now in the final stages of our site selection process well there are many challenges we know the market well we are proud of our 20 years of market leadership we are confident in our ability to build upon our long-term track record and expand the level of support for our customers and partners in the U.S. even further with the planned U.S. domestic manufacturing activity. Lastly, please turn to the next slide. After a short procedural pause, TSI Solar's carbon IPO is back on track. and is awaiting the completion of the registration with the China Securities Regulatory Commission. Well, the process has taken longer than we initially expected. We are on track and working to complete the carve-out within Q4 or in Q1 next year. With that, Let me now turn over to Yan for details on our CSI solar . Yan, please go ahead. Thank you, Shang. Please turn to slide six. In Q3, the CSI solar division delivered 60 watts of solar module shipments. and 570 megawatt hour of battery storage shipments, of which 300 megawatt hour were to our own projects. Total revenue reached close to $2 billion, and importantly, our gross margin continued to increase, reaching 17.3% in Q3. This was up 140 basis points quarter over quarter. and from an absolute standpoint doubled year-over-year to $341 million. Several factors contributed to our improved performance. First, our manufacturing costs declined further into three, led by an increased contribution from the expanded upstream injured reference cell capacity. With a higher degree of vertical integration and greater control over our costs and supply chain, we've been able to improve our cost structure and profitability. This is in line with the strategy we previously outlined. And while we did a great job controlling what is within our control, input costs remained a headwind in Q3. Average polycystic comprising remained at elevated levels and was flat or even slightly higher than the previous quarter, as you can see on slide seven. So the improvement was mostly organic. We believe polycystic comprises have finally reached a peak, and we expect input costs may start to come down over the next few weeks. Although we won't really see a benefit until probably next year, given the strength in end market demand, we still believe input costs will only come down gradually. Second, our growth margin benefited from currency fluctuations led by the strong U.S. dollar relative to the RMB. with a large part of our costs being in RMB relative to a large part of our revenues in U.S. dollar. Our costs depreciated relative to our revenues. However, this was partially offset by the weakness in most other currencies relative to the U.S. dollar. of all our non-USD markets were lower sequentially, which had an impact on our aggregate revenue number. Third, unit shipping costs came down further in Q3. As we said before, there's significant room for logistic costs to come down, which we started to see in Q2. We believe there's further room for improvement given we're still above historical normal levels. And there's no reason to believe that logistics costs are structurally higher than pre-COVID times. Please note that logistics costs do not impact those margin and are recorded in selling and distribution expenses. All of these factors combined helped drive a tripling of our operating profit year over year to $97 million. Q3 was a record quarter for CSI Scholar, which showed the strength of our brand and resilience of our business despite the tough market environment. Please turn to slide eight. On the technology front, We're making significant progress on our latest N-type top-count cell technology. As you know, we've been working on several N-type pilot lines covering both HG junction and top-count technologies. We believe the time is right for mass production, and therefore, all of the new cell capacity we're now adding, we use our top-count technology. The first Topcon products will be delivered early next year. We believe our product is best in class and will have approximately 1.5 percentage points of higher conversion efficiency than the average mainstream product in the market today. Topcon will also be margin accretive once we start production. It was developed. to contribute positively to our pricing power due to its ability to lower our customers' levelized cost of electricity. Meanwhile, our goal is for manufacturing costs for TopCom to be similar to our current mainstream product, even though the power wattage will be much higher. We expect N-type top-console products to account for roughly 30% of our 2023 solo module shipments.
spk06: Please turn to slide nine.
spk05: In terms of battery storage, we're on track to achieve our full-year target of 1.8 to 1.9 gigawatt hour. Our new utility-scale SoBank product is gaining significant traction with customers. We recently signed a 2.6 gigawatt hour multi-year supply agreement with UBS for the US market. We've sold that product. This gives us significantly visibility over our long-term growth beyond just one or two years. It's also been expanding our market offering across more geographics, expanding from the US into UK, Canada, and China, with more markets currently under expansion. One of our key competitive advantages is our strong partnerships with upstream battery cell producers, which helps ensure long-term security of supply for our customers. With that, our CSI Solus battery storage turnkey pipeline more than doubled quarter over quarter. at nearly 25 gigawatt hour globally as of the end of q3 while certain projects in this pipeline overlap with global energy storage development pipeline the value creation and services provided by the two storage teams are distinct and separate and therefore the two storage pipelines should be viewed independently from the residential ep2 product Reception from the customers during the REplus conference was overwhelmingly positive, and the initial shipments to the U.S. market are already underway. We're confident that EP-Qube is one of the best, easiest-to-install products in the market. We are excited about this product and believe it will be a highly competitive residential solution. Now let me pass it on to Ismael for an overview of the global energy business. Ismael, please go ahead.
spk04: Thanks, Jan. Please turn to slide 10. In Q3, we achieved $101 million in revenue with a 47% in gross margin, making this a highly profitable quarter for us. We sold around 890 megawatts of projects in Japan, the US, and Brazil, which were mostly pre-construction on earlier stage projects, which meant relatively lower revenues at higher profitability. Originally, we had two major project completion milestones, which I'm incredibly proud of. Please turn to slide 11. The first one is the commercial operation of our landmark 1.4 gigawatt hours standalone battery storage project in California, the Crimson Project. We completed this project in a very challenging environment of stringent COVID restrictions, which affected shipping schedules and led to project delays. However, we cooperated closely with our CSI solar energy storage colleagues to bring this project to fruition. which is testament of the synergies created among our business divisions. The Crimson project will provide critical reliability services to the California grid and allow the local grid to absorb more clean energy. We monetized 80% of the project to a long-term investment partner and retained a 20% long-term ownership. Meanwhile, We will continue to provide the operations and maintenance of the battery storage power plant. We are also expanding our capabilities in energy trading through this project, which we believe will be a key area of growth in the future. Please turn to slide 12. The other major project completion is the commercial operation of our other flagship project in Japan. the Azumako Fuji 100 megawatt solar power plant. The project is under a 36-gen FIT, roughly equivalent to 24 US cents per kilowatt hour based on current exchange rates, making it one of the world's most valuable projects. However, what I'm most proud of is that the project will contribute meaningfully to reinvigorate the local community and economy, which was devastated by the earthquake in 2011. This project is still fully owned by Canadian Solar. I highlight these two projects not to emphasize their uniqueness, but to show Canadian Solar some parallel track record in executing complex solar and battery storage projects across the world. We have one of the world's largest and strongest development platforms, and our goal is to develop more battery storage projects like Crimson and more solar projects like Azumago Fuji. Turning to slide 13, as of September 30th, 2022, we had a total solar project pipeline of 25 gigawatts and a total battery storage pipeline of 40 gigawatt hours. This is the largest solar and battery storage pipeline in the world. Importantly, around half of our total pipeline has interconnection secure, which give us significant confidence of our future ability to create value and grow. That said, you'll also notice that our solar pipeline declined slightly quarter over quarter. As you know, Canadian solar is more than just size. We prioritize the quality and profitability of the pipeline we are building. We are selective on the projects that we decide to move ahead with, and we are not afraid of walking away from projects with less attractive risk-return profiles. Specifically, The combination of high inflation and high interest rate over the past few quarters created an adverse environment in some geographies. Thus, we've abetted of certain assets early and recovered our capital to set the stage to invest and grow in geographies with stronger fundamentals. It is important to note that we have delivered strong results through the challenging backdrop. which shows the resilience and strong performance of Global Energy's world-class platform. Please turn to slide 14. Lastly, our strategy to increase the share of recovery income remains on track. On the operations and maintenance, or O&M strategy, we now manage over 3.6 gigawatts of operational projects under long-term O&M agreements. We also have an additional 2.2 gigawatts of contracted projects expected to reach commercial operations soon. This makes us one of the largest project operators in the world in both solar and battery storage, and we will continue to grow this business. We will also continue to retain minority ownership in assets that we develop. Now, let me turn the call over to our CFO, who will go through the financial results in more detail. Please go ahead.
spk06: Thank you, Ismail. Please turn to slide 15.
spk05: In Q3, we delivered $1.93 billion in revenue, up 67% year-over-year. Growth margin was 18.8%, well ahead of our guidance of 15 to 16.5%. benefited from lower manufacturing costs, a net foreign exchange benefit from the strength of the U.S. dollar relative to most other currencies, and a higher margin project sales. Selling and distribution expenses were up 5% sequentially, primarily due to higher shipping expenses from the increase in shipping volume. However, unit shipping costs and we expect further decreases in the coming quarters. General and administrative expenses increased primarily due to a non-recurring $30 million impairment of certain age manufacturing assets. Net interest income in the third quarter was $4 million, up from net interest expense of $15 million in the prior quarter. The change was mainly given by a one-time interest benefit of $17 million, which we received as interest income generated by anti-dumping and accountability duty deposit refunds. The next foreign exchange and the derivative gain was $39 million compared to $6 million in Q2. The benefit was given by the strong U.S. dollar relative to most other currencies, but mainly relative to the RMB. Total net income was $102 million, and the net income attributable to Canadian solar shareholders was $78 million. This translates to basic EPS of $1.22. and the diluted EPS of $1.12. The variance is primarily due to the adjustment for the diluted effect of our outstanding convertible notes.
spk06: Now, turning the cash flow in the balance sheet. Next slide, please.
spk05: In Q3, the net CapEx payment was approximately $110 million. making it approximately $320 million for the first nine months of 2022. Given the delay in the R2 process, we are reducing our full year 2022 capacity expectations to $650 million from $850 million. Please note that this does not imply any changes to our capacity expansion projects, but rather, an adjustment in the timeline and the pace of implementation of these projects we ended the q3 with a total cash balance of nearly 2 billion dollars and remain well positioned to capture future goals total debt was large large unchanged at 2.7 billion dollars but the share of our long-term debt increased to 45% from 40% this time last year. Four months trailing net debt to EBITDA, excluding restricted cash, continued decline this quarter to 2.7 times from 2.9 times prior quarter. Now, let me turn the call back to Xiang, who will conclude with our guidance and the business outlook.
spk06: Xiang, please go ahead. Thanks, Huifeng. Let's turn to slide 17.
spk05: For the fourth quarter of 2022, we expect total revenue to be in the range of $1.8 to $1.9 billion. Growth margin is expected to be between 16% to 18%. This reflects the elevated input cost in Q4 partially offset by benefits from manufacturing cost reductions. Continuous foreign exchange volatility may affect pricing and margin. Also for Q4, solar module shipment recognized in revenue by CSI solar. are expected to be in the range of 6 to 6.3 gigawatts, including approximately 290 megawatts to our own projects. For the fourth year of 2022, we expect TSI solar's total battery storage shipment to be in the range of 1.8 to 1.9 including approximately 300 megawatt hours to the company's own project. Global energy project sales are expected to be in the range of 2.2 to 2.3 gigawatts. We are also introducing solar module shipment guidance for next year. 2023, we expect solar module shipments to be in the range of 30 to 35 gigawatts, which represents approximately 56% year-over-year growth at the midpoint. Canadian solar's strategy of profitable growth is one of our key differentiators. or continue to prioritize investing in long-term growth, which means positioning our business in strategic areas such as and leading in the deployment of technology innovations. This differentiates our products, our value to our customer and partners, and is a key driver for our blind equity long-life. All in all, we continue to focus on what we can control and on building our long-term competitive mode to create lasting value for our shareholders. With that, I would now like to open the call
spk08: 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. 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 Brian Lee with Goldman Sachs. Please proceed with your question.
spk01: Hey, guys. Thanks for taking the questions. I guess I had a couple just around the guidance. You know, Sean, Wei-Feng, you mentioned that gross margins, the guidance for Q4 implies a little bit of sequential decline. It sounded like input cost, logistics, polysilicon, all of that is sort of trending in the right direction. So could you kind of walk us through what specifically is changing quarter on quarter to to drive a little bit of a margin decline into the fourth quarter, and then also how you're thinking about that translating into sort of the early part of 2023, what trends we should expect on the gross margin line.
spk06: Hi, Brian.
spk05: I would like to, first of all, I would like to mention that our Q4 gross margin guidance is higher than our Q3. growth margin guidance. However, we did a wonderful, spectacular Q3. We achieved 18.8%, and we now guided 16 to 18% growth margin for Q4. So in terms of guidance, our focus, our Q4 actually is, we are guided higher than our Q3 guidance. I just want to mention that. I would like Yann to provide more comments. Hi. Hey, Brian. It's Yann. First of all, I want to say that in terms of gross margin, I'm talking about price minus manufacturing cost. Yes, Q4 is not anything less than Q3. So that is stable. It's more like... We believe there's, for example, we do not expect a similar level of currency gain for Q4. So that's one of that.
spk06: So Sean, you want to have more comments? No, that's helpful color. I can.
spk01: I can take that question offline and maybe we'll dive more into the moving pieces. Maybe on that same topic, though, pricing is the first time, I think, in a while where module ASPs look like they've come down a little bit. And I think you mentioned that in your commentary as well. Can you kind of talk about your quoting activity? Are you starting to lower prices on modules? And what's your sort of view on module ASPs through 4Q as well as into 2023?
spk06: Yeah.
spk05: So, Brian, actually, for Q4, our ASP is quite stable comparing to Q4. We do not see any material price reduction from Q3 to Q4. There might be signs for some customers, some order in some markets, we see some minor reduction, but it's not significant. In terms of 2023, we're already finding a lot of orders for next year. We also see some uh uh uh price reduction on some long-term orders but it's not significant it's uh it's one or two cents lower than what it is today uh so that's uh the current price situation but moving forward uh we still believe that the price production uh moving into 2023 is going to be more moderate and smooth and in the longer transition period. So, the reason for that is that we all know that the end market is still growing rapidly. And also, the investment end market has a stronger affordability on costs. combined with the fact that the Ingrid capacity right now and to end of this year's do more than the Silicon capacity. So we believe there's certain resistance on the price reduction moving to next year. So we do not anticipate any sudden death on pricing. So that's not going to happen. Brian, I wanted to add one more comment that the AST, the price measured by U.S. dollar may decline a little bit, but measured by local currency, for example, Japanese yen and euro and even Chinese RMB are not really declining. In some cases, the price actually is moving up. However, we are facing a situation that U.S. dollar is very strong. When you look at U.S. dollar, it looks like price is going up. It is going down. But some of the local is quite stable and even going up. Yeah. And Brian, on top of that, we're quite confident that our margins can improve moving next year because we're actually, We, as you know, we've been always stronger in more developed markets, high-priced markets, and particularly in the U.S. market, we're going to be quite strong next year. And we're still expanding our talent capacity. And channel-wise, we've been always strong. We're shifting half of our volume into digital markets. And given the electricity retail price has gone up so much, we're experiencing a strong demand from that channel. And obviously, the price tolerance in that channel is getting very strong. So we're quite confident that it's going to be a good year for us.
spk01: Okay, that's great. Super helpful. Last one for me, and I'll pass it on. I appreciate the updated thoughts around the US manufacturing plans. I think you had talked about recently looking at just module capacity so maybe if you could give us a bit more detail are you still thinking of building just a module only facility what would be kind of the the scale and timeline um you know would you have production on in 23 or would it be more 24 and then um Can you give us a sense of the CapEx dollars and funding strategy you would be putting behind it?
spk06: Thank you. Okay.
spk05: So capacity-wise, as you know, we have a guidance, one guidance for 2023 of 30 to 35 gigawatts. That's our guidance for next year. shipping guidance. So in terms of capacity, we are actually, we'll have to support that. So by year end this year, we're going to have 20 gigawatt of wafer, internal wafer, and also 20 gigawatt of cell, and 32 gigawatt of module to end of this year. Moving into next year, we're going to add more of capacity on cell. So total cell production next year is going to be 27, 26, 27 gigawatt. Sorry, in terms of cell capacity, no, 26, 27. In terms of output, it's 26, 27 gigawatt. So, we're going to have to have more than 20 gigawatt of . So, it would be more, over the course of next year, we're going to need more module capacity. And also, that includes the expansion of Thailand capacity of 8 gigawatt of cell and 6 gigawatt of module. So, we're going to have enough capacity to support our volume guidance with, of course, with some sale purchase like that, around 8, 9 gigawatt of sale purchasing. So that's the capacity plan. And CapEx-wise, you know, we're actually in the process of, you know, we've already started investment.
spk06: Okay, sorry. I was wondering just specifically on the U.S. as well. Oh, the U.S.
spk05: U.S., we're actually in the – we have set up our team, and in the process of the site selection, we plan to secure a site that long-term-wise can support 5 gigawatt of module capacity. At the same time, we're also actually assessing the economic viability, policy-wise as well, on upstream capacity, such as indoor reefer and cell. But still, we're in the process of clarifying a lot of details on RRA with the DOC. So, it's a running, changing process. So, on module side, on execution, we may execute in phases.
spk06: So, this is the plan. Okay. Thank you. We have customer support. Yeah, we have customer support. A lot of dumping also helps.
spk08: Thank you. Ladies and gentlemen, if you'd like to join the questions, please press star 1 on your telephone keypad. Our next question comes from line of Philip Shen with Roth Capital Partners. Please proceed with your question.
spk03: Hi everyone, thanks for taking my questions. First one is on the IPO in China. Was wondering if you could give a little bit more color on the timing of that. I know in the deck and you guys talked about maybe Q1 of 23, but in addition to that, do you still expect to bring your poly plant online by mid 2024? What's the update on how that development is going and how, you know, the IPO might be tied to some of your capacity expansion plans? Ed, thanks.
spk06: Hi, , do you want to address this question?
spk05: Sure. Hi, Phil. Let me first talk about what that short procedural pause in our IPO process. So on September 30th, Shanghai Stock Exchange on its website, they changed the status of our IPO application to pause, awaiting update the financial information. And we submitted the request information to the Stock Exchange in early October. And then as a result, on October 27th, the Stock Exchange, after reviewing all the documents, And also on its website, changed our IPO status back to in registration. And with a message, CSI Solar has submitted updated financial information. So since then, we are not receiving any more requests. So our application is back on track. So that pause is about like four weeks. Now, yes, the process is slower than our expectations. But at this point, I don't have a clear answer to why, because in general, it is hard to know the behind-the-scenes details inside the government office. And in our case, it's much harder due to the COVID restriction on travels. But for management, we focus on managing business and deliver the better results. Now, the good news is that there's no deadline for our IPO. We just wait there. If there's a question from CSRC, we answer them. Also, let me share with you some statistics. There are over 30 companies applying for Star Border listing are in the same status with us called registration. And actually, one-third of that submit application before us. And there are also 50 companies are in a pause status. So, we'll continue wait for the completion of registration, and meanwhile, manage daily business,
spk06: and to make the company better for the next step. Thank you. Great. Thanks, Wifong, and good morning. Hi, Phil. Hi, Sean. Hi, Phil. Hi, Phil.
spk05: You also asked about the schedule of our Polysilicon project. and whether that investment is tied to the IPO policies. The answer is yes. PolySilicon is a big project. And as we answered some of the questions in the last learning call, we will only proceed with the PolySilicon Doja after we complete our IPO.
spk03: Great. Thanks, Sean.
spk05: And your other capacity. Now, I'll say that other capacity programs are not really tied to the IPO. You're financing for other capacity programs, the new module or cells or even the wafer, more or less secure. So not really tied to the IPO.
spk03: Great. Thanks for that detail, Sean. And a quick follow-up on that was wondering if you could share what your expectations for CapEx would be for 23. We have the details of expansion of ingot and wafer to 25 gigawatts, cell to 35 gigawatts, and module to 50. So if you could share that CapEx, that would be helpful. And then you also gave 2023 shipment guidance. was wondering if you could give expectations for project sales and battery shipments for 2023 as well. Thanks.
spk06: Hi, Phil.
spk05: We are still working on the CapEx plan. As I said, some of the projects will be tied to the cash flow and particular capital injection, such as IPO. So we plan to release the CapEx estimate in March 2023, early in call. But at the same time, as I said, the module and cell CapEx and the capacity expansion is more or less secure. So we will, now also, as you know, community solar has always, always been conservative. So that, and also we have very strong, like diversified customer distributed around the world. So even without a highly polysilicon capacity expansion, we are still confident to reach our volume growth target and also to expand the growth margin from today's level.
spk06: Great.
spk03: Thanks. Another one from me here. In terms of freight, was wondering if you could break out in Q3 how much your freight cost was in either absolute dollars or cents per watt, and then how do you I know it's expected to go lower. How much do you expect it to be in Q4 and maybe into Q1 of next year?
spk06: Thanks.
spk05: So, Phil, in Q3, it's about 2.3 cents. Q4 is coming down. It's about less than 2 cents. So that's our estimate.
spk03: Great. Thank you, Yan. One last one. Can you talk about the OpEx and EBITDA trajectory from here, maybe over the next few years? To what degree, how much operating leverage do you think you have And give me if you can speak to both OPEX and the EBITDA trajectory.
spk06: That would be fantastic. Thanks. Do you want to address this question?
spk05: The OPEX member changed the big part of given by the shipping cost. the selling and the cost. So, but other numbers, they increase slightly because of the size of our team become larger as we ramp up the capacity. But if we do the analysis, OPEX slashed by total revenue, I think going to the coming quarters, it will decline.
spk06: It will be somewhere around low team. Great. Thank you very much. I'll pass it on.
spk08: Thank you. Once again, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Colin Rush with Oppenheimer. Please proceed with your question.
spk02: Thanks so much. Guys, can you talk a little bit about the pricing dynamics for the energy storage market and the utility scale side? Just curious how you're seeing that trend given the growth in the backlog.
spk05: Can you repeat your question?
spk02: Sure. Given the strong growth in the utility scale storage pipeline, can you talk about the pricing dynamics and what you're seeing in terms of moves in pricing given, you know, what we've seen in the energy markets as well as the utility rate market?
spk05: Yeah, unfortunately, as you know, the storage pricing, this is more or less determined by the cost, and especially the carbon, the living carbonate price. And the living carbonate price is affected more by the EV rather than the storage, because this means that the EV is still account for 90%. of the lithium usage and the storage only 10%. So if you, you know, talk about the price and dynamics, the price is moving up unfortunately recently. But that's more because of the living carbonate price. And that's more or less, you know, more determined by UV than by, you know, storage. Yeah. And Colin, one more comment is for the project we're signing, we actually secured, somehow secured the supply and have a control on pricing. And we have the back-to-back deposit arrangement. And our strength on those projects is because we're providing turnkey service and long-term service, which is now in the market, it's actually a shortage of capacity that's in shortage. So it's much demanded capability. So we have better control on pricing. And, you know, it's not just additional revenue and profit on the turnkey service, on long-term service, but also this service actually helps us to have more bargaining power on the equipment pricing. So this is what we have achieved in the markets, especially in the U.S. and the European markets. I agree with Jan. And I also want to comment that although the pricing is going higher, the storage product, the customer demand is, you know, customer demand continues to be strong. That's because there's more solar and wind. The market requires more and more storage. And also the energy pricing and that's going on as you know. Yeah, and even our rapidly growing pipeline, our pipeline is actually probably one of the biggest in the world and such a pipeline help us on the bargaining power on supply chain. So we have successfully secured a multi-year supply agreement with our suppliers with our pipeline.
spk02: Thanks so much, guys. And can you talk a little bit about your position in the interconnection queue in the U.S.? Obviously, you know, those things move through those, you know, those projects move through the queues at the rate that they need to. But can you talk about the order of magnitude of that interconnection position and the rate at which you're seeing projects get approved at this point?
spk06: Do you have this question?
spk05: Do you want to address that?
spk04: Sure, Sean. Thanks for the question, Colin. Look, what we are experiencing in general, not only in the U.S., but in general, is delays in interconnections due to the longer lead times of equipment, especially high voltage transformers. to give you an order of magnitude. In the past, a reasonable timeframe was six to nine months. We are seeing now lead times of up to 20 months. So as a result, interconnections are getting delayed. And even though your position in the queue might be a good one, your interconnection is getting delayed too. So look around. Two gigawatts of what we have in the U.S. have pretty good interconnection queue positions. Some projects that are far away on the connection queues, when we see that the economics might be changing dramatically, we are selling, and we sold some of those in the US this quarter. But that gives you an idea of where we are, I hope.
spk02: Yep, that's helpful, guys.
spk06: I'll leave it there. Thanks so much.
spk08: Thank you. At this time, I'd like to turn the floor back to Canadian Solar's CEO for closing comments.
spk05: Thank you for joining us today and for your continued support. As always, if you have any questions or would like to set up a call, please contact our investor relationships team. I hope you all have a great Thanksgiving holiday and take care.
spk08: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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