Canadian Solar Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's fourth quarter 2024 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 Winna Wong, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, Operator, and welcome everyone to Canadian Solar's fourth quarter 2024 conference call. Please note that today's conference call is accompanied with slides which are available on Canadian Solar's Investor Relations website within the events and presentation section. Joining us today are Dr. Sean Chu, Chairman and CEO, Yan Huang, President of Canadian Solar Subsidiary, CSI Solar, Ismael Guerrero, Corporate VP and President of Canadian Solar Subsidiary Recurrent Energy, and Simbol Ju, Senior VP and CFO. 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 Simbol will go through the financial results. Sean will conclude the prepared remarks with the business outlook, after which we'll 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 Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management estimates as of today. Canadian Solar is since 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 SEC Regulation G regarding generally accepted accounting principles for GAAP. Some financial information presented during the call will be provided on both a GAAP and 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. Non-GAAP information should not be used 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. Sean Teese. Sean, please go ahead.

Thank you, Alvina. and thank you all for joining our fourth quarter earnings call. I am speaking to you today from Louisville, Kentucky, a city you will find me in often this year, with construction progressing on our new energy storage facility nearby, and also on our new solar cell facility in Jeffersonville, Indiana, Just across the Ohio River, we welcome customers and partners to visit. Now, let's review the quarter and four years' performance. Please turn to slide three. In the fourth quarter, we shipped 8.2 gigawatts of solar modules bringing our total volume for the year to 31.1 gigawatts. With the rapid decline in global module pricing and lighter project sales from recurrent energy, our total revenue in 2024 was $6 billion. Inventory write-downs With related duties and tariffs and project asset impairments weighed on gross margin, while elevated free cost and impairments to solar power and battery energy storage systems caused operating expenses to go up. As a result of a difficult operating environment, we generated net income for Canadian solar shareholders of $34 million or 48 cents per diluted share. These results included the positive impact of hypothetical liquidation at book value. HLBV accounting of tax equity treatment for U.S. projects totaling $132 million and over $1.95 for dilute shares respectively. 2024 was a challenging year for the solar industry. Competition intensified with major manufacturers reporting significant losses. Structural overcapacity across the supply chain has led to a prolonged market downturn, and we expect an extended period of consolidation ahead. At the same time, key markets face uncertainty. While China is seeing a surge in installation in the first half of 2025 due to two policy changes, effective April 30 and May 31, respectively, the U.S. continues to grapple with policy and trade-related challenges. Together, these factors are creating both operational and financial headwinds for the industry. Despite these challenges, Canadian solar has demonstrated resilience. Demand for energy storage is growing and diversifying globally. Please turn to slide four. Now at great parity, solar plus storage can provide reliable, around-the-clock clean energy to meet the growing need of data centers, electric vehicles, and other energy-intensive applications. As a Tier 1 solar and energy storage provider, we are uniquely positioned to bundle our technology and services to address diverse use cases from co-located solar and storage to hybrid systems. we are seeing a shift toward longer duration battery energy storage systems. Our advanced preparatory system solution, the SoBank 3.0, is designed to meet the customized and increasingly demanding needs of each market. SoBank 3.0 is already an industry leading solution offering superior performance and safety. We are also making rapid growth, rapid progress on our next generation systems, which will include extended battery cycle performance, low degradation, modular design for flexible installation configurations and increased power density to seven megawatt hours per container unit. With the industry already, with the industry also trending toward more distributed storage and smaller point of use systems, Canadian Solar is uniquely positioned to capitalize on this opportunity. As a technology leader, we not only drive continuous product innovation, but also offer a comprehensive portfolio of energy storage solutions. From our flagship to top-tier solutions for residential, commercial and industry applications, we provide a complete product suite that addresses the full spectrum of energy storage needs. Finally, let me provide an update on our three U.S. manufacturing facilities. Please turn to slide five. On the left, you will see our module factory, which is on track to fully ramp up in 2025 in Mesquite, Texas. It will contribute around 3 gigawatts of volume delivery this year. increasing the share of domestically made products in our total U.S. shipment. Our solar cell facility in the middle is fully contracted to our module factory and progressing smoothly. Civil works are underway, as you can see, and we expect to install manufacturing equipment later this year, with production set to begin by year end. The energy storage facility will produce battery cells, modules, and complete systems. It is expected to start delivering U.S.-made soap banks by the beginning of next year. These facilities highlight our differentiations. With over 20 years of global manufacturing experience across both solar and storage, we have the ability to manufacture in closed markets. For example, by leveraging our existing battery cell manufacturing expertise, we can quickly adapt to the US market where local production is a game changer. In short, we can export expertise gained from all the markets we have operated in and execute with local familiarity.