CSIQ

Canadian Solar Inc. (CSIQ)

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Canadian Solar (CSIQ)

Q4 2012 Earnings Call

March 11, 2013 8:00 am ET

Executives

Ed Job - Director of Investor Relations

Shawn Qu - Chairman, Chief Executive Officer and President

Michael G. Potter - Chief Financial Officer, Senior Vice President and Director

Analysts

Kelly A. Dougherty - Macquarie Research

Satya Kumar - Crédit Suisse AG, Research Division

Nitin Kumar - Nomura Securities Co. Ltd., Research Division

Aaron Chew - Maxim Group LLC, Research Division

Pranab Kumar Sarmah - Daiwa Securities Capital Markets Co. Ltd., Research Division

Timothy Lam - Citigroup Inc, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to your Canadian Solar Fourth Quarter and Fiscal Year 2012 Earnings Call. My name is Bhukandar, I'll be your event manager today. [Operator Instructions] I would like to advise all parties, this conference is being recorded for replay purposes.

And now I would like to hand the conference over to Ed Job, Canadian Solar's Director of Investor Relations. Please proceed, sir.

Ed Job

Thank you, operator. Welcome, everyone, to Canadian Solar's Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. Joining us on the call today are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Michael Potter, Senior Vice President and Chief Financial Officer.

Before we begin, may I remind our listeners that, in this call, management's prepared remarks will contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of 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, and therefore, we refer you to more detailed discussions of the risks and uncertainties in the company's annual report on Form 20-F filed with the Securities and Exchange Commission.

In addition, any projections as to the company's future performance represents management's estimates as of today, March 11, 2013. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by law.

At this time, I would like to turn the call over to Dr. Shawn Qu. Shawn, please go ahead.

Shawn Qu

Thank you, Ed. And thank you all for joining us on the call today.

2012 has been a difficult year for the whole solar industries, with its persistent module ASP declines, module margin pressure and escalating trade disputes. In this difficult environment, we have fared relatively well. We measure our success based on the execution of our strategy, which is to increase market share, reduce cost and differentiate our business model by expanding our total solution business while maintaining prudent financial management.

For the full year 2012, we have shipped 1,543 megawatts, maintaining the track record of continuously increasing our shipment volume and market share every year. We have continued to diversify our customer base, reducing our reliance on European markets while successfully pursuing growth opportunities in Asia and North America. We are especially proud of our success in the Japanese market, where we tripled our module shipments during the year. We also significantly reduced our manufacturing cost, exiting 2012 with all-in module manufacturing cost of $0.55 per watt. This is one of the lowest in the industry and also at the low end of our target of $0.55 to $0.60 per watt which we announced in early 2012. In addition, we've maintained one of the strongest balance sheets among our peers and attracted support from leading global financial institutes, which gives us the flexibility to expand our total solution business.

I want to emphasize that, ever since our IPO in 2006, Canadian Solar has adopted a growth strategy different from most of our competitors. Rather than committing capitals to the upstream polysilicon business, we have focused our investments in the mid- and downstream manufacturing steps such as sales and modules, as well as the development of our downstream total solution business. As a result, we do not have to carry the heavy baggage of underperforming polysilicon assets or large amount of unfavorable long-term polysilicon supply contracts, as some of our competitors do. This strategy provides us with a clear path back to profitability, which further serves to differentiate Canadian Solar from most other companies in the industry.

In addition to establishing a cost leadership position and differentiating our business model, we also made progress on differentiating our product offering through module efficiency improvement. For example, in 2012, our proprietary ELPS sales technology achieved cell conversion efficiency in the lab of up to 21.1% for monocrystalline cells, supporting module per power of up to 280 watts on a 6-inch 60-cell module. We have been commercially producing our ELPS high-efficiency modules since Q4 2011 and are exiting 2012 with 120 megawatts of annual capacity of these high-efficiency cells.

During the year, we are also proud of our successful development and launch of our next-generation ResidentialAC system, which provides customers with another cost-effective breakthrough. Canadian Solar's ResidentialAC system addresses the critical limitations of current microinverters in the market, offering 25-year reliability, power generation in high-temperature environments and the ability to work with power class modules up to 300 watts, a significant increase from the current 215-watt limit. We are excited with this product launch and have received positive feedback from our customers.

Moving on to our results for the fourth quarter of 2012. At 404 megawatts, our shipments came in at the middle point of our expectations, while gross margin exceeded the high point of our guidance. Strength in demand came from Japan, U.S., and Japan is also -- and Japan is emerging as a strong new leader, driven by growth of commercial project installation. In the U.S., we are seeing many of the projects which were delayed during the year finally being completed. Our utility-scale project pipeline now stands at above 780-megawatt DC, with approximately 400 megawatt in Canada, 250 megawatt in U.S. and 100 megawatt in other regions.

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