Canadian Solar Reports Third Quarter 2018 Results

公開日 2018/11/16
CSI Solar 
Canadian Solar Inc. today announced its financial results for the third quarter of 2018 ended September 30, 2018. 

Third Quarter 2018 Highlight

- Net revenue was $768.0 million, compared to $650.6 million in the second quarter of 2018, and third quarter 2018 guidance in the range of $790 million to $840 million.
- Gross margin was 26.1%, compared to 24.5% in the second quarter of 2018, and third quarter guidance of 20.0% to 23.0%.
- Net income attributable to Canadian Solar was $66.5 million, or $1.09 per diluted share, compared to $15.6 million, or $0.26 per diluted share, in the second quarter of 2018.
- During the quarter, the Company completed the sale of solar power plants totaling 103MW, including 64MW in Japan.
- Net cash provided by operating activities was approximately $148 million, compared to net cash used in operating activities of $174 million in the second quarter of 2018.
- The Company's portfolio of utility-scale solar power plants in operation was approximately 1.1 GWp with an estimated total resale value of approximately $1.23 billion, as of October 31, 2018. Only the value of class B shares, which the Company holds in its tax equity solar power plants in the U.S., is included in this resale value.

Third Quarter 2018 Results

Net revenue in the third quarter of 2018 was $768.0 million, up 18.0% from $650.6 million in the second quarter of 2018 and down 15.8% from $912.2 million in the third quarter of 2017. Net revenue in the third quarter of 2018 benefited from higher than expected module average selling prices, offset by the deferral of certain planned project sales. Third quarter of 2018 net revenue from the Company's modules and systems solutions ("MSS") business was $512.3 million, and was $255.7 million from the Company's Energy business.

Total solar module shipments in the third quarter of 2018 were 1,590MW, compared to 1,700MW in the second quarter of 2018, and third quarter of 2018 guidance in the range of 1,500MW to 1,600MW. Total solar module shipments in the third quarter of 2018 included 180MW shipped to the Company's projects. Solar module shipments recognized in revenue in the third quarter of 2018 totaled 1,521MW, compared to 1,454MW in the second quarter of 2018 and 1,782MW in the third quarter of 2017.

Gross profit in the third quarter of 2018 was $200.4 million, compared to $159.4 million in the second quarter of 2018 and $159.8 million in the third quarter of 2017. Gross margin in the third quarter of 2018 was 26.1%, compared to 24.5% in the second quarter of 2018 and 17.5% in the third quarter of 2017. Gross profit in the third quarter of 2018 includes the benefit of a CVD reversal of $8.3 million based on the final rate of Solar 1 CVD AR4. Excluding the CVD reversal benefit, gross margin was 25.0% in the third quarter of 2018. Gross margin of the Company's MSS business in the third quarter 2018 was 25.1%, or 23.4% excluding the CVD reversal benefit. This compares to 19.0% in the second quarter of 2018, or 14.3% excluding the benefit of that quarter's AD/CVD reversal benefit, and 14.1% in the third quarter of 2017. Gross margin of the Company's Energy business for the third quarter of 2018 was 28.2%, compared to 54.7% in the second quarter of 2018 and 31.6% in the third quarter of 2017, with both of the prior quarters reflecting the positive impact of the realization of the deferred revenue associated with notice to proceed (NTP) sales in those quarters.

The Company has been operating in two principal businesses since 2016: the MSS business and the Energy business. The MSS business comprises primarily the designing, development, manufacturing and sale of solar modules, other solar power products, solar system kits and the provision of EPC and Operating and Maintenance (O&M) services. The Energy business comprises primarily the development and sale of solar projects, operating solar power projects and the sale of electricity. The module sales from the Company's MSS business to its Energy business are on terms and conditions similar to sales to third parties. 

The Company develops solar power projects, then applies for feed-in tariff (FIT), negotiates energy off-take agreements or bids these projects in energy auctions. As we usually bid in energy auctions 2 to 4 years before solar power projects reach commercial operation, the actual gross margin varies, due to the country, project specific risk, the expected length of capital investment, price movements of solar modules and other components, engineering, procurement and construction (EPC), the capital return requirements of solar asset buyers and fluctuations of local currencies, among other factors. In recent years, the Company sold some solar projects before commercial operation date (COD). We typically refer to these as NTP sales. Revenue will be lower, while gross margin percentage will be higher in NTP sales compared to COD sales, even if the absolute margin is the same. Results from the Company's Energy business may be lumpy quarter to quarter, depending on the NTP or COD dates, sales transaction dates, and the profit level of each project.

The following table summarizes the Company's revenues and gross profit generated from each business:


The following table summarizes the Company's revenues generated from each product or service:


Total operating expenses in the third quarter of 2018 were $104.5 million, down 1.0% from $105.5 million in the second quarter of 2018, and up 2.4% from $102.0 million in the third quarter of 2017.

Other operating income in the third quarter of 2018 was $2.9 million, compared to $0.3 million in the second quarter of 2018 and $1.4 million in the third quarter of 2017.

Income from operations in the third quarter of 2018 was $95.9 million, compared to $53.9 million in the second quarter of 2018, and $57.8 million in the third quarter of 2017. Operating margin was 12.5% in the third quarter of 2018, compared to 8.3% in the second quarter of 2018 and 6.3% in the third quarter of 2017.

Non-cash depreciation and amortization charges in the third quarter of 2018 were approximately $32.5 million, compared to $30.2 million in the second quarter of 2018 and $23.8 million in the third quarter of 2017. Non-cash equity compensation expense in the third quarter of 2018 was $2.5 million, compared to $3.3 million in the second quarter of 2018 and $2.1 million in the third quarter of 2017.

Interest expense in the third quarter of 2018 was $26.8 million, compared to $26.6 million in the second quarter of 2018 and $33.7 million in the third quarter of 2017.

Interest income in the third quarter of 2018 was $2.6 million, compared to $2.9 million in the second quarter of 2018 and $3.4 million in the third quarter of 2017.

The Company recorded a loss on the change in fair value of derivatives in the third quarter of 2018 of $8.9 million, compared to a loss of $7.6 million in the second quarter of 2018 and a gain of $1.8 million in the third quarter of 2017. Foreign exchange gain in the third quarter of 2018 was $10.1 million, compared to a loss of $2.5 million in the second quarter of 2018, and a loss of $16.5 million in the third quarter of 2017.

Income tax expense in the third quarter of 2018 was $13.4 million, compared to $7.8 million in the second quarter of 2018 and $6.2 million in the third quarter of 2017, primarily reflecting the higher income in the third quarter of 2018, as compared to the prior and year ago quarters.

Net income attributable to Canadian Solar in the third quarter of 2018 was $66.5 million or $1.09 per diluted share, compared to $15.6 million or $0.26 per diluted share in the second quarter of 2018 and $13.3 million or $0.22 per diluted share in the third quarter of 2017.

Financial Condition

The Company had a cash, cash equivalents and restricted cash balance of $995.0 million as of September 30, 2018, compared to $991.1 million as of June 30, 2018.

Accounts receivable, net of allowance for doubtful accounts, at the end of the third quarter of 2018 were $322.9 million, compared to $370.1 million at the end of the second quarter of 2018. Accounts receivable turnover in the third quarter of 2018 was 47 days, compared to 58 days in the second quarter of 2018.

Inventories at the end of the third quarter of 2018 were $322.0 million, compared to $336.5 million at the end of the second quarter of 2018. Inventory turnover in the third quarter of 2018 was 55 days, compared to 72 days in the second quarter of 2018.

Accounts and notes payable at the end of the third quarter of 2018 were $856.7 million, compared to $815.4 million at the end of the second quarter of 2018.

Short-term borrowings at the end of the third quarter of 2018 were $1.9 billion, compared to $2.0 billion at the end of the second quarter of 2018. Long-term borrowings at the end of the third quarter of 2018 were $120.2 million, compared to $221.3 million at the end of the second quarter of 2018. 

Senior convertible notes totaled $127.2 million at the end of the third quarter of 2018, compared to $126.9 million at the end of the second quarter of 2018.

Total borrowings directly related to the Company's utility-scale solar power projects were $1.07 billion at the end of the third quarter of 2018, compared to $1.22 billion at the end of the second quarter of 2018. Total debt at the end of the third quarter of 2018 was approximately $2.27 billion.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, commented, "The third quarter was one of our most profitable quarters with net income of $1.09 per diluted share and a 26.1% gross margin. Our results underscore the strength of Canadian Solar's module and system solutions business and global energy business, and our team's continued execution. Revenue was slightly lower than expected in the third quarter, while gross margin was higher than expected, as certain project sales with lower gross margins were deferred to later quarters. As of October 31, 2018, our late-stage, utility-scale solar project pipeline reached approximately 2.9 GWp, and our portfolio of solar power projects in operation was about 1.1 GWp, with a resale value of $1.23 billion. For our module and system solutions business, the average selling price of solar modules declined in Q3, compared with Q2, primarily due to China'sMay 31st solar incentive policy change. We have successfully maintained a healthy gross margin level, despite the headwinds, through product differentiation, operating efficiencies and raw materials cost reductions." 

Dr. Huifeng Chang, Senior Vice President and Chief Financial Officer of Canadian Solar, commented, "Our gross margin, excluding the CVD reversal benefit, was above our third quarter guidance, as we benefited from a slightly higher than expected module ASP, a higher margin project sale mix and ongoing cost controls across our operations. We made further progress in monetizing our solar power project portfolio by completing sales totaling 103MW in Q3 and we expanded our late-stage, utility-scale project pipeline in key markets, including the U.S., China and Australia. The monetization process continues with the October sale of two solar power plants totaling 260MW in the U.S., and the expectation of further sales in China, India, the U.K. and Africa in the coming quarters. While it is likely our gross margin will continue to fluctuate in future quarters, our solid execution in both our module and system solutions business and our energy business reinforces our competitiveness and positions Canadian Solar for continued business success."

Utility-Scale Solar Project Pipeline

The Company divides its utility-scale solar project pipeline into two categories: an early-to-mid-stage pipeline and a late-stage pipeline. The late-stage pipeline primarily includes projects that have energy off-take agreements and are expected to be built within the next two to four years. The Company cautions that some late-stage projects may not reach completion due to risks such as failure to secure permits and grid connection, among others.

Late-Stage, Utility-Scale Solar Project Pipeline

As of October 31, 2018, the Company's late-stage, utility-scale solar project pipeline, including those in construction totaled approximately 2.9 GWp, with 1,022MW in the U.S., 476.2MW in Brazil, 435.7MW in Mexico, 310MW in Japan, 255MW in China, 121MW in Australia, 97.6MW in Argentina, 41.7MW in Taiwan, 27.5MW in the Philippines, 24MW in India, 18.4MW in Chile, 15MW in Malaysia and 8MW in South Korea.

In the United States, the Company energized the 102MW NC102 solar power project in the third quarter of 2018. In August, the Company signed a long-term power purchase agreement for a 280MW project in Texas. The Company separately signed a 15-year power purchase agreement in October with Austin Energy for the 185MW Pflugerville project in Texas. In October, the Company also signed two 15-year power purchase agreements for 200MW (150MWac) of the 400MW Slate solar power project in California. The deal was signed with Silicon Valley Clean Energy and Monterey Bay Community Power, who will receive 55% and 45% of the energy generated by the project, respectively. The power deal includes a 45MW lithium-ion battery storage component, with 180MWh of energy capacity.

The Company's late-stage, utility-scale solar project pipeline in the U.S. as of October 31, 2018 is detailed in the table below.


In Japan, as of October 31, 2018, the Company's late-stage, utility-scale solar project pipeline for which interconnection agreements and FIT have been secured totaled approximately 310MW, 73.8MW of which are under construction and 236.2MW of which are under development. The Company has an additional 11.4MW of projects in the bidding process, which will be added to the late-stage, utility-scale solar project pipeline once interconnection agreements and FIT have been secured. 

In October 2018, the Japan Ministry of Economy Trade and Industry (METI) proposed a change to the FIT program to address projects with high FITs that are not operational. The proposed rules are not expected to impact on the size of the Company's portfolio, but may reduce the FIT of some projects. The Company is monitoring the situation and will take appropriate action, if needed, after the final version of the rule changes is released.

The table below sets forth the expected COD of the Company's late-stage, utility-scale solar power projects in Japan, as of October 31, 2018:


The Company plans to sell most of its late-stage projects in Japan into the Canadian Solar Infrastructure Fund, Inc. (CSIF) after the projects reach COD. Canadian Solar owns approximately 15% of CSIF.

In Brazil, as of October 31, 2018, the Company's late-stage, utility-scale solar project pipeline is detailed in the table below.


In Mexico, as of October 31, 2018, the Company's late-stage, utility-scale solar project pipeline is detailed in the table below.


In China, the Company's late-stage power pipeline was 255MW as of October 31, 2018.

Solar Power Plants in Operation

In addition to its late-stage, utility-scale solar project pipeline, as of October 31, 2018, the Company had a portfolio of utility-scale, solar power plants in operation totaling approximately 1.1 GWp. The plants are recorded on the Company's balance sheet as "project assets (build to sell)", "assets held-for-sale" and "solar power systems, net (build to own)". 

The sale of projects recorded as "project assets" (build to sell) on the balance sheet will be recorded as revenue in the income statement once revenue recognition criteria are met. The gain or loss from the sale of projects recorded as "assets held-for-sale" and "solar power systems, net" (build to own) on the balance sheet will be recorded within "other operating income (expenses)" in the income statement.

The table below sets forth the Company's total portfolio of utility-scale, solar power plants in operation, as of October 31, 2018:


Manufacturing Capacity

The table below sets forth the Company's capacity expansion plan from December 31, 2018 to December 31, 2019:


The Company's manufacturing capacity expansion plans for 2019 are under review and subject to change based on market conditions.

Business Outlook

The Company's business outlook is based on management's current views and estimates with respect to operating and market conditions, its current order book and the global financing environment. It is subject to uncertainty relating to solar module average selling prices, final customer demand and solar project construction and sale schedules. Management's views and estimates are subject to change without notice.

For the fourth quarter of 2018, the Company expects total solar module shipments to be in the range of 1.67 GW to 1.72 GW, including approximately 170MW of shipments to the Company's utility-scale, solar power projects that may not be recognized as revenue in fourth quarter 2018. Total revenue for the fourth quarter of 2018 is expected to be in the range of $690 million to $800 million, which would imply total revenue for the full year 2018 in the range of $3.53 billion to $3.64 billion. Gross margin for the fourth quarter is expected to be between 24% and 26%.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, commented, "Canadian Solar continues to build on our global leadership position. We have taken definitive steps to realize greater value from our pipeline of solar power projects, while redeploying capital from project sales to fortify our balance sheet and refresh our pipeline. At the same time, we have diligently protected the profitability of our module and system solutions business through a combination of higher value technology and higher yield solar modules, improved efficiencies across our global operations and a conservative approach to our capacity. We are confident in our outlook based on the current market environment. Demand levels at our key markets will likely continue to fluctuate, and uncertainty remains for 2019. As such, we remain cautious in expanding capacity. But we believe that the longer-term prospect for solar energy is bright and, to differentiate, Canadian Solar will take the challenge of industry volatility as an opportunity to ramp up the volume for unconventional innovative products, such as bifacial, that command price premiums."

Recent Developments

On October 30, 2018, Canadian Solar announced its wholly owned subsidiary Recurrent Energy signed two 15-year power purchase agreements with Silicon Valley Clean Energy and Monterey Bay Community Power for a 150MWac solar power system with 180MW-hours of battery storage. This joint procurement effort represents the largest contracted solar-plus-storage project in California to date.

On October 25, 2018, Canadian Solar announced its wholly-owned subsidiary Recurrent Energy completed the sale of its interests in two solar photovoltaic projects in California, equivalent to 260MW, to PKA, one of Denmark's largest pension service providers.

On October 18, 2018, Canadian Solar announced its partnership with Biosar Australia, a leading solar EPC provider, to jointly provide EPC services for a 256MW solar power project in Australia owned by Total Eren, a leading French Independent Power Producer (IPP).

On September 27, 2018, Canadian Solar announced that its wholly-owned Japanese subsidiary, Canadian Solar Projects K.K., had renewed and extended its credit facility with a syndicate of 10 lenders led by Sumitomo Mitsui Banking Corporation to $96 million.

On September 19, 2018, Canadian Solar announced it was awarded a contract to supply 164MW of photovoltaic modules to the 350MW Escatrón Solar power project owned by COBRA Group, a subsidiary of ACS Group in Spain.

On September 13, 2018, Canadian Solar announced it closed a $125 million global guarantee facility with Export Development Canada, Canada's export credit agency, to support existing and future project development activities undertaken by Canadian Solar across North America, Latin America, Europe, Asia and Australia.

On September 12, 2018, Canadian Solar announced that it was awarded a Victorian government support agreement for its greenfield 100MWac Carwarp Solar Project in Australia. This award guarantees revenue for 100% of the energy produced by the Carwarp Solar Farm for the term of the support agreement.

On September 6, 2018, Canadian Solar announced it completed the sale of three solar power plants totaling 30.4MW for $103.1 million to the Canadian Solar Infrastructure Fund, Inc. ("CSIF", Tokyo Stock Exchange ticker 9284) in Japan. This expanded CSIF's capacity to 105.6MW from 75.2MW.

On August 29, 2018, Canadian Solar announced it established a joint venture with ET Energy, a global clean energy developer and operator, to jointly provide EPC services for two solar power projects totaling 132MW in South Africa for BioTherm Energy, an independent African power producer.


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