Canadian Solar Reports Third Quarter 2019 Results

GUELPH, Ontario, Nov. 13, 2019 /PVTIME/ -- Canadian Solar Inc.
("Canadian Solar" or the "Company") (NASDAQ: CSIQ), one of
the world's largest solar power companies, today announced financial results
for the third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

  • Total solar module shipments were 2,387 MW, compared to 2,143 MW in the second quarter of 2019 and third quarter 2019 guidance of 2.2 GW to 2.3 GW.
  • Net revenue was $759.9 million, compared to $1.0 billion in the second quarter of 2019 and third quarter 2019 guidance of $780 million to $810 million.
  • Gross margin was 26.2%, compared to 17.6% in the second quarter of 2019 and third quarter 2019 guidance of 24% to 26%. Gross margin was 23.0% excluding a $24.3 million countervailing duty ("CVD") true-up benefit.
  • Net income attributable to Canadian Solar on a GAAP basis was $58.3 million, or $0.96 per diluted share, compared to $62.7 million, or $1.04 per diluted share, in the second quarter of 2019.
  • Net income attributable to Canadian Solar on a non-GAAP basis was $40.1 million, or $0.66 per diluted share. This excludes a $24.3 million CVD true-up benefit, net of income tax effect. For a reconciliation of results under generally accepted accounting principles in the United States ("GAAP") to non-GAAP results, see the accompanying table "About Non-GAAP Financial Measures".
  • Net cash provided by operating activities was approximately $22.4 million, compared to $225.8 million in the second quarter of 2019.
  • As of September 30, 2019, the Company's portfolio of utility-scale solar power plants in operation was 795.8 MWp with an estimated total resale value of approximately $900 million.

Third Quarter 2019 Results

Net revenue in the third quarter of 2019 was $759.9 million, compared to
$1.0 billion in the second quarter of 2019, and $768.0 million in the third
quarter of 2018. The sequential decline primarily reflects the lower revenue
from the sale of solar power plants.

Total solar module shipments in the third quarter of 2019 were 2,387 MW,
compared to 2,143 MW in the second quarter of 2019 and third quarter 2019
guidance of 2.2 GW to 2.3 GW. Total solar module shipments in the
third quarter of 2019 included 61 MW shipped to the Company's utility-scale
solar power projects. Solar module shipments recognized in revenue in the third
quarter of 2019 totaled 2,156 MW, compared to 2,376 MW in the second quarter of
2019 and 1,521 MW in the third quarter of 2018.

Gross profit in the third quarter of 2019 was $198.9 million, compared to
$182.6 million in the second quarter of 2019 and $200.4 million in the third
quarter of 2018. The benefit for the anti-dumping ("AD") and CVD
true-up was $24.3 million in the third quarter of 2019, $21.6 million in the
second quarter of 2019, and $8.3 million, in the third quarter of 2018.Gross
margin in the third quarter of 2019 was 26.2%, compared to 17.6% in the second
quarter of 2019 and 26.1% in the third quarter of 2018. Non-GAAP gross margin,
which excludes the impact of the quarterly AD/CVD true-up, was 23.0% in the
third quarter of 2019, compared to 15.5% in the second quarter of 2019 and
25.0% in the third quarter of 2018.

The Company's Module and System Solutions ("MSS") business
comprises primarily the design, development, manufacture and sale of solar
modules, other solar power products and solar system kits. The MSS business
also provides engineering, procurement and construction ("EPC") and
operating and maintenance ("O&M") services. The Company's Energy
business comprises primarily the development and sale of solar projects,
operating solar power projects and the sale of electricity. Module sales from
the MSS business to the Energy business are on terms and conditions similar to
sales to third parties.

The Company develops solar power projects worldwide. Where applicable, the
Company may apply for and/or be entitled to receive a feed-in tariff
("FIT") for its projects. Alternatively, the Company may participate
in public or private energy auctions and bidding, which result in long-term power
purchase agreements ("PPAs"). The Company may also sell all or a
portion of the electricity generated from its solar power projects on the
merchant power market. Due to the relatively long lead times (usually two to
four years) required to develop solar power projects and bring them to a
commercial operation date ("COD"), the actual gross margin of a
project may deviate from the expected gross margin. The deviation may be caused
by, among other things, changes in political and economic conditions in host
countries, project specific conditions, fluctuations in the price of solar
modules and other components, changes in the cost of EPC services and the
capital return requirements of solar asset buyers. In recent years, the Company
has sold some solar power projects before COD. We typically refer to these
sales as "notice to proceed" or NTP sales. In NTP sales, the revenue
is lower while the gross margin percentage is higher than in COD sales, even if
the absolute margin is the same. Results from the Energy business may be lumpy
from quarter to quarter, depending on whether projects are sold at NTP or COD,
project sale transaction dates and the profit level of each project.

The following tables provide selected financial data for the Company's MSS
and Energy businesses:

Total operating expenses in the third quarter of 2019 were $118.8
million, compared to $121.9 million in the second
quarter of 2019 and $104.5 million in the third quarter of 2018.

Selling expenses in the third quarter of 2019 were $46.9
million, compared to $45.4 million in the second quarter
of 2019 and $38.4 million in the third quarter of 2018. The
sequential increase was primarily due to an increase in shipping and handling
costs, partially offset by lower project transaction fees.

General and administrative expenses in the third quarter of
2019 were $61.5 million, compared to $65.7 million
in the second quarter of 2019 and $58.9 million in the third
quarter of 2018. The sequential decrease was mainly due to a $7.3 million
decrease in impairment in the third quarter of 2019, compared to the second
quarter of 2019 and $1.6 million decrease in labor cost,
partially offset by a $6.0 million customer settlement.

Research and development expenses in the third quarter of
2019 were $11.6 million, compared to $12.1 million
in the second quarter of 2019 and $10.1 million in the third
quarter of 2018.

Other operating income in the third quarter of 2019 was $1.2
million, compared to $1.3 million in the second quarter
of 2019 and $2.9 million in the third quarter of 2018.

Income from operations in the third quarter of 2019 was $80.1 million,
compared to $60.7 million in the second quarter of 2019,
and $95.9 million in the third quarter of 2018. Operating margin
was 10.5% in the third quarter of 2019, compared to 5.9% in the second quarter
of 2019 and 12.5% in the third quarter of 2018.

Non-cash depreciation and amortization charges in the third
quarter of 2019 were $37.0 million, compared to $39.7
million in the second quarter of 2019 and $32.5 million
in the third quarter of 2018. Non-cash equity compensation expense in the third
quarter of 2019 was $2.8 million, compared to $3.5 million
in the second quarter of 2019 and $2.5 million in the third
quarter of 2018.

Interest expense in the third quarter of 2019 was $19.2
million, compared to $20.7 million in the second quarter
of 2019 and $26.8 million in the third quarter of 2018.

Interest income in the third quarter of 2019 was $2.6
million, compared to $4.5 million in the second quarter
of 2019 and $2.6 million in the third quarter of 2018. 

The Company recorded a loss on the change in fair value of
derivatives in the third quarter of 2019 of $2.2 million,
compared to $12.5 million in the second quarter of 2019 and $8.9
million in the third quarter of 2018. Foreign exchange gain in the
third quarter of 2019 was $2.8 million, compared to $16.4
million in the second quarter of 2019, and $10.1 million
in the third quarter of 2018.

Income tax expense in the third quarter of 2019 was $10.4
million, compared to $14.0 million in the second quarter
of 2019 and $13.4 million in the third quarter of 2018.

Net income attributable to Canadian
Solar in the third quarter of 2019 was $58.3 million or $0.96
per diluted share, compared to net income of $62.7 million or $1.04
per diluted share in the second quarter of 2019 and net income of $66.5
million or $1.09 per diluted share in the third quarter
of 2018.

Financial Condition

The Company had $1,048.9 million of cash,
cash equivalents and restricted cash as of September 30, 2019, compared
to $981.0 million as of June 30, 2019.

Accounts receivable, net of allowance for doubtful
accounts, at the end of the third quarter of 2019 were $449.3 million,
compared to $454.6 million at the end of the second quarter of
2019. Accounts receivable turnover in the third quarter of 2019 was
64 days, compared to 41 days in the second quarter of 2019.

Inventories at the end of the third quarter of 2019 were $413.0
million, compared to $337.8 million at the end of the
second quarter of 2019. Inventory turnover in the third quarter of 2019 was
63 days, compared to 40 days in the second quarter of 2019.

Accounts and notes payable at the end of the third quarter
of 2019 were $1,006.0 million, compared to $926.2 million
at the end of the second quarter of 2019.

Short-term borrowings and the current portion of long-term
borrowings on project assets at the end of the third quarter of 2019 were $1.3
billion, compared to $1.3 billion at the end of the
second quarter of 2019. Long-term borrowings at the end of the third quarter of
2019 were $525.9 million, compared to $462.9 million
at the end of the second quarter of 2019.

Total borrowings directly related to the Company's
utility-scale solar power projects were $670.8 million at the
end of the third quarter of 2019, compared to $640.5 million at
the end of the second quarter of 2019. Total debt at the end of the
third quarter of 2019 was $1.97 billion, compared to $1.86
billion at the end of the second quarter of 2019.

Dr. Shawn Qu, Chairman and Chief Executive
Officer, commented: "Q3 was another strong, highly profitable quarter for Canadian
Solar. Our results reflect robust global demand for our solar power
products, the benefit of stable pricing trends and continued execution by our
team. Strategic decisions we made in R&D and manufacturing efforts have
positioned Canadian Solar at the
forefront of solar cell and module manufacturing technology. For example,
we recently set another world record of 22.8% conversion efficiency for
P-type large area multi-crystalline silicon solar cells. We remain committed to
developing and commercializing the solar technologies and system innovations
that drive efficiency levels higher and total cost of ownership lower. This
approach brings additional value to our customers and helps ensure the
Company's long-term success. We have significant room for growth ahead of us
and remain positive in our outlook given further improvements in our backlog
and visibility."

Yan Zhuang, Acting Chief Executive
Officer, commented: "Our solar module shipments and gross margin expansion
underscore the solid execution of our strategies in both our MSS and Energy
businesses. Higher module shipments were led by the success of Canadian
Solar's premium brand and the strength of the global sales channels we
have built over many years. Our solid track record has also allowed us to grow
our presence across the solar supply chain. During the third quarter, we signed
an O&M agreement for third party projects totaling 300 MWp; and completed
the sale of the 266 MWp Rambler project in the U.S. and the sale of an 80%
interest in the 171.5 MWp Lavras project in Brazil.
In addition, we won a total of 424 MWp of projects with attractive PPAs,
energized a 100 MWp project in Argentina
and secured additional project development financing at favorable rates.
Globally, as of September 30, 2019, we had a 3.4 GWp pipeline of
late-stage, utility-scale solar power projects. In addition, our 796 MWp
portfolio of solar power plants under operation has an estimated resale value
of approximately $900 million."

Dr. Huifeng Chang, Senior Vice President
and Chief Financial Officer, added: "We achieved GAAP net income of $58
million, or $0.96 per diluted share, for the third
quarter even with lower than expected revenue which was primarily due to the
delayed closing of solar power plant sales in Japan.
This reflects an underlying improvement in our operating and financial
performance as well as benefit from the CVD true-up adjustment of $24
million. Our focus on operating efficiency
improvements helped us further reduce our blended module manufacturing
costs. In October, we completed the sale of an 80% interest in 353 MWp of
projects in Brazil,
in addition to the 80% interest in the 171.5 MWp Lavras project which we sold
in August. We will continue to monetize the remainder of our 3.4 GWp late-stage
utility-scale solar project pipeline through 2020 and to maintain a balance
between driving profitable growth and strengthening the Company's balance
sheet."

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 includes primarily those projects that have
FITs or PPAs and are expected to be built within the next four years. The
Company cautions that some late-stage projects may not reach completion due to
such factors as failure to secure permits and grid connection, and changes of
political and economic conditions in host countries, among others.

Late-Stage Utility-Scale Solar Project Pipeline

As of September 30, 2019, the Company's
late-stage, utility-scale solar project pipeline, including those in
construction, totaled approximately 3.4 GWp, with 1,285 MWp in the U.S.,
832 MWp in Brazil,
370 MWp in Mexico,
343.5 MWp in Japan,
145 MWp in China
and an additional 422.1 MWp in Australia,
Canada, Israel,
Taiwan, the
Philippines, Malaysia,
Italy and South
Korea.

In the United States, as of September 30, 2019, the Company's
late-stage, utility-scale solar project pipeline totaled 1,285 MWp* as detailed
in the table below. 

*This table does not include the 100 MWac Sunflower project
located in Mississippi.
In November 2018, the Company entered into a build-to-transfer
agreement with Entergy Mississippi for the Sunflower project. As part of the
agreement, Entergy Mississippi will serve as both project owner and electricity
off-taker once the project is constructed and transferred to them. This
build-to-transfer agreement is pending approval by the Mississippi Public
Service Commission.

In Japan, as of September 30, 2019, the Company's
late-stage, utility-scale solar project pipeline for which interconnection
agreements and FITs have been secured totaled approximately 343.5 MWp,
including 104.3 MWp under construction and 239.2 MWp under development.

The table below sets forth the expected COD schedule of the
Company's late-stage utility-scale solar power projects in Japan,
as of September 30, 2019:

Expected COD Schedule (MWp) 

In Brazil, as of September 30, 2019, the Company had an
832 MWp late-stage, utility-scale solar project pipeline as detailed in
the table below.

*In April 2019, the Company signed an
agreement to sell its 80% interest in the 482.6 MWp (has now expanded to 524.3
MWp) of solar power projects to Nebras Power Investment Management B.V., a
Dutch affiliate of Nebras Q.P.S.C. Canadian
Solar completed the sale of the 80% interest in the 171.5 MWp Lavras
project in August 2019 and the sale of the 80% interest in the
Francisco Sa, Jaiba and Salgueiro projects in October 2019.

In Mexico, as of September 30, 2019, the Company had a 370 MWp
late-stage, utility-scale solar project pipeline as detailed in the table below.

In China,
as of September 30, 2019, the
Company's late-stage, utility-scale solar project pipeline was 145 MWp.

Solar Power Plants in Operation

In addition to its late-stage, utility-scale solar project
pipeline, as of September 30, 2019, the Company had a portfolio
of utility-scale, solar power plants in operation totaling 795.8 MWp. The
Company records these power plants on the balance sheet as "project assets
(build to sell)", "assets held-for-sale" and "solar power
systems, net (build to own)". The proceeds of project sales 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 September 30, 2019
(MWp):

Manufacturing Capacity

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

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, the Company's
order book and production capacity, the 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 solar project construction and
sale schedules. Management's views and estimates are subject to change without
notice.

For the fourth quarter of 2019, the Company expects total
solar module shipments to be in the range of 2.3 GW to 2.4 GW,
including approximately 190 MW of shipments to the Company's
utility-scale solar power projects that may not be recognized as revenue in the
fourth quarter of 2019. Total revenue for the fourth quarter is expected to be
in the range of $850 million to $880 million. Gross margin for the
fourth quarter is expected to be between 19% and 21%.

For the full year 2019, the Company now expects total
module shipments to the range of approximately 8.4 GW to 8.5 GW. Total revenue
for the year is expected to be in the range of $3.13 billion to $3.16
billion.

Yan Zhuang, Acting Chief Executive Officer
of Canadian Solar, commented:
"While our near-term revenue is expected to be impacted by the potential
shift of certain project sales into 1Q 2020 from 4Q 2019 due to revised sales
schedules, we expect sequential growth in solar module shipments based on our
backlog and demand forecasts. The broader global market remains healthy as we
benefit from robust demand in traditional geographies and the development of
new markets where our brand, track record and local presence give us a distinct
competitive advantage. We expect to gain additional momentum in 2020 as we
monetize our late-stage, utility-scale solar project pipeline as well as
solar power plants in operation. We also continue to explore opportunities
to create additional synergies across the upstream and downstream businesses by
leveraging our global purchasing power and providing total solutions to our
customers, thereby building value for our Company's shareholders."

Recent Developments

On November 11, 2019, Canadian
Solar announced that it had been awarded two solar PV projects totaling
190.5 MWp in the 7th Brazilian Federal Auction held in October 2019.

On October 22, 2019, Canadian
Solar announced that it had been awarded a 30 MWp project
in Japan's 4th solar energy auction. Once constructed, the
project will enter into a 20-year power purchase agreement with Chugoku
Power Electric Company at a rate of ¥13.47 ($0.12) per
kWh.

On October 10, 2019, Canadian
Solar announced that it had been awarded three solar PV projects totaling
393.7 MWp in two recent Private Corporate Auctions held
in Brazil during the third quarter of 2019.

On September 17, 2019, Canadian
Solar announced that its technology team set a world record of 22.80%
conversion efficiency for P-type large area multi-crystalline silicon
solar cells.

On September 12, 2019, Canadian
Solar announced that its wholly-owned subsidiary, Recurrent Energy,
LLC, sold the 200 MWac/266 MWp Rambler solar project to Duke Energy
Renewables, a subsidiary of Duke Energy.

On August 28, 2019, Canadian
Solar announced that it secured 487.0 million Brazilian reals
(US$120 million) in non-recourse project financing from Banco do
Nordeste do Brasil S.A. (BNB) for its Francisco Sa and Jaiba solar
power projects.

On August 21, 2019, Canadian
Solar announced that it signed O&M agreements with Gannawarra
Solar Farm Pty Ltd, Hayman Solar Farm Pty Ltd and Daydream
Solar Farm Pty Ltd for three solar PV plants totaling 300 MWp in Australia.
 

On August 5, 2019, Canadian
Solar announced that it energized its 100.1 MWp Cafayate solar power
project in Argentina
on July 19, 2019, the largest operational solar power plant in
the country.

Conference Call Information

The Company will hold a conference call at 5:00 p.m.
U.S. Eastern Standard Time on November 12, 2019 (6:00 a.m.,
November 13, 2019 in Hong
Kong) to discuss the Company's third quarter 2019 results and
business outlook. The dial-in phone number for the live audio call is +1
866-519-4004 (toll-free from the U.S.), +852-3018-6771 (local dial-in from HK)
or +1 845-675-0437 (from international locations). The passcode for the call is
3366785.  A live webcast of the conference call will also be available on
the Investor Relations section of Canadian
Solar's website at www.canadiansolar.com.

A replay of the call will be available two hours after
the conclusion of the call until 8:00 a.m. U.S. Eastern Standard
Time on Wednesday, November 20, 2019 (9:00 p.m., November
20, 2019 in Hong Kong)
and can be accessed by dialing +1-855-452-5696 (toll-free from the U.S.),
+852-3051-2780 (local dial-in from HK) or +1-646-254-3697 (from international
locations), with passcode 3366785.  A webcast replay will also be
available on the investor relations section of Canadian
Solar's at www.canadiansolar.com.

FINANCIAL TABLES FOLLOW

Note: * The Company adopted
ASU 2016-02 – Leases (Topic ASC842) in the first quarter of 2019 using the
optional transition method and elected certain practical expedients, which were
permitted under the guidance ASU 2018-11, Leases (Topic 842) – Targeted
Improvements. The transition guidance allowed the Company not to reassess prior
conclusions related to contracts containing leases or lease classification. The
adoption primarily affected the condensed consolidated balance sheet through
the recognition of right-of-use assets and lease liabilities as of January
1, 2019. The adoption did not have a significant impact on the results
of operations or cash flows.

About Non-GAAP Financial Measures

To supplement its financial disclosures presented in
accordance with GAAP, the Company uses non-GAAP measures which are adjusted
from the most comparable GAAP measures for certain items as described below.
The Company presents non-GAAP net income and diluted earnings per share so that
readers can better understand the underlying operating performance of the
business before the impact of AD/CVD true-up provisions. The non-GAAP numbers
are not measures of financial performance under U.S. GAAP, and should not be
considered in isolation or as an alternative to other measures determined in
accordance with GAAP. These non-GAAP measures may differ from non-GAAP measures
used by other companies, and therefore their comparability may be limited.

SOURCE: Canadian Solar Inc

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