CANADIAN SOLAR REPORTS FOURTH QUARTER AND FULL YEAR 2020 RESULTS
Canadian Solar Inc. (“Canadian Solar” or the “Company”) (NASDAQ: CSIQ) today announced financial results for the quarter and full year ended December 31, 2020.
Fourth Quarter 2020 Results
- Solar module shipments of 3.0 GW at high-end of 2.9 GW to 3.0 GW guidance range.
- 14% sequential growth in revenue to $1,041 millionexceeds guidance range of $980 million to $1,015 million.
- Gross margin of 13.6% exceeds guidance of 8% to 10%.
- Net income attributable to Canadian Solarof $7 million, or $0.11 per diluted share.
Full Year 2020 Highlights
- 32% annual growth in total module shipments to 11.3 GW, in line with guidance.
- 9% annual growth in net revenue to $3.5 billion.
- Net income attributable to Canadian Solarof $147 million or $2.38 per diluted share.
- 4 GWp of projects sold globally in 2020 with 20 GWp solar project pipeline.
- Won nearly 1 GWh of battery storage contracts. Expect to deliver and capture approximately 10% market share in the S.in 2021.
- Nearly 9 GWh of total battery storage project pipeline.
- Carve-out IPO of CSI Solarsubsidiary, formerly mainly the Module and System Solutions (“MSS”) business, on track.
Dr. Shawn Qu, Chairman and CEO, commented, “While 2020 was a tough year due to the pandemic, we remained focused on our long-term strategy of growth and delivered a robust set of results. Fourth quarter revenue and margins both exceeded our expectations thanks to Canadian Solar’s solid foundations in product and technology innovation and strong customer relationships. This allowed us to diversify our income streams, mitigate some of the impact of near-term cost pressures and accelerate the monetization of our solar projects.
“Looking through the short-term fluctuations, we remain confident in solar energy’s global growth prospects. We are at a structural turning point where solar grid parity is met with societal awareness of the urgent need to decarbonize the global economy. As a result, we are seeing a steep increase in demand for clean power assets across the world, both for solar and battery storage projects, where Canadian Solar has a competitive advantage. We have over 20 GWp of solar project pipeline and nearly 9 GWh of battery storage pipeline. We are positioned to benefit from robust growth in both areas. We have been developing our technology in system integration and go-to-market capabilities for battery storage solutions in the past few years. In 2021, we will start delivering at scale and expect to capture around 10% of the battery storage market in the U.S. alone, based on Wood Mackenzie market estimates.
“We are also on track on the carve-out IPO of CSI Solar, as we completed all targeted milestones to date. We are working on the official listing application which we expect to submit to regulatory authorities and the stock exchange in April.”
Yan Zhuang, President of CSI Solar Co., Ltd. (“CSI Solar”), Canadian Solar’s subsidiary, said, “This was a challenging quarter as short-term cost pressures persisted. Polysilicon prices remained elevated in Q4 and have recently increased another 25%; inflation in most basic commodities continues; and the U.S. Dollar, Euro, Japanese Yen and other currencies continue to depreciate relative to the Chinese Renminbi, hurting our margin. Our team has done an excellent job working with our customers and partners who were able to share a portion of the higher costs. On a positive note, while we expect further volatility, we have seen certain costs such as solar glass prices starting to come down, and early signals of normalizing shipping costs.
“As solar transitions from a subsidy-driven to a market-driven industry, we need to fundamentally reevaluate today’s solar market dynamics. We are approaching the bottom of the solar cost curve and the era of ever-declining solar module prices is largely behind us. In fact, in the near term, solar module prices will increase. Hence, we are focusing on leveraging our competitive position in our diversified and premium end markets to deliver growth in higher value-add applications of solar solutions, including system integration with battery storage. We will continue to solidify our market leadership through our strong brand and differentiated technology offerings to deliver attractive returns to our shareholders.”
Ismael Guerrero, Corporate VP and President of Canadian Solar’s Global Energy business, said, “I’m proud of our team’s work and dedication during the pandemic, as we focused on delivering projects and working with our partners despite many challenges. In 2020, we achieved 1.4 GWp in project sales, while concurrently increasing our solar pipeline by over 4 GWp to more than 20 GWp. We are also making significant inroads in developing utility scale battery storage projects. These will contribute to grid stability in the markets where we operate by improving the grid’s ability to absorb more renewable energy. In one year, we have tripled our storage pipeline from less than 3 GWh this time last year, to nearly 9 GWh, of which almost 1 GWh is already under construction. Furthermore, we recently announced the launch of the Japan Green Infrastructure Fund and the capital raise of the Canadian Solar Infrastructure Fund. We will continue to accelerate growth and optimize the monetization of our clean energy projects.”
Dr. Huifeng Chang, Senior VP and CFO, added, “In the fourth quarter, we achieved over $1 billion in revenue and a 13.6% gross margin, both ahead of our guidance. We generated $120 million in net cash from operating activities in the fourth quarter and ended with a $1.6 billion total cash position, giving us the financial strength to support attractive long term growth opportunities. Meanwhile, we will continue to maintain capital discipline as we monitor and adjust our growth strategy based on market developments.”
Fourth Quarter 2020 Results
Total module shipments in the fourth quarter of 2020 were 2,998 MW, an increase of 22% year-over-year (“yoy”) and decrease of 5% quarter-over-quarter (“qoq”). Of the total, 359 MW was shipped to the Company’s own utility-scale solar power projects.
Net revenue in the fourth quarter of 2020 grew by 9% yoy and 14% qoq to $1,041 million. The sequential increase was driven by higher project sales spanning the United States, Mexico, Japan, Canada and Italy, and a slightly higher module average selling price (“ASP”), which was partly offset by lower module shipments.
Gross profit in the fourth quarter of 2020 was $141 million, down 21% qoq. Gross margin in the fourth quarter of 2020 was 13.6%, compared to guidance of 8% to 10%, and 19.5% in the third quarter of 2020. The gross margin decline was mainly driven by the previously anticipated increase in manufacturing costs, which was partly offset by higher module ASP and a more favorable mix.
Total operating expenses in the fourth quarter of 2020 were $139 million compared to $119 million in the third quarter of 2020. The sequential increase was primarily driven by higher shipping expenses and an impairment charge related to certain manufacturing assets.
Non-cash depreciation and amortization charges in the fourth quarter of 2020 were $59 million, compared to $56 million in the third quarter of 2020, and $45 million in the fourth quarter of 2019.
Net foreign exchange gain in the fourth quarter of 2020 was $4 million, compared to a net loss of $13 million in the third quarter of 2020 and a net loss of $3 million in the fourth quarter of 2019.
Income tax benefit in the fourth quarter of 2020 was $2 million, compared to $21 million of income tax expense in the third quarter of 2020 and $25 million of income tax expense in the fourth quarter of 2019. The benefit was driven by higher expected utilization of tax losses carried forward due to expansion in manufacturing capacity and improvement in process efficiency at the Company’s factories.
Net income attributable to Canadian Solar in the fourth quarter of 2020 was $7 million, or $0.11 per diluted share, compared to net income of $9 million, or $0.15 per diluted share in the third quarter of 2020.
Net cash provided by operating activities in the fourth quarter of 2020 was $120 million, compared to $47 million provided by operating activities in the third quarter of 2020.
New Corporate Structure
In July 2020, the Company announced its plan to carve-out and publicly list its Module and System Solutions (“MSS”) subsidiary, CSI Solar Co., Ltd. (“CSI Solar”), in China. In preparation for the listing, the Company successfully completed the restructuring of its business segments during the fourth quarter of 2020. The table below is a summary comparison of the adjustments made in reporting structures. The main change being the transfer and inclusion of the China Energy business within the scope of CSI Solar.
As of December 31, 2020, Canadian Solar owned 80% of CSI Solar, with the remaining 20% owned by strategic investors who purchased CSI Solar shares during the pre-IPO transaction. An additional 5% of CSI Solar shares were purchased by CSI Solar’s employee stock ownership plan (“ESOP”), for which the vesting condition is the successful completion of the IPO. Both the CSI Solar and Global Energy segments are fully consolidated within Canadian Solar.
Historical reporting structure
New reporting structure
Module and System Solutions (“MSS”) Business
· Solar modules
· Solar system kits
· Other materials, components and services
CSI Solar (entity to be listed in China)
· Solar modules
· Solar system kits
· Battery energy storage solutions – new
· China Energy (solar power projects, EPC
· Other materials, components and services (including EPC)
· Solar power projects – includes China Energy
· Operations and maintenance (O&M)
· Electricity revenue – includes China Energy
· Other development services
· Solar and energy storage power projects –
· O&M and asset management services
· Other development services – includes
Battery Storage Opportunities
The Company will start reporting revenues from its energy storage business in this quarter. Canadian Solar is one of the first movers in developing and supplying energy storage solutions and projects. Given the exponential market opportunities driven by rapid technology improvements, declining battery storage costs, rising penetration of renewable energy and accelerating retirements of fossil fuel capacity, the Company has strategically positioned itself in the battery storage market, both in solar plus battery storage as well as in stand-alone storage opportunities.
Canadian Solar has a unique advantage in tapping into the large energy storage market opportunities given its position as a global leader both in module manufacturing as well as a solar project development. Thus, both the CSI Solar and Global Energy segments have focused strategically on their respective energy storage businesses:
- Under CSI Solar, the battery storage solutions team focuses on delivering bankable, end-to-end, integrated battery storage solutions for utility scale, commercial and industrial, as well as residential applications. These systems solutions will be complemented with long term service agreements, including future battery capacity augmentation services.
- Under Global Energy, energy storage project development is now fully integrated within the main solar development teams. Given the segment’s large and growing pipeline, it is uniquely positioned to capture utility-scale energy storage projects, both co-located with solar PV as well as stand-alone opportunities.
CSI Solar Segment
The table below sets forth Canadian Solar’s 2021 capacity expansion targets along the solar module value chain. All new capacity will produce Canadian Solar’s next generation high-power, high-efficiency modules in the HiKu and BiHiKu product portfolios.
Manufacturing Capacity, GW (period-end)
Canadian Solar shipped 3 GW of modules to more than 70 countries in the fourth quarter of 2020. The top five markets ranked by shipments were the Vietnam, China, the U.S., Brazil and Australia. For the full year of 2020, the top five markets ranked by shipments were the U.S., Vietnam, China, Brazil and Japan.
Battery Storage Solutions
The Company is one of the early movers in developing system solutions and energy storage integration services. Within CSI Solar, the battery storage solutions team delivers competitive turnkey, integrated battery storage solutions, including bankable and fully wrapped capacity and performance guarantees. These guarantees are complemented with long term operations and maintenance agreements, which include future battery capacity augmentation services and bring in longer term stable income.
The table below sets forth CSI Solar’s battery storage system integration’s contracted projects and/or under construction, those in high probability forecast, and pipeline as of January 31, 2021.
Contracted/in construction projects are expected to be delivered within the next 12 to 18 months. Forecast projects include those that have more than 75% probability of being contracted within the next 12 months, and the remaining pipeline includes projects that have been identified but have a below 75% probability of being contracted.
Global Energy Segment
Global Energy Business Strategy
Canadian Solar has one of the world’s largest and most geographically diversified utility-scale solar project development platforms, with a strong track record originating, developing, financing, building over 5.7 GWp of solar power plants across six continents. As a first mover, the Company has built a leadership position in solar project development and currently has an aggregate pipeline of 20.2 GWp.
The Company’s Global Energy business has been optimizing its operating model from developing and/or building projects, and selling them (either at notice to proceed, NTP, or commercial operation date, COD), to increasingly retaining minority ownership interest in its own projects. This allows Canadian Solar to:
- Capture additional operational value throughout the partial ownership period, including long-term cash flows from power sales, operations and maintenance (“O&M”), asset management and other services;
- Build and grow a stable base of long-term cash flows, which will help smooth the typical lumpiness associated with the development and sale of solar power projects;
- Recycle a large portion of the capital into developing new solar projects for growth; and
- Create new growth opportunities such as retrofitting energy storage systems onto or co-located with existing projects.