Canadian Solar Q4 Earnings Conference Call: Full Transcript

Operator: Welcome to the Canadian Solar's Fourth Quarter and Full Year 2015 Earnings Conference Call. My name is Sheela and I'll 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. Now I would like to turn the call over to Ed Job, Director, of IR. Please go ahead. Ed Job: Director, Investor Relations: Thank you, Sheela, and welcome, everyone to Canadian Solar's fourth quarter and full year 2015 earnings conference call. Joining us on the call today are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Mr. Michael G. Potter, Senior Vice President and Chief Financial Officer. Before we begin, may I remind our listeners that in today's 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 a more detailed discussion of the risks and uncertainties in the Company's annual report on 20-F filed with the Securities and Exchange Commission. In addition, any projections as to the Company's future performance represent Management's estimates as of today, March 10, 2016. Canadian Solar assumes no obligation to update these projections in the future, unless otherwise required by applicable law. At this time, I would like to turn the call over to Dr. Shawn Qu. Shawn please go ahead. Dr. Shawn Qu: President and Chief Executive Officer: Thank you, Ed, and thank you all for joining us on the call today. We are very pleased with our results for the quarter and a full year. Our record performance reflects solid execution of our business plans as both the module and solar energy business unit. We have delivered solid results, we're also making progress on key elements of our strategy, and positioning the Company to create lasting value for our shareholders in a years ahead. Our notable record highlights for 2015 include; record revenue of $3.47 billion. Record module shipments, totaling 4.7 GW. Record cash flow from operation, totaling $397 million. Record 568 MW of solar power plant built and connected to the grid in 2015 along. Also, record 10.3 GW of solar project pipeline, including 2 GW in late stage of development and construction are excess the year. We are different to reaching all these milestones, we delivered net income of $172 million for the full year, equivalent to $2.93 per diluted share, while retaining close to 400 MW of operating solar power plants with resale value exceeding $850 million on our balance sheet. These accomplishments serve to reinforce our position as a global leader in solar energy industry. Moving on to the Q4 performance. Our revenue and gross margin again exceeded our guidance, reflecting strong demand for PV modules and ASPs. The sales are up 3 solar power plant in Canada, totaling 42.9 MW as well as the partial sales of our Roserock and Garland solar power to a Southern company in US. Our module sales, was again led by a strong demand in US, China, India, and Japan with each of these markets making a significant contribution to a total shipments. Shipments for US, China in particular exceeded 300 MW in a quarter respectively. While, shipments to India exceeded 200 MW. Our Energy business also delivered positive results. In Canada we completed the sales of 3 solar power plant, totaling 42.9 MW and valued at over C$197 million Canadian dollar. In addition, we start commercial operations of our Alfred project which currently hope and operate in the US, in addition to our solar project sales to Southern Company, we also secured that and tax-equity commitments to support the construction of our other utility-scale solar power plants, which expected to be connected to the grid during 2016. In Japan, we energized three solar power plants totaling 6.2 MW, bringing total solar power plants in operation under the Japanese FIT program to 21 MW. In addition for sales, and the partial sales of certain solar power plants operating solar power plants and our ownership, now totals approximately 400 MW up from 257 MW at the end of Q3. The total resale value of these 400 MW power plants is estimated at over $850 million, with expected resale gross profit of over $170 million. Meanwhile, our pipeline of late stage solar project remains large, at approximately 2.0 GW. We estimated the resale value of our late-stage solar project pipeline at over $4.5 billion with expected gross profit contribution in excess of $850 million. Now, let me comment on our guidance of Q1 and full year 2016. As we entered 2016, we expect to continue to grow both our annual module shipments volume and our downstream solar power plant business. We currently expect total Q1 module shipment to be in the range of approximately 1.085 to 1.135 GW including 15 MW of shipments to our owned utility-scale solar project. Revenue for the first quarter of 2016, is expected to be in the range of $645 million to $695 million, with gross margin expected to be between 12% to 14%. As we do not expect to sell or partially sell any of our solar power plant. The revenue in Q1, mainly comes from the sales of solar modules and the electricity income from the operating solar power plants and their ownership. For the full year 2016, we expect total module shipments of 5.4 GW to 5.5 GW, with approximately 5.0 GW to the third-party customers and therefore recognized into revenue. We expect that the total revenue for the year, to be in the range of $2.9 billion to $3.1 billion. Which above guidance we plan to grow our annual megawatt module shipment are at 15% to 17% from the 2015 level. However different from some of our competitors, our focus is really to upgrade our technology and improvement of our cost structure through selected capacity investment, especially in the midstream solar cell part of the value chain. In particular, we plan to aggressively adopt module crystalline product technology. Multi-crystalline polysilicon technology and diamond in our production in the next two years, have these technology will allow us to significantly increase the sale and module output while significantly reduce the production cost at the same time. We also plan to start production at our new manufacturing site in South Eastern Asia in Q3 of 2016, which same kind of module capacity at 700 MW and 500 MW respectively. These efforts, while its completed will better prepare us for future competitions. Our revenue guidance for 2016, does not include the potential sales of solar power plants, that we currently plan to own and operate OECD markets. Which we expect to reach 1.1 GW by the end of 2016. We estimate the resale value of this asset at approximately $2.5 billion, with gross profit contribution of approximately $355 million. We'll remains flexible on how to monetize these assets in order to maximize shareholder return, and may consider selling some of these OECD solar power plants, in which case the revenue for the full year is expected to be in the range of $3.2 billion to $3.6 billion, an increase of $300 million to $500 million over our base forecast. Meanwhile, we estimate the electricity revenue for these solar power plants, on an annualized run-rate basis to reach approximately $160 million to $170 million by the end of 2016. We've been preparing for the launch of our YieldCo with some of our high quality solar power assets, if the market condition allows. However, we remain flexible and our actively considering several other options to monetize our solar power plant assets. These options include, for example; outright sale of solar power plants, or asset-backed securitization. We believe that our solar power plant assets. In Northeast OECD countries are valuable and highly liquidable. Our goal is to maximize the long-term return to our shareholders. Let me now turn the call over to our CFO, Michael Potter, for a more detailed review of our results, for the fourth quarter. Michael please go ahead. Michael. Potter: Chief Financial Officer: Thank you Shawn. Net revenue for the fourth quarter of 2015 was $1.1 billion, up 31.8% sequentially and up 17.2% compared to the year-ago period. Q4 revenue came in well above our guidance as a result of better than expected pricing environment as well as the partial sale of Roserock and Golden projects. Gross profit in Q4 was $200.5 million, compared to $126.8 million in Q3. Gross margin in Q4 was 17.9% compared to 14.9% in Q3. The sequential increase in gross margin is impart due to stronger than expected shipment volume, stable ASP's and strong gross margin contribution from the US project sales. Total operating expenses were $95.2 million in Q4, compared to $95.9 million in Q3. Income from operations was $105.3 million in Q4, compared to $30.9 million in Q3. Operating margin was 9.4% in Q4, compared to 3.6% in Q3. Net foreign exchange gain in Q4 was $10.4 million, compared to net foreign exchange gain of $4.8 million in Q3. We recorded a loss from fair value of warrants of $8.9 million in the fourth quarter of 2015. The warrants were issued in conjunction with the $180 million in financing arranged by Credit Suisse in Q4 of 2015. These warrants can be settled in cash at the discretion of the holder and as a result they recorded as a derivatives liability which were fair valued at issuance and will be subsequently marked to market at the end of reporting period. As a housekeeping item, there is approximately a $1 million change in value of these warrants with a $1 change in our share price. Income tax expense, in Q4 was $31 million, compared to income tax benefit of $3.9 million in Q3. Net income attributable to Canadian Solar shareholders for Q4 was $62.3 million, or $1.05 per diluted share, compared to a net income of $30.4 million or $0.53 per diluted share in Q3. Moving on to the balance sheet. In Q4 cash and cash equivalents were $553.1 million, compared to $345.8 million at the end of Q3. The restricted cash balance was $581.6 million at the end of Q4, compared to $656.2 million at the end of Q3. Our trade accounts receivable balance was $426.8 million at the end of Q4 up from $431.9 down from at the end of Q3. Inventories decreased to $334.5 million at the end of Q4, compared to $426.4 million at the end of Q3. Short-term borrowings at the end of Q4, totaled $1.2 billion, compared to $1.1 billion at the end of Q3. Long-term debt at the end of Q4 was $606.6 million, compared to$514.3 million at the end of Q3. Senior convertible notes outstanding, totaled $150 million at the end of the Q4. Short-term borrowings and long-term debt directly related to utility-scale solar power projects, totaled $560.6 million at the end of Q4. As this is both the year-end summary and the introduction of our outlook for 2016, I want to touch on the few topics before we open the call for questions. The first topic, is our ability to finance our plans. We have been very careful not to over commit and keep within our financial means. We're able to access to global financing markets and have close financings as we've planned and as we've needed over the past several years. We are deliberately keeping our equity requirements down when we build projects and using amortizing debt and higher levels of debt at the project levels. We maintained flexibility, so we could reduce that debt with more equity, if equity cost are reasonable, but our goal is properly balanced capitals tax, not short-term cash flow metrics for advertising purposes. We also recently close an asset based security structure, for our project in Japan, that financed closed to 85% of the value and a 1.4% coupon rate. This is repeatable for other Japanese projects, it is an example of how we can recycle capital without selling projects. I can say that we have good confidence that we have financing available for both the capacity expense we've planned and the project pipeline to be built in 2016 and beyond. The liquidity pool is very deep, if you are a strong company with good projects. I believe that the plan that Shawn laid out in his remarks are well supported by our financing ability and the ability of the market to provide liquidity. I expect our absolute debt level will continue to rise, expenses we get close to the completion of our USA projects. This debt is all non-recourse and fully supported by the expected cash flow to projects. At the same time we're using our cash and other financings to pay down higher interest debt or to lengthen the maturity of shorter-term debt. As an example, so far we're fast in the market and we've hired $15 million of our convertible bonds in 2016. The bonds are trading below par and represented a good opportunity to efficiently reduce debt. We plan on paying off or reducing several other launch in Q1, and we'll continue to do so in the future. We planning slowly reducing the non-project debt burden overtime. You can be assure that our Management does not plan to over reach and that we've the discipline to effectively manage to our balance sheet. If the cost of equity is reasonable, we're willing to raise some equity financing as well. The recent ATM we launched is an example of that. Future more opportunistic financing and we suspended the program when the share price move below our target price. After that date, we've issued 500,000 common shares at the weighted average price of $27.73, with net proceeds of $13.6 million after discount in commissions but before offering expenses and as we believe that market conditions are very favorable, these program will remain suspended. The second topic is the status of our YieldCo. As you know, from our press release several months ago, we have done a confidential filing of an S-1 with the SEC. The initial filing has been reviewed and we've enter the questions and we've received some further clarifying questions. Based on my experience, I would say this process is fairly advanced, but I also look from experiences not done until the SEC accepts the filing. So I can say the mechanical process is going as I would have expected. The mechanical process is one thing, but market reality is another, the market in general is not perform well in recent times. In addition some of YieldCo sponsors are in some distress and we are fully aware that YieldCo valuations are challenged now as is the IPO market as a whole. The good news is that, we can build our pipeline regardless of the status of the YieldCo market. As indicated in our outlook for 2016, if the market remains challenged, we'll sell some projects and recycle the cash into our pipeline, with the region extension of the ITC in the USA, we've years of development ahead of us and our global development capability is growing stronger than ever before. We expect that we can both maintain the optive of the YieldCo and sell projects at a profit. We continue to believe that the best long-term value for our shareholders is the whole projects and that our lower cost to capital of YieldCo provided by such as a YieldCo is needed to execute on that strategy. The third topic is our ability to control cost and execute on both on our module and energy businesses. Over the last two years, we've been studying the various trade cases and also developing and evaluating technology for our module business. We've reached the point, where we've started expansion both inside and outside of China. There are concerns of our overcapacity in the module business being a risk later this year, but it's important to understand that our main investments are enclosing the gap between our module capacity and our wafer and cell capacity. We expect this to improve margins, and we still have less wafer and cell capacity the module capacity, so we should be to keep some full. I am close to hitting my five year anniversary as CFO here, and I have nine years associated with the Company. Every year I get more confident of our ability to succeed even with all the challenges the industry faces. This is because our global team, including newer team members such as the former recurrent staff are very good and can find opportunities to overcome and exceed the challenges in front of us. With that, I like to stop our prepared remarks and turn the call over for questions. Operator, please go ahead. Question & Answer Operator: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star, followed by one on your touch tone telephone. If your question has been answered or you wish to withdraw your question, press star, followed by two. Please press star, one to begin. Your first question comes from the line of Philip Shen, of Roth Capital Partners. Please proceed. Philip Shen: Roth Capital Partners: Hi everyone. Thanks for taking my questions. You mentioned in your guidance Dr. Shawn Qu: Hi Shen. Philip Shen: Hey Shawn. In your release I think you mentioned that some of your late stage projects, may not receive appropriate permits it may not reach completion. Can you quantify for us, how many megawatt there might be for the year? Dr. Shawn Qu: I believe it's meant to be more for the earlier stage project and that's the just saying that if we have a 10 GW pipeline we're cautioning people that you don't necessarily reach permits and complete everything that's in your pipeline. Philip Shen: Okay. I think you guys mentioned it co-relates to each of them? Dr. Shawn Qu: No, we didn't mentioned, quantify the late stage Michael G. Potter: The late stage we have all of the permits and they are in construction. So, we're not worried about anything that's in construction or about to enter construction. Philip Shen: Great, okay. Just wanted to clarify. In terms of ABS, can you provide some additional color on your views there, and specially from markets outside of Japan and for example, could we see efforts in addition in ABS in the US? Michael. Potter: It's possible we could do it in the US market, it's more effective and efficient in Japan right now because of the interest rate environment. But we do have several financing that have been proposed to us for the US market as well. There is certainly ways to increase the loan to value financing particularly on a portfolio effect in markets like the US and that would allow us to recycle some capital back for the Company. I think our primary strategy in the US would be focused on selling projects, if the YieldCo market remains close rather in doing in ABS link strategy but we could also do ABS in the US. Philip Shen: Okay, great. One more for me here. In terms of your Southeast Asian facility, it looks like you guys increased the capacity goes there from 400 MW to 700 MW in cell and then from 400 MW to 500 MW in module. Just talk to us about the rational there, I'm guessing it's the target for US but if you can speak to that expansion there, that would be helpful? Dr. Shawn Qu: Yes set up for the solar cell I believe we always targeted 700 MW for the Phase 1. As for the module side, 400 MW to 500 MW little different is only a little bit technical calculation we measure the space and we realize we can put in the Arabian value permit and so as we finish not proved yet we've a nominal 700 MW solar cell production in Southeastern Asia and remember we already have a 300 MW of module plant in Vietnam. So, our both of our cell and module capacity in Southeastern Asia will be at 700 MW, 800 MW. So, it's pretty balanced internally. Philip Shen: Great. Thank you Shawn and Michael. Michael G. Potter: Thank you. Operator: And your next question comes from the line of Colin Rusch of Oppenheimer. Please proceed. Colin Rusch: Oppenheimer: Thanks so much guys. Can you talk a little bit about the transition from the assets that in your pipeline into backlog and how that paging is working now that we've got some clarity on the ITC in the US and how should we think about this 2 GW number getting replenished as we go forward? Dr. Shawn Qu: So, the 2 GW number is actually somewhere of a lower estimate but the possibility as we could do in the US. That's shorter-term projects that we have good visibility of that with ITC extension, we certainly got ease your ability to monetize those more quickly over the entire five year extension period and then the commenced construction period afterwards, we believe we'll do better than that and we'll followed the significantly better than that. Colin Rusch: Okay, and then as you think about your options in terms of the financing, can you just give us some metrics in terms what you're looking at and then also if you could just comment on there is $160 million to $170 million in sales from what you're see that run rate at the end of the year. How that about would breakdown into cash flow metrics and so we can have a sense of what the options are for what's the actual cash flow and what you're options are for monetizing them? Dr. Shawn Qu: Yes the electricity revenue is an estimate and it's just based on the OECD projects if we added in all the projects we're operating it would be slightly higher than that as well. For the US projects most of them are tax equity financed and we're planning a new thing amortizing debt, so the actual cash flow produced from the US projects for the first few years is lower. Canadian projects, UK projects and Japanese projects, the cash flow for $1 electricity revenues are lot higher. So we've said in the past, we believe, that we'll have between $50 million to $60 million what the cap fees for the YieldCo and the YieldCo is made up of our OECD projects, so that should you give you a rough indication of what we think we can produce, if we didn't sell any of those projects. Colin Rusch: Okay, I'll hop back in the queue and take a few things offline. Thanks. Dr. Shawn Qu: Okay. Operator: And your next question comes from the line of Paul Coster of JP Morgan. Please proceed. Paul Coster: JP Morgan: Yes, thanks for taking my questions, a few quick one. So I mean the first one is little bit YieldCo but you know, why wait on the decision around the YieldCo why not so postponed it with the for definite period of time right now, I mean the stocks are down few percentage points this morning presumably because the guidance you know continues to withhold the revenue associated with that strategy? Michael G. Potter: I would say the answer to that is that the market is suspended any YieldCo plans for a launch, does not even bit any IPOs worth mentioning outside of the solar space. So we've always made sure we had a plan B and plan C available and we're certainly executing on those. So I mean we have the optionality is that the market window does open up, the SEC process would have moved along and for some reason it does open up we can go on it, if not we've the ability to sell projects recycle capital and our pipeline is big enough, we can just replenish that and keep the option available for the future if it does get better. Paul Coster: Okay, so we should just assume this is going to be a continues stay of a phase now we've got this steady state held back portfolio? Michael G. Potter: Unless for some reason it's conclusive that some form of securitization like a YieldCo just not in the best interest of the shareholders, in which case we'll probably go to selling the projects. Paul Coster: Okay. The -- it sound like you're investing in mono-crystalline mono capacity, can you just share us little bit more about that what end markets is it testing for why should is that particular technology and what kind of cell efficiency we're talking about in commercial volume? Dr. Shawn Qu: Yes, Paul, this is Shawn speaking. For the mono product at this moment we our cell efficiencies approaching 21% and we believe that well as we continue the learning process and eventually the cell efficiency using mono product can go over 21% and few years if we are looking towards 2020 there is a possibility for the mono product to go through 22% to 23% cell efficiency, why as we combined that with other technology for example the for our technology or even more and also the improvement of the sort of wafers. So, yes the second output improvement within the mono wafer and the cost of mono wafer has declined significantly in the past six months. We also see more capacity of the mono wafers coming online especially the right adoption of the technologies and for the market, talking about market, we'll probably launch our mono product based on based modules to some of the high premium market first, one of it, it will be the residential market in Japan and I think in mono product the product will also have an interesting market in China, as the Chinese government has been promoting and promoting and permitting some solar FIT in China and with high efficiency technologies? Paul Coster: Last question, can you talk just little bit about the performance of your China portfolio, is that cash collections meeting your expectations? Dr. Shawn Qu: As you see that, we remain conservative in our own, in the developing and operating our own solar power plants in China and our power plants in general don't have the curtailment issues other than what we have one project in Jiangsu Province outlined dose have some curtailment issues. Other projects being added in the Inland at East Coast, so we don't have curtailment issue and all the projects are facing the delays on the FIT agreement from the finance. So, but because of that, we'll continue to be conservative in during and on the total power solar project in China. However, the overall solar project market in China continue to be strong. So, if you expect to sell high efficiency solar modules third-party customers in china. Michael. Potter: Ironically, the one project we got early approval the FIT is the one in Shinjang which is being curtailed. Paul Coster: Thank you. Operator: Ladies and gentlemen as reminder to ask a question please key star, then one on your telephone and the next question comes from the line of Sheng Zhong of Morgan Stanley. Please proceed. Sheng Zhong: Morgan Stanley: Thank you for taking my question. Just first I want to follow-up with technology. Can you please give a little more color on your detail plan on the road ramp up of the new technology like the PERC how much capacity we do have in 2016? Dr. Shawn Qu: Well, we haven't release that specific number yet, but we do expect to increase our PERC for actually fast. Right now we have -- we are working on a one line, one PERC line of winning capacity and then in by the mid of the year we expect to add more capacity. Sheng Zhong: I see thanks, and my next question is about our projects profit margin. In I see the guidance in 2016 the resale of projects, gross margins is about $255 million and that translate to around gross margin, but in if we look our 2 GW total pipeline, I think the margin resale margin could be much higher. So just want to give a little more sense on our look of the market, if does this mean that the project margin level improved in future years? Paul Coster: I think that the stuff is operating now is actually higher value projects in Japan and Canada and the UK and if we sold those we'd likely to get a higher gross profit, gross margin percentage. The US projects although profitable or lower, we estimate between 10% to 15% gross margin for those projects. So as those projects come online and get included in the bigger metric we talked about, you know, at the end of this year for the OECD operating project, the total gross margin percent would go down. Globally the margins you can realize on projects are of somewhere between the 10% to 15% range in most developed countries right now. Particularly newer projects with newer PPAs it's been more of an a equalization and not quite such a dramatic drop in the cost so it was in prior years which led the higher margins. Sheng Zhong: Very helpful and my last question is about of our project sales target. You mentioned that the YieldCo and you will sell some projects but if I look at your 2016 full year revenue guidance and if I minus the module income that indicate that your project sales revenue is not very high, so that is because you're conservative on your revenue guidance or because you want to maintain more on your balance sheet? Dr. Shawn Qu: Our base guidance of 2.9 to 3.1 did in sales, does not include much of the project sale 30%. So, you're correct, include some China sales, but not many OECD country project sales. We did our cash flow branding we believe that, because our cash flow in the module is expect to be healthy, and also rather we may only have to secure highest mono to $200 million to $300 million project value one way or another. That's why in our guidance we mentioned that if we choose to monetize to recycle this much cash, so the project sales that we may increase the project, increase the total revenue by $300 million to $500 million and we put this number simply because at this moment it seems like we only needs to recycle this much cash, for to us all the extent and overall we believe that because the low interest environment is going probably going to sustain in most of country in the world, therefore the our high quality OECD country project has various good value and that value might may increase as time goes. Michael. Potter: I just say, Japan has negative interest rates they just lowered interest rates and increased stimulus in Europe and they are struggling lots of questions of on the US , if there is still going to be as aggressive as they said last year for any interest rates raises. So the financing market for long-term high quality cash producing assets like solar projects is quite good right now. Sheng Zhong: Very helpful, thank you very much. That's all from me. Thanks. Operator: And you next question comes from the line of Jeff Osborne of Cowen & Company. Please proceed. Dr. Shawn Qu: Hi Jeff, are you there. Operator: Jeff please check your phone is not on mute and go ahead, you're in the call. Okay. So we move on to next question which comes from the line of Carter Driscoll of FBR . Please proceed. Carter Driscoll: FBR & Co.: Good morning. Just to clarify, so in terms of the timing of some of the projects that you may potentially sell, I mean is it fair to say that, it's directly related to the plans or the cooperation of the equity markets in terms of when you may or may not to YieldCo, I mean is that the way we should be thinking about it is, that looks like the capital markets aren't co-operating we could anticipate maybe increasing sales on a quarterly basis or maybe just give your additional thoughts on how the two are not directly related? Michael G. Potter: Yes. It likely be in the second half of the year, and I don't think most people expect the capital market to improve particularly dramatically very quickly this year. So, we're working on selling project as one of our main plan and we have several other alternatives such as after tax securitization or other forms of recycling capital. So, the $300 million to $500 million would be a sort of second half for the year indication and it really depends on people's feeling so what's going to happen to the capital market that. Carter Driscoll: Got it, okay. Michael G. Potter: So if the capital market remains close to do a YieldCo IPO we'll be selling project. Carter Driscoll: Got it, okay. So, it's between your base and your extended guidance is really where we should be thinking if we have a view point that YieldCo isn't going to open up in two half '16 is that fair to say? Michael G. Potter: Yes, and we're actively working to sell these projects now. It's not like we think we'll work on it later. I mean, we're actually doing, what we need to do. So, when we get there, we can sell them relatively quickly. Carter Driscoll: Understood. Michael G. Potter: Some power point plan we can actually plan for that Carter Driscoll: Understood, and then just maybe a quick follow-up, so obviously, some of your competitors directly you directly address in your prepared remarks talked about, module and the capacity in the second half of the year, obviously you guys you're confident because of the match that, that should be a problem but wanting other competitors talked about some project, push out related I'm assuming directly to the ITC extension as people are not quite in rush. Can you, you know, may be characterize what you're saying may be for the second half of the year is that a better characterization you're not seeing quite the rush you did before and then, would that be directly related to what may be your competitor was talking about in terms of module pressure? Dr. Shawn Qu: We think as a whole, 2016 is still going to be a strong year. For 2017 as some of the third-party market research firm indicated there might be a slowdown, some kind of slowdown in the US market, although that the ITC extension has resulted in some project being pushed into 2017. Now probably help to smoother this year-to-year change a little bit. So what we do in 2016 timing, we can certainly sell more module and we guided 5.4 gigawatt to 5.5 gigawatt on module shipment and I guess it will really want to sell more than a 6 gigawatt as some of the competitors, now we can do that. Forever I don't think that should be our focus. So our focus for 2016, is to maintain a reasonable and steady growth on the shipment. That growth we'll see growth on the 4.7 gigawatt also 2015 shipments to 5.4 gigawatt to 5.5 gigawatt, so, about 15% to 17% of the shipment growth. Now, meanwhile we want to emphasize, we want put focus on the upgrade of the technology and also some expansion of our cell and wafer internal capacity rather than focus too much on the module capacity and I believe by doing so, we can like factory renewals from any market change. So, basically we're not that aggressive in the total module shipment growth but we rather could emphasize to increase our internal wafer and cell capacities to increase the level of internal integration therefore we have a better margin structure. So, even if some of the over capacity does happened at somehow other solar company indicated all started will make us better prepare for that than our competitors. Carter Driscoll: And just lastly in terms of the timing all the expansions on the same time frame as you discussed that of last quarter is that fair is there anything slipped or been pulled in? Dr. Shawn Qu: Well it's very much out carry on. Carter Driscoll: Got it. Thank you, I'll get back in queue. Appreciate you time. Dr. Shawn Qu: Thank you. Operator: As a reminder, ladies and gentlemen to ask a question please key star, than one on your touch tone telephone and the next question comes from the line of Paul Coster of JP Morgan. Please proceed. Paul Coster: JP Morgan: Yes, I'm sorry to jump back on but Michael I didn't really understand the answer to the question that supposed to by the Morgan Stanley Analyst about the late stage pipeline which seems of sort of 19% in gross margins and the held back projects which have a 14% gross margins. Why is it the margins are increasing again? I didn't understand your point. Michael. Potter: The projects that are in operation at the end of 2015, are Canadian projects, Japanese projects and UK projects. Those projects are higher gross margin on average then the US projects. When you get to the total number of over 1 gigawatt which is used to represent the projects we're holding, that includes the US projects and those have lower gross margin percent and they would bring the overall margin down. Paul Coster: JP Morgan: Got it, but why does the margin didn't jump up for the 2 gigawatt? Dr. Shawn Qu: Yes, Paul, in our current holding projects to include a significant portfolio in China and because of the hitting the delays on hitting power agreement, we expect a lower resale margin for those projects, out of about 400 megawatt of current operating project over a 200 megawatt are in China and this one is we assume a lower resale margin and in the new pipeline, you know pipeline to be adding in this year, we have disclosure from Japan and also from UK. These projects have higher gross margins. Now, meanwhile, it also have some closure in US, and the US project doesn't have very high gross margin. US project the resale gross margin will be in 10% to 15% but the Japan project and UK project do have a higher resale gross margin. So, average the resale gross margin for the future pipeline is higher than what we are holding right now. Paul Coster: Alright, thank you. Dr. Shawn Qu: That answers your question. Paul Coster: Not really, I am so sorry, to live with the point but you say $150 million of gross margin on $4.5 billion associated with that 2 billion late stage 2 GW of late stage pipeline that's 19% gross margin, it doesn't never seen doesn't looking forward that. Dr. Shawn Qu: Just take a look at Japan its 580 MW there. Paul Coster: Okay. Michael. Potter: So if I look at the numbers on the press release it says that the resale value the operating power plants is exceeding 20% they're currently operating power plant have a lot of Japanese and Canadian and UK and no US. As a percent it goes down in the grand total number but we do have more Japanese projects when you build all of them out to the end of 2020, I believe is what our chart says. If you include all of the Japanese projects and we don't have COD for any US project have 2016 in this number. So, you can calculate a higher gross margin on that because of the high Japanese contribution. If you start adding in US projects, our gross margin percent is going to go down. Paul Coster: So just one last question, I am so sorry. You're looking at growth for both module and the power plant business this year. Is there a relative emphasis on one versus the other? Michael. Potter: I'm sorry I want to make sure, I understand your question, are you talking about growth. Paul Coster: Future growth in modules and the module business and in the power plant business this year, is there a relative emphasis on one versus the other moving forward? Michael. Potter: I think the emphasis on the module business is steady growth and augmenting the technology and increasing the investment in wafer and cell. Capacity we're falling well below 50% cell capacity compared to module capacity in our module business and that's mainly been because we've been waiting until we had the technology road map ready and able to go into mass production and now we're starting to invest into that. For the energy business, we certainly are going to be investing a lot into growing our US pipeline, it won't be a 2016 item but '17 and onwards so be quite a big growth in our US pipeline as the development efforts starts bringing that into a closer focus and the PPA start lining up. Japan we're going to be focusing on executing on our current pipeline and for most other regions of the world it will be built in cell for example Brazil, there will be construction activity in '16 but most of the selling will happen in '17. Paul Coster: Okay. Thank you. Operator: I would now like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu, for closing remarks.