U.S. Markets close in 5 hrs 56 mins

Edited Transcript of CSIQ earnings conference call or presentation 30-May-19 12:00pm GMT

Q1 2019 Canadian Solar Inc Earnings Call

KITCHENER May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Canadian Solar Inc earnings conference call or presentation Thursday, May 30, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Huifeng Chang

Canadian Solar Inc. - Senior VP & CFO

* Mary Ma

Canadian Solar Inc. - Senior Supervisor of IR

* Yan Zhuang

Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions

================================================================================

Conference Call Participants

================================================================================

* Brian K. Lee

Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst

* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Mark Wesley Strouse

JP Morgan Chase & Co, Research Division - Alternative Energy and Applied & Emerging Technologies Analyst

* Philip Shen

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentleman, thank you for standing by, and welcome to Canadian Solar's First Quarter 2019 Earnings Conference Call. My name is Albert, and I'll be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mary Ma with Canadian Solar's IR department. Please go ahead.

--------------------------------------------------------------------------------

Mary Ma, Canadian Solar Inc. - Senior Supervisor of IR [2]

--------------------------------------------------------------------------------

Thank you, operator, and welcome, everyone, to Canadian Solar's First Quarter 2019 Earnings Conference Call. Joining us today on the call are Yan Zhuang, our acting Chief Executive Officer; and Dr. Huifeng Chang, our Senior Vice President and Chief Financial Officer.

Before we begin, may I remind our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and the 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 form 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's call. 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 our CFO, Dr. Huifeng Chang. Huifeng, please go ahead.

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Welcome, everyone, to our Q1 call. Earlier, we sent out a press release that explains why Shawn cannot join us on this call. Shawn is resting at a rehabilitation center in Beijing from a recent physical injury. He has been in constant communication with us during this period. He asked me to tell you the regrets for his absence. He is recovering well, and he looks forward to speaking to you soon. Shawn knows that we all miss him. So via telephone, he hopes to speak at our Solar Future Forum to be held in New York City on June 20. He says that he appreciates your support over years, and he looks forward to speaking to you soon.

To allow Shawn and his family to focus on recovery and ensure continued operations without disruption, our Board decided to appoint Yan as acting CEO. We are delighted to have Yan speak about our Q1 results. Many of you have met with Yan and are familiar with him already. Yan has worked for Canadian Solar for over 13 years. In 2006, he served as a Director of Canadian Solar. In 2009, he became Vice President of Global Sales and Marketing and was later promoted to Chief Commercial Officer and President of the MSS business. Yan has worked extremely close with Shawn and fully understands the operations of the company. We are in good hands during this interim period. With that said, let's welcome Yan.

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [4]

--------------------------------------------------------------------------------

Thank you, Huifeng. We appreciate everyone taking the time to join us today. The takeaways from Q1 are; one, we delivered module shipments, revenue and gross margin above expectations; two, our core business remains strong with demand increasing in key markets worldwide; three, ASPs have been relatively stable; and four, we remain fully on track to monetize the majority of our 3.4 gigawatts late-stage pipeline in 2020 or later. We told you last quarter, there would be a pullback in Q1 compared to Q4. This healthy pause came after we achieved close to 140% growth of net profit in 2018 from the 2017 LIBOR. There were a number of external factors that impacted our overall financial performance. These included the acceleration of some high-profit project sales from 2019 into 2018. The appreciation of RMB, lost manufacturing days related to our ERP system upgrade and the impact of Chinese New Year on production and sales volume. Even with these headwinds, our total solar module shipments for Q1 were 1,575 megawatts with gross margin of 22.2%. Total revenue for the quarter was $484.7 million compared to 1,951 megawatts in Q4 with revenue of $901 million.

In Q1, revenue from our MSS business was $453.1 million, gross margin was $21.6 million and operating income was $19.5 million. The better-than-expected gross margin benefited from a lower blended module manufacturing cost and stabilized average module selling price. We continue to benefit from our premium brand, which helps offset some price pressure, customers by reliability, quality and performance. We are also pleased with interest in our high-efficiency modules such as BiHiKu, HiKu and HiDM. As we announced yesterday, we find a multiyear module supply agreement with EDF Renewables North America to deliver 1.8 gigawatts of our efficiency BiHiKu and modules to EDF's projects in the U.S, Canada and Mexico. This is the largest single module supply agreement in our company's 18 years of history. Our high-efficiency products continue to gain popularity with customers due to the higher ROI. This is important to Canadian Solar because we prefer to sell as a quality solution, which carries an ASP premium.

We also continue to carefully invest in R&D and capacity to make sure we have the higher efficiency solutions customers want. This is another competitive advantage for us. We have the scale to support our R&D roadmap even in a softer period. We remain on track to convert all of our cell capacity both poly and mono into the PERC technology by the end of this year.

In addition, we are pleased with the progress of our P4 cells, i.e., cells with casted mono -- sorry,

P5 cells, i.e. cells with casted mono technology that can have close to mono efficiency while still enjoying the cast advantage. With that, a new world record of 22.28% for the conversion efficiency for our P-type multi-crystalline P5 cells when tested in April. Further, we are also pleased with our progress, with our EPC business and O&M business. We now have 966 megawatts of EPC projects under execution and a growing O&M portfolio for -- of over 2.6 gigawatts contracted projects globally. Our energy business also continues to make solid progress despite the timing of project sales I noted earlier.

To give you a few examples. During Q1, we sold a 10-megawatt solar power plant in China and 4-megawatt solar power plant in Japan. In April, we entered into agreement to sell 80% interest in our 482.6 megawatts late-stage portfolio in Brazil, and we expect to close the sales in coming months. In May, we completed the sale of the 134 megawatts Mustang solar power plant in the U.S. and the sale of our 68-megawatt solar power project in Mexico.

As you know, we take a long-term view on our business. We're working to close project sales and manage our module business. At the same time, our strategy relies on successfully recycling our capital to replenish our late-stage project pipeline. We continue to use a strict criteria to help us ensure higher ROI projects. To give you a few examples. In March, we signed a power purchase agreement on a 280 megawatts project in Texas and a 235 megawatts PPA on the Slate project in California. We also signed PPAs in Canada and Israel, among others. Our portfolio of late-stage utility-scale solar power projects as of April 30, 2019, including those under construction, was approximately 3.4 gigawatts. Our projects in operation as of April 30, 2019, total 984 megawatts with an estimated resale value of approximately $1.2 billion. Our goal is to build and sale these projects at COD or to sell them before COD, either at NTP or before NTP based on the market conditions.

Due to the typical development cycle, we expect to realize sales for the majority of our current 3.4 gigawatts late-stage project pipeline in 2020 or later.

Now let me comment on our guidance for Q2 2019. We currently expect total Q2 module shipment to be in the range of approximately 1.95 gigawatts to 2.05 gigawatts, including 50 megawatts of shipments to our own utility-scale solar projects. We expect the revenue for the second quarter of 2019 to be in the range of $970 million to $1.01 billion. We expect the gross margin for Q2 to be between 13% to 15%. Gross margin, this gross margin reflects a higher contribution of lower-margin project sales.

Overall, our fundamental business remains strong, led by a healthy demand and stable price. We view Q1 2019 as a onetime bump in our near spotless record of consistently delivering profitable results in both up and down markets.

We're working to achieve improving results through 2019 and longer term, and we are actually very optimized about the rest of the year. And we think we have a very good chance to meet and even beat the previous full year's module shipment guidance.

In our MSS business, we're currently running at about 50% to 60% of our long-term capacity booked. We have historically left some capacity to meet the needs of higher-margin near-term sales. This has been a successful strategy and remains an important element of our planning, execution and track record of success.

Let me now turn the call back to our CFO, Huifeng Chang, for a more detailed review of our results for the first quarter. Huifeng, please go ahead.

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [5]

--------------------------------------------------------------------------------

Thank you, Yan. Our results for the first quarter were above our expectations. We achieved better-than-expected total margin shipments, gross margin and revenue was on the high end of our guidance.

Although Q1 net income was impacted by issues Yan mentioned earlier, the issues like lost manufacturing days from the ERP system upgrade will not repeat in Q2. We also expect Q2 to benefit from increased project sales, higher volume of module sales and the depreciation of RMB.

Now allow me to go over the details in the financial numbers. Net revenue for Q1 was $484.7 million, down 46.2% sequentially from Q4 and down 66% compared to year ago period. Net revenue for Q1 was comprised of $453.1 million from our MSS business and a $31.6 million from our Energy business.

This reflects the pour in of projects into Q4 from Q1. Gross profit in Q1 was $107.4 million compared to $271.3 million in Q4 and $143.9 million in Q1 last year.

Gross margin in Q1 was 22.2%, compared to 30.1%, including the benefit of the CVD reversal of $16.1 million in Q4 or 28.3% excluding the CVD reversal benefit and 10.1% in Q1 last year.

Total operating expenses were $100.8 million in Q1 compared to $134.7 million in Q4 and $65.7 million in Q1 of the prior year. The sequential decrease was mainly driven by bad debt reversal and the lower sales commission. A year-over-year increase was due to less contribution of other operating income related to the project sales.

Income from operations was $6.6 million in Q1 compared to $136.6 million in Q4 and $78.2 million in Q1 of last year.

Operating margin was 1.4% in Q1 compared to 15.2% in Q4 and 5.5% Q1 of the prior year. Foreign exchange loss in Q1 was $12.6 million compared to a gain of $7.3 million in Q4 and a loss of $8.5 million in Q1 of the prior year.

We recorded a loss on change in fair value of the derivatives of $1.3 million in Q1 compared to a loss of $7.3 million in Q4 and a gain of $4.5 million in the first quarter of 2018.

Income tax benefit in Q1 was $7.5 million compared to income tax expense of $36.7 million in Q4 and income tax expense of $4.1 million in Q1 of the prior year.

Net loss attributable to Canadian Solar shareholders for Q1 was $17.2 million or $0.29 per diluted share compared to net income of $111.6 million or $1.81 per diluted share in Q4 2018 and a net income of $43.4 million or $0.72 per diluted share in the first quarter of 2018. This is the first year loss for the company in 5 years.

We reported a loss prior due to a government error that was later reversed. But we view Q1 as a bump in our near spotless record of delivering profitable results in the up and down markets. And as Yan noted in the outlook, we expect to achieve great improvements moving through 2019.

Now moving on to the balance sheet. At the end of Q1, our balance sheet of cash and cash equivalents was $370.2 million compared to $444.3 million at the end of Q4. Our restricted cash balance was $542.2 million at the end of Q1 compared to $496.7 million at the end of Q4.

Inventories at the end of Q1 were $385.1 million compared to $262 million at the end of Q4. Inventory turnover was 81 days in Q1 compared to 44 days in Q4. Short-term borrowings and a current portion of long-term borrowings on project assets at the end of Q1 totaled $1.4 billion compared to $1.3 billion at the end of Q4.

Long-term borrowings at the end of Q1 were $433.5 million compared to $393.6 million at the end of Q4. Total debt at the end of Q1 was approximately $1.92 billion, of which $765.6 million was nonrecourse. Short -- and the short-term borrowings and long-term borrowings directly related to utility-scale projects, which included $475.9 million of nonrecourse borrowings totaled $735 million at the end of Q1 compared to $735.1 million at the end of Q4.

Finally, we repaid the entire $127.5 million outstanding balance of our senior convertible notes in February 2019.

Overall, we exited Q1 in a strong business and a financial position. We'll continue to carefully manage our pipeline in order to secure the highest return for -- from our assets. We remain focused on driving profitability and building value for our shareholders.

With that, I now would like to open the call to your questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Brian Lee from Goldman Sachs.

--------------------------------------------------------------------------------

Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [2]

--------------------------------------------------------------------------------

Maybe first on the gross margin in the quarter, quite a good result, 22%. Guidance I know is lower here for the second quarter even excluding the project impact. But as you mentioned, you have a view of increasing profitability moving through the year. I know you're probably talking about the EPS line. But what should we think about in terms of the gross margin trend as we move through the second half of the results you're seeing here and a good Q1 and a slight downturn in 2Q?

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Okay. Thank you, Brian. First of all, this guidance for Q2 gross margin includes both the module business and the project business. And then now, already 2 months have passed in the Q2, and the last 2 months we closed a significant-sized project of Mustang, which actually we have publicly announced sold to your firm, Goldman Asset Management, and that project is sold at total enterprise value, which means the size of the transaction is our cash equity plus tax equity and plus the debt. So in that case, the denominator is huge and the profit, the numerator is unchanged. So that transaction pulled down the guided Q2 profit margin significantly. But in the meantime, we also closed a project in Mexico, which is also a COD sales. Also, in that case, the denominator is the entire value of the project size -- project asset and then, of course, the numerator is profit. So those 2 transactions have a significant impact on the gross margin in the guidance. But overall, the module business at least at this -- till this point 2/3 of Q2 have passed. I think we are making good healthy profit and not only the ASP price has remained strong, but also on the cost side, we did a good job in lower the cost.

And then maybe later on Yan can talk about these view in -- for the second half of 2019 for the module business. Thank you, Brian.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Your next question comes from the line of Philip Shen from Roth Capital Partners.

--------------------------------------------------------------------------------

Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5]

--------------------------------------------------------------------------------

First one is on the context and situation around Shawn. I was wondering if you guys might be able to provide a little bit more color on what happened? And also, perhaps, some sense of timing as to when he could return? It seems like he still may be recuperating through much of June given your comments about him calling into a conference? So any more context there would be great.

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [6]

--------------------------------------------------------------------------------

Thank you, Phil. We can discuss with you here about Shawn's abilities related to his CEO function, but there is a respecter for the privacy for the family. I can tell you that I went to the rehab center last week and talked to Shawn. He is in a good shape. I was told that throughout the process from the day that the accident happened and till today, Shawn has never lost consciousness. He is always clear what is happening and communicating with people. And then he is recovering very fast. Actually, he can -- I talked to him almost every day in the last 10 days. The only issue is that his voice -- the quality of the voice is hoarse or cracked or throaty. So he preferred to stay and resting at the rehab center in Beijing instead of joining on the call today. But I was told that any day he can be on the phone with you guys, and also he has the capability of reading and responding some simple e-mail. But I think for Shawn and for the family, at this point, the priority is recovery. And I'm sure that in the very near future, especially he told me that he hopes to speak to you guys over the phone for our Solar Forum -- Solar Future Forum to be held in New York on June 20. So we are confident that Shawn will be back with us very soon.

--------------------------------------------------------------------------------

Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [7]

--------------------------------------------------------------------------------

Great. Well, and we wish him our best and a fast recovery. Shifting gears to ASPs. We calculated a rough module ASP in Q1 of about -- maybe $0.26 or $0.27. Can you talk to us about is that -- what was the ASP in Q1? And what the expectations are for Q2 and the back half of the year?

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [8]

--------------------------------------------------------------------------------

Well, for Q1, actually, our ASP was around $0.30, fees price, contract price, ASP is around $0.30. For Q2, we have a margin guidance. ASP-wise it's lower than Q1, but it still maintains strong. That's all I can tell you. So as I mentioned that the ASP has been stabilized with, I will say, stable decline but stable.

--------------------------------------------------------------------------------

Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [9]

--------------------------------------------------------------------------------

Okay. Great. And then as it relates to the outlook for China demand, do you expect a ramp-up of activity in Q3? And then strength in Q4? And just give us your view on when do you think the NEA will provide greater clarity on the project list for subsidies for the back half of the year? And how demand should evolve?

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [10]

--------------------------------------------------------------------------------

Well, actually, we have both the great parity projects and the subsidized bidding projects policy also just came up today. So now we have clarity. So according to our analysis, the rooftop, residential rooftop is around 3 gigawatts for this year and the 2019, we're talking about the subsidy projects is 11.5 gigawatts and also there's something about 2020 projects, 20 gigawatts. And we have this -- sorry, this is 2020 --sorry, this -- it's around 3 gigawatts of residential. Then we have this subsidized utility-scale project, which is 37.5 gigawatts. But we have to assume that a rough -- a significant portion of that will be dragged -- slip into next year. As always, we know China. That's always a great spirit that when people cannot connect on time, they slip into next year. So we also have this poverty alleviation projects. We have this top running projects. So also national grid-parity projects. So also something more is the self-consumption projects without the necessity of permits and subsidy. So that also has a pretty big -- gigawatt level of demand. So the total is like 50 gigawatts, but if you like take a discount on module supply so we come up with around 40 gigawatts of the total demand for 2019. So this is our number. So since we only installed until now 7 gigawatts installed. So we believe in Q2 -- in Q3 and Q4, the demand should be high. At a certain point, there could be a shortage that -- which would drive up the price by like 10%, something like is that very possible. So not too strong when the -- not too sure when the rush will start, maybe September, maybe October, we don't know. But we are closely monitoring the situation, and Canadian Solar has been very good at monitoring and control our pace for order closure and the price guidance, so to maximize our profit. So we've been keeping very close monitoring for -- of the situation.

--------------------------------------------------------------------------------

Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

--------------------------------------------------------------------------------

Great. Thank you for all that detail, Yan. Why, if the policy is out, do you think the rush would start so late in September, October? Could it -- why not -- why would it not start earlier?

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [12]

--------------------------------------------------------------------------------

Well, first of all, that's my only personal judgment that they may start September around there. Because the effective date of the reverse auction bidding, the policy effective date is July 1. So people would need a little bit time to prepare until they need module. So it's not all projects are not ready to be built right away. So that's why I believe that people will still need a couple of months before actually they need module to be shipped.

--------------------------------------------------------------------------------

Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

--------------------------------------------------------------------------------

Okay. Great. One last housekeeping question. You didn't mention officially the full year guidance that you gave last quarter. Is that reiterated for -- in this quarter? So you still are keeping that guidance for the year?

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [14]

--------------------------------------------------------------------------------

Yes, we're keeping the guidance for the year with confidence. And we are also optimistic about second half demand.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Your next question comes from the line of Colin Rusch of Oppenheimer.

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [16]

--------------------------------------------------------------------------------

Could you talk a little bit about the shifting dynamics with your customer base? What's happening there? It seems like you maybe are seeing some larger customers. But I would love to get a sense of what the customer base is starting to look like, and what it looks like going forward if you're going to be dealing with a fewer number of larger customers? And then if you can comment a little bit about some of the geographic exposure as you're going into 2Q and 3Q, what sort of mix you're looking at into the U.S. versus Europe?

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [17]

--------------------------------------------------------------------------------

Well, that's a good question. Actually, we have been over time -- over a number of years, we've been trying to develop our channel strategy. So we tried to really more selective and more efficient on the module -- on the channel side. So in all the mature markets, we have a separate direct selling team that are selling small-volume orders to smaller customers by piping the channel to achieve premium pricing. So that alone actually today -- so we have that in U.S., Europe, in Brazil, in China, and also in Australia and Japan. So all the direct channel worldwide gives us like 30% of our total shipping volume with a significant price premium of -- I can't give you too much detail, but it's a significant price premium. And so that's -- on top of that, we also have priority allocation of our capacity to higher-priced markets like Japan, like Australia, like Europe, U.S., even Brazil is also our premium market. So that also has incremental volume that is -- enjoys a healthy pricing. And also, as you know, we have our own project team. So our own project needs module. And on top of that, we also have our -- starting from end of last year, we have a significant -- we have made a significant progress on setting up our own turnkey UPC business. So as I mentioned, we have closed 1-gigawatt projects that are under execution on turnkey UPC. That actually alone -- also, all the modules we ship to those projects has also very healthy pricing. So if you put -- add up all those volume, whatever left is the capacity that we will have to compete in the competitive market. So we have the luxury to be more selective on who to sell those capacity. This is one important strategy for the company to maximize our profit. But having said that, of course, we need to balance between just profit with also cash flow, right? Payment terms is also important like India is up from LC. China, for us, is all up from pay. And also the shipping time which is the inventory turnover. So we need just have to balance all the factors to optimize our business in terms of profit and cash flow.

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [18]

--------------------------------------------------------------------------------

Okay. That's helpful. Just turning to the balance sheet. Are there adjustments that you guys would like to make in terms of optimizing the capital structure for the company, reducing debt expense? Are there opportunities for that as you look through the balance of 2019?

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [19]

--------------------------------------------------------------------------------

Colin, this is Huifeng. Overall, compared to 12 months ago or even 24 months ago, our balance sheet is in much, much better shape and that's a result of almost over $2 billion worth of Solar assets monetization. And then we paid off the convertible and also USD 150 million loan to a Chinese bank early this year in Q1. So now talking about debt-to-asset ratio, I think that we're now in the lower 70s -- 70%. However, on the cash flow side, we're also doing better than 12, 24 months ago. Recently, we finally received the tax refund from the U.S. Federal Government IRS, which is a significant number. However, with that said, we have more project opportunities in the pipeline and also in the market available for us to bid. I can tell you that our teams in different regions, they compete for the limited capital we have at the corporate. They want -- everyone wants to do more project, do more business in their market that we have to optimize at the corporate level. And so for that we are open to find people in the form of either partnership or loan or whatever so that we can do more projects. The projects basically continue to be healthy and then Q1 this year, 2019, is a season of drops, you guys can see the number. But for Q2, we started picking up in project sales and then Q3, Q4 will be much higher. Now there are news out there in the market that we are selling projects in the U.S., selling projects in Japan, et cetera, et cetera. We are not confirming these news, but that's our business model. We already shifted from COD sales to NTP sales and seems like things are getting better and better. We are doing more projects in every major market in the world. Thank you.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Your next question comes from the line of Mark Strouse of JPMorgan.

--------------------------------------------------------------------------------

Mark Wesley Strouse, JP Morgan Chase & Co, Research Division - Alternative Energy and Applied & Emerging Technologies Analyst [21]

--------------------------------------------------------------------------------

We'd also like to wish Shawn a speedy recovery. So most of our questions have been asked already, but I think just wanted to talk about your project sales, the majority of which you said are scheduled for, for 2020 or later. Can you just talk about the willingness or the appetite to sell those on a -- earlier in the process, perhaps, at NTP versus at COD? And just kind of get a -- trying to get a rough sense of what your expectations are that's baked into 2019 guidance?

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [22]

--------------------------------------------------------------------------------

Mark, I guess, this is probably either your second or first participation into our earnings call. I look forward to see you in person in New York. To answer your question, let me talk about 2 sides. From us, the seller side and also the other side, the buyer side, and also different markets. Overall, from us, the better use of our capital is still in the development stage, not to own the assets because there are a lot of people in the world that their capital cost is much lower than ours. So we want to take more development opportunities instead of owning the assets with our limited capital. But also, there is another reason of cash flow management because a lot of projects when you started construction and during the project life, it eats up lots and lots of capital. And we want to avoid that and we want to get investors in earlier so that they pay for all the costs in the construction period. And then from the buyer side, in the past, especially, when we were selling the 6 huge projects in the U.S. mostly in California, and then we had a public auction and then many of our partners, the buyers, they paid hefty professional fees, but at the end they didn't win the bid and -- which created some kind of awkward situation. So we have been many times told by our buyers that they wish that they can move in earlier in the project stage. So that, in other way, they also can make a higher IR return on the project that is to be developed versus the COD projects. And for us, usually, even now we do NTP sales, that when we sign contracts, the PSA with the buyer and at the same time we sign a module supply agreement, we sign the EPC, so we still get the benefits to run the project and to supply the modules, such as our project in Mexico is a typical example. And also there are other projects in Argentina. So we become more and more supply our own modules to our projects all around the world. It's perfect synergy between the project business and the module business. And overall, in terms of valuation, as you can see that the 10 Year U.S. Treasury interest rates actually are trending ahead and again to the downside. Now I guess, it's about 2.2%, 2.3%. And a year ago, when it was around 3%, people were talking about, may go back to 5%. Obviously, if that's the case, that's a negative factor for our asset value. But now long-term interest rate keeps coming down. And there is a lot of money in the world pension funds, insurance company, even the investment banks on Wall Street such as Goldman, such as Deutsche Bank, Morgan Stanley, JPMorgan, they all have formed the internal solar asset management group and they've become our clients. And then the traditional energy companies such as Duke, such as AES, et cetera, they are also moving into the renewables space and how they do that, they start first by buying solar projects. So the demand is there. I think it will be there for at least the next 5 to 10 years, not a problem. So in that sense, our partner business we will continue to enhance putting more investment and make the team stronger. And now we have gained a lot more experience in the emerging markets, and we are now looking into new opportunities in the markets such as Southeast Asia like the Philippines, Sri Lanka, Thailand, Vietnam, but also, now we have a huge pipeline in Australia. So 2019 is really the year for another cycle of growing our project business. We have significant projects to deliver in 2020 and 2021. And that's included in our press release. If you have more questions, I'm coming back to New York the week after, after the SNEC Conference in Shanghai, and I'll be happy to see you in your office.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from the line of Alex Liu from UBS.

(Operator Instructions) There are no further questions at this time. I would now turn the call over to the management. Thank you.

--------------------------------------------------------------------------------

Yan Zhuang, Canadian Solar Inc. - Acting CEO, Senior VP, Chief Commercial Officer and President of Modules & Systems Solutions [24]

--------------------------------------------------------------------------------

So we thank you for your continued support. If you have any further follow-up questions, please contact our Investor Relations. Have a great day.

--------------------------------------------------------------------------------

Huifeng Chang, Canadian Solar Inc. - Senior VP & CFO [25]

--------------------------------------------------------------------------------

Have a great day. See you guys in New York.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.