Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2025 Earnings Conference Call. My name is Chuck, and I will be your operator for today. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Winna Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome, everyone, to Canadian Solar's Third Quarter 2025 Conference Call. Please note that today's conference call is accompanied by the company's slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar; Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively, and Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook after which we will have time for questions. Before we begin, I would like to remind listeners that management's prepared remarks today as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties.

Thank you for joining our third quarter earnings call. Please turn to Slide three. In the third quarter, we delivered 5.01 gigawatts of solar modules in line with our guidance range. In our energy storage business, we achieved a record quarterly shipment of 2.7 gigawatt hours. Total revenue reached $1.5 billion, landing at the high end of expectations. Gross margin was 17.2%, exceeding guidance, primarily due to strong contributions from energy storage shipments. We also achieved a higher share of module deliveries to the profitable North American market. Our solar module factory in Mesquite, Texas, which has now successfully ramped up, contributed meaningfully to both shipment volume and margin. Absent nonrecurring expenses from the previous quarter, operating expenses normalized and we reported net income attributable to shareholders of $9 million or a net loss of $0.07 per diluted share due to the impact of paid-in-kind of our preferred shareholder of Recurrent. Now please turn to slide four. The solar industry is at an inflection point, and antitrust policies in China are gradually taking effect. Market conditions have stabilized following the most challenging phase of the solar downturn. A complex macro environment presents both challenges and opportunities. This year, during the anniversary celebration of Canadian Solar's twenty-fourth birthday, I reflected on how we have grown with technology innovation, business model evolution, and global diversification. Today's shifting geopolitical landscape allows us to once again differentiate ourselves through our resilient combination of strategy and execution. Most notably, we are making strong progress in our US manufacturing investments. Phase one of our solar cell factory in Indiana is expected to begin production in 2026, while phase one of our lithium battery and energy storage factory in Kentucky is on track to start production by the end of 2026. These factories will strengthen our US supply chain, support domestic energy security, and reinforce our long-term commitment to the American market. At the same time, we are planning adjustments to our US business to comply with the One Big Beautiful Bill Act. We are progressing smoothly, and I remain confident we will be able to successfully position ourselves to continue servicing our US customers. The rise of AI-driven data centers is fueling unprecedented global electricity demand. As I have emphasized in my public speeches over the past two years, the most flexible and cost-effective solution for powering data centers is solar plus storage. In contrast, traditional energy sources such as natural gas and nuclear power require long construction cycles and have limited scalability. We are now working closely with multiple data center customers to develop deeply integrated solutions. This requires advanced system engineering where our technical expertise provides a strong competitive advantage. I'm also pleased to share the significant progress we have made in our emerging business segments. Residential energy storage is on track to become profitable in 2025. We have seen strong growth for our residential energy storage product in Japan, Italy, and the US, and we are expanding into new markets like Germany and Australia. This marks a major milestone for our energy storage strategy and demonstrates how we are successfully broadening our revenue base beyond utility-scale applications.

Thank you, Shawn. Please turn to slide five. In 2025, module shipments totaled 5.1 gigawatts, in line with expectations. Earlier deliveries to two energy storage projects shifted volumes from the fourth quarter into the third. This led to our largest quarter to date, with 2.7 gigawatt hours of storage shipments. Revenue was $1.4 billion, and gross margin decreased by 730 basis points to 15%. The sequential decline was driven by margin changes seen in both the solar and storage businesses. In solar, incremental upstream price increases and underutilization raised unit costs, while module pricing in most global markets remained low. In storage, second-half margins reflect contracts signed at more normalized levels, and the volatile tariff environment drove incremental cost increases. Without last quarter's impairments and benefiting from internal cost controls, operating expenses decreased sequentially from 15.3% of revenue to 12.3%, and we delivered $39 million of operating income. Please turn to slide six for an update on our energy storage businesses. In the third quarter, we recognized revenue on 2.7 gigawatt hours of storage solutions. Our deliveries reached countries across North America, Europe, the Asia Pacific, and Latin America. As of October 31, our contracted backlog, including long-term service agreements, increased to $3.1 billion, supported by newly signed projects in North America and Europe. We continue to build momentum in our established markets while entering new ones. In Canada, we signed supply and twenty-year long-term service agreements with APA Power for the Elora and Hadley projects. Together, they total more than 2.1 gigawatt hours and are among the largest energy storage facilities under development in Ontario.

Thank you, Yan. Please turn to Slide seven. In the third quarter, we generated $102 million in revenue. We monetized over 500 megawatts of projects, including two high-margin sales: a battery storage project in Italy and a hybrid project in Australia. Gross margin was 46.1%, a sequential increase of 137 basis points, primarily driven by the contribution of more profitable project sales. During the quarter, we closed $825 million in construction financing and tax equity for the 600 megawatt hours Desert Bloom storage and 150 megawatt Apollo solar projects, all parts of our multi-project partnership with Arizona Public Service. These assets are under construction and are expected to begin operations in 2026. In the US, in addition to what we have in construction, we have already safe-harbored 1.5 gigawatt peak of solar and 2.5 gigawatt hours of battery storage projects. By the summer of next year, we expect to have safe-harbored at least 3 gigawatts peak of solar and 7 gigawatt hours of battery storage projects, giving us significant visibility over our execution pipeline for the next four years.

Thank you, Ismael. Please turn to Slide nine. In the third quarter, we delivered 5.1 gigawatts of solar modules and 2.7 gigawatt hours of energy storage systems. With contributions from accelerated storage shipments, total revenue reached $1.5 billion. Gross margin was 17.2%. The sequential decline primarily reflected the absence of one-time benefits recorded in the second quarter and the normalizing margins in both solar and storage manufacturing businesses. Operating expenses decreased sequentially to $222 million, reflecting lower shipping costs from reduced module volumes and ongoing internal cost reductions. Net interest expense declined to $29 million, driven by higher interest income. We recorded a net foreign exchange loss of $17 million, primarily driven by the appreciation of the Chinese yuan. Net income attributable to shareholders was $9 million, or a net loss of $0.07 per diluted share. This result included a positive $35 million HLBV impact, equivalent to $0.51 per share, from tax equity arrangements tied to certain US projects. The 20¢ per diluted share preferred dividend impact brought the total diluted loss per share to shareholders to 7¢.

Thank you, Xinbo. Please turn to slide 11. For 2025, we expect module shipments to be in the range of 4.6 to 4.8 gigawatts as we continue to maintain disciplined volume management. For our energy storage business, we expect shipments between 2.1 to 2.3 gigawatt hours, which include approximately 600 megawatt hours delivered to our own project. This guidance reflects the shift of certain volumes from the fourth quarter into the third, with Recurrent delivering its largest quarter of project sales this year. We project fourth-quarter revenue to range between $1.3 to 1.5 billion. We expect the gross margin to be between 14 to 16%. For the full year of 2026, we project total module shipments of 25 to 30 gigawatts, including approximately one gigawatt to our own project. Energy storage shipments are expected to range between 14 to 17 gigawatt hours. We will continue to focus on profitable solar markets and drive growth in our storage business. While we will continue to develop solar and energy storage projects, financial prudence remains our top priority. Accordingly, Recurrent Energy will increase project ownership sales in 2026 to recycle more capital and manage the overall debt level. With that, I would now like to open the floor for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And our first question for today will come from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, guys, and congratulations on all the progress. On the project sales, can you talk a little bit about the strategy of timing and leverage that you guys are going to deploy in these sales? You obviously have a great land position, nice interconnection queues, and certainly, potentially can leverage some of those positions into data center deals. And, also, you potentially can monetize these things earlier in the process and generate a little bit better returns in select areas. Just want to get a better sense of where you're coming out in terms of timing and, you know, kind of relationships that are going to come out of some of these sales.

Yeah. Colin, we are still working on the 2026 AOP. So I don't have the quarter-by-quarter recurring project sales number in my hand right now. We target to get that down by February. So when we talk in March, in the March earnings call, we will be giving you more details. However, we have enough COD operational projects for sale, so we don't have to sell projects early. I say projects early, I assume you mean sometimes sell at NTP or even before NTP. But before NTP, you don't get the full value. So if we can sell after COD, we can not only get the value of the project development but also project financing. Because Canadian Solar, especially Recurrent, is also an expert in tax equity financing deals in the US market. And there's a value there. So we do have enough projects, you know, we have a budget for how many megawatts of project ownership we're going to sell each year. But for next year, we have enough COD projects for sale. And that's the US. We also sell projects in other markets, for example, in Latin America and also in Australia. Now, Ismael, do you have anything to add?

Just to say it. Great, Shawn. You, Colin. Nice to talk to you. Colin, we have a very strong pipeline and very mature. So we are seeing good opportunities to sell with good margins. We are likely going to take them. That's the overall underlying reason.

Okay. Perfect, guys. And then, you know, thinking about the battery manufacturing and the supply chain, can you talk a little bit about the maturity of your relationships with suppliers to deliver input materials into the US? You know, obviously, 70% of the supply chain is in China, and, you know, the vast majority is still in Asia. And so shifting things into North America is a pretty substantial effort. I just want to get a sense of, you know, how easily that's coming along for you guys and any sort of risks that we should be thinking about as you start to ramp up that capacity?

Actually, there are a lot of suppliers outside China these days. So we have good selection for both solar and energy storage. So we will, as you know, the OBPBA has some requirements for both storage and solar. And we have calculated that. We think we will be able to meet those requirements in 2026 without any problems. I think in 2027, the number will go up 5% each year, and we should be able to manage that stack. So we'll be able to meet the OBPBA requirements. And, also, if we produce both cell and module in the US, we will meet the domestic content rule as well. As I said, we expect to ramp up production of our own solar cell in the US by March. So through Q2, second half of next year, we should have reasonable volumes already.

Okay. Thanks so much, guys. I'll pass it on.

The next question will come from Philip Shen with ROTH Capital Partners. Please go ahead.

Hi, everyone. Thank you for taking my questions. First one is on margins. I think your A-share subsidiary reported a 7% gross margin in Q3, but you guys reported a 17% gross margin today. So I was wondering if you could help us bridge that gap. Thanks.

I don't think we reported seven. Oh, do we? No. Okay. Seventeen. Seventeen. Oh, well, 17% is just it's for CSI Q. Together. CSI Q, right? That's all of 15. And the CSI Solar has a different mix. So, Ismael just commented that the project sales in Q3 were with a 46% gross margin.

Okay. So is the project business that really supported and offset the manufacturing 7% gross margin. Is that right?

Actually, solar may be low, but solar plus the energy storage. The gross margin in Q3 is over 15%. Now if it's only a module, it's low. It's below 10 because we don't get much margin.

Okay. Thank you, Shawn and team. Moving on to the next question. As it relates to your 2026 guide, you gave us some color there which is great. And you continue to talk about the ramping of US manufacturing. But how and can you give us color on how you're able to do that even though there's still substantial FIAC risk? As it relates to either ownership or just meeting the OBPBA requirements. Could be challenging. Thanks.

Yeah. Philip, I answered this question in the last earnings call. We believe we can meet the OBPBA requirements by doing certain adjustments.

And as it relates thank you, Shawn. As it relates to the ADCVD reserve or, you know, with the auxin case, there could be meaningful retroactive duties and was wondering, you know, can you quantify how much exposure that might be? And as a result, you know, do you think you know, you might need to reserve for that situation on the balance sheet? Thanks.

Yes. It could be. I would say also it could not be. The court process is still moving along. There will be a long time before there's a final decision. If it goes to the appeal court. Based on discussions with our external lawyer and our auditing firm, we don't think we need to book any reserve at this moment.

Great. Really appreciate taking the questions. I know some of them are a little bit touchy, so appreciate it. Thank you.

Thank you. The next question will come from Brian Lee with Goldman Sachs.

Hey, guys. Thanks for taking the questions. Maybe just a follow-up to Phil's question. I know you guys are wanting to see the ADCVD process through the litigation and the case is still pretty early on. But in the event that you did have to reserve some amount of funds for a potential, you know, negative decision, can you help to kind of quantify the range? I guess, you know, back of the envelope math suggests it could be well over a billion dollars if we, you know, estimate your US shipments over the past couple of years. I guess, first, is that the right way to think about it? And then second, how would you, again, just playing devil's advocate, hypothetically, if you had to do that, what would be your sort of funding strategy to finance that amount just given, you know, the cash burn and the high degree of net debt you have right now?

Well, Brian, I guess you're also talking about the auxin case. As I said, we don't think we have to make a reserve, therefore, there's no back-of-the-envelope estimate needed at this moment.

Yeah. No. I mean, I think there are published research around the potential value of the claim here. I don't know how accurate they are, but I do think there is a published number, which, again, counts into the billions of dollars. But I'll take that offline. I guess maybe just a bigger picture question. You know, we're all just trying to gather more detail. You know, we know there's no finite answer, but it'd just be helpful if you could elaborate, let's say, on the FIAC question as well. You know, you're obviously telling your customers, you know, your actions you contemplate taking to make sure you're FIAC compliant. Is there any insight into those conversations you can provide to give the financial community the same level of confidence around, you know, what steps you may be taking to make sure that, you know, your US manufacturing investments are going to be justified?

Well, the OBPBA has very simple and clear rules which require certain percentages from domestic and foreign partners. As long as you are structured correctly, with these percentage numbers, then you are OBPBA compliant. What else do I have to tell you?

Okay. No. That's helpful color. And then last question for me, I'll pass it on, is on the asset sales. It sounds like that's definitely going to ramp up in '26. Which is a bit of a reverse from the past couple of years as you've been moving toward this IPP model. It sounds like it's focused on cash generation and delevering. Can you quantify kind of what volume, megawatts, megawatt hours you anticipate monetizing through asset sales as opposed to keeping on the balance sheet for '26? And what kind of delevering potential that might result in for the balance sheet next year? Thank you.

Well, as I said, we'll continue to build the IPP portfolio. However, given the current market condition, we are going to be a little bit more cautious. What I can say now is that we have enough operational projects, high-quality projects, which we can cash in. But I don't have the number yet. I will let you know more in March when our board approves the AOP. Overall, we will be more cautious.

The next question will come from Alan Lau with Jefferies.

Thanks, management, for taking my question. This is Alan from Jefferies. Would like to know there's a lot of questions on your priorities already. So we'd like to have a more overview on the market demand in 2026. What do you think the US installation on solar and energy storage separately? Thank you.

Okay. I will have Yan share his thought. You're asking for the installation demand in the US in 2026, right, on both storage and solar?

Yeah. I think the demand is there, right? And, also, the OBPBA compliant, you know, the safe harbor actually made the storage pipelines there. So I think for 2026, the storage project will be there. The solar as well, the safe harbor also helped to preserve a lot of demand. But on the solar side, I think the cell supply can be a bottleneck for the total demand. So although we have a good solution, it doesn't mean everybody has that. So I hope the US will continue to maintain a similar level compared to this year. I do not see any significant growth. But on storage, I think next year, the US will continue to be strong. That's my view.

Thanks, Yan. So I think the investors' focus is overwhelmingly concentrated on ESS. So we'd like to know what type of growth rate are you looking at, like, is it like, 20, 30% growth or 50%? I think people are talking about even more aggressive growth rates. And then with that growth, how much do you think it's coming from AIPC demand?

Hello? So you're talking about growth globally or US, China? Sorry. It's mainly US. Mainly US. I think that the data center work, yeah. Worldwide, you know, more than half of the data centers built in the US, you know, but I think we see a very strong future demand in our portfolio, data center-related storage demand. But I think in terms of start installation construction, next year, it's not yet. It's still a little early.

I see. So to confirm, like, it's more like there are some regulations requiring more stability on the load. So the demand you're seeing at least for now is to cope with that request on the grid. Right? Instead of having long-duration ESS for supplying as the main power supply of the AIPC. Is this understanding correct?

Well, I think, as I said, for the longer term, it will progress. But to begin with, it's more about smoothing out the load. That's the most important application for data center storage.

That's good. That's good. And then finally, we'd like to ask how much of the fourteen to seventeen gigawatt hours of shipment is going to be in the US.

Actually, we have well diversified our portfolio, our backlog. So I would say around two-thirds will be outside of the US. Out of the total guided volume next year.

I see. That's pretty diversified. Thanks a lot for answering my questions.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Well, thank you very much for everyone to come to our call. And also, thanks for your continued support. If you have any questions, I would like to set up a call. Please contact our investor relations team. Take care, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.