Earnings Call Transcript - CSIQ Q2 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Second Quarter 2022 Earnings Conference Call. My name is Sherry, and I will be your operator today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Isabel Zhang, Investor Relations Director at Canadian Solar. Please go ahead.

Isabel Zhang, Investor Relations Director

Thank you, operator, and welcome, everyone, to Canadian Solar's second quarter 2022 conference call. Please note that we have provided slides to accompany today's conference call, which are available on the webcast as well as 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's majority-owned subsidiary, CSI Solar; Huifeng Chang, Senior VP and CFO; and Ismael Guerrero, Corporate VP and President of Canadian Solar's wholly-owned subsidiary, Global Energy. 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 respectively review the highlights of the CSI Solar and Global Energy businesses, followed by Huifeng, who 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, may I 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. 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. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. Management believes that non-GAAP measures should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Dr. Shawn Qu, Chairman and CEO

Thank you, Isabel, and hi, everyone. Welcome, and thank you for joining us today. Now let's turn to Slide 3. This slide provides us a summary of our key performance metrics. We achieved strong results in the second quarter of 2022 with record solar module shipments of 5.1 gigawatts. Revenue for CSIQ came in at US$2.3 billion and gross margin was 16%. Our results were at or exceeded the high end of our prior guidance. We also took another major step towards cementing our leadership in the fast-moving storage segment with over 1 gigawatt hour of battery storage shipment in the first half of 2022. During the quarter, we remained focused on profitable growth, which has been a core tenet of Canadian Solar since its founding. I am pleased to report that we achieved Q2 net income attributable to Canadian Solar shareholders of US$74 million, with diluted earnings per share of $1.07. Yan, Ismael, and Huifeng will go through our performance in more detail. Before that, let me highlight three key messages. Please turn to Page 4. First message, our capacity growth strategy, as highlighted last quarter, is firmly on track. We are expanding our strategy to incorporate upstream polysilicon capacity, which is expected to start production in 2024. By the end of 2022, we expect our ingot, wafer, and cell capacities to reach approximately 20 gigawatts each and module capacity to reach 32 gigawatts. We are also introducing our capacity expansion plan through the end of 2023. We expect ingot and wafer capacity to reach 25 gigawatts, cell capacity to reach 35 gigawatts, and module capacity to reach 50 gigawatts. We are still finalizing shipment ramps for 2023. But the magnitude of the planned capacity expansion should give you an indication of the significant growth we are planning for next year and beyond. The rationale for this more aggressive growth strategy is that we're seeing a significant acceleration in global demand. This growth is driven by multiple catalysts, including clean energy economics, energy security, and decarbonization. For example, we are particularly excited to see the passing of the Inflation Reduction Act, or IRA in the U.S. We believe it will drive a significant acceleration in demand for clean energy in the U.S., solar energy and battery storage, in particular, and we are one of the best-positioned companies to capture this growth. Canadian Solar is one of the strongest global clean energy brands with established channels, a large project pipeline, strong customer relationships, and an unparalleled track record. We believe we are seeing a once-in-a-decade opportunity to gain global market share and further enhance our long-term defensive competitive advantage. To achieve that, great control over our technology, cost, and supply chain is critical. This is why we made the strategic decision now to invest in polysilicon capacity as well. While we still believe that polysilicon pricing will ultimately come down, we believe that directly controlling our supply chain is critical to our long-term competitiveness from a cost, supply security, and decarbonization standpoint. Now this brings me to my second point. Please turn to Slide 5. Our new poly facility will be located in Qinghai Province. We selected this location after careful evaluation. Of note, renewable energy accounts for approximately 90% of the electricity in this province. This will be our second facility in Qinghai after our new ingot front, which started operations several weeks ago. Poly and ingot manufacturing are the most energy-intensive parts of the solar supply chain. Using renewable energy to power these processes will contribute to our decarbonization goals and reflect our position as an industry leader. We expect to power our entire global operations with 100% renewable energy before 2030, which will serve as an important milestone in our drive to reach carbon neutrality. You can find additional details of our environmental efforts and performance in our latest ESG sustainability report, which we published last month, which is available to download on our website. Now please turn to Slide 6. In summary, our Board and management team is confident in making this capital-intensive investment, reflecting the strong business case we see both over the immediate and long term. The timing and pace of this investment will be linked to the timing of the carve-out IPO of our CSI Solar subsidiary. We remain in the registration process with the China Securities Regulatory Commission, or CSRC. The process has been delayed somewhat, but we are on track and we will update you on progress achieved as we move forward. With that, let me now turn over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.

Yan Zhuang, President - CSI Solar

Thank you, Shawn. Please turn to Slide 7. In Q2, the CSI Solar division delivered 5.1 gigawatts of solar module shipments, 800 megawatt hours of battery storage shipments, and $1.8 billion of revenue. These were all record numbers for us. From a profitability standpoint, gross margin improved by 140 basis points to 15.9% or up 65% sequentially to $290 million. There are several reasons for our improved performance. First, we benefited from higher-than-expected volumes and higher pricing. Demand from our end markets has been incredibly strong despite the increase in pricing. Second, we recall that we strategically increased our inventory during the first quarter when polysilicon pricing was more favorable. This decision helped us support growth while keeping our cost of goods sold under control. This dynamic will be more difficult to achieve in Q3, but we continue to actively manage our supply chain. We also continue to benefit from our ongoing efforts to reduce manufacturing processing costs. Third, our gross margin also benefited from currency fluctuations led by the strong U.S. dollar relative to the RMB, which was partially offset by the weaker euro and other currencies relative to the U.S. dollar. Lastly, unit shipping costs have continued to come down, but this was offset by a temporary increase in inland fleet due to the COVID lockdowns in China during Q2. With higher shipping volumes, total logistics costs went up as expected. Overall, our operating profit doubled sequentially in Q2 to $62 million. Please turn to Slide 8. So where are we today? Polysilicon pricing has been going up again due to a variety of events. We believe the impact of these events will normalize soon, such as a fire accident at a certain polysilicon plant. Over the past few days, we have also started to see power curtailment in certain parts of China due to the summer heat wave, driving low hydroelectric energy resources and higher residential power demand from air conditioning. This curtailment will temporarily reduce polysilicon output. Given the tightness, any marginal changes in supply or demand will affect polysilicon pricing. However, based on what we know today, we believe supply and demand for polysilicon will be more imbalanced towards Q4 as meaningful polysilicon capacity expansion will eventually drive a decline in polysilicon pricing. Logistics costs should also continue to improve, barring any unexpected shocks to the global shipping infrastructure. Please turn to Slide 9. Our battery storage, as Shawn mentioned, we delivered 800 megawatt hours this quarter. This is our largest quarter to date, with over 1 gigawatt hour delivered for the first six months. We remain on track to achieve our full-year target of 1.8 to 1.9 gigawatt hours. On the product side, we introduced our proprietary utility-scale products in China a few weeks ago and received overwhelmingly positive feedback. Our official global launch for both our utility-scale and residential products will be at the Solar Power International Conference next month. So I encourage you to visit our booth to see for yourself. Besides developing products and technologies that meet customer quality, cost, and reliability requirements, our priority has been to work with partners to secure supply at a reasonable cost. This gives us significant visibility over our product deliverability over the coming years. Now let me pass it on to Ismael for an overview of the Global Energy business. Ismael, please go ahead.

Ismael Guerrero, Corporate VP and President - Global Energy

Thank you, Yan. Please turn to Slide 10. In Q2, we delivered $554 million in revenue, with a 14.4% gross margin. This marks our highest quarterly performance since 2018. We sold approximately 880 megawatts in power projects across Australia, the U.S., Japan, and the UK, monetizing both fully constructed as well as earlier stage projects. I'm grateful to lead an incredible global team for making this happen, and appreciate our equity and banking partners for their trust in Canadian Solar. I also see significant growth in our global project pipeline, with 26 gigawatts of solar and 31 gigawatt hours of battery storage. The contracted pipeline was 5.3 gigawatts and 3.1 gigawatt hours, respectively, which included construction projects as well as more than 90% of backlog projects shown on this slide. These are late-stage projects that have close to a 100% success rate. This quarter, to help you better understand the quality of our global solar and battery storage development platform, we are making a small adjustment to our pipeline definitions. We are breaking out what we previously called pipeline into advanced pipeline and early-stage pipeline. The advanced pipeline consists of projects that have secured or have more than 90% certainty of securing an interconnection agreement, while the early-stage pipeline consists of projects owned and controlled by Canadian Solar that are still in the process of securing interconnection. The reason we are making this distinction is that we believe access to the group network will be one of the key drivers of competitive advantage in our business. In the past, this used to be a developer's ability to contract PPAs for feeds. However, with the growing deployment of incremental sources of electricity, a higher incidence of extreme climate events and geopolitical uncertainties, our ability to secure reliable interconnection points will be a key driver of our long-term success. As of Q2, we had 16.6 gigawatts of solar and 13.7 gigawatt hours of storage interconnection points globally. The pipeline expansion we are achieving gives us significant runway for growth in the coming years and allows us to be more selective in developing the highest quality assets. This is particularly true in the U.S. market following the passing of the IRA, where our recurring energy subsidiary has a total of 8 gigawatts of solar and 16.5 gigawatt hours of battery storage project pipeline. While it is too early to quantify the magnitude of the benefit from the IRA, it will both directly impact our existing projects and help drive faster growth in our overall U.S. pipeline. Please turn to Slide 11. Let me now update you on the significant progress in our operations and maintenance strategy to increase our share of stable recurring income. We now manage over 3 gigawatts of operational projects under long-term O&M agreements and had an additional 2.4 gigawatts of contracted projects expected to reach COD soon. In line with our growth strategy, we recently invested in a Spain-based O&M provider, which will allow us to further accelerate our O&M growth across Europe. Our O&M platform will continue to grow through a combination of organic opportunities and bolt-on acquisitions. All of this gives us confidence as we execute to our target of 20 gigawatts under operation by 2026. Now let me turn the call over to our CFO, who will go through the financial results in more detail. Huifeng, please go ahead.

Huifeng Chang, Senior VP and CFO

Thank you, Ismael. Please turn to Slide 12. In Q2, we delivered record quarterly revenue of $2.31 billion, exceeding our guidance. Q2 benefited from both volume and price increases in module shipments and a higher contribution from our battery storage shipments and product sales. Q2 gross margin was 16%, which also exceeded our guidance. The margin improvement was led by a combination of higher pricing, lower manufacturing and inventory costs, and a high return on quality projects. Selling and distribution expenses were up by 45% sequentially, primarily due to higher shipping costs associated with our higher sales volume. General and administrative expenses increased primarily due to a nonrecurring impairment of certain aged manufacturing assets, totaling $50 million. Research and development expenses increased by 36% sequentially due to the timing of our R&D investments. The net foreign exchange and derivative gain was $6 million compared to $3 million in Q1, and this benefit was mainly driven by the strong U.S. dollar relative to the RMB. As you know, the majority of our revenues, as well as our foreign currency gains, are in U.S. dollars, while most of our costs are in RMB. Total net income was $89 million, and the net income attributable to Canadian Solar shareholders was $74 million. As a reminder, the variance between these two numbers will become more significant upon completion of the carve-out IPO of CSI Solar, which will reflect a decrease in Canadian Solar's ownership in CSI Solar subsidiary from 80% to approximately 64%. Moving on to EPS, we achieved basic EPS of $1.16 and a diluted EPS of $1.07. The variance is primarily due to the adjustment for the dilutive effect of our outstanding convertible notes. Now turning to cash flow and the balance sheet. In Q2, we generated around $290 million in operating cash. We maintained our inventory and accounts receivable, mostly flat quarter-over-quarter. Despite the significant increase in sales, this allowed us to reduce our inventory base by more than one-third. The Q2 net CapEx payment was approximately $130 million, making $210 million for the first half of 2022. Our full year 2022 net CapEx expectations remain unchanged at $850 million, which means we expect the bulk of our spending to be in the second half of this year. We ended Q2 with a total cash balance of $1.95 billion, giving us the financial dry powder to invest in growth opportunities while managing risks. Total debt was largely unchanged at $2.7 billion. This mix changes as some long-term projects roll off with our project sales. Twelve-month trading net debt-to-EBITDA, excluding restricted cash, declined to 2.9x from 4.1x the prior quarter. Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead.

Dr. Shawn Qu, Chairman and CEO

Thanks, Huifeng. Let's now turn to Slide 14. For the third quarter of 2022, we expect total revenue to be in the range of US$2 billion to US$2.1 billion. Gross margin is expected to be between 15% and 16.5%, reflecting the positive contribution from the increased level of vertical group integration, including our new ingot, wafer and cell capacities. We expect this to be partially offset by higher polysilicon costs. As for Q3, solar module shipment recognized in revenue by CSI Solar are expected to be in the range of 6 to 6.2 gigawatts, including approximately 140 megawatts through our own project. We expect higher module shipments in Q3 to be offset by lower battery storage shipments and project sales due to normal seasonality. For the full year of 2022, we raised our revenue expectation to US$7.5 billion to US$8 billion from the previous $7 billion to $7.5 billion. Our full-year volume guidance remains unchanged. At CSI Solar, we expect solar module shipments to be in the range of 20 to 22 gigawatts and battery storage system sales in the range of 1.8 to 1.9 gigawatt hours. At Global Energy, we expect project sales to be in the range of 2.1 to 2.6 gigawatts in the year. Thus, the increase in revenue expectation is mainly driven by higher-than-expected pricing trend for solar modules. As we said previously, Q2 is likely going to be the highest quarter of the year for both revenue and profit, mainly driven by seasonality of project sales on battery storage shipments. However, we expect solar module shipments to steadily ramp up through the quarter and year as we execute and deliver market share gain. Overall, the market challenges persist. We continue to see significant near and long-term opportunities in both our solar and battery storage business, driven by a combination of attractive economics and policy tailwinds, such as in the recently passed Inflation Reduction Act. This IRA will propel the U.S. market to the forefront of the fight against climate change. We believe Canadian Solar is strongly positioned to capture profitable growth as we continue to focus on long-term investments that will help drive our success and create lasting value for shareholders. With that, I would like to open the call to your questions. Operator?

Operator, Operator

Our first question comes from Brian Lee with Goldman Sachs.

Brian Lee, Analyst

I appreciate all the updates. I know there's a lot going on. So maybe the first big picture question for you, Shawn, is that we've seen several of your peers in Asia attempt to vertically integrate into polysilicon, but there haven't been many successful cases. Why did you make this strategic decision? What sets Canadian Solar apart? Additionally, can you provide insight into what you expect your processing costs to be and what a fully burdened cost structure and margin for the module might look like in 2025 once you're utilizing your own poly?

Dr. Shawn Qu, Chairman and CEO

Brian, that's a good question. Now I would like to provide my view. Your observation that companies who have tried vertical integration into polysilicon have not seen success is noted. However, I would argue that this trend has just begun. That's why you haven't seen many successful cases yet. Historically, polysilicon seemed to be a separate step in the solar module processing value chain. Most of the so-called virtual companies start from ingot and then move on to wafer, cell, and module, while polysilicon appears to be a different business. But this does not mean it won't be successful. We have conducted nearly two years of feasibility studies, and we observe several key points. First, from a technology standpoint, the Siemens method or the refined Siemens method for producing polysilicon has now become the industry standard. Design institutes in China handle factory design for nearly everyone, from current polysilicon makers to newcomers. There are also several engineering companies specializing in polysilicon processes. Consequently, the process, particularly the granular process, has transformed. Regarding cost, the general perception has been that CAPEX for polysilicon is high; however, since 2020, the per watt investment for polysilicon has dropped to levels comparable to solar cells. Therefore, polysilicon has become technologically accessible. In fact, several newcomers are ramping up their capacities as we speak. By the time we ramp up, we will have a wealth of experience to reference. You also asked me strategically why we need to pursue this. Solar is entering a new era. Historically, annual new solar installations ranged between 100 to 200 gigawatts. However, we project that the annual installation level will grow significantly in the next decade. Reports from the IEA and IRENA suggest that we need about 20,000 terawatts of solar installations globally by 2050 to achieve carbon neutrality. Currently, we have just surpassed the 1 terawatt mark in total cumulative installations. There is still a long way to go. With this anticipated growth, supply-chain bottlenecks will arise frequently, particularly concerning polysilicon. As one of the top 5 solar module companies, we believe it is essential to exert control over polysilicon supply. We may not produce all our necessary polysilicon, but we aim to produce a certain volume and retain the flexibility to increase output when necessary. Thank you, Brian.

Brian Lee, Analyst

Can you provide details on the capital expenditures for 2023? It seems that due to new capacity expansions and polysilicon considerations, the CapEx will likely be significantly higher than in 2022. What preliminary amount should we budget for CapEx in 2023, and how do you plan to fund it? I understand you have a solid cash balance, but with the expected high CapEx, you might not generate free cash flow in the next couple of years. So, what’s the ballpark figure for CapEx in 2023, and what are your funding plans?

Dr. Shawn Qu, Chairman and CEO

Thanks, Brian. I would like Huifeng to answer this question. Huifeng?

Huifeng Chang, Senior VP and CFO

Hi, Brian, this is Huifeng. Before I talk about CapEx for 2023, let me reflect on what is happening in 2022. We budgeted $850 million CapEx for this year, and on this call, we confirm or restate that CapEx remains at $850 million. In Q1 and Q2, we spent about $210 million. So the major part of that $850 million will be spent in Q3 and Q4, especially in Q4. This CapEx number mainly is for our capacity expansion, including ingot pulling, wafer, and cell. Now we invested some money for the polysilicon project, as we announced previously, but the construction this year is limited. Of course, one factor in this pacing is that we are still waiting for the completion of the registration of our IPO. We expect the IPO to be completed this year, and starting early 2023, we will accelerate the investment in the polysilicon project. Exactly how that will align with our module expansion is still in the planning stage, and we will give updates as we approach the end of the year and also after the IPO is completed. I hope that answers your question. Thank you.

Dr. Shawn Qu, Chairman and CEO

Now Brian, that's...

Brian Lee, Analyst

Fair enough. And I guess on the funding, is it all going to be with the IPO? Or is there some additional debt or equity being considered here?

Huifeng Chang, Senior VP and CFO

First of all, so every $100 CapEx, we only need to take $30 from our bank account, and the other $70 can be financed with local banks. So while the CapEx number sounds large, considering we have about $2 billion in cash, we still have ample capacity to fund our expansion excluding the polysilicon project; I mean the expansion for ingot pulling, wafer, and cell. For that, we have the funding prepared. Now for the polysilicon project, that's a different story; it will very much depend on the pace of the IPO.

Operator, Operator

Our next question is from Philip Shen with ROTH Capital Partners.

Philip Shen, Analyst

Continuing with the capacity expansion CapEx theme, I wanted to see if you could talk us through the passing of the Inflation Reduction Act and how much capacity you could bring to the U.S. What kind of capacity would it be? Would you bring wafer and cell, or just modules? And then can you share details around the timing of when that could happen as well as the amount of capital you might want to spend and perhaps also the location of these facilities?

Dr. Shawn Qu, Chairman and CEO

Hi, Philip. First of all, I want to say that the IRA was just signed into law three days ago. It’s a vast document, and we haven't gone through it all yet. So we don't have a concrete plan yet, but we understand its implications. I will ask Yan to provide more comments. Yan?

Yan Zhuang, President - CSI Solar

Well, Shawn, you have noted the status. Yes, we are actively assessing and studying the numbers on both the benefit and cost sides and also the uncertainties and risks moving forward on this topic. As you know, we have people in the U.S. actively monitoring the situation. It’s not that we’re starting from scratch. We've been monitoring U.S. policy trends for a few years, so it’s not surprising to us. But we aim to make the best decision to better support the U.S. market and service our customers there.

Philip Shen, Analyst

Okay, thanks. Shifting to margins. I was wondering if you might be able to discuss the electricity shutdown in Sichuan due to the heat wave. You mentioned that poly pricing looks like it might go a little bit higher. You provided a healthy Q3 gross margin. I suspect that poly pricing going higher and the absence of low-cost inventories are offset by lower shipping and FX component. I wanted to see if you could talk us through what the risk might be to the Q3 margin guide as well as how you expect Q4 and Q1 margins to trend.

Yan Zhuang, President - CSI Solar

As you know, we do not provide margin forecasts for future quarters. However, for Q3, I am quite confident as supply is quite fixed on both the demand and supply sides, which have already faced scrutiny. We have taken into consideration the possible downside caused by recent silicon events. Moving into September, the expansion of silicon supply will continue, and I think we will reach a reasonable balance in the industry. The market is currently quite price elastic, so I do not foresee extreme fluctuations impacting installation volume significantly. We have considered all possibilities in our guidance.

Philip Shen, Analyst

And then one last question from me. Back to the CapEx and '23 question. Huifeng, can you just give us a rough number of what that could be? I mean, with the poly expansion plan. Is '23 going to be a $4 billion to $5 billion number, or will you need to wait until the IPO is finalized to make that decision?

Huifeng Chang, Senior VP and CFO

Phil, let's discuss that in the next earnings call.

Operator, Operator

Our next question is from Colin Rusch with Oppenheimer & Company.

Colin Rusch, Analyst

Shawn, you have a long history of de-risking the supply chain and hedging through partial integration. I appreciate all the questions on the supply side, but I'm curious about how active you are on the demand side, especially given what we expect to be an aggressive push into interconnection queues, land positions, and things like that as you continue to grow that product business. I'm curious where you are in terms of that pipeline and converting it into real opportunities and getting into the queue?

Dr. Shawn Qu, Chairman and CEO

Yes, Colin, I think you are asking about our efforts to secure interconnections for our projects, right? I will ask Ismael to answer this question. Ismael, please?

Ismael Guerrero, Corporate VP and President - Global Energy

Sure. Thank you, Colin, for the question. Look, our track record is pretty good. While we have experienced some delays lately due to COVID, we are confident that all our pipeline will eventually translate into successful projects. I mean we are continuously experiencing growth, and I see a great future ahead.

Colin Rusch, Analyst

Okay. I'll ask more detailed questions offline then. Can you also provide an update on what's going on with PPA pricing? Surely there's been some movement with inflationary pressures, demand, and whatnot. I'm curious how you are approaching that strategically to maintain some sustainable margin at the project level.

Dr. Shawn Qu, Chairman and CEO

Ismael can provide further insights on that.

Ismael Guerrero, Corporate VP and President - Global Energy

Thank you, Shawn. What we are seeing is that PPA contracts are becoming more complex in their terms to reflect provisions that protect us mainly from inflation, interest rate drops, and similar factors. Our approach is flexible; we are fine with having an initial period of merchant pricing, where we might take prices too high during boom market conditions before transitioning to PPAs set to complete a year or two later. In instances in which the market remains high, we retain the right to negotiate the contracts for those years. We are continually observing PPAs adjusting to reflect general market conditions, and we keep observing upward movements in PPA prices.

Operator, Operator

Our final question comes from Praneeth Satish with Wells Fargo.

Praneeth Satish, Analyst

I just really have one question. I guess with the tax credits tied to the Inflation Reduction Act in the U.S., does that change your capacity expansion plans at all to maybe build some of that manufacturing here in the U.S. versus building it all in China? How do you compare the two regions now that the U.S. is providing a lot more support for solar manufacturing?

Yan Zhuang, President - CSI Solar

This is Yan. Yes, we are actually reviewing our future capacity expansion plans to supply the U.S. market. As you know, we are currently using Thailand and Vietnam as bases to supply the U.S. with both sales and module capacity. The IRA was recently passed, and it’s a lengthy document that contains many details. We're diving deep into it now. The team is actively analyzing the benefits, costs, risks, and uncertainties as we make judgments. We've also been monitoring U.S. policy trends for a few years, so it's not a new development for us, but we want to make the best decision to support the U.S. market and serve our customers there.

Dr. Shawn Qu, Chairman and CEO

Thank you. And also thanks, everyone, for joining us today. Thanks for your continued support. If you have any questions or would like to set up a call, please contact our Investor Relations team. Take care, and have a nice day.

Operator, Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.