Earnings Call Transcript - CSIQ Q3 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2021 Earnings Conference Call. My name is Michelle and I will be your Operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Isabel Zhang, IR Director at Canadian Solar. Please go ahead.

Isabel Zhang, IR Director

Thank you, Operator. And welcome everyone to Canadian Solar's Third Quarter 2021 conference call. Please note that we have provided slides to accompany today's conference call, which are available on Canadian Solar's Investor Relations website. Within the events and presentation section. Joining us today are Dr. Shawn Qu, Chairman and CEO, Yan Zhuang, President of Canadian Solar's majority-owned subsidiary, CSI Solar. Dr. 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 our 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 are 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 both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information for further analysis of the Company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information 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.

Shawn Qu, Chairman and CEO

Thank you, Isabel. Good morning and good evening, everyone. During the third quarter of 2021, we delivered 3.9 gigawatts of module shipments and sold our largest battery storage project to date, which is the 1.4-gigawatt hour Crimson Project located in Riverside County, California. This is one of the largest battery storage projects in the world. We accomplished 34% year-over-year revenue growth, with gross margin well ahead of guidance, and our strongest net profit performance since the start of COVID. Overall, we are pleased with our ability to navigate an extremely challenging market while continuing to focus on long-term investments and R&D innovation. You will hear Yan, Ismael, and Huifeng walk through a more detailed review of our performance in a few minutes. But first, I would like to highlight three key messages on the global energy outlook, our strategic policy, and the CSI Solar high-voltage IPO. Please turn to Slide 3. First, after many years, we are starting to see real action across the world to appropriately price the cost of carbon and bolster investments in wholesale sales. For example, the European Union's emissions trading system, one of the most mature markets in the world, saw carbon prices increase to €60 per ton for the first time in its history. Now it remains at nearly six times its 2010 through 2018 average. During this response, we're witnessing more actions that call for greater clean energy deployment. It is no coincidence that we are experiencing a number of energy crises across the world, most notably in Europe, China, and parts of the U.S. These events reflect a broader trend of declining investment in traditional energy, insufficient investment growth in clean energy, and continued growth in economic development. I see three moving parts in this equation. However, we don't want to increase the supply of fossil fuel-based energy. We also don't want to lower our living standards. Therefore, the only solution is to accelerate the adoption of reliable, low-cost, and clean renewable energy including solar and battery storage. Please turn to Slide 4. So, the long-term growth outlook for solar deployment is stronger than ever. Solar cumulative installations will cross 1 terawatt next year and are set to reach 3.2 terawatts by 2030. For battery storage, cumulative installations will cross 100 gigawatt hours next year and are set to reach 1 terawatt hour by 2030. At the same time, clean energy power purchase agreements (PPAs) are also going up, reversing a long-term trend of aggressive PPA declines. The market is certainly adjusting and in a positive way. Meanwhile, we are encouraged by government policies supporting the energy transition. China has announced a series of decarbonization policies for the 14th five-year plan, demonstrating the country's commitment to fighting climate change. We expect more policies to come. We're also hopeful that President Biden's Build Back Better plan will pass Congress and set America on the right path towards decarbonization. These are responsible government policies that will support long-term sustainable development. Turning to Slide 5. All of these macro trends serve as tailwinds for our business for years to come. All preparations to capture these opportunities started many years ago. Today, our global pipeline of solar and battery storage assets increases the visibility of our future world. We're also expanding and deepening our sales channels, focusing on providing total energy and clean energy system solutions. At the same time, we're making tactical manufacturing capacity expansion decisions, limiting investment in certain stages of the supply chain that navigate through short-term supply chain volatility. And we're investing significantly in technologies and R&D to maintain our leadership position in clean energy. Finally, I would like to update you on the CSI Solar high-voltage IPO in China. Please turn to Slide 6, where we are on the third round of Q&A feedback with the Shanghai Stock Exchange and continue to make progress. We are communicating proactively and transparently with officials at the Shanghai Stock Exchange. At this point, we believe it is more realistic to target completion early next year rather than this year, subject to market and regulatory risks. With that, let me turn the call over to Ismael for an overview of our global energy business. Ismael, please go ahead.

Ismael Guerrero, Corporate VP and President of Global Energy

Thanks, Shawn. Please turn to Slide 7. I am proud to report that in Q3, Global Energy closed 350 megawatts, or 1.40 megawatts in battery storage project teams, delivering a total of $140 million in revenue and nearly 44% gross margin. Most of the profit this quarter was driven by our landmark Crimson standalone battery storage project in California, demonstrating the value creation potential of our battery storage projects. Note that we completed the sale reconstruction, and therefore, our gross profit is a better metric of our performance than revenue. As we continue to hold 20% ownership in this project, it will allow us to capture its long-term value creation. Our products team is also providing the full integrated battery storage system, EPC, and long-term maintenance service. Construction started several weeks ago, and we expect the project to reach commercial operation by December 2022, with a significantly shorter lead time than most solar projects. We're very proud of our teams for having developed one of the largest standalone battery storage projects in the world, contributing to California's reliability and safety while supporting its decarbonization goals. Besides Crimson, we now have a total of 2.9 gigawatt hours of battery storage projects under construction and almost 500 megawatts in backlog. We are also expanding our storage project pipeline in Latin America and other parts of the world. For example, we won Colombia's very first utility-scale battery storage project of 45 megawatts. Colombia has the third largest population in Latin America after Brazil and Mexico, with very strong renewable energy growth fundamentals. Following our first pilot project in Colombia, we recently won another project for a 52-megawatt solar plant in a nearby location. Elsewhere, we are also developing new battery storage projects. Recently, we have been winning in public auctions while also exploring opportunities to create value by developing merchant battery storage projects. These projects represent our entry into new Latin American markets and our ability to diversify our pipeline globally, positioning Global Energy for long-term growth. Slide 8, please. In the medium term, we are doing all we can to reduce the impact of replacement cost inflation. For instance, in some markets, we have signed PPAs indexed to inflation, significantly hedging our position. In other markets, we've been negotiating significantly higher growth PPAs for new projects, and off-takers have been willing to accept higher prices. We are also proactively managing equipment orders for projects where we can. Overall, the impact on 2021 is limited, but we expect there will be some impact in 2022. Turning to Slide 9. That said, we still anticipate a strong 2022. We continue to grow our global pipeline of projects, which now stands at 24 gigawatts for solar products, including 21 gigawatt hours of battery storage projects. Meanwhile, we continue to execute our long-term strategy to expand the base of recovering cash flows. While our Brazilian infrastructure fund is slightly delayed due to the cost inflation impact, we are making significant progress on our Italian investment vehicle. The first batch of projects will be 164 megawatts and will be pitched to the virtual road with investors in the next few months. Our operations and maintenance teams are also bringing in new project contracts, with our global operating portfolio now at 5 gigawatts of solar already operational and 860 megawatts of battery storage projects across nine countries. Now, let me pass it on to Yan who will talk about the CSI Solar business. Yan, please go ahead.

Yan Zhuang, President of CSI Solar

Thank you, Ismael. Please turn to Slide 10. In Q3, we delivered 3.9 gigawatts of shipments and $1.1 billion in revenue. Gross margin improved sequentially by 200 basis points to 15.1%, driven by continued price increases and partially offset by higher costs. The margin was also helped by an anti-dumping and countervailing duty reversal benefit, as the solar tariff for the last revision was reduced to zero in the remand decision. Please turn to Slide 11. The operational environment remains very challenging, driven by three key factors. First, the global logistics bottleneck is continuing to drive up our transportation costs while delaying shipping schedules. We have signed several long-term contracts with shipping companies to mitigate the impact, but with average shipping costs at five times the historical average, the impact remains significant. Second, material costs are increasing across the board, including polysilicon, glass, EVA, encapsulant, steel, and aluminum, affecting not just solar but also battery materials, with lithium carbonate prices at four times where they were at the beginning of the year. We are mitigating the cost increases with continued average selling price (ASP) increases. We’ve raised solar module prices by nearly 25% year over year. Third, power curtailment has not only affected our capacity utilization rates at certain factories, but also significantly impacted the utilization of energy upstream in manufacturing capacity, leading to the resumption of input price increases since September. So, the operational environment is quite challenging, and the power shortages in China are affecting the execution of our margin improvement plan. However, we continue to take proactive measures to improve the situation. For example, we have walked away from low-priced volume in order to protect margins and have been raising prices more aggressively on new contracts. Our market positioning and brand are now more important than ever as we further expand and deepen our sales channel partnerships as a clean energy brand providing total system solutions. We are also optimizing our capacity expansion and utilization to ensure we are operating in line with market realities. As mentioned, we are limiting investment in certain stages of the supply chain to avoid falling into the overcapacity trap. For example, we see significant overcapacity in cell manufacturing, and thus we do not have immediate plans to expand cell capacity. Nevertheless, we do expect to continue expanding our module capacity to benefit from cell overcapacity. We continue to develop our sales channels, particularly in the distributed generation segments. Importantly, turning to the next slide, we are investing in next-generation solar technologies such as N-type bifacial or topcon programs. As you know, we already invested in an SGT pilot line earlier this year and will be delivering SGT modules in the coming weeks. The champion cell during mass production, not R&D testing, has generated close to 25% efficiency, while average efficiency is reaching 24.5%. We are also currently deploying a 200-megawatt Topcon pilot line utilizing existing mono PERC capacity. Please turn to Slide 13. In terms of battery storage, we are well on track to complete 860 megawatt hours of storage shipments this year for the Mustang and Slate projects. In fact, the Mustang 300-megawatt hours project is commissioning as we speak, and the Slate project will be completed before the end of the year. Our combined contracted and forecast pipeline continues to increase, although some of the earlier stage pipeline has dropped somewhat due to the current supply challenges. That being said, we are making significant progress on our in-house R&D and product development for stationary battery storage products, and hope to give you more updates very soon. Now, let me turn it over to Huifeng, who will go through the financial results in greater detail. Huifeng, please go ahead.

Huifeng Chang, Senior VP and CFO

Thank you, Yan. Please turn to Slide 14. In Q3, we delivered $1.23 billion in revenue. Gross margin was 18.6%, well ahead of our guidance of 14% to 16%. Q3 benefited significantly from the Crimson battery storage project sale, as well as higher module pricing. As Yan mentioned, we also had a $12 million benefit from the reversal true-up. Without the true-up benefit, the gross margin would still stand at 17.6%, well ahead of the guidance. Selling and distribution expenses increased by 21% quarter-over-quarter, mainly due to higher transportation costs, which accounted for three-quarters of the sequential increase. To give you a sense of the magnitude, two years ago, transportation costs accounted for approximately 50% of selling and distribution expenses; today, it accounts for 80%. The total amount is more than three times what it was two years ago. General and administrative expenses also increased by 21%, mainly due to project loss contingency. Our underlying operating expenses increase is very low even after adjusting for transportation costs. In this tough operating environment, we continue to manage costs very carefully while maintaining our investment in future technology and achieving cost-saving operational efficiencies. Other operating income increased during this quarter due to a combination of factors, including the sale of 75 megawatts of solar power systems in China. Total operating expenses were up 11% and accounted for 14% of revenues. This was above our targeted long-term operating expense levels. The net foreign exchange loss in the third quarter was $14 million higher than usual, primarily due to the strength of the U.S. dollar relative to a basket of currencies, including the Brazilian Real and Euro; however, the losses were partially offset by our hedging programs. The income tax benefit was $3 million, resulting from the utilization of net operating losses. Net income attributable to Canadian Solar shareholders was $35 million, or $0.52 per diluted share. Our basic and diluted EPS stand at $0.06 and $0.52 respectively. We increased our issuance of shares by 1.1 million and 2.6 million shares during Q3 and year-to-date through our at-the-money equity offering program. In addition, our diluted EPS is adjusted before 6.3 million shares to account for the additional shares had our convertible bond been fully converted into equity. Slide 15, please. Now, turning to cash flow and the balance sheet, our working capital days increased moderately as two more days were affected by longer logistics cycles. We now expect full-year 2021 capex to be around $500 million, below our previous guidance, as we adjust capacity expansion and the utilization plans in light of the latest market conditions. Of that amount, we deployed approximately $420 million year-to-date, including $60 million in the third quarter. We ended the period with a healthy cash balance of $1.4 billion, giving us significant financial flexibility. Total debt increased modestly to $2.3 billion from $2.2 billion, mainly driven by an increase in non-recourse borrowings, while net debt to EBITDA excluding cash remained stable at 3.7 times. Now, let me pass back to Shawn, who will conclude with our guidance and the business outlook.

Shawn Qu, Chairman and CEO

Thanks, Huifeng. Let's turn to page 16. For the fourth quarter of 2021, we expect total module shipments to be in the range of 3.7 to 3.9 gigawatts, including approximately 250 megawatts of module shipments to our old. Total revenue is expected to be in a range of $1.5 to $1.6 billion. The updated shipment revenue guidance reflects a deliberate decision to protect module ASP and profitability in the fourth quarter. Margin is expected to feature between 14 to 16%. Please note that this does not include any benefit from the potential reversal of previously incurred Section 201 tariffs on our module shipments to the U.S. As a reminder, the U.S. Court of International Trade recently ruled to reinstate the exclusion of bifacial solar modules from Section 201 tariffs. The ruling also reduced the Section 201 tariff rate from 18% to 15%. We are still evaluating the magnitude of the potential benefit; therefore, it is not included in today's guidance. For the full year of 2021, factory storage shipments accounted for CSI Solar are expected to be in the range of 840 to 860 megawatt hours. Project sales in Global Energy are expected to be in a range of 1.5 to 4.1 gigawatts, reflecting the timing of certain project sales which are already in advanced negotiations, reflecting approximately 45% growth from 2021. We expect factory storage shipments to be in the range of 1.4 to 1.5 gigawatt hours, reflecting 17% year-over-year growth. Total project sales will be in the range of 2.4 to 2.9 gigawatts reflecting a 50% year-over-year growth. Revenue for the full year 2022 is expected to be in the range of $6.57 billion, up 30% year-over-year. To sum up, we believe the challenges facing the industry are temporary and the long-term fundamentals remain positive. Canadian Solar is positioned to benefit from both market and Company-specific catalysts in each of our business segments. With that, I would like to open the call to questions. Operator?

Operator, Operator

Thank you. The first question comes from the line of Philip Shen from Roth Capital Partners. Please ask your question.

Philip Shen, Analyst

Hi, everyone. Thank you for taking my questions. The first one is on the 2022 guidance. Thank you for sharing that outlook so early. Specifically, I was interested in understanding how you expect margins to trend by quarter. I know you haven't given it officially, but given your outlook for how input costs could trend and your ability to increase both pricing on the module side with ASPs as well as PPAs on the project side, how do you think we could see margins trend by quarter as we go through '22? Thanks.

Shawn Qu, Chairman and CEO

Hi, Philip. This is Shawn speaking. We believe that forecasts for the feedstock pricing have been quite volatile this year. Now, for 2022, we believe that the overall trend for the key material, especially polysilicon, should be down rather than up. That's because the capacity of polysilicon is increasing every quarter and should see significant upsurge over the next four to five quarters. Also considering the recent announcement regarding the U.S. CI Asia will help our customers in the U.S., and will also help us due to the exclusion of bifacial modules from Section 201, as well as the reduction of such tariffs for other modules. Considering all these factors, I would expect that our overall margin should stabilize and go up slightly over the four quarters next year. That would be my expectation.

Philip Shen, Analyst

Great. Thank you, Shawn. You mentioned the Section 201 bifacial exemption being reinstated. And so, you talked about how you could see a refund. I know you said you're assessing the magnitude. But given that all the bifacial product that's coming in earlier this week is now without the 18% tariff, you have some benefit there. Additionally, there could be benefits for recent imports as well. I was wondering if you might be able to give us a sense of what the size back could be. And then also for Q3, I believe the gross margin had a positive impact from a prior period being refunded or at least being reduced to zero. Can you quantify what the impact was for Q3 and then also what you expect for Q4 as you might continue to get that refund? Thanks.

Shawn Qu, Chairman and CEO

Yeah, the EDCBD benefit in Q3 is $12 million. Now, moving forward, as you said, without the 18% duty, it will help. The exemption of the 18% duty for bifacial will help our U.S. customers and also helped us. Furthermore, I think we'll see more of this benefit next year rather than in Q4, because as you know the shipping and logistics time is pretty lengthy these days. So, the stock we are shipping today will probably only be delivered to our customers in Q1.

Philip Shen, Analyst

Great, thank you. One last one for me. How do you guys expect OpEx to trend in Q4, maybe by line item? I think in Q3 I believe you also had this $23 million operating income benefit. What was the driver of that? Thanks.

Huifeng Chang, Senior VP and CFO

This is Huifeng. Let me answer this question. The OpEx was up about 11% quarter-over-quarter, mainly due to the higher transportation costs as I explained on the call earlier. Going into Q4, I think all these cost factors will be pretty much similar to Q3, so that is the overall picture, but I think a lot of them will be compensated with the higher ASP.

Philip Shen, Analyst

Okay. Thank you, Huifeng. Thank you, Shawn. I'll pass it on.

Operator, Operator

Your next question comes from Colin Rusch from Oppenheimer. Please ask your question.

Colin Rusch, Analyst

Thanks so much, guys. Can I get an update on how your PPA pricing is holding for the products that you've already fully developed and signed deals with relative to the clearing price in the market for sales of projects? Just trying to get a sense of how those spreads are changing and your ability to digest some of the higher costs that are coming through the supply chain.

Shawn Qu, Chairman and CEO

Hi, Ismael will handle this question.

Ismael Guerrero, Corporate VP and President of Global Energy

Thank you, Shawn. Hi Colin, thanks for the question. We don't have clear details just yet. Many projects we initiated are not indexed to inflation, like most of the PPAs we've signed this year in Brazil, and our PPAs, our index to inflation. So, there is not much change in the market conditions there. In the rest of the countries, all the PPAs that we have signed were in place before any significant shifts in market conditions this year. What we're seeing in the market varies from region to region. For instance, in Europe, there is a significant increase in market PPAs, and what we have been doing is renegotiating all contracts that are under discussion. We didn't sign some PPAs that were very close to completion on pricing; we renegotiated them.

Colin Rusch, Analyst

I have some more nuance to your answer. The second question embedded in there is: clearing price for projects — are you seeing things clear at 5% unleveraged returns? Is it getting down below 5% or is it closer to 6%? What's the current pricing on average buyers are expecting right now?

Ismael Guerrero, Corporate VP and President of Global Energy

Really, that varies from market to market based on the PPA contracts you have signed. Generally speaking, 6% is a reasonable expectation across most countries.

Colin Rusch, Analyst

Okay, great. And then shifting gears to the power dynamics in China. Shawn, as you look at the activity around that, are you seeing signs of activity that can help boost power production and are you seeing the government getting involved? Can you just give us an update on what's happening on the ground to mitigate that and what you're watching for to just get a bit more hopeful about our capacity coming back online?

Yan Zhuang, President of CSI Solar

Well, this is Yan. First of all, I think given the macro level, during high-level carbon-neutral efforts, the control on carbon emissions from carbon-based energy consumption will continue. However, in the past few months, the severe restrictions on power control were somewhat temporary. We are already observing relaxation on that. So that's why we see some improvement in the supply chain already. I am not saying that it will completely disappear, as it will continue, but in a more rational manner into next year.

Colin Rusch, Analyst

Okay. Thanks a lot, guys.

Operator, Operator

Your next question comes from Brian Lee from Goldman Sachs. Please ask your question.

Brian Lee, Analyst

Hey guys. Thanks for taking the questions. Maybe just first one is a follow-up to Phil's question. That $23 million operating income benefit you saw on the OpEx line, what is that? And does that repeat?

Huifeng Chang, Senior VP and CFO

Sorry, Brian, can you highlight exactly where the number is? Did you mean the tax benefits?

Shawn Qu, Chairman and CEO

No. Hi, Brian. This is Shawn. That operating benefit resulted from the selling of some of the solar power plant assets in China, and you cannot repeat that; it is a one-time item.

Huifeng Chang, Senior VP and CFO

Yes, that's from a 75-megawatt solar power plant we sold in the county.

Brian Lee, Analyst

Okay. Why does that show up as a contract expense, I guess, as opposed to just why is it not booked as traditional revenue and margin?

Shawn Qu, Chairman and CEO

Because that asset was recorded as a project on hold. So, if it's a project on hold, then if we decide to offload the project, it is recorded as an operating benefit, or other income rather than into the revenue line.

Brian Lee, Analyst

Okay. Understood. Makes sense. And then maybe two more quick ones from me. I don't know if you mentioned this. I appreciate the early '22 guidance and all the different capacity forecasts here. What are you thinking about the capex budget for 2022?

Shawn Qu, Chairman and CEO

That's too far away. We haven't finished that yet.

Brian Lee, Analyst

Do you think it will be in excess of the $500 million for this year given your capacity is growing more on a year-on-year basis?

Shawn Qu, Chairman and CEO

At this moment, we believe it's more or less the same as 2021. However, as I said, we still have quite a few considerations for 2022 to finalize.

Brian Lee, Analyst

Okay understood. Makes sense. And then last one from me, and I'll pass it on. If I look at your slide deck, the guidance Slide 16, again, appreciate all the detail. You got modules up 45% in '22, battery storage 70%, project sales up 50%, but then revenues up 30% in guidance. So just trying to understand what sort of ASP assumptions are you making while in this environment where panel pricing is up 25%, like you said, Shawn. Are you assuming ASP degradation into 2022 or are the batteries or project sales coming in at lower prices? Just wondering why that volume growth, which is pretty robust across all three product types for you, is not translating into similar levels of revenue growth? Thank you.

Yan Zhuang, President of CSI Solar

This is Yan. Actually, we're still feeling certain uncertainties for next year. First, we still believe there are multiple driving forces for next year. So, as you see, the inflation may not end yet, and we're still observing the real output of silicon next year. It's going to take time from the first half into the second half. The real capacity that's going to be released will happen in the second half. So, we're still seeing a rather tight balance between supply and demand — talking specifically about silicon module shipments for next year. So, although we're also observing adjustments from downstream in terms of PPA prices and the expectation of returns, which are also becoming more volatile. So, all these factors together indicate that next year will see a more rational balancing, and that's why we're providing the forecast. In terms of ASP, I would say it's rather stable; it may go down, but it’s not going to be a dramatic drop. So, particularly in the first half, we see quite a tight balance.

Brian Lee, Analyst

Okay, I appreciate it.

Huifeng Chang, Senior VP and CFO

Brian, this is Huifeng. Let me also add that on the EG side, even though the gigawatt we projected for next year 2022 is significantly higher than in 2021, the nature of the business means that higher gigawatts does not necessarily mean higher revenue. So, there is a factor in the total equation, which is why you see much higher volume but not necessarily much higher revenue.

Operator, Operator

We will take our final question from J.B. Lowe of Citi. Please ask your question.

J.B. Lowe, Analyst

Good morning, everyone. My question is essentially on polysilicon and whether you guys have seen any impact from the W.R.O instituted by the Customs Bureau here in the States over the summer and how that's been affecting your polysilicon buying patterns, if at all. Are you looking for alternative polysilicon sources outside of China, and how that would work with your cost base?

Shawn Qu, Chairman and CEO

J.B. this is Shawn speaking. We are buying polysilicon from both domestic and international sources, maintaining stable and long-term suppliers. We are indeed buying significantly from within China. Moving forward, I believe we will continue to purchase polysilicon both inside China and outside. Of course, in all of our purchasing activities, we have stricter policies in place to prevent any forced labor or actions violating established legal practices.

J.B. Lowe, Analyst

Okay, great. Other question was just on whether you saw any COVID-related slowdowns in your Southeast Asia manufacturing facilities and if those have been alleviated in any sense.

Shawn Qu, Chairman and CEO

We did experience some COVID-related slowdowns in manufacturing in Southeast Asia, but we also observed that some slowdowns were due to other reasons. For example, double-containment measures have affected production at some other solar companies.

Operator, Operator

Thank you. There are no further questions from the line at this time. I would now like to hand the call back to Canadian Solar's Chairman and CEO, Shawn Qu for closing comments.

Shawn Qu, Chairman and CEO

Thank you. And thanks everyone for joining us today, and for everyone's continued support. If you have any questions or would like to set up a call, you know that you can contact our Investor Relations team at any time. I hope you have a wonderful Thanksgiving holiday next week with your family, and have a nice day.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now all disconnect.