JinkoSolar Holding Co., Ltd. Q2 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by for JinkoSolar Holding's Co. Ltd. Second Quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Ripple Zhang, JinkoSolar's Investor Relations Manager. Please proceed, Ripple.

Thank you, Operator. Thank you, everyone, for joining us today for JinkoSolar's Second Quarter 2021 Earnings Conference Call. The Company's results were released earlier today and are available on the Company's IR website at www.jinkosolar.com, as well as on Newswire Services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Xiande Li, Chairman of the Board of Directors and Chief Executive Officer of JinkoSolar Holding Company Limited; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Holding Company Limited; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Holding Company Limited. Mr. Li will discuss JinkoSolar's business operations and the Company highlights, followed by Mr. Miao, who will talk about sales and marketing, and then Mr. Pan Li, who will go through the financials. They will all be available to answer your questions during the Q&A session that follows. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties; as such, our future results may be materially different from the views expressed today. Further, information regarding these and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements, except as required under the applicable laws. It's now my pleasure to introduce Mr. Li Xiande, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

It's now my pleasure to introduce Mr. Li Xiande, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

We are very pleased to have delivered revenue of $1.3 billion and gross margin of 17.1%, as well as the significant increase in non-GAAP net profit quarter-over-quarter, despite very challenging market conditions. In response to a sharp increase in polysilicon prices in May and June, there is a certain time gap in the transmission of price increases from upstream to downstream in the supply chain. We quickly increased external sales of silicon wafers and proactively lowered the production volume of modules. Total shipments and revenues in the second quarter were approximately flat compared with the first quarter while profits improved sequentially. As prices along the supply chain remain high but relatively stable, we see overall acceptance of module price increases continuing well into the second half of the year. Demand for modules is gradually resuming, and our module production volume increased remarkably month-over-month in the third quarter.

We proactively lowered the production volume of modules. Total shipments and revenues in the second quarter were approximately flat compared with the first quarter while profits improved sequentially. As prices along the supply chain remain high but relatively stable, we see overall acceptance of module price increases continuing well into the second half of the year. Demand for modules is gradually resuming, and our module production volume increased remarkably month-over-month in the third quarter.

As one of the first PV enterprises to go global, we have accumulated experience and insight into the development and management of an overseas supply chain. This has given us the know-how and capability to mitigate risk. Since the beginning of the year, we have continued to optimize and improve our global supply chain management. So far, we have announced a few strategic partnerships, such as the joint investment with Tongwei Company, Ltd. in our high purity crystalline silicon project, with an annual capacity of 45,000 metric tons, and an investment in a Silicon Material Company Limited, a wholly-owned subsidiary of Xinte Energy Company Limited. We have also signed a strategic five-year polysilicon supply agreement with Wacker. Wacker will supply polysilicon to JinkoSolar from its production sites in Germany and the U.S., which contributes to the long-term stability of our supply chain business growth. Meanwhile, the overseas wafer manufacturing facility will start construction soon and will serve our production facilities in Malaysia and the U.S. when production ramps up.

We have signed a strategic five-year polysilicon supply agreement with Wacker. Wacker will supply polysilicon to JinkoSolar from its production sites in Germany and the U.S., contributing to the long-term stability of our supply chain and business growth. Meanwhile, the overseas wafer manufacturing facility will begin construction soon and will support our production facilities in Malaysia and the U.S. as production increases.

In terms of integrated operations, over 7 gigawatts of newly added capacity of large-sized cells has been put into production during the second quarter to support the rapid growth in demand for large-sized products. With the release of new capacity, aided by the application of new technologies and the continuous optimization of our processes, we're confident that optimizing the integrated capacity structure will gradually be reflected in cost reductions during the second half of the year. At the same time, cell technology is at a transitional stage from P-type to N-type, and we are expanding the investment plans for N-type cell capacity based on technical advantages and two years of mass production experience.

With the introduction of new capacity, supported by new technologies and ongoing process optimizations, we are optimistic that our efforts to improve the integrated capacity structure will lead to cost reductions in the latter half of the year. Additionally, our cell technology is transitioning from P-type to N-type, and we are increasing our investment plans for N-type cell capacity, leveraging our technical advantages and two years of experience in mass production.

Leading technology, high-quality products, and reliable services form the foundation of our success and our growth in market share worldwide. Recently, the maximum laboratory conversion efficiency of our large area N-type model crystalline silicon solar cell reached 25.25%, and the maximum laboratory conversion efficiency of our high-efficiency modules reached 23.53%, both making history with new world records. This year, the shortage of polysilicon has highlighted the economics of large-sized products. We expect the proportion of our large-size product shipments to increase rapidly in the second half of 2021 and the market penetration rate of large-sized products to further increase next year. High module prices have also lead to changes in the market structure. The uptake of the distributed generation business achieved rapid development with more flexible business models at a lower sensitivity to price. In response to this trend, we have also raised the proportion of distributed business for the full year to around 40% of total shipments compared with 20 to 25 last year in order to meet the needs of customers facing different distributed application scenarios.

High module prices have also led to changes in the market structure. The uptake of the distributed generation business achieved rapid development with more flexible business models that are less sensitive to price. In response to this trend, we have increased the proportion of our distributed business for the full year to approximately 40% of total shipments, compared to 20 to 25% last year, to meet the needs of customers facing various distributed application scenarios.

The PV industry has largely shifted from depending on policy subsidies to strategic policy support, with ongoing cost reductions and technological innovations driving solar demand. We anticipate that the latter half of 2021 through 2022 will be crucial for solar installations. Leading companies are expected to outpace the industry average in growth and increase their market share through larger product sizes and quicker entry into distributed generation markets. To ensure our global shipment growth rate, we have established strategic partnerships with Bell's COSCO Shipping and MASK. Additionally, to enhance the rapid growth of China's Distributed Generation market and accelerate energy storage development, we have recently formed strategic agreements with Contemporary Amperex Technology Tech and other industry leaders. These partners will create project teams for joint research and development, share resources, and leverage their strengths to advance solar plus energy solutions together.

To support the rapid growth of China's Distributed Generation business and enhance the energy storage sector, we have recently entered into strategic cooperation agreements with Contemporary Amperex Technology and other leading industry partners. These partners will form project teams to collaborate on research and development, share resources, and utilize their unique strengths to drive further business development in solar energy solutions.

Before turning it over to Gener, I would like to go over our guidance for the Third Quarter 2021. We expect total shipments to be in the range of 5 - 5.5 gigawatts, including module shipments to be in the range of 4.5 to 5 gigawatts for the third quarter of 2021. Total revenue for the third quarter is expected to be in the range of $1.24 billion to $1.37 billion. Gross margin for the third quarter is expected to be in the range of 12% to 15%. The annual production capacity for wafers, solar cells, and solar modules is expected to reach 32.5, 24, and 45 gigawatts respectively by the end of 2021. The full-year 2021 shipments guidance, including wafers, cells, and modules, is still expected to be in the range of 25 to 30 gigawatts.

Thank you, Ms. Li. In the second quarter, total shipments reached 5.2 gigawatts, inclusive of over 1 gigawatt of wafers and cells shipped to the China market. In terms of module shipment by region, Europe contributed the largest portion of the module shipment this quarter, as module shipments increased by more than 40% year-over-year. Shipments to China and the U.S. remain stable sequentially. The rapidly developing Chinese market has been given a boost by government policy and is expected to contribute a large proportion of shipments in the second half of this year and 2022. Through continuously monitoring China's market demand and our customers' needs, we have allocated the utility projects at the distribution market with different personnel, products, and resources to support the upcoming strong growth. Overall, demand from overseas markets remains strong in the second quarter, benefiting from increasing power consumption brought about by the gradual recovery of energy consumption levels, thanks to effective pandemic control measures and the effective implementation of carbon emission reduction goals in major economies like Europe and the U.S. In addition, the expected reduction in subsidies in some markets has brought forward some demand. We believe that Europe, the U.S., and India will become even bigger driving forces for new solar installations overseas. The U.S. is one of our most important markets. Although supplies have become more challenging of late due to shipping and policy issues in the short term, we have made strategic and long-term commitments to adapt our resources and infrastructure to better serve the U.S. market. Our teams have already been proactively deploying, researching, and promoting suitable long-term solutions that will allow us to continually grow and meet the needs of the U.S. market. We expect annual global installations in 2021 to be in the range of 150 to 160 gigawatts. Some projects scheduled for this year have been delayed to the following year due to higher costs in the supply chain, but installations in 2022 are expected to increase by over 30%. We reiterate our total shipment guidance of 25 to 30 gigawatts for the full year 2021. Looking forward, as we have a high degree of certainty on future demand, we are striving to deliver faster shipment growth compared with the industry average, to increase our global market share while reaffirming our competitive and leading position in this industry. In terms of product prices outside the U.S., markets have generally maintained an upward trend in terms of product structure. The proportion of our large-sized products has been rapidly increasing, with 182-millimeter products accounting for approximately 50% of shipments in the second half of this year. We are bullish about the development of distributed generation markets and expect that up to 40% of total shipments would go to the distributed generation market this year. We will continue to explore global market demand for distributed generation based on market trends and customer needs, and actively increase our presence in China, the U.S., and Europe while exploring other potential markets. With that, I will turn it over to Pan.

Thank you, Gener. In the second quarter, we remained flexible and adjusted shipments for wafers, cells, and solar modules according to the prevailing market conditions. As a result, we achieved a relatively balanced performance in terms of shipments and profitability. Sales revenue was basically flat with the first quarter of 2021, while gross margin exceeded our expectations. The changes we addressed in the management and control of operating expenses and exchange rates have proven to be effective. Income from operations, or net profit excluding non-GAAP items, increased significantly compared with the first quarter of 2021. For the second half of 2021, we expect raw material prices to further stabilize and production volumes to gradually increase, which combined with cost reductions resulting from new production capacity could have a positive impact on profitability. Let me go into more details about this quarter now. Total revenue was $1.23 billion, sequentially flat. Gross margin was 17.1%, sequentially flat. Disposal and impairment loss on property, plant, and equipment in the second quarter decreased significantly compared with the first quarter of 2021. Total operating expenses in the second quarter were $155.3 million, which accounted for 12.6% of total revenues. In terms of absolute amount and proportion, both improved significantly compared with the first quarter of 2021. Excluding shipping costs, we expect operating expenses as a percentage of total revenues to remain stable. The effective management and control of operating expenses increased income from operations to $55.2 million, up 139% sequentially. Operating margin increased to 4.5% from 1.9% in the first quarter of 2021. EBITDA was $143 million compared with $123 million in the first quarter of 2021. Net income was $10.3 million, and non-GAAP net income was $42.5 million, significantly increasing sequentially. Non-GAAP diluted earnings per ADS increased to $0.89. We continue to optimize our hedging against foreign exchange risks and recorded a net exchange loss of $0.7 million, a significant reduction from a loss of $4.1 million in the first quarter of 2021. Moving to the Balance Sheet, at the end of the second quarter, our balance sheet of cash and cash equivalents was $1.01 billion, approximately flat with the first quarter of 2021. Accounts receivables due from third parties improved significantly sequentially, and we will continue to work on improving liquidity. Accounts receivable turnover days were 62 days compared with 68 days in the first quarter of 2021. Inventory turnover days were 138 days compared with 126 days in the first quarter of 2021. Total debt was $3.12 billion at the end of the second quarter, compared to $2.687 billion at the end of the first quarter. Out of total debt, $67.6 million was related to international solar projects. Net debt was $2.11 billion compared with $1.59 billion at the end of the first quarter of 2021. This concludes our prepared remarks. We are happy to take your questions. Operator, please proceed.

We will now start the question-and-answer session. Our first question comes from Mr. Philip Shen at ROTH Capital Partners. Please go ahead.

Hi, everybody. Thank you for taking my questions. I'd like to ask about your view of anti-circumvention in Southeast Asia tariffs that could come around. If the Department of Commerce takes on the case in the coming weeks, what would you expect to do? Would you continue to ship into the U.S.? And if so, how would you mitigate that risk of retroactive tariffs, or is there a possibility that you might stop shipping into the U.S.?

Philip, this is Charlie speaking. To mitigate the risk, we have accelerated the process to build a stronger supply chain and integrated production line outside of China. I think we signed the silicon arrangement with Wacker and have begun to build around 7 gigawatts of wafer capacities in Vietnam to match our existing capacities in Malaysia and the U.S. In the medium term, we are optimistic and will continue to serve our U.S. customers. Concerning the risks you mentioned, we are still in the early stage, and there are some uncertainties. However, we are following up on the events and keeping in close contact with our customers.

Okay. Thanks, Charlie. I know it's a tough situation, and I think you brought up the silicon arrangement with Wacker in your 7 gigawatts of wafer capacity in Vietnam. I think in the anti-circumvention case, the Jinko Vietnam facility is mentioned in that case. If they do take the case on, would you continue to expand that facility, or is there a chance that you might slow things down there?

No, we don't have any further plans to expand capacity on the Wafer out of China. The first step, we want to build up a relatively strong supply chain integrated with silicon outside of China to make sure we mitigate the risk to zero. We think we are in a good position to mitigate this risk.

Okay, great. And then how much product has not made it to the U.S. shores thus far? What is the impact of that on Q3 results? Because I think in your prepared remarks, you talked about OpEx should be flat ahead, except for shipping costs. How much product has been unable to get to the U.S. shores, and then how much is it costing you to store that product? Because my understanding is it can be quite expensive. Have you been able to find other markets for that product, or do you expect to wait for that product to make it to the U.S.? Thanks.

We did have some modules stopped by the U.S. Customs and Border Protection, requesting additional documentation, and we are still in the preparation of relevant documentation. At this stage, we are cautiously optimistic about the results. It has impacted our shipments to the U.S. market. In terms of storage, we are expecting to incur additional costs related to storing the inventories while we wait for the preparation of the relevant documentation. The solar demand is still strong. I believe it is not a demand issue; it's a supply chain issue and higher supply chain costs.

Okay. Sorry to ask the question again, but can you quantify how much product has not been able to make it to the U.S. and what the cost might be to store that?

We are in the process of evaluating additional costs, and the shipments to the U.S. have been negatively impacted, affecting both gross margin and net profitability in the short term. However, we're not in a position to disclose specific numbers.

Okay. I really appreciate you taking my questions. I know they were tough questions. With that, I'll pass it on.

Sure. Thank you.

Thank you. Our next question is from Credit Suisse, Mr. Jerry Zhou, please go ahead, sir.

Hello. Thank you for taking my questions. This is Jerry from Credit Suisse. I wanted to ask three questions. Firstly, can management share with us what your module price outlook is for the fourth quarter this year, especially after the recent upstream price hikes? What do you think is the maximum module price in China?

Sure. Thank you, Jerry, for your question. This is Gener. Regarding market pricing, we have seen the latest changes from the upstream supply chain, like polysilicon price changes, EVA price changes, and sometimes the gross price changes upwards as well. We anticipate that module prices will not be able to accommodate all upward pressures because there are certain bottlenecks and ceilings for downstream players and customers to adopt these increases. In our observation of the latest tenders by some of the Chinese companies, we have observed orders from Tier-1 players around 1.80 RMB per watt. If we make it more specific, the range is somewhere between 1.82 to 1.86. That should be our projected price for the rest of 2021.

Okay. Thank you. My second question is whether management can share a little more information on our operation with CATL. Are there any numerical targets for the energy storage business and other operations? My last question is if the Company can share updates on the subsidiary operations. Thank you.

Thank you for your question again. Regarding the collaborations with storage battery companies, including CATL and others, I think that's a very strategic move. In our prepared remarks, we emphasized that this is our long-term strategy for the future because, with the ongoing price parity, we anticipate significant transformation in the renewable sector, especially in the PV industry, in the coming years. The nature of PV solar power generation systems requires storage for further industry growth. That's why we have established partnerships with key players in the storage sector to ensure we are well-prepared for that. Specifically, we have joined research and development efforts, sharing resources and leveraging each other's advantages to promote future business development for solar plus energy solutions.

The IPO process is still on track; we submitted the application to the Shanghai Stock Exchange at the end of June. As of today, it's still under review by the regulators.

Thank you for taking my questions, and I will pass them on. Thank you.

Thank you.

Thank you. Our next question is from Senzar Capital, Mr. Rajiv, please go ahead, sir.

Yes. Good morning. Good evening. I have a few questions. My first question is about gross income. You and your team made significant progress in improving the gross income from the second quarter while balancing the mix of wafers and modules. Is it reasonable to expect that gross income will continue to grow in the third quarter, even with a substantial increase in the number of modules shipped compared to wafers and cells? I'm not referring to the gross margin, but rather to the gross income itself. Is it reasonable to think that will continue to rise in the third quarter?

You have two questions. One is about the gross income and the gross margins. We achieved a relatively good gross margin in the second quarter compared to our expectations. The major factors contributing to this were our wafer sales. For the third quarter, we expect gross income to continue to increase, while the gross margin will come under pressure. This is because we are targeting more solar module shipments, while the material costs are rising. We are trying to increase our module prices but are still facing high polysilicon, EVA glass, and other input price pressures. In general, we expect gross income to increase while the gross margin trends downward.

Understood. The important point is that gross income will continue to grow. The second question is that you maintained your guidance of 25 to 30 gigawatts for full-year shipments, which suggests that you're expecting shipments of about 9 gigawatts in the fourth quarter. Can you elaborate? Can you provide insight into why you expect this significant ramp from third-quarter shipments? I have one more question.

Yes. We are expecting a strong Q4 as part of our plan; this is part of the natural progression of the solar industry. If you look back over the last two to three years, Q4 has always been the peak season of the whole year, mainly because people are expecting a very strong demand from China. The entire industry is anticipating a stronger Q4, which is in line with the nature of the industry's demand. Additionally, we are steadily ramping up our in-house capacity, which will naturally grow over time, and we are also preparing for 2022 as well.

Okay. So you expect a substantial increase in module shipments in the fourth quarter? The way you'll get to the 9 gigawatts will be a significant increase in module shipments?

Yes, that is the overall direction. Still, we have the flexibility to allocate our cells between wafers, cells, or modules, as we did in Q2 or Q3. So we have the flexibility, but in general, total shipments will increase for sure.

My final question is about your capacity. You have substantially increased your capacity for modules, now discussing 45 gigawatts for next year. This is a significant increase despite the fact that module shipments this year are not growing as rapidly as they have in past years. Can you provide insights on why you think 45 gigawatts for modules in 2022 is the right number, especially given that you'll have shipped approximately 21 or 22 gigawatts this year?

We are making strategic preparations for next year, and this year the market is strained by polysilicon and capacity bottlenecks. We expect that next year's market will accelerate in demand. Additionally, we are planning for our N-type cell capacities and preparing for the next generation. We want to build up our module production rapidly for next year. Even by your calculations, with a projection of 9 gigawatts in the fourth quarter, you will see that the modules are still facing shortages, particularly as we are establishing capacities for large-sized modules for the next generations.

Thank you. Our next question is from Goldman Sachs, Mr. Brian Lee, please go ahead, sir.

Hey guys, thanks for squeezing me in for some questions. I had a couple of housekeeping ones. First, you gave us the breakout for modules and wafers. Can you provide anything similar for what's embedded in the third-quarter guidance, as well as since you're maintaining the full-year guidance, there's an implicit mix in the fourth. Can you give us a sense of module versus non-module shipments in Q3 and Q4?

In the fourth quarter, we gave guidance for total shipments of 5 to 5.5 gigawatts, including module shipments of 4.5 to 5 gigawatts. The gap, the difference will come mostly from wafer sales in the fourth quarter. We are still flexible, but the majority will be from module shipments.

Okay, fair enough. Just on the earlier question about gross margin, it sounds like you're seeing some margin pressure on both product types. Can you give a rough sense of where gross margins are for modules versus non-module shipments in your guidance?

For the third quarter, we give guidance of 12% to 15%, and the majority of the gross margin is similar across both module and non-module shipments. For the fourth quarter, there is still some uncertainty. Material costs are rising rapidly, and at the same time, we are shifting our module shipments to China. We are trying to achieve relatively high module prices and hope that we can offset the upward cost pressures.

Okay, fair enough. Two more from me. I know you can't quantify the shipments that have been held up at the border with the WRO in the U.S. Can you give us a sense of what sort of mix impact you are assuming in terms of shipments for the U.S. in Q3 and Q4? Are you embedding U.S. module shipments into the forecast here for either quarter?

The mix is difficult to discuss at this current stage as we are being cautiously optimistic about our documentation, which has been well-prepared. However, it's still uncertain. JinkoSolar is monitoring the situation closely and doing our best. Right now, demand is not an issue; it is supply that poses challenges. We have multiple alternatives and are fully committed to our U.S. customers and U.S. market. We are prepared for it, but we cannot disclose detailed numbers for Q3 or Q4 U.S. shipments.

I guess maybe to ask it another way—if you don't have clarity that you can move product into the U.S. and ship product into the U.S., are you still planning to bring the product to the border at the risk of it being seized for months until it gets released? What is the strategy around taking that risk of shipments getting delayed and then ultimately having to reroute them elsewhere versus waiting out the process to see what you should do with future shipments over the next couple of quarters?

I think we will continue to follow our shipping plans despite facing some challenges due to COVID control in Southeast Asia. We are working to find solutions to ensure we reach our customers. Again, for detailed numbers, we cannot quantify at this time. We don't have clear information to disclose, but we remain confident about maintaining our business operations, not only in the U.S. but also in other markets. We have various alternatives being explored in parallel to ensure continuity.

Last housekeeping question from me. What was the CAPEX for the first half of the year? Is there an updated view on CAPEX guidance for 2021? Thank you, guys.

For the first half of 2021, the CapEx number is approximately $580 million.

We have increased our plans to build more module capacities, targeting to reach 45 gigawatts. We have raised our CAPEX target for this year to roughly $1.1 billion.

The CAPEX for the first half of 2021 is approximately $580 million. We have increased our plans to build more module capacities, targeting to reach 45 gigawatts. We have raised our CAPEX target for this year to roughly $1.1 billion.

Thank you.

Our next question is from UBS, Mr. William Grippin, please go ahead.

Great. Thank you very much for fitting me in here. Just another one on the shipments; obviously, the guidance implies a substantial ramp in the fourth quarter for shipments to reach the total guidance. I'm curious, going into the quarter, are you expecting to hold more module inventory, or do you have the ability to ramp production quickly depending on what the final mix of module and component selling wafer sales end up being?

In general, the market demand is quite strong. We are holding some inventory because of accounting issues as we have contracts to fulfill. The global international logistics and shipping lines are facing significant challenges right now. It's difficult to secure ships on time and on schedule. Sometimes this leads to accounting points. We have some inventories on hand, but we have contracts covering those inventories.

Okay. One more from me, the guidance implies cost pressures accelerating here in the third quarter despite polysilicon prices being pretty stable over the timeframe, and glass obviously coming down. Just wondering if you could provide a little more color on why we're seeing or expected to see margin compression in the third quarter relative to the second quarter. How confident are you that you may actually meet or exceed the high end of the range?

The major part of the calculations for costs in the second and third quarters is based on weighted averages. Polysilicon reached a high price starting in May this year. In the second quarter, we averaged commodity prices that were lower, while in the third quarter, the average cost is relatively high, which is one of the impacts. We anticipate this will affect costs in the third quarter more significantly. Overall, we expect that the average will be a key factor influencing cost.

Got it. Thanks very much.

Thank you.

Our next question is from the caller; please go ahead.

I would like you to give us a little bit more clarification on the revenue number that you have guided for the third quarter. Using different combinations of wafers and module shipments in the third quarter, assuming that there are price increases from Q2 to Q3, the revenue numbers that I'm coming up with are higher than $1.4 billion, which is obviously higher than your guidance. Can you help us understand why your revenue guidance at the high end is $1.35 when using the low end of your shipment guidance, combined with assuming that prices are stable or up for both modules and wafers the revenue number that we come up with is higher than $1.4 billion?

That's a mixed issue regarding shipments to the U.S. versus other regions. In the U.S., the sales price is relatively stable, but we have more shipments in the third quarter versus the second quarter. The third-quarter revenue guidance is impacted by higher shipments to other regions, which have lower prices than the U.S. region, thus affecting our overall revenue projection.

So what you're saying is that you can increase your gross income from the second quarter to the third quarter even if the overall module price that you realize from the shipments goes down from the second quarter to the third quarter because you have fewer shipments to the U.S., where the module price is inflated?

Yes, that's correct. The production costs are higher, and in the U.S., we need to pay additional tier-1 tariff costs, which means the gross margin and gross income from U.S. shipments is not significantly different from those to other regions, and more shipments in other regions under better pricing will positively influence gross income.

Great. Thank you very much.

Thank you.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.