Canadian Solar, Inc. (NASDAQ:CSIQ) reported its second-quarter financial results before Thursday’s opening bell.
Below are the transcripts from the Q2 earnings call.
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OPERATOR
Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar second quarter 2025 earnings conference call. My name is Daryl 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 Winna Wong, Head of Investor Relations at Canadian Solar. Please go ahead.
Head of Investor Relations
Thank you operator and welcome everyone to Canadian Solar’s second quarter 2025 conference call. Please note that today’s conference call is accompanied with slides which are available on Canadian Solar’s Investor Relations website within the Events and Presentation section. Joining us today are Dr. Sean Chu, Chairman and CEO Yan Zhuang, President of Canadian Solar subsidiary CSI Solar, Ismail Guerrero, Corporate VP and President of Canadian Solar subsidiary Recurrent Energy, and Senior VP and cfo. All company executives will participate in the Q and A session. After Management’s formal remarks on this call, Sean will go over some key messages for the quarter. Yan and Ismail will review business highlights for CSI Solar and Recurrent Energy respectively, and Hugo will go through the financial results. Sean will conclude the prepared remarks with the business outlook after which we will have time for questions. Before we begin, I would like to remind listeners that Management’s prepared remarks today, as well as their answers to questions, will contain forward looking statements that are subject to risks and uncertainties. The Company Claims Protection under 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 risks and uncertainties can be found in the Company’s Annual report on Form 20F 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 non GAAP basis. By disclosing certain non GAAP information, Management intends to provide investors with additional information to enable 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. Sean Chi Sean, please go ahead.
Dr. Shawn Qu
Thank you Wina and thank you all for joining our second quarter earnings call. Please turn to Slide 3. In the second quarter we delivered 7.9 gigawatts of modules near the end of our guidance. Near the high end of our guidance, storage shipment reached 2.2 gigawatt hours below guidance. Due to tariff impacts, we shifted deliveries into the second half. Revenue totaled $1.7 billion for the quarter. Also impacted from certain project sales delay. Gross margin exceeded guidance at 29.8% driven by a higher mix of North America module shipments with notable contributions from our Texas module factory which has made strong progress in ramping up robust storage performance. Further supported margins profitability was weighted down by certain non recurring operating expenses, including the impairment of remaining legacy manufacturing assets. As a result, we reported net income attributable to shareholders of $7 million or a net loss of $0.08 per diluted share due to the pick accounting for our preferred shareholder of recurrent over the past few months, our industry has faced a challenging policy environment. While the industry continues to adjust to the recently passed One Big Beautiful Build Act, I would like to discuss some potential impacts. At this time. Please turn to slide 4. The One Big Beautiful Bills act has sweeping implications for both supply and demand in the US on the supply side, solar and storage domestic onshoring is challenged by increasingly stringent FOCI requirements and higher import due dates on both equipment and components. According to Wood McKenzie, up to 23 gigawatts of operating solar module capacity could be affected. Cell capacity, which requires more complex manufacturing process and higher capital expenditure, could also moderate. On the demand side, outlooks across solar energy storage and distributed generation appear mixed other than for projects that have been safe harbored. The Investment Tax Credit or ITC for solar will phase out by the end of 2027. Meanwhile, energy storage projects must navigate annual FOCI threshold to maintain developer credits. Despite this near term uncertainty, the long term outlook of our industry remains strong. AI cryptocurrency and other energy intensive applications are driving rising electricity demand and Solar plus storage is among the most cost competitive solutions to meet this demand. Future growth will continue to be underpinned by solid fundamentals. As with challenges we have overcome in the past two decades, we believe that a new paradigm creates new opportunities. Today, every part of our business is deeply engaged in the US Market. We deliver both solar and storage solutions across utility scale, DNI and residential applications. We are a domestic manufacturer and a local project developer. We remain committed and will do what is necessary to continue prioritizing this market. Another ongoing commitment is our focus on sustainability. On May 29, we released our 2024 sustainability report. Please turn to slide 5. We are proud of our continued progress in our sustainability journey and reporting standards. In 2024, Canadian Solar reduced greenhouse gas emissions, energy, water and waste intensities by 54%, 37%, 75% and 53% respectively compared to 2017 levels. Consistent with our commitment to improving our environmental footprint, we increase the percentage of recycled and reused waste to 94% in 2024 while maintaining 100% recycling or reuse of all packaging materials used in our production process. We also continue to uphold the highest standards of tactical business conduct across our supply chain. After receiving silver level recognition in 2023 for the RBA VAP audit of our Thailand module facility, we achieved another silver silver level recognition this year for our solar cell factory in Sichuan, Jiangsu province, China. In 2024, we conducted 147 supplier ESG audits including 31 on site evaluation surpassing our 2023 totals. Following collaborative consultations and corrective action plans, all suppliers met our stringent ESG criteria. With that, I will now turn the call over to Yan who will provide more details on our CSI Solar business. Yan, please go ahead.
Yan Zhuang (President of CSI Solar)
Thank you. Sean, please turn to Slide 6. In the second quarter of 2025, module shipments reached 7.9 gigawatts near the high end of our expectations. Energy storage deliveries were below guidance due to tariff impacts, shifting some shipments to the second half. Despite this, we still delivered one of our strongest quarter with 2.2 GWh of storage shipments. Revenue reached $1.7 billion with gross margin expanded 890 basis points quarter over quarter to 22.3%. This increase was primarily driven by a stronger mix of North American module volumes and the installation surge in China which increased both industry wide volumes and pricing. As a result, we achieved a sequentially higher average selling price in our module business. Strong storage volumes and healthy margin further reinforced gross margin performance. Given the phase out of legacy PERC technology, we wrote down our remaining related assets together with other smaller non recurring items. Operating expenses rose sequentially from 13.2% to 15.3% of revenue and we delivered $121 million in operating income. Although costs in the module business remained stable in the second quarter, we are now seeing rising supply chain costs driven by the anti-involution campaign in China combined with tariffs, duties and the incremental impact of underutilization. These factors will raise per-unit costs in the second half while module pricing shows signs of improvement. We expect price increases to lag rising costs, creating pressure on module profitability. We expect additional pressure from normalizing storage margins. The cost benefit from decreasing lithium carbonate prices, which supported gains in 2024 and the first half of this year, is now tapering off. For more details on this business, Please turn to Slide 7. In the second quarter, we recognized revenue on 2.2 gigawatt hours of storage solutions with sizable deliveries to customers in Europe, North America and Latin America. Due to tariffs, some opportunities shifted into the second half and 2026. Importantly, these are not lost opportunities. Demand remains robust and we continue to actively support customers in navigating trade related uncertainties. As of June 30, contracted backlog including Long Term Service Agreement was $3 billion. To support our growth, we are expanding our globally diversified capacities from 10 GWh of gas to and 3 GWh of battery cell today to 24 GWh and 9 GWh respectively by 2026 year end. The expanded batch capacity will enable us to scale shipments as needed from quarter to quarter with additional headroom if we add working shifts. Our battery cell capacity also strengthens our upstream strategy by helping us manage risk across cycles while providing customers with greater supply chain flexibility. The market is growing quickly and we are scaling alongside it. To remain competitive, we must continue to uphold the highest safety standards and drive product innovation. Please turn to Slide 8. In June, we successfully completed large scale fire testing for our SoBank 3.0 energy storage system. The test confirmed that our system meets key fire safety criteria by containing thermal events within the single enclosure. The results were independently witnessed and verified by both CSA Group and the Energy Safety Responses Group. In residential storage, EPQ won the Japan International Pioneer Design Award or IDPA in the Electrical Products category. This award was established in 2018 in Tokyo and has since become one of the most influential international design awards for pioneering design globally. This quarter, our proprietary residential energy storage system also earned the prestigious Red Dot Award, often described as the Oscars of industrial design. These recognitions are in addition to the IF Design Award and the Museum Design Gold Award that EPCUBE received earlier this year. EPCUBE has made strong progress in its target markets since we earned the prestigious Jet Compliance Certification. Shipments to Japan have surged now approaching 1000 units per month. We’re also steadily advancing in Europe and the us we expect significant growth ahead in this business and we continue to develop other emerging profit drivers such as bundled cell solutions. With that, let me hand the call over to Ismail, who will provide an update on recurrent …