Good day, ladies and gentlemen. And welcome to the Canadian Solar First Quarter 2014 Earnings Conference Call. My name is Mark, 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. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to [Mary Maa] (ph), Canadian Solar IR Assistant. Please proceed.

Thank you, Operator. And everyone -- welcome everyone to Canadian Solar first quarter 2014 earnings conference call. Joining us today on the call are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Mr. Michael G. Potter, Senior Vice President and Chief Financial Officer. Before we begin, may I remind our listeners that in today's call, management's prepared remarks will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1997. Actual results may differ from management's current expectations and therefore, we refer you for a more detailed discussion of the risks and uncertainties in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. In addition, any projection as to the company's future performance represents management's estimates as of today, May 16, 2014. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. At this time, I would like to turn the call over to Dr. Shawn Qu. Shawn, Please go ahead.

Thanks, Mary, and thank you all for joining us on the call today. We are very pleased with our results in Q1 2014. As we met our guidance for the gross margin and exceeded our guidance for module shipments and revenue. We also continue to make solid progress on our utility-scale solar projects and solutions business, particularly for strong profitable growth in 2014 and beyond. In the first quarter of 2014, we achieved gross margin of 14.7%. We shipped approximately 500-megawatt exceeding our shipment guidance of 440-megawatt to 490-megawatt for the quarter. Compared to Q1 of last year, our module shipments in Q1 of this year was up close to 15%, underlying the health of the solar industry, as well as the trend of Canadian Solar market position as we continue to take market share. From a geographic standpoint, we saw strong demand from Japan, which represents 38% of our shipment, as well as U.S., which represent close to 25% of the shipment volume in the quarter. Our average selling price was slightly higher comparing to Q4 of last year at approximately $0.67 per watt. As we are looking for the future, we continue to see strong demand for our solar products, not only from our key market such Japan, U.S., Canada, India and China, but also across many other markets in Asia, Middle East, Africa and Latin America. We continue to believe that in 2014 China will be the biggest market in the world, with probably at least 11-gigawatt to 12-gigawatt of installations this year. This project in China expected to be very backend loaded as usual. On other hand our business is global and China is a relatively small part of that. We are particularly optimistic with our prospects in Japanese and U.S. market, which represents approximately 38%…

Thank you, Shawn. Net revenue for the first quarter of 2014 was $466.3 million, down 10.2% sequentially and up 76.9% compared to the year ago period. Gross profit in Q1 was $68.6 million compared to $101.3 million in Q4 and $25.6 million in the comparable period of last year. The sequential decline in gross profit was primarily due to lower module shipments in the first quarter of 2014. Gross margin in Q1 was 14.7% compared to 19.5% in Q4 and 9.7% in the first quarter of 2013. The sequential decline in our gross margin was driven in part by revenue size and mix. We also have to purchase third-party cells to replace lost production due to the fire incidents earlier in the quarter. We estimate that we lost approximately 1% gross margin due to the fire and we hope to recover that from our insurance later this year. Operating expenses were $42 million in Q1 compared to $56 million in Q4 and $7.5 million in the first quarter of 2013. Interest expense in Q1 was $12 million compared to $9.9 million in Q4 and $14.6 million in the comparable period last year. The sequential increase in interest expense was primarily due to working capital line utilization at the beginning of the quarter as well as the interest on convertible senior notes issued in the first quarter of 2014. Interest income was $2.8 million in Q1 compared to $2.8 million in Q4 and $3.3 million in the year ago period. In Q1, we recorded a loss on change in fair value of derivatives of $7.4 million compared to a gain of $8.9 million in Q4 and a gain of $1.7 million in Q1 of last year. Most of this loss was generated by the RMB fall against the U.S. dollar and…

(Operator Instructions) Your first question comes from the line of Paul Coster, JPMorgan.

(Indiscernible) on for Paul. Thanks for taking our questions. Just focusing on the China market for a bit, so it sounds like your -- it tends to be more in the 11 to 12 range in 2014, what do you think needs to happen to get to the high end of the total announced target of 14 gigawatt?

Hi, Paul. This is Shawn speaking. Permitting-wise, I think there are enough permits to support at least 11 to 12 and maybe upto 14 gigawatt and because I am not having this statitistics here. So I can’t really say exactly what the gigawatt. So to me 12 gigawatt and 14 gigawatt to me is almost the same. And key issue I am noticing at this moment are number one, there seems to be less construction and bidding activity requests probably due to some progress in the design phase and prepared to get start later in the year. And also, we have seen some of the private developers -- not the state owned companies, but private developer has been waiting for the bankrupt in order to clear that and accelerate the construction progress. And so it seems like they are moving on the finance activity.

Okay. That’s helpful. Thank you. And lastly, we can see your expectations for 2015 for the closing of the Canadian projects, but the business overall, should we expect similar seasonality in 2015 that we are seeing this year?

I am not sure I understand your question in 2015.

Yes, so I know you are going to hit, kind of, ways away, but you are not giving guidance in 2015 yet. But 2014 is a bit more backend loaded than what Wall Street was expecting and we can see your -- it looks like a lot of the Canadian projects are going to close in the middle of the year in 2Q. But the rest of the business, I mean, is there any comment there, is it going to be the similar progression where we are seeing sequential increases throughout the year or any comment there on seasonality? Is 2014 the new normal I guess?

(Indiscernible) whether we will see the same seasonal pattern in 2015 project business right. Is that your question?

Yes, no, I mean, more, I can -- we can see what you guys are expecting from the Canadian projects, the timing there, but I guess the -- everything else, so it’s U.S., China, Japan, is it going to be a similar story where the majority of your revenues going to be in the back of 2015?

Now the Canadian projects, they are going to have to be back-ended. The reason it will be back-ended that we are trying to realize as many in this year possible. To keep up our charge, we do have projects which are shifting from Q2, Q3 to Q4 due to weather, the winter had extreme weather. We are trying to get these projects sealed in Q4. Now in a normal case of course, we can -- it’s only because we want to try to finish as much as possible in Q4. Otherwise, you may still progress prior to Q1 and you are seeing a more -- probably more smooth team analysis. Now for China, yes, indeed, the project in China always seems to be back-end loaded, that’s because the China only gets a permit yearly basis. Once the permit is given, you have to finish the project in a year. Usually, you don’t see the two permits until at least from April. For example, we just recently got the construction permit on one of the projects which result in the most of China project doesn’t seem to have that much seasonality. So it really varies country by country. So in our case, as we -- our projects in India become more and more global and our intention is to make it more evenly placed as possible. As you know, we started to have strong -- to have strong revenue stream from the project. It will take us a year or two until we have a more diversified project pipeline.

Yes. I would also like to add that seasonally Q1 has almost always been our lower quarter or almost always ramp during the year as well. And that’s partially due to weather, a lot of markets that panel to solar do have a winter season and particular anything that has residential installations, typically people aren’t go up on the roof in the middle of the winter to put panels. So Q1 is usually slower.

All right. Okay. That makes sense. Thank you very much.

Your next question comes from the line of Colin Rusch from Northland Capital Markets. Please proceed.

Thanks, guys. First, can we just talk about overall demand levels? So your guidance for 2Q is almost as large as it was for the fourth quarter. Can you talk a little bit about where you are seeing the real strength? You mentioned Japan just now in terms of the volumes, obviously 4Q was driven by China in large respect, but just what are you seeing in terms of geographic mix? What is surprising you? What’s a little bit disappointing at this point?

In terms of Q1, China volume is lower than we had thought. We know China - Q1 is always a slow quarter. However, it seems like the volume is lower than we had thought. However, in our case, we -- typically China is not a -- we are more evenly geographically placed than other players. So although China is slow, but our -- the last months of Q1 we’re still quite busy. And it will seem to pick up nicely in the past month and Japan demand continue to be strong. We see pretty much the equal demand in Q1 and Q2 and Europe demand is also quite strong.

So maybe I can take this offline. I was more interested in Q2 demand levels than Q1. Just separately in terms of how are you managing the U.S. trade case and eventualities there? What are you seeing on the ground? What are you seeing in terms of purchase patterns? Have things really slowed down? Are you delivering all the way out to the June deadline for now? Maybe you can just give us some comments around that.

The preliminary ruling for the U.S. trade case will come out in June and July, then final ruling will be end of the year. So it’s difficult for me to guess what outcome is. But in all case, we do have a module factory in Canada. So we are diversifying ourselves. We have started to take significant order from the Canadian factory. And we will decide what to do in the next after we see the ruling from trade case.

All right. Just so I am clear, you are seeing flat demand in Japan, you are seeing orders from the Canadian facilities that serve U.S. demand after the trade case ruling. And then just in terms of the dynamics in China, are you seeing smaller players that ramped up to meet demand in the fourth quarter, are they going back to slowing down at this point or are they continuing to run fairly strong and put products out into the market and impact pricing in China?

I would say that the best way to judge the China demand with cell availability, when we had the small fire in Q1 and we have to go with the markets to get cells to be placed our cell production. We didn’t have huge trouble finding cells. Seasonally china was down quite a bit from Q4, which is actually normal and that meant that the capacity that was there in Q4 was available for our needs. So people definitely were ramping down particularly guys that only can sell inside China. Global demand was actually reasonably good in Q1. We had a much better Q1 than the prior year and we had a Q1 in total that was just slightly above our expectations. So we are actually quite pleased with Q1 demand and Q2 demands, we were forecasting another increase by quarter-over-quarter from Q1. So we still see good demand in the markets that we are in.

Okay. And just one final one for me. The guidance for backlog in Japan is a pretty substantial number and can support growth for you guys over the next couple of years. Can you talk about why you are so confident that you can grow that backlog from the 343 megawatts to 600 megawatts, what you are seeing in the market that really gives you that confident you are going to be able to close those deals?

Well, I think it’s not just confident enough. When we say 600 megawatts, we have those projects in our planning chart. We have identified those projects and more than 600 megawatt project and we are bidding over in the development phase and we are also doing due diligence on those projects. So when we say, we will reach 600 megawatts, we do and as I said, we do identify those projects.

Okay. Great. Thanks so much, guys.

Your next question comes from the line of [Alex Mou] (ph) from Goldman Sachs. Please proceed.

Thanks for taking my question. Can you talk about the module ASP and the production cost in the fourth quarter? And also for the solar projects, we have seen some delay of the project delivery in the Canada and essentially in Japan. Seems there are only 2.1 megawatt project expected to deliver in this year. So it seems to be lower than the previous guidance. So can you talk about this? Thanks.

Yeah. Our ASP in Q1 was about $0.67 a watt and we are actually seeing some strength going into Q2 as well, so our ASPs have held up quite well. Our cost was approximately $0.57 a watt in Q1, that’s our blended module costs. That’s higher than in otherwise would have been because we have to purchase more outside sales in order to meet demand because the fire in our cell factory in Q1. So if you remove the impact from the fire, we are on track for our cost in Q1. In terms of Japan, we refurbished our schedule. First time, refurbished it was last quarter for the projects that takes on what the government has published, was their guidelines to how along it should take them for the permitting process. They are behind in the permitting process. We adjusted our schedule based on what it looks like currently. As I’ve said in my comments, it’s been our experience that quite often governments fall behind in permitting in the early stages of when solar first starts to happen and then they start adding resources and they get to enough cases they become more efficient. So we are hoping that they will start getting better and maybe some of those will move up a little bit as we go on. But our forecast is always based on what we know today and that what it is, that’s what we know today is in press release and in our forecast.

Okay. Thank you.

(Operator Instructions) Your next question comes from the line of Phillip Shen from ROTH Capital. Please proceed.

Hey, everyone. Thank you for taking my questions. In Ontario, you’ve targeted a lot of projects to be completed in Q4. Perhaps you can comment on the degree of conviction that you have and what’s the risks that some of these projects actually get pushed into 2015?

I mean, we are comfortable not to put them on in the press release and in the schedule for the COD date. Obviously, we hope to do earlier in the year and the weather cause us to push things out. So the biggest risk for us is if there is an early winter that delays the testing process. By the time, we get later into Q4, our projects should have most of the main constructions on. But if we have too many days with heavy snow that may not be enough to complete full testing for couple of the projects and that may push the revenue recognition into next year. So we are reasonably confident but there is always risk of having the timing of construction projects.

Okay. Thanks, Michael. Can you also comment on the orders or bookings rate that you are currently seeing in China, especially in recent weeks? If you get orders from China, say on May 15th, would that be billed as a shipment in Q2 or would the lead time now be such that it gets pushed into Q3.

We do see orders from Chinese customer in Q2. Now, we don’t necessarily accept those all orders because we have a strict policy and a minimal target policy and all of the payment term policy, because China market has slowed out compared with whole Q4, so the payment trend and pricing was also a factor. So as a result, for Q2, most of our volumes still goes to our advanced China market. Fortunately, we have enough market for the China market alone is more than enough to support Q3.

Okay. Thanks, Shawn. I will jump back in queue.

Thank you.

Your next question comes from the line of Aditya Satghare from FBR Capital Markets. Please proceed.

Thank you. Good evening, all. Two questions on my side. One is that on the Japanese market, could you elaborate on some of the initial observations you have in terms of the buyer environment there? Are you seeing the kind of buyers you expect there and then when we think about the 600 megawatt project pipeline which you aim to achieve, will that have a similar build-out schedule to what we see or meaning, is it more a 2015, 2016 type build-out schedule?

So in terms of the buyers, we are seeing what we expected, some strong outside of Japan buyers and some good buyers inside Japan as well. So we hope we can announce something in the not too distant future on who they are but the interests is as we expected. And we are little bit shooting in the dark but it came to our margin expectations on the projects. But the EPC costs are coming in, as we hope it would and selling price still looks good as well. So our margins on the projects look fine. It’s a little bit hard to comment on the project pipeline and the timing because we have some projects in the pipeline actually that have much further advanced in the permitting process and they may happen sooner. But we haven’t closed a deal or gotten close to that to exclude activities as we feel, we should add it to our confirm pipeline. Others are further into the future would give us revenue 2016 or maybe onwards. So as we add more items to our schedule, so you can better judge that.

Got it. My second question is on China. So if we think about the -- or maybe could you give us an update on once you get the construction permits for a project, what is the typical sort of build-out time for these, for a typical project for you guys?

In terms of China, it can be pulled back. For example, last year, during the Q4 rush, people built large projects, 20, 30 or 100 megawatt projects for (indiscernible). However, that may not result in quality project. That’s why we did not have -- lock into projects type last year. To build a reasonable a good project, a project which can last 10 years. I think you better project half of the year and more than half year. And that was also the driver behind some of the seasonality in China. So you typically want the modules near the end of construction because you put in the rack is one of the last things to do and since their shipping times inside China are relatively quick, the app for modules near the end of Q3 or into Q4, when they are aiming for a Q4 completion to capture the feed-in-tariff for this year. So that’s part of the reason why the China demand is so backend loaded.

All right. Thank you.

(Operator Instructions) Your next question comes from the line of Vishal Shah from DB. Please proceed.

Yeah. Hi. Thanks for taking my question. Shawn, I just wanted to clarify couple of points you made on China. Does your guidance depend on a policy change to more utility field projects in China or you don’t expect that to happen?

Vishal, it’s a very good question. I really don’t know indeed. I otherwise expect and hope for a policy change which allow more utility-scale project. And so I hope that can happen in the middle of the year. But before it happens -- only after it happens then you have that policy. So I don’t want to bank on that policy. And indeed this will introduce some uncertainty on the permitting schedule in China and because of that as you point out in your early recent mode. There are some uncertainty in the China market which is reflected in both the project construction activities and also the bidding request on our modules. And meanwhile in Q2, our guidance of 630 megawatt, we don’t -- to achieve that guidance, we don’t value much China market. Most of our Q2 demand will still come from Japan, U.S. and Europe and also comes from India. Those are still our key contributing markets.

Whose network really depended that much on China to drive our numbers. We tend to be very selective of what we ship in China, like Shawn indicated earlier. We like better ASPs and better credit risk. And we have much stronger market outside China with much better ASPs. So we tend to focus on those instead.

That’s very helpful. Just one other follow-up, if you look at the U.S. market, you said that U.S. is strong. What are the risks that U.S. markets slows down on the third quarter after the tariff is announced? And also within China, do you participated all in the distribute generation market, do you see anything at all on that market in terms of new activity or participation from some of the local companies? Thank you.

Yeah. This is Shawn. In Q3, some of our U.S. customers, especially large customer had indicated slow and stable demand for the panel. And they have booked the panel capacity from our Canadian factory. So I believe the demand is still there from U.S. in Q3. Not for everyone, but at least Canadian Solar has the stronger demand from some of our long term and anchor customer. And what was the next question?

What is your second part of the question, Vishal?

With more on the distributed generation market in China, if you...

Yeah. Okay. Distributed generation --, I think that in one of your -- we did about 30 megawatts of Golden Sun projects last year. And those have been quite painful for most companies that they have been doing it. The roles for grid connection and such are not very well said at the local level. And the counterparty risk, the risk of the person whose loop it is on, it is taking electricity, obviously it’s higher. We have been working through that with the Golden Sun projects. We’re generating electricity, most of it connected with meters and we’re able to build and collect from most of the customers. But it did show that the market is pretty immature and that’s why the reaction from the companies that are little bit more experienced in trying to do distributed generation in China is sort of hoping that the government moves some of that over to utility-scale projects this year to give more time to rollout better policies to support that. In the long term, distributed generation is actually the better market for sustainability of demand and to take advantage of one of the real advantage of solar, which allows the easy installation on roof top and allows you to do much more distributed not central points type of electricity generation. So I’m sure that this will be worked out. The concern this year is whether will be worked out in time this year in order to hit the target. And if its not going to be worked out in time this year, what are they going to do with the total of the 14 gigawatt target.

This is Shawn. I want to add one point. The government has been inviting us into extensive policy composition for the renewal -- for the distributed generation. So there is a genuine desire to listen to the industry player to solve the issue. So I believe that the distributed market will grow and we’ll find our way to grow. However, you asked me when will we see a really significant distributed market in China. I will say I will wait till next year. I maybe wrong but I think to be realistic, let’s wait till next year.

Thank you so much.

Your next question comes from the line of Wei Feng from Luminus. Please proceed.

Hi Shawn. Michael mentioned that you guys are starting receiving here feed-in tariffs from one of your Shenzhen projects. Is that recently and when was that product connected to the grid?

It connected last December. I think the first invoice is January, actually February and we received payment in May. The utility payment came faster but the feed-in tariff payment came a little slower. However, considering the delays of several years for some of the earlier projects in China, it’s quite encouraging that the payment did come.

Do you -- I understand the central government had its new policy that waves the 17% of rates you tax on the feed-in tariff to the solar products. Do you actually -- do you pay that rates or you don’t pay the rates almost feed-in tariff so far?

Yeah. That’s still a confusion point. Indeed, in China tax 17% shall be weighed basically but the state (indiscernible) still ask asks the asset owners to provide the VAT invoice. By doing that we’re automatically pay the VAT. So that’s still a confusing point. So at this moment, I think that whoever wants to get paid, will have to pay this. Whoever wants to receive the payment, will have to pay this 17% VAT. I hope eventually this can be resolved and money can be reimbursed.

Understand. And so what is your estimate on the product connected today? What is the delay for the product you connect today for the feed-in-tariff currently? What is your estimates?

Right now, it’s taking three to four months from when you bill. It seems that it’s more a quarterly payments for the feed-in tariff and more of a monthly payment for the electricity fee. But this is brand new, I mean, we just started operating this project. This is one project from one regions. So it is impossible to translate that across all the regions in China and all the projects in China. We’re just encouraged at least to the project we did in Shenzhen and we’re getting paid there. We’ve invoiced now for project in Jiangsu Province. So I’ll be waiting to see how long that payments make.

It’s different province. We still see a slightly different behavior. Shenzhen, for example, we have asked to send us invoice because we are ready to pay it. For some of the Jiangsu module projects because there are some documents to be clear. So we have just submitted the invoice. And for some of our Golden Sun project, we have in ramp up phase for the normal electricity portion. So all in all, we seem to be getting three months. And it doesn’t seem to be major concerns for the FIT payment.

Got you. So once the government start to pay you each tax, the payment will be stable in the future?

Well, I can only tell you about we have received the payment. So far so good.

Okay. Right. Thanks. Thank you very much.

I would now like to turn the call over to management for closing remarks.

Well, thanks everyone. And also thank you for joining the call today. And very much thank you for your continued support year-over-year and quarter-over-quarter. And if anyone have any further questions after the call, please contact us. And I hope all of you to have a great day. Thank you.

Thank you very much. This concludes today’s conference. Thank you for your participation. You may now disconnect, and have a great day.