Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar’s Fourth Quarter and Full Year 2016 Earnings Conference Call. My name is Benjamin 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 Mary Ma with Canadian Solar’s IR department. Please go ahead.

Thank you, operator, and welcome everyone to Canadian Solar’s fourth quarter and the full year 2016 earnings conference call. Joining us today on the call are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Dr. Huifeng Chang, our 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 1995. Actual results may differ from management’s current expectations and therefore we refer you to 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 projections as to the Company’s future performance represent management’s estimates as of today’s call. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. Our prepared remarks will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented by us during the call will be provided on both the GAAP and GAAP basis. By disclosing further non-GAAP information, management intends to provide investors with additional information to permit further analysis of the Company’s performance for results 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. If we will use any non-GAAP financial measures during the call, you will find the required presentation and the reconciliation to the most directly comparable GAAP financial measures in the Company’s earnings press release. At this time, I would like to turn the call over to our Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Thank you, Mary. We appreciate everyone taking the time to joining us today. 2016 was another strong year for Canadian Solar as we expanded on our global leadership position and executed on the strategy which will drive our long-term success. We ended the year with 5.23 gigawatts of record solar module shipments, more than 1.3 gigawatts of new solar power plant COD around the world, multiple solar power plant sales, further geographic diversification of our manufacturing footprint and a confident outlook. Solar module shipments for both the quarter and full year of 2016 came in above our guidance due to strong demand for the tier 1 quality solar module, which Canadian solar provides. Revenue for the quarter was $668.4 million and revenue for the full year of 2016 was $2.85 billion. While the shipment volume was in line with or above our guidance, the revenue figures partially reflected headwinds from recent module ASP declines. Net revenue was $1.12 per diluted share for the full year on a GAAP basis over $1.60 per diluted share on a non-GAAP basis. The difference between the GAAP and non-GAAP primarily reflected a $44.1 million true-up of the antidumping and countervailing duty provision which we decided put in Q4. As a result, we reported a net loss of $0.23 per diluted share in Q4 on a GAAP basis. On a non-GAAP basis, excluding that provision, we reported Q4 net income of $0.24 per diluted shares. Huifeng will review details of the U.S. AD, CVD provision in his comments. We remain confident in the long-term outlook of Canadian Solar based on our business strategy and our industry leadership position. We expect solar energy will continue to penetrate the world energy market. The adoption speed will only increase as lower prices of solar modules and other components…

Thank you, Shawn. Net revenue for the fourth quarter of 2016 was $668.4 million, up 1.7% sequentially and down 40.3% compared to a year ago. As Shawn noted, we’re coming off of record shipments in both the fourth quarter and the full year of 2016. Revenue was in line with our guidance but reflected the impact of the industry wide headwinds from significant ASP declines. Gross profit of Q4 was $49 million compared to $117.3 million in Q3 and a $200.5 million in Q4 of last year. Gross margin in Q4 was 7.3% compared to 17.8% in Q3 and 17.9% in Q4 of last year. The sequential decrease in gross margin was primarily due to the significant anti-dumping, countervailing duty to a provision of $44.1 million that was estimated based on the preliminary annual review ruling by the U.S. Department of Commerce, as well as lower module average selling price, which was partially offset by lower module manufacturing cost. Excluding the aforementioned AD/CVD true-up provision, gross margin in the fourth quarter of 2016 would have been 13.9%. With regard to the AD/CVD, we booked a true-up provision of $44.1 million, primarily associated with prior year’s module sales from China to the U.S., according to the preliminary results from third administrative review, so called AR3 of Solar 1 by DOC. The AR3 preliminary results were announced to the public last year on December 22, 2016 for AD and at the beginning of this year on January 9th 2017 for CVD. The preliminary results of our Company are hugely different for both the past rates imposed on our Company and the AR3 preliminary results on our peers. We are vigorously contesting the preliminary results and have filed Case Brief and a Rebuttal Brief for AD with DOC on January 25, 2017 and…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Colin Rusch from Oppenheimer. Please ask your question.

Thanks so much, guys. Can you talk a little bit about the pool of [ph] buyers for projects in developing economies in particular and in Mexico and Brazil? I am curious, how active that market is for you guys and how far you are in the process of looking at potential acquirers of those projects?

Hi, Colin, this is Shawn speaking. For developing country project, we are quite successful in Brazil. Our first project was both to EDF and then for the first -- second and third projects we have signed, we’re in exclusive period right now with one of the international buyer, which is one of the Fortune 100, global Fortune 100 strategic investors. For Mexico, we haven’t started to lock in the investor yet. However, the Mexican project, feed-in-tariff is U.S. dollar denominated. So the demand for the Mexican project appears to be quite strong. Now for the China, China is also developing economy. For the Chinese projects, so far our project was sold to the Chinese investors, more specifically to Chinese power producers.

Great. Thanks, guys. And then, can you talk a little bit about how you’re approaching the pricing strategy for modules through the balance of this year and in context of some potential changes in China. In the past, you’ve been I think ahead of the curve and in terms of locking in some pricing with some of your customers and being able to measure your working capital around that. Can you just talk about how you’re approaching that and then how we should think about the cadence of price movement as we go through 2Q into 3Q and into the back half of the year?

In general, the market continued with the ASP decline. I think this is everybody expected because this is how we can get to grid parity. However, different markets seem to have different dynamics. The U.S. market seems to have low price in the past four quarters, sometimes even lower than China, which is quite unthinkable. But, it probably reflected the fact that there are significant new capacities ramped up in Korea and also in Southeastern Asia. Now, those capacities can only supply to U.S. and to Europe, and those capacities are not competitive in China. So, I think that is currently probably a temporary oversupply of the non-Chinese capacity versus the U.S .and European module demand. I think to counter this issue, the way is to introduce new product, because the high efficient products, for example the PERC product with high module output and for the rooftop market seems to have high demand. So, our strategy is to outfit, like retrofit our Thailand factory -- or southeastern Asia factory to the cutting edge PERC technology in order to catch the high-end demand. Now, China is another interesting story. Somehow in last year’s government auction, so called Top Runner auction, the condition, the technical condition is loose for the mono but tough on multi. Therefore, there are significant projects, Chinese, large significant projects somehow locked with the mono product. So, you actually see the mono solar module pricing quite stable. So, our strategy is to persuade the project owners and EPC companies to shift to high-efficiency multi because our strength is in the high-efficiency multi. And for the Japan market, the residential market still seems to be quite strong but we started to see price competition in the utility side because since August last year, multi [ph] of Japan allowed the project developers to switch modules. Therefore, Japan became a open-market. So, I think in conclusion, we do see the ASP decline in general. However, different markets have different dynamics. But, we think -- I think the way to counter it is to develop high-efficiency and low cost solar module products.

And your next question comes from the line of Philip Shen from Roth Capital Partners. Please ask your question.

My first question is on margins for Q4. Can you share what the margin was on your project sales versus the margin on your external module shipments? And then, how do you expect those margins to trend for module and projects in Q1 and for the rest of 2017?

Okay. The Q4 -- the margin for the Q4 module sales were quite healthy, because we sold them lucrative project. The two projects we sold in Canada had the Ontario FIT 1 feed-in-tariff. So, those projects are very lucrative. And the two Chinese projects we sold also have reasonable margins. I think all combined for the Q4 project sales, our combined gross margin should be close to 20%. And on the module side, our Q4 module gross margin is in the low teens. So, when your average, it averages to 17.8% without considering the AD/CVD. Now, for Q1, the module margin recovered slightly, because Q4 was a strange quarter, the module demand like came from nowhere after November in which the material price is quite high. So, our Q4 module margin is low. In Q1, we see slight recovery on that. And also, we started to ramp up our black silicon capacity. And as we said in the press release, we also started to ship from the Funing cell factory, which was down for more than half years now because of the tornado. So, that also contributed to the margin. The Q4 project, the project was sold in Canada. That particular project was more or less a breakeven; that project was not profitable. It’s rather for us to recycle the cash flow. Now, the project we’re going to close in China, a good project; it should have something like high teens to 20% gross margin. Those are very profitable projects.

Okay. Thanks for the detail, Shawn. As it relates to the J-REIT, it looks like you are targeting it for Q3. Can you share some details -- some more details about what you plan on doing, specifically how many megawatts could you place in the J-REIT, and then what is the certainty of the J-REIT getting done?

Yes. We could have accelerated the IPO to Q2 or even Q1 but that means we’ll have a small portfolio to drop in. The reason to wait until Q4 is to accumulate in that project. We think we can accumulate somewhere around 78 [ph] megawatt of projects, COD projects to be dropped into J-REIT. Now, the J-REIT, if you look at the three existing J-REITs with solar assets, they are trading at over 500 yen per watt pricing. And of course IPO, you have to give IPO discount. So we’ll probably discount to 10 to 15% something like that. so, you can say well, roughly what will be the value of the market cap; what would be the proceeds and also the market cap of the J-REIT with roughly 70 megawatt of assets, initial assets.

Okay, great. One more for me, and then I’ll pass it on. You commented earlier on the AD/CVD cases. I was wondering if you had more to share on that. Specifically, with the recent reduction of the Taiwanese case, the deposit rate to 4% from 19.5%. Would you reconsider addressing the U.S. market again with Taiwanese sales, given the tariff or deposit rate may be quite low again or do you think your 850 megawatt of cell capacity in Southeast Asia is sufficient?

I think we will use our facility. I will prioritize our facility in Southeastern Asia to avoid any future reassessment or review risk. Because the way DOC operates is that they give you a deposit rate and then every year after the year finished, they will call a review. And the review process in our mind is quite arbitrary. So, on one hand, as we said in the press release, we will defend our position vigorously. Now, on the other hand, in order to remove this risk, we want to avoid using any duty solar cells. We want to avoid as much as possible.

[Operator Instructions] And we have a question from the line of Paul Coster from JP Morgan.

So, if I take the midpoint of the revenue guidance and the midpoint of the gigawatt guidance to 2017 and I split it approximately 55% to modules, 45% to the project work, then given that there is 1.1 gigawatt of projects, I think you probably know where this map is ending up. But, I end up at ASPs of about $0.39 per watt for the module business and $1.67 for the project business. Both of them seem a bit high to me. Is my math correct? And if it is, why are these numbers good to go?

I thank your module ASP number is high. In the so called module and component, we do have some components. For example, in some markets we sell the total system kit; we also sell some inverters. Also, we sell the so called MV [ph] station for utility projects. Those are all lumped into the module and the component sales. So, I think the annual ASP for a pure module will be lower than your number.

So, I need to just take into consideration the other components that you are selling. On the project side, $1.67 which is all in, that also seems high per watt.

The project, I said in the call that we will have 1 to 1.2 gigawatt new COD. Now, new COD doesn’t mean sales. We will actually sell lower than -- less than 1 gigawatt of solar projects. So, if I use that formula, then I guess the -- it looks like the project -- but see, also on the energy side, we also have the electricity income from the solar project we’re not selling, so that will somehow get your number mess around a little bit.

And then, just sort of a big picture here, Shawn, is little confusing to investors, anyway. You’ve got declining demand in the U.S. it seems, plateauing demand in China and Japan at best this year. The sort of U.S. centric solar companies seem to have done what most consider rational, which is to reduce their capacity going into 2017 whereas many of the Chinese manufacturers are increasing their capacity. What’s going on here? Can you just sort of describe the overall strategy so that we can make sense of it?

Well, I think you mentioned half of what’s going on which is the Chinese market still seems to be strong. Although the market has the seasonality but annual installation will probably be -- still be 24, 25 gigawatt, if not higher. And if all -- most of that volume happened in Q2 -- no, in the second half, then the demand can be even higher. Now, talking about -- I think that’s probably one of the reasons. The manufacturers located in China, they see competition but they also see clear opportunities. So, they are more optimistic. Now, another reason, which is specific to us is that our up and midstream capacity was very low in the past. For example, our solar cell production last year was only just over 2 gigawatts where we shipped over 5 gigawatt modules, which make us vulnerable to the fluctuation of the solar cell price. And also, it doesn’t allow us to ramp up with our proprietary solar cell technology such as black silicon technology. So, for us, ramping up the capacity, cell capacity and wafer capacity makes sense. Now, even if after we ramp up the wafer and cell capacity with 4 gigawatt of solar wafers it’s only roughly half of our total module and on the solar cell side 4.5 gigawatt; it’s probably 60% of our module. But, we only reached this 4.5 gigawatts capacity in middle of the year. So early in the year, we still buy a lot of solar cell. So, I guess our 2016, total internal sales may still be lower than 50%. So, in our case, selective investment into the right wafer and cell technology does make sense. I can’t comment on others. I guess the others would probably have their own reasons.

And your next question comes from the line of Jeff Osborne from Cowen and Company. Please ask your question.

Just a question on the cost structure; I think last quarter, we had talked about $0.29 cost structure, Shawn, exiting the year. Is that something that you are still targeting or can you just update us on how you expect the current cost structure to progress?

Yes. That’s still my target, $0.29, exiting 2017.

And is that just for the portion of the production that you will have with your own wafers or is that a blended cost including the duties? I am just -- want to double check that that’s actually what will show up on the income statement.

Yes. As a matter of fact, we are now targeting the blended cost to be $0.29 but without the duty, because we don’t expect to ship from China or ship to U.S. using the Taiwanese solar cell. So, I don’t expect to incur any more duty or duty deposit in U.S.

Excellent. And then, can you just update us on the process with the recurrent projects in the U.S.? My understanding is they are all now completed, but what is the process of selling those? I think a lot of the milestones that you’ve set forth seem to be shifted by anywhere from three to nine months, ranging from the J-REIT to the sale of the assets, based on the guidance. What’s actually the experience that you’ve seen with the projects in the U.S. in terms of monetizing this?

Now, first of all, I don’t think all of our targets are shifted in six to nine months. For example, for the Japanese J-REIT, we always time the Q3. But in the earlier quarter, we said that we may accelerate for Q4, if the Japanese parliament not to decide, not to extend the tax holiday, the tax benefit for J-REITs last December. And in the last December, that tax benefit remains in the tax court, so it continues. So, then we continue to on track on the Q3. So, we didn’t shift our schedule for the Japanese REITs. Now for the Canadian project, we sold the two projects in December and which is on schedule. Another set of projects we closed in February, which is one month late, but considering Christmas, I don’t think that is too much of a issue. And for the U.S. projects, those projects only reached a COD in December. So the sales process really only started this year. It’s progressing very well.

That’s good to hear. I thought that those were COD mostly in September, I thought for a good portion of the projects, but perhaps I am a bit off on the timing. Can you just update us on what you expect the margins to be when you sell those projects?

No, I can’t say that. I think we will make money and that’s what seems to look like based on the first round of indicative pricing. But, I better wait until we sign a firm purchase and sale agreement before we talk about those numbers. It’s still in process, so I don’t want to mess along with the process.

Makes sense. Maybe something that you might have a better handle on then is the China market for module demand. Can you just talk about what you’re seeing as it relates to the first half of the year relative to the second half of the year? You’d a pretty strong outlook with 24 to 25 gigawatts; how do we think about the cadence of pricing in that market?

I made a comment to Colin’s question early on. The China market had a strange factor this year, which is somehow significant amount of auction winners for the government Top Runner solar project auction seems to lock themselves into a mono. But, now mono is in short supply and now we focus on multi. So, we are trying to persuade some of those auction winners to switch into high efficiency multi. I think we will have some success considering that the price difference between mono and multi. It’s also because last August when the auction was held, the market was bad in last August. Therefore, somehow for a period of one month to two months, the mono module was sold at same price as multi. So that will probably give people false perception. But then, when the -- coming to this year, people start to see that multi and mono modules have quite a different price in the market. And I think the Q1, Q2, past two quarters, the Chinese market; I would probably call it flat. We don’t see that much of a rush leading into Q2 but we don’t see a significant drop either. I think it probably means because of the land issue and land preparation issues, some of those projects will probably only get into module delivery in Q3 and Q4.

And your next question comes from the line of Carter Driscoll from FBR. Please ask your question.

Could you just maybe comment at a high level on the change in administration in the U.S., any effects on the process, so you’re selling the recurrent projects on pricing schedule or any reticence on people in terms of potential policy changes on either the ITC or potential duties maybe being enacted going forward?

Yes. I can give you a one sentence answer which is no change and no impact. I guess Mr. Trump is too busy on other stuff. So, I haven’t any impact into either the project development or the project sales process. And as a matter of fact, both markets are very, very active, very, very dynamic. People are chasing solar projects like crazy and also people are very, very interested in acquiring projects. In the first round of our projects sales in U.S., we received more than -- more quotes, more bids than we expected.

So, just in the context -- and I realize you already gave some commentary about your expectations for margins for U.S. projects. If I recall it correctly, you had anticipated maybe a couple of quarters ago or maybe as recently as third quarter, maybe a low teens margin is -- maybe just generically, without giving the specific number, is that expectation lower? I mean, if you have such great competition for these projects, I would have assumed you would have at least held in that low teens number. Has something changed fundamentally or is it simply you haven’t gone through the process yet and it still has a couple of quarters to play out?

Yes. I haven’t gone through the process yet. But, I don’t see significant change. Actually, I will say, we -- the result is encouraging. Let me put it that way.

Then, maybe just lastly, in Europe, it looks like there is maybe some resolution to the past tariff policies. Any potential to increase and take more market share in Europe?

The Europe that has some interesting development which we are working on, one is the French tenders. And I believe there are 3 to 4 gigawatt solar projects, [indiscernible] solar project to be tendered out in France in the next three years which is quite encouraging. And I think our relationship with EDF, Photowatt give us a lot of help. And also, Spain will start a project auction this year. So, after like six years, like disappear from the solar arena, radar screen for six years, finally Spain seems to come back with another solar auction.

And your next question comes from the line of Brad Meikle from Craig-Hallum Capital. Please ask your questions.

I just had two quick questions. One quick one was what’s your visibility on module sales in the second half? How fully booked are you with firm purchase orders?

We are confident with our guidance. We have received several significant orders, which we will probably press release later. So, I do have good visibility into projects for the second half to make our guidance. Also, our own project, our own -- projects we develop ourselves will also set into high season in Q3 and Q4. So, we have a reasonable confidence to our 6.5 to 7 gigawatt guidance.

And just a broader question that I wanted to ask you is that the Chinese solar companies aren’t really known for free cash flow and returning cash to shareholders. What is your view on that and if Canadian can change that? And then, as part of that question, over the long-term or medium long-term, let’s say, does it make sense to have a project business sitting alongside a module cell wafer manufacturing business? I mean, they are both fairly capital intensive and they can be lumpy and cyclical in their profit margins. So, does it make sense? The whole notion of them being together was for the YieldCo SunEdison play which is the market has now changed its view on. So, I would appreciate your medium-term view on that.

My view is different from yours. In past few years, we have demonstrated that our module business and project business complement each other. For few years, for example 2013 and 2014, the project business is the bright spot, contributes a lot of revenues and power plant. But in 2016, the module business really carried it. Of course it’s partially because we didn’t sell many projects last year and until the end of the year because we saw YieldCo is what all the investors want us to do. And so, somehow we stopped project selling for a while. And now, moving into 2017, as I mentioned during the call, I see quite balanced PIK contribution from the two businesses. So I think these two businesses, if you look at an annual basis, complement each year. One particular year, maybe the module business will carry a day, but another year, the project business can save today. Because see, if you have a short supply module, the problem is the downstream margin is squeezed. But if you have a oversupply in module, then the components price becomes cheap. Then somehow offsetting you have margins on your downstream project, especially if you have signed p those PPAs a year had, right? And based on a particular cost reduction curve but all of a sudden, the cost reduction curve is much steeper than you expect it, then your downstream project asset; you PPAs become much more valuable. So, I think these two lines complement each other.

I think the question is whether the market gives you a valuation for the project business which they really don’t today, or to severely discount it in a post SunEdison world in terms of the transparency of forward margins on those projects. And so, I think that’s the question. But just as part of that prior question -- sorry to interrupt you there, but just to tie it back to the prior question, what is your view on free cash flows and return of cash to shareholders?

I think it only means we have to do a better job to communicate the visibilities of our project business, which is what we are trying to do. We’re showing our project assets, our pipelines in different countries, and we are providing guidance to the annual COD and also the new project sales; we’re providing those guidance. Now moving forward, I see our project business to stabilize at probably 1 to 2 gigawatt of COD and somewhere around a while or sometime only 1 gigawatt of project sales every year. So, we are building visibilities and stabilities into this particular business. And in terms of cash flow, for 2017, we do have some investment into the manufacturing side. However, most of those manufacturing expansions will have local financing to support. So, including the local financing, we will be cash flow neutral or cash flow positive. Now, moving forward, if I get to a point that I don’t need the cash for growth anymore, then I guess the Board -- we’ll discuss with the Board whether we should return some benefit to the shareholders.

And there are no further questions at this time. I would like to turn the call back to Dr. Shawn Qu, Canadian Solar’s Chairman and CEO, for any closing comments.

Thank you again everyone for taking the time and participate in today’s call. And I hope you have a great day. Thank you.

Ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may all disconnect.