Ladies and gentlemen, thank you for standing by, and welcome to Canadian Solar's Fourth Quarter and Full Year of 2019 Earnings Conference Call. My name is Annie, and I will be your operator 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'd now like to turn the call over to Ed Job, Managing Director, Investor Relations at Canadian Solar. Please go ahead.

Thank you, Annie, and welcome, everyone, to Canadian Solar's fourth quarter and full year 2019 earnings conference call. Joining us today are Dr. Shawn Qu, Chairman and Chief Executive Officer; Yan Zhuang, Acting Chief Executive Officer; and Dr. Huifeng Chang, Chief Financial Officer. On this call, Shawn will provide a brief update; followed by Yan, who will review our recent progress and outlook. Huifeng will then review our financial results before we open the call to your questions. Before we begin, may I remind listeners that management's prepared remarks today as well as their answer to your questions will contain forward-looking statements which are subject to risks and uncertainties. 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. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future, unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirement of SEC Reg G regarding Generally Accepted Accounting Principles, or GAAP. Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to allow further analysis of the company's performance and the underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be used by investors as a substitute for data prepared in accordance to GAAP. At this time, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Thank you, Ed. Welcome, everyone. 2019 was a strong year as our revenue and profit both exceeded expectations. Yan will go through our business review and outlook in more detail. Given the current pandemic and macro situation, I would like to share with you some of my views and perspective. First of all, we have been working hard to ensure the health and safety of our employees. This is our top priority. We are also taking all the necessary measures to support our customers and partners in the current market environment, while still planning for the market to rebound. Today, solar is already one of the most environmental and economically attractive sources of energy. Innovation continues to drive solar energy’s competitiveness. As the cost and performance of storage continues to improve, solar’s ability to gain market share in the global energy generation mix will accelerate. In addition, the market projects global decarbonization efforts are intensifying, creating even greater demand for clean energy and solar assets. The current shock resulting from coronavirus will likely interrupt the clean energy transition but there's no turning back. Canadian Solar has a proven track record of 19 years and has established strong foundation to capture an outsized share as the demand grows. We’ve built a globally diversified flexible capacity structure, strong customer relationship and bank facility with a resilient business model that adapts to change in the market. Currently, we're also putting in place risk control to preserve cash and navigate the market volatility. We believe that the robust and conservative nature of our long-term strategy will allow the company to emerge stronger from the current period of uncertainty. With that, I would like to pass the line to Yan. Yan, please go ahead.

Thank you, Shawn. Let me start with some key messages. First, we achieved strong results for the fourth quarter and full year 2019 with revenue and profitability meaningfully above our expectations. Second, we continue to grow and monetize our operating solar assets and pipeline. We currently have 880 megawatts under operation, 512 megawatts under construction, 3.7 gigawatts in backlog and 11.7 gigawatts in pipeline. We are expanding our presence in regions such as EMEA, while solidifying our leadership position in North America, Latin America and Asia Pacific. Third, we are evaluating the energy business model and extending previously successful strategies. For example, the Canadian Solar infrastructure plant in Japan, which was sponsored by the company was a successful way of capturing additional value by retaining partial ownership in selected projects we develop. This strategy will increase the predictability and stability of our revenue streams through power sales, O&M and asset management services. Fourth, we have set up a global team with a focus on system integration and energy storage, which will help to build the new technology DNA of the company and lead the next wave of growth in this industry. It is the natural next step as we have the advantage of a strong brand, a large pipeline and tight control over our distribution channels. And finally, I'd like to echo Shawn's comments. We had a robust start to the year but have started to see more negative demand impact from the COVID-19. Q1 was somewhat affected by the capacity loss in China. And now, there's greater uncertainty over demand in Q2 and Q3. However, the recovery is bound to come. So we have tapped a fairly wide range for the 2020 guidance. The pandemic is a new challenge. And over the past few years, we have learned many…

Thank you, Yan. As Shawn and Yan noted, we closed Q4 and 2019 above our expectations. Total revenues in Q4 were $920 million, up 21% sequentially over Q3. The higher than expected revenue was driven by increased module shipments and stable ASPs that tracked above our peers. Total revenues for the full year 2019 were $3.2 billion, down 15% year-over-year, but in line with guidance. As you would recall, in 2018, we sold several large solar power plants in U.S. We knew that the sales cycle of our project business was such that 2019 will be lower and more of a trough year which we indicated in our guidance back in Q3 2018. The beauty of our business is that whenever our project business was in the build part of the cycle, the MSS business will be strong. As a result, we have delivered profit every year since 2013. In addition, our non-module revenues in MSS increased by 80% year-over-year from $238 million in 2018 to $426 million in 2019. This includes sales of system kits, EPC and O&M services. We see our beyond module revenues as a key top-line driver for Canadian Solar. They accounted for 17% of MSS revenues in 2019, up from 11% in 2018. We expect this trend to continue as Yan is pushing the team from manufacturing to technology to rollout system integrated products and solutions, particularly related to packaged storage. The Q4 non-GAAP underlying gross margin for the company excluding the AD/CVD effect was 24.3%, 130 basis points higher than Q3. The improvement was mainly driven by a higher MSS gross margin. For 2019, the underlying gross margin was 20.8%, the highest gross margin Canadian Solar has ever achieved since 2011. While we grew our business to continue to keep tight control of operating…

Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Colin Rusch of Oppenheimer. Please go ahead.

Thanks so much, guys. As you look at the initial indications of weakness from your channel. Can you be a bit more specific about which geographies and which portions of your sales channel are seeing that weakness? Specifically, we're looking for a bit more color on the direct sales channel where we know you guys have a sensible position, a little bit outsized margin there.

This is Yan. And right on question. So I think the immediate impact actually comes from the residential market. We're observing the channel inventory is increasing and that demand is slowing down. So that slowdown -- but we made assessment. As of today, the drop off from Q1 is very low. There's nothing in Q1. And in Q2, we start to observe something slowing down. But we know that things are changing. So, the residential market slowdown mainly coming from Europe and U.S. and that is not material yet in a significant way. So, Japan -- and in Japan, which is the most profit comes from, we do not see slowdown. So everything is still normal. And the second channel is probably the impact from ITC. So, that is more about second half, which is less scary, some Q2 and some -- mostly it’s second half but we have time to remedy that. We can find other demand. So, that’s the impact that we are observing.

And then on the project business and new construction timelines, have you looked at the priority list yet, which projects may be delayed for work stoppages or, shelter in place type mandates country-by-country basis. And what that waterfall looks like at this point?

We're following that situation on a daily basis. Actually, until today, there's not even a single solar project construction has installed. Even we checked -- we have almost nothing in Italy. So we don't know what's happening there. But in Spain, in the U.S., the construction is proceeding without being disrupted -- with no disruption.

Thank you. Our next question is from the line of Philip Shen of Roth Capital Partners. Please go ahead.

Hey guys. Thanks for questions. I know you just shared with Colin, what you're observing as it relates to the impact of coronavirus in the markets throughout the world, U.S., Europe. But I was wondering if you could share what you expect to happen? So for example, you guys have experienced coronavirus and really effectively dealt with it as a country in China. But what do you expect given the measures that are being taken in Europe, in the U.S.? How do you expect, for example, demand to change in Q2? Never mind the observations today. Clearly in the past four days things have changed -- over the past few days, as you mentioned in your prepared remarks. But play the game out for us, what does Q2 look like maybe from a volume standpoint? Are we down 10% or 20% from -- I know you haven't provided guidance, but just help us understand how Q2 demand could evolve, Q3 and potentially in Q4, what does it look like by quarter? Thanks guys.

Well, good question. This is what we always do. We always try to anticipate instead of being reactive to today's situation because what matters is actually the future. So we're not medical doctors, and we're not very good magicians. And -- but I would say solar is probably less affected industry compared to others. And our annual guidance already reflected our adjustment for the year. And I’ll not say Q2 will be fully utilizing our capacity. But I don't think it's going to be disaster. So I think we're still optimistic about this whole thing. So, we have taken into the consideration the immediate impact -- the coming impact to the rooftop residential market and also the impact to ITC. So, I think overall, we believe our assessment of annual demand for the year should be still okay. Shawn?

Hi, Shawn, did you want to comment as well?

Yes, I agree with Yan. The situation on the ground, we have made our best estimate.

Shifting over to some housekeeping questions. I was wondering if you could share the number of megawatts recognized in revenue for Q4 and how many megawatts or systems?

It's around. This is Steven. It's around 2.1 gigawatt on a pure module sales in Q4.

So I get to roughly I think ASP in Q4 of about $0.28. Can you confirm that that's right? And then how do you expect the ASP to trend in Q1 and through the rest of this year?

In ASP?

Yes.

We've been observing some decline on ASP from Q4 into Q1. However, costs also coming down. So you can see our guidance for Q1 -- our gross margin, of course, that's blended between module and project. But for Q1, our module gross margin is still healthy. So even with the ongoing situation, I think with the breadth of competition on pricing, I think the costs, we're already seeing that cell costs coming down already this week. So it's going to accelerate. So very quickly we'll see that move on pricing -- module pricing and upstream material costs will be in parallel reaching the balance.

Okay, great. One more big picture question, you talked about building the new DNA for the company with systems and storage. I was wondering if you could share, when do you expect new revenue to come from systems and storage to be meaningful? Are we looking at six months from now, could be a year from now? I'm guessing coronavirus might impact that. But I was wondering if you could elaborate more on your comment there about the new DNA for the company? Thanks.

The team actually is actively working on setting up the value chain for this direction. So, it's not -- aside from the technology knowhow, it also involves setting up technology partnership with the leaders in the industry, and identify the companies that has the right bankability but also the cost competitiveness aside from technology strength. On top of that, we have to set up economic modeling of this business line. And besides that -- beyond that, also there's legal, there's financing elements of this business model. So we're moving pretty fast. And we're closing one deal with -- we're on our way to closing one deal, not sure one, because there’s certain impact from this coronavirus, but we're pretty last minute of the deal. And in terms of revenue, will come from -- will come in next year, not this year. And in our project pipeline, we have pretty big pipeline with storage requirements. So now will be -- more or less will be our captive market. So that provides foundation for the company to move fast and far in that direction.

[Operator Instructions]. Next question is from the line of Mark Strouse of JPMorgan. Please go ahead.

Most of them actually been answered, but Huifeng a couple modeling questions if I can. So I understand it's early in the year and things can certainly change. But as we stand here today, what are your expectations for mix between the two segments this year? For the energy, the energy segment either on dollar basis or on a percentage of total basis? That would be helpful. Thank you.

I think that this question better answered by Yan. Yan, would you please give some color on the breakdown of our total annual revenue guidance?

Well, somehow we anticipated this question is coming. That to be honest we find that a little early to provide that, given the situation right now, it’s so fluid on both sides. So we will provide that information when we have more clarity, maybe in the next presentation, maybe slightly later. So that's -- I know it’s not really answer, but I hope can help you.

And that's probably going to be the same answer for this next question. But as we think about gross margins this year, I mean you've obviously got a very strong start in 1Q. You're coming off of 2019, which is the highest like you said for several years in gross margin. Do you think 2020 could be even higher than 2019 or I imagine it's still early to tell, but just wanted to ask?

I think 2020 is going to be a little bigger challenge than 2019. I think we will have that consensus. But that's always -- I am the guy, I always have faith and we’ve supported facts. So I think at least our business from Japan and Korea is not affected. And we have locked almost all the orders for Q2. And then for second half, we have almost 40%, 50% already locked demand and we assess -- so we -- while we look at our different channels by different geographical locations now we realize that most of our profit is actually less impact -- less affected by this coronavirus. Japan, Korea and now U.S., I think we have project already locked. And the module we already signed the contract locked. And for now, we don't see the impact yet. Although there's also -- of course, there's uncertainties moving forward. But I think the chance for huge impact on utility scale projects is low for this year, for 2020. So, we're still optimistic. I cannot provide you exact number on gross margin. But I don't think it's going to be end of the day. And obviously in 2020 we believe China with more stimulus I think the government will try to promote the demand side, given the situation we're going in right now. So we're confident that actually we -- the China demand will help to bridge the gap as well. So it's not going to be end of the day. Once again we believe solar is going to be the -- one of the least affected in this industry during this crisis.

Hi, Mark. This is Shawn speaking. I will add some color on the module and the breakdown of module and project business. For 2020 on the revenue side, module and system, the core MSS will probably be somewhere around 3 billion. The balance will be the energy business. However as the bottom line is different, the bottom line contribution or the net margin contribution from the projects side could be larger, or at least in part with the Module and System business. Now, all those numbers are non-GAAP and there will be some cancellation between the two business, and I hope those numbers give you some indication for your model.

The next question is from the line of Jun Liu of CICC. Please go ahead.

My first question is coming with the demand. So you have just mentioned the Q2 capacities are already fulfilled and 60% of the second half is secured. So my understanding is that 75% of our full year guidance is already secured. And -- but I would still like to know if you can shed some color on our new order flow, whether we have some difficulty in signing new orders, do you see the coronavirus impact on the transportation? And my second question is on the gross margin side. We are seeing a very amazing gross margin in 4Q and we are improving the gross margin in the first quarter this year. So may I understand a little bit more about the breakdown of the gross margin, whether it's coming from the -- we see as part of ASP in the first quarter. So whether it's coming from the product mix improvements, if we have more mono modules in the first quarter than before? What else is coming from this part or whether it's coming from the cost reduction, as you mentioned the sale price declined very quickly, or it's coming from our like in-house production costs reduce? Yes, that's my two questions.

So for the first question, I think I need to make a little correction. So for Q2, we already 100% booked. But actually we lost some orders in Q2. So our capacity guide for Q2 is not 100%, but it's not a heavy loss. So it’s still okay. So, over the year -- for the entire year, yes, we are like 70%, 75% booked. That's for sure. That's true. And so demand wise, we're still optimistic. We're not just seeing any disasters, and we're still being -- we will still be healthy, so with good volume. And remember -- look at the last year's volume was 8.5 gigawatts and this year we’re at -- our guidance is 12 gigwatts, a major growth in the market. That could be similar market size. So it shows our confidence, so the market is pretty healthy. And the second question is for Q1. We do have in Japan -- a project in Japan that we sold and recognized. That is a decent profitability. However, although the module parts -- the overall gross margin of the company is actually boosted by this project from Japan. The module gross margin is still about 20% in Q1. So, it’s still very healthy. So that answer your question?

Hi, Jun. You also asked about transportation, right?

Yes.

There are some -- a little bit chaos, some countries are closed for today and they’re open tomorrow after heavy protest. For example, it happened in Brazil, and also I’m told that it also happening in India. But unfortunately, we're not shipping that much to India as well. Different government -- it's kind of panic, so things kind of happen. But we have experienced to deal with that kind of road block or that kind of stuff in China already. Usually it takes a few days really, and then people come to a stand. They realize that hey cargo doesn't really like carry virus, it's the human. So, I think it is kind of laughable activity, but it does happen, it already happened. And I think those are going to be short-term impact rather than long-term.

Next question is from the line of John Segrich of Luminus. Please go ahead.

I was just wondering, can you give us an update on your share buyback program? Looks like you'd a little bit in December but how much have you bought to-date and when would you expect to complete the plan by?

I’ll leave that for Huifeng.

Thank you John, this is Huifeng. The stock buyback program is still going on.

Yes we executed the buyback in December. We also executed recently. But we are looking at it, the marketing -- or the purpose is to number one to support the share price to a certain level; and number two, to buyback when the stock price is way below book value. So we can create value for the shareholders. So yes, we are executing the buyback program. And for the details we can wait until Huifeng come back to line, then we can have more discussion, John.

[Operator Instructions]. Next is Alex Liu of UBS. Please go ahead.

Yes, I got two questions. One is regarding to the module price. So what's your view on the module price across the year? Do you think is there any chance that the module price need to be cut a lot to stimulate the demand given the coronavirus situation? And the second question is about the module technology. So, as you know that the larger size of wafer is applied across the supply chain, so do you think there could be some major impact from the larger size of wafer in itself? And what you are doing to prepare for the potential change? Thanks.

Okay, so first question. Pricing, actually, I think we're seeing out of this panic, we've already seen a bottom, and actually I'm seeing a rebound moving into second half. So, the demand is actually -- some of the volume and demand will be shifting starting into second half. So, it will create certain search -- demand search against better capacity, so, bankable capacity. So, this is what we are observing. And we are observing we believe most of the volume -- most of the volume this year will -- I will say 70% of the volume this year will be owned by -- shipped by top five manufacturers. So, this is what is happening. So, being part of the top five, so we still see enough demand that is there for us. So, -- and also the China projects, the 40 gigawatts of China projects will be mainly in second half. So that's why we believe prices at least stabilize and may go up into second half.

Hi, Alex. I would like to address the technical question. The first question is mono versus multi. As a matter of fact, our statistics shows that in 2019 we had higher -- significantly higher or meaningfully higher gross margin in our multi product than the mono product. Percentage wise, we provide some numbers, we shipped way more than -- we shipped like 70% multi versus 30% mono, give and take. And our average margin multi is still higher than mono. So, as a matter of fact, as long as you're the leader in certain technology, you can demand good margin. In this case, we are one of the -- only leading player in high power multi, so we do demand high margin. Meanwhile, we also shipped very good and high quality mono products in certain markets. So those products also helped us to capture more than 20% gross margin in 2019. So that's really in terms of mono versus multi. You also asked about the wafer size. Again, as a matter of fact Canadian Solar is the driver of the new wafer standard. For example, we were the first one to introduce so called high HiKu product, which is based on the 166 millimeter wafer size back in 2018. At that time, nobody had been owning it. Canadian Solar is first one. That new product also -- it's also one of questions we can get, relatively high gross margin in 2019 than many of our peers. So you're right. Technology and product, use of technology and innovation is our DNA. You probably know that some other companies recently are promoting even larger wafer. But I believe there's a limit of wafer size, or module size. And the module is not the bigger the better, you still have to be able to handle it and will carry it to -- in the installation site or even to the rooftop. So there has to be balanced. I believe our solar module strike the right balance between high power and installation efficiency and also good safety -- protect health and safety of installation workers.

And also, actually you need to balance between the benefit of the bigger panel and the cost adder on maintaining the reliability of the module itself and also the tracker. And also the possible cash order, when the workers have to slow down their movements on installation. And so there are a lot of factors you need to worry about and this -- if wafer is too big, too thin upper stream has a little benefit, which they will not be able to -- they may not be willing to pass it on to downstream. And the downstream guys use to invest CapEx to rebuild the cell line and the module line. So, it's a few about efficiency and LCOE and less about just the size.

[Operator Instructions]. No question at this time. And I'd like to turn the conference back to the management for closing remarks. Thank you.

Thanks very much. And thanks to everyone who joined the call. And if you have any further questions, you can reach us through e-mail or telephone to our department. Thank you and have a nice day.

Thank you.

Thank you. Ladies and gentlemen, that concludes this conference for today and thank you for participating. You may all disconnect. Management, please do stay on the line. I'll push you back to the next call. Thank you.