Canadian Solar Inc. Aktie

Welcome to Canadian Solar's First Quarter 2026 Earnings Conference Call. My name is Melissa, and I will be your operator for today.

[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome, everyone, to Canadian Solar's First Quarter 2026 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 Presentations section.

Joining us today are Dr. Xiaohua Qu, Executive Chairman and CTO; Colin Parkin, CEO; Ismael Arias, CEO of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks.

On this call, Xiaohua will go over some key messages for the quarter. Colin and Ismael will review business highlights for Manufacturing and Recurrent Energy, respectively, and Xinbo will go through the financial results. Colin 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 certain 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 20-F 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 provided in accordance to GAAP.

And now I would like to turn the call over to Canadian Solar's Executive Chairman and CTO, Dr. Xiaohua Qu. Xiaohua, please go ahead.

Thank you, Wina, and thank you all for joining our first quarter 2026 earnings call. Beginning on Slide Three, we started the year with strong momentum. We recognized revenue of 2.5 gigawatts of solar modules and 2.1 gigawatt hours of energy storage solutions, both of which exceeded our guidance range.

Revenue totaled $1.1 billion, reaching the high end of our expectations. Gross margin of 25.1% outperformed our forecast, aided by the accrual of tariff refunds. Profitability was impacted by elevated non-logistics operating expenses, foreign exchange losses and tax expense accruals related to the tariff refund. This led to a net loss attributable to shareholders of $32 million or $0.71 per diluted share.

The solar downturn has lasted longer than expected. Against this backdrop, we have consistently made the right strategic decisions. We have repositioned our solar module business to focus on key attractive markets, accumulating in the formation of CS PowerTech, which is now leading our efforts in the domestic reshoring of manufacturing in the United States.

At the same time, we have strategically dialed back volumes in less profitable markets, maintaining a steadfast profit-first strategy. Furthermore, energy storage represents a pioneering strategic move for us. Throughout this business, we have transformed from a pure PV module manufacturer into an integrated energy solutions provider. The boom in Artificial Intelligence has also provided new clarity.

As the world chases digital breakthroughs, our core foundation is still physical power infrastructure. With rising global geopolitical friction and the push for energy independence, nations are increasingly seeking self-sufficient, reliable, local energy solutions. Renewable energy paired with energy storage has become an inevitable imperative.

Turning to Slide Four. Our journey from our founding in Ontario, Canada to our current position as a global leader in integrated clean energy is a testament to our enduring resilience. We have consistently evolved. And today, we are navigating a pivotal shift from volume-driven expansion to value-driven leadership.

This evolution calls for strategic succession, and I am proud to transition the Chief Executive Officer's role to Colin Parkin. Colin is a veteran of the company and renewable energy industry. He previously served as President of Canadian Solar and was pivotal in establishing our first-mover advantage in the energy storage sector as President of e-STORAGE.

This transition follows a thoughtful long-term succession planning process approved unanimously by the Board of Directors. I will transition to the role of Executive Chairman and Chief Technology Officer, focusing on our technology roadmap and long-term R&D strategy. We are working closely with Colin to execute this transition.

With that, I will now turn the call over to Colin.

Colin, please go ahead. Thank you, Xiaohua. It is an honor to take over the Chief Executive role, and I look forward to your continued guidance as we navigate our next phase of growth.

Beginning on Slide Five, as Xiaohua highlighted, the first pillar of our global strategy is U.S. manufacturing. Since our last update, we have achieved critical milestones in reshoring the renewable energy supply chain. Phase I of our flagship solar cell factory in Jeffersonville, Indiana, produced its first trial HJT solar cell at the end of March. With a nameplate capacity of 2.1 gigawatts peak, it will be the first and only commercial operational HJT solar cell facility in the United States once it ramps up over the next two quarters.

In response to strong customer demand, we are increasing our domestic solar cell capacity beyond the original planned 5 gigawatts peak. We expect to begin trial production for Phase II at the beginning of next year. This expansion will add 4.2 gigawatts peak of capacity, bringing our total U.S. solar cell nameplate capacity to 6.3 gigawatts peak and making us the largest crystalline silicon solar cell manufacturing in the country.

Parallel to this is the expansion of our successful solar module factory in Mesquite, Texas. This facility reached full ramp last year, and we are currently expanding capacity at the existing site. By the second half of this year, we expect nameplate capacity to double to 10 gigawatts peak, allowing us to fulfill all future U.S. volumes from this Texas facility.

Now let's walk through this quarter's manufacturing numbers. Turning to Slide Six. In the first quarter of 2026, we delivered 2.5 gigawatts of solar modules globally. We maintained a disciplined approach, strategically managing volumes in response to elevated feedstock costs, including silver to mitigate losses. Our domestic manufacturing in the U.S. contributed robust margins as we maintained an optimized geographic mix of volumes.

Storage shipments recognized as revenue reached 2.1 gigawatt hours, slightly above guidance, supported by steady construction progress across multiple customer sites. Revenue for the Manufacturing segment reached $950 million, and our gross margin was 29.1%. The sequential 1,460 basis point increase was driven by healthy energy storage volumes and the tariff refund. With unit shipping costs holding steady and disciplined management of operating expenses, we achieved operating income of $127 million.

Now referring to Slide 7 regarding e-STORAGE. We shipped 2.6 gigawatt hours of energy storage solutions this quarter, including 500-megawatt hours to internal and external projects under execution, recognizing revenue on 2.1 gigawatt hours of volume. We are now delivering to a diversified global customer base within a single quarter, what we delivered in a full year just a few years ago.

We have also significantly advanced our manufacturing capabilities. For example, our internal production of lithium-ion phosphate prismatic cells is proving to be a distinct advantage in today's market as we have now achieved a cost basis below the market price of third-party cells. This strategic vertical integration provides an economic buffer during cyclical fluctuations while equipping us with the proprietary technical expertise necessary to drive further innovation.

To support our global momentum and markets, we are also expanding capacity at our integrated Battery Energy Storage System and battery cell factory in Southeast Asia. We plan to double both our battery cell and SolBank capacities to ensure strong coverage of annual volumes with internally sourced compliant solutions.

The new production lines are currently being constructed and will come online in the first half of 2027. As we focus on maintaining our stellar execution track record, we are also balancing growth and profitability. As of May 8, our contracted backlog totaled $3.5 billion, including 34 gigawatt hours of operating projects under long-term service agreements. As we continue to scale our storage business, these recurring revenue streams will also increase.

Finally, we continue to actively pursue opportunities within both front-of-the-meter and behind-the-meter data center applications. While most commercialized demand today is manifesting through front-of-the-meter contracts, we are seeing steady industry progress in the planning, permitting and technical development required for future behind-the-meter opportunities. As this market gradually matures, we remain closely aligned with the key stakeholders driving these opportunities forward.

Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Colin. Beginning with Slide 8. We generated $139 million in revenue in the first quarter. Revenue improved sequentially, primarily driven by the sale of the Fort Duncan project. However, the overall contribution of this project sale was offset by related tax equity arrangement as we had recognized tax equity gains when the project was placed in service.

Fort Duncan is a milestone. It is the first stand-alone BESS project in our portfolio that was financed with non-recourse project finance and had no capacity contract in place. We have now successfully monetized and sold the asset profitably, demonstrating that we can also achieve profitable sales for these merchant market project types.

With relatively muted project sales this quarter and ongoing platform operating costs, we posted an operating loss of $60 million. As we continue to monetize more operating and under construction assets, the P&L impact may not be optimal in the near term. However, this strategy remains necessary to delever our balance sheet and recycle capital.

Turning to Slide 9. As of March 31, 2026, we have secured interconnections for 7 gigawatts of solar and 14 gigawatt hours of storage globally, excluding projects already in operation. Our total project pipeline is comprised of 24 gigawatts of solar and 81 gigawatt hours of energy storage.

Our focus in 2026 is to reduce debt and mature our pipeline. Our pipeline is one of the largest in the industry with a focus on the most stable geographic markets. Our strategy will also allow us to reduce operating expenses by concentrating fewer geographies within our core footprint. We are now focused on unlocking the value of the existing pipeline as it matures.

At the same time, we see the rising global energy demand trend and growing appetite for these projects. Our O&M platform continues to grow steadily and holds a contracted portfolio of 15 gigawatts, of which 11.2 gigawatts are already operational. The remainder is currently under construction and will join our managed project portfolio over the coming quarters.

Now let me hand the call over to Xinbo, who will go through our financial results in more detail. Xinbo, please go ahead.

Thank you, Ismael. Beginning with Slide 10. In the first quarter, we recognized revenue on 2.5 gigawatts of modules and 2.1 gigawatt hours of energy storage solutions, both slightly above guidance.

As a result, revenue reached $1.1 billion at the high end of our forecast. Gross margin of 25.1% strongly exceeded guidance. It increased both sequentially and year-over-year due to the accrual of tariff refunds, which contributed 860 basis points. Without this onetime benefit, our gross margin still exceeded guidance on strong storage volumes and a healthy geographic mix of solar modules volumes.

Operating expenses increased 5% sequentially as lower freight costs were offset by the absence of onetime gains recorded in previous quarter. Net interest expense in the first quarter was $36 million, down from $39 million in the first quarter of 2025. Cost of debt was lower following refinancings in the project development business.

Net foreign exchange loss was $29 million, driven by appreciation in the Chinese yuan and the weakness in the U.S. dollar. Total net loss attributable to Canadian Solar was $32 million or $0.71 per diluted share.

Now let's turn to cash flow and the balance sheet on Slide 11. Net cash flow used in operating activities during the first quarter of 2026 was $209 million. This outflow was primarily driven by increased inventories associated with the U.S. Solar and Storage business.

Total assets grew to $15.5 billion, driven by increased inventories to support the U.S. solar and storage business as well as U.S. manufacturing investments. In the first quarter, we invested $173 million in capital expenditures, primarily towards U.S. manufacturing initiatives.

We expect 2026 CapEx to total around $1.3 billion. We ended the quarter with a cash balance of $1.9 billion and total debt of $6.8 billion. Total debt increased mainly due to new convertible notes issued to support U.S. manufacturing.

Now let me turn the call back to Colin, who will conclude with our guidance and business outlook. Colin, please go ahead.

Thank you, Xinbo. Turning to Slide 12. For the second quarter of 2026, we expect to recognize revenue on 3.1 and 3.3 gigawatts of solar modules. We expect to deliver between 2.8 and 3.2 gigawatt hours of energy storage solutions, including approximately 400 megawatt hours to internal and external projects under construction.

Revenue and profit recognition for volumes delivered to these in-progress projects may be subject to timing lags. Furthermore, our storage guidance range is slightly more conservative and wider due to delays related to ongoing shipping congestion.

We project total second quarter revenue to be in the range of $1 billion to $1.2 billion, with gross margin expected to be between 13% and 15%. The broader solar market remains complex as incremental price increases have not yet fully absorbed upstream cost pressures.

In the storage business, we expect record volumes in the second half of the year, though margins are projected to normalize, and we remain partially exposed to fluctuations in the lithium carbonate pricing. In the face of these challenges, we remain committed to a balanced strategy focused on rigorous execution and continuous innovation.

For the full year of 2026, we reiterate our U.S. volume guidance, 6.5 to 7 gigawatts of module shipments and 4.5 to 5.5 gigawatt hours of energy storage shipments.

With that, I would like to open the floor for questions. Operator?

[Operator Instructions] Our first question comes from the line of Colin Rusch with Oppenheimer & Company.

Xiaohua, this is actually a question for you on the technology side. And congratulations on getting the battery costs down to where you've gotten them. I'm just curious about the evolution of the battery chemistry, notably around incremental silicon doping for the anode side as well as the form factor and chemistry optimization for data center duty cycles. Can you just talk about how quickly things are changing and how we can see that start to translate into some advantaged pricing over time?

Thanks, Colin. That's a good question. Now we are working on several fronts of the battery of the battery storage system. You mentioned the pre-lithium agent, I think, which is a way to dope additional lithium into the anode so that we can achieve almost no degradation in the first five years and also slow degradation in the future. It's a good technology and process-wise, we are all ready.

However, that indeed that will increase the cost of the battery because you have to do more lithium into it. So it becomes a cost balance issue. We propose this technology to our customers. And some customers see benefit, some customers get concerned about the cost because, as you know, the lithium carbonate price has been, has doubled in the past five months. So the technology is ready.

We can implement it on any project where this technology can provide more volume. Another approach in the chemistry of the battery is the sodium-ion battery. We also have research in this area. Sodium is not subject to the fluctuation of raw material. Sodium is everywhere, not like lithium. So when the lithium carbonate price go to today's level, sodium become price competitive.

And also the sodium will have better low temperature performance and almost doesn't require any thermal management. So you can also save the 2% annual thermal management electricity cost. So that's another chemistry we are doing research. And there are a few other technologies. I'm more than willing to go through that with you later on in any dedicated conversations, Colin.

Perfect. That's super helpful, Xiaohua. And then on the recurrent side, given kind of where utility scale prices are in the U.S., I'm just curious about your ability to renegotiate PPAs or start cutting PPAs at substantially higher prices to support margins? Just curious about that dynamic and potential timing around that.

Yes. I would just make a quick comment here. Now for the mature product project or project already in operation, the PPA is fixed. The advantage is that PPA and cash flow is secure and you can do financing, the bank financing and non-recourse financing easily. However, it will be difficult to renegotiate PPA already signed in place. Usually, you will have to pay back your LCs, which guarantees or support PPA if you want to do a higher PPA. I think we did one project in the past, which we paid the LC and cancel PPA and renegotiate.

But normally, we don't. However, on the other hand, Colin, we have a large pipeline of middle stage and early-stage project. This project, we have not signed PPA yet. So we'll be able to repurpose it for, for example, the AIDC specific applications and therefore, drive higher values.

So in short, the mature pipeline, operating pipeline with PPA give us certainty. Now meanwhile, our large pipeline of mid-stage and early-stage projects will help us to create more value in the future.

Our next question comes from the line of Philip Shen with ROTH Capital Partners.

I wanted to check in with you guys more on the U.S. cell manufacturing ramp, cell capacity ramp. You guys have had first cell out. Congratulations on that. When would you expect the commercial shipment of those cells to go into your modules? And when do you think your first U.S. module with U.S. cell is available commercially for your customers?

Philip, it's an interesting question. We have answered that and mentioned that in several places in the press release and also in the prepared speech. We expect somewhere in July or two months later to have commercial operation. And then we'll be able to make our own modules with the HJT solar cell and deliver to customer, that process should be fast if we can have the commercial delivery in July and probably in August, September, we will have the first module delivered to our customer.

Now I would like to caution you all these expectations right now. There are still two, three months to go. And this is the first time the industry ever start to produce HJT heterojunction cells in U.S. It will be a milestone, and it's not an easy task. I just want to caution you about that. However, our expectation is in Q3.

Great. And then as it relates to your sourcing of third-party cells, can you remind us what countries or places you're sourcing those cells from? And do you have any exposure to Ethiopia? There was that new petition that was filed a couple of days ago or yesterday on a potential new anti-circumvention tariff on cells coming from Ethiopia. And then finally, do you have, do you buy any blue wafers at all? Is that, or in your supply chain, do you have exposure to blue wafers?

Thanks, Philip. That's a very tricky question. However, I will give you a straightforward answer. Now we do source outside cells and also import cells from other countries to the United States. We will, we are transitioning to more and more domestic cells. So as I have mentioned in several previous calls, 2026 is a transition year for us. Now we don't provide the geographic distribution or sources of our cells in this transition period. However, as far as I know, we are not subject to the exposure of the recent condition, as you mentioned.

Okay. And then again on blue wafers, do you have any thoughts on that? And is that in your supply chain?

No, there's no so called blue wafer. Whatever cell made in a certain country, those cells should go through the necessary solar cell steps. We, for our factory, we only use so-called green wafer and the cell production process are completed in the whatever country.

Great. Okay. And then one last one here. On the IEEPA tariff in the quarter, you guys booked it. Can you talk about the accounting for that? And specifically, do you guys secure cash with that refund? Or is that expected sometime in the future? And if it doesn't come, then what happens to the accounting?

I will let XINBO to supplement. And now the refund, IEEPA tariff refund consists of basically, I guess I will say three components. One is the refund on the tariff or imported, let's say, imported solar cell or other manufacturing components. Now those refund, I believe, will be accrued in the COGS, which is the standard accounting.

Now there are also some refund of the machines we shipped to U.S. Those will not go into COGS. I think those will be used to reduce the cost base of our CapEx investment in U.S. Therefore, later on benefit on the depreciation of the machines. And those refund, some of those will go into the CSI solar subsidiaries because CSI Solar have done importing last year.

Now some of this, I believe, will go to the CSIQ companies because CSIQ also imported materials early this year. Now in terms of cash flow, I'm glad to report that we have already started to receive the IEEPA tax refund received the cash as of today, we have already received the cash.

So you will see the cash component in the Q2 accounting. So in Q1, those IEEPA will be recorded as, but there will be an account receivable or something like that. And Q2, you will see real cash credit to those account receivable. I hope I answered the question right. Xinbo can supplement.

Yes, not much to add. We received the cash together with interest. So far, we have started to receive tariff refund together with the interest.

As you probably know, those refunds are batch by batch. It depends on the every entry of the import. So, what CBP does is to verify and refund entries by entries. Therefore, there will be like cash flow refund come to us depending on entry. So we will see lots of entries. So it will be a process. However, we have already started to receive cash. Some cash has already arrived in our bank accounts.

Our next question comes from the line of Alan Lau with Jefferies.

So the margin in first quarter is very solid actually, even taking out the refund of tariff. So I would like to know how much of the module shipment is coming from the U.S. plant? And as you mentioned, the margins from your U.S. manufacturing plant was decent. I'd like to know approximately at what levels is it?

Yes. I think around 30%, 40% of the module shipment come from U.S. factory. It's more or less the same ratio as before. Now Wina, you have some color to provide?

Yes. In line with our profit first strategy, we have been emphasizing our key strategic markets. So you'll see quarter-over-quarter, we've maintained a very healthy mix of North American volumes. This quarter, out of our 2.5 gigawatts, 45% came from North America. So a very healthy mix that supported our module margins.

So basically, almost all of the shipment to the U.S. is manufactured by the U.S. plant.

All of, not almost all.

So how about the margins there? Like what's the approximate margin of the U.S. manufacturing plant?

I will let Colin to provide color.

Alan, thanks for your question. We're in a transitional period in the U.S. as we transition our scale our Mesquite module operations but bring online our cell manufacturing in Jeffersonville. So there will be a transitional period. But I think what we can say is with the combination of the 45X manufacturing credits, but also with the economies of scale that we're building in the U.S. and the fact that we're going to be using the most advanced HJT cell technology in our products that during this transitional transition, as we mentioned, we start to scale in Q3, Q4 and heavily into 2027, that those will all be combined and complementary to a pretty robust margin. So we strongly believe that all these factors are going to lead to a strong and robust U.S. profitable business model.

Understood. So then, so actually, the company is already ramped up its HJT cells. So I wonder if you are seeing a premium of HJT products versus other products like PERC or TOPCon products in the U.S. market?

Yes, Alan, we haven't commercially delivered the HJT cell yet. As I said, in the answer to a previous question, we expect in Q3, we start to deliver that. However, based on the contract booking, we do price a premium of HJT cell compared to the TOPCon cell. Yes, we do price for the contract we already signed the customers will accept a premium for the HJT cells.

So how much is the premium like in terms of U.S. sales?

Well it's still going process. We just started to book those contracts. As far as I remember, you are talking about over 10% or maybe 10%, 15% of the price premium of the HJT cell HJT modules versus TOPCon modules. But overall, give you better numbers. I think after Q4, when we have actual comparison of the module shipment.

It's 10% to 15%, that's equivalent to more than $0.03 maybe is pretty impressive. So yes, switching gears to ESS segment. So I would like to know if the margin is around 20% level?

Can you repeat which area?

ESS energy storage, what's the margin for ESS storage in the first quarter?

Yes. Okay. I will let Colin to address this question.

Yes. I think, Alan, one of the things that I'd like to point out is that our backlog continues to be very healthy in energy storage, around $3.5 billion in order backlog. And so we have a reasonably long view on our energy storage pipeline and the margins. And with that, I think everybody recognizes that there's continued price pressures. But I think by diversifying our supply chain and giving ourselves a lot of flexibility in our supply chain that we're confident in our pipeline and in the margins associated with that. We do know that there is fluctuations in the commodity pricing and in lithium pricing. So, we may see some improvements on that, but perhaps more of a cautious approach in how we present our forecasted numbers with that in mind.

Understood. So I wonder if, going forward, the local production of the battery pack would help the margins?

Yes. I think everything we're doing to control our own supply chain is giving us a very good strategic advantage, but also control of all aspects, logistics, manufacturing costs and seamless project integration. So, it continues to be our strategy to grow our capabilities all the way from our lithium cell manufacturing through our complete battery systems, but also in our total ESS solutions.

So total integrated ESS solutions, including software, technology, the PCS, the battery themselves and supporting that with a very strong engineering and execution team as part of our strategy to also deliver lots of value for our customers. And also, as we mentioned in the prepared remarks, our long-term service contracts to support this is also very valuable to our customers and to us as it continues to be ongoing recurring business for our energy storage business.

Understood. So last question. So is there any difficulty or any challenges in expanding the cell capacities given there were some rumors saying that the export of solar cell capacities might be prohibited, et cetera. So I wonder if when you're expanding your capacities to 6.3 gigawatts, wonder if you get any challenges in getting the equipment in place?

So far, we don't see that challenge. I know what you are talking about, and I hope that the President Trump's visit to Beijing. I believe he just shook hands with President of China several hours ago; I hope that visit will help to smooth out the trade relationship. However, so far, we don't see any challenges for our Phase II equipment deliveries. We haven't started to take deliveries of the Phase II those equipment.

As we mentioned, Phase I, we plan to ramp up in Q3 and Phase II will start to moving equipment in Q4, probably in October, November time frame, and we'll start to ramp up of the Phase II of Jeffersonville early in next year. So we haven't taken deliveries of those machines yet. But so far, we don't have, we haven't seen any restriction at least not to our contract.

By the way, we signed the related equipment contract for the Phase II machineries are very early. So that was before any noise around this issue. So I believe that the fact we have already signed those equipment contracts, we have also paid some down payment also give us advantage if there's any restriction.

I think restriction may be to the future equipment, not for our machines. I think our machine is more or less grandfathered or whatever, if there's any restriction come out. However, I do hope that President Trump's vision will help to clear, further clear any of the uncertainties in this area.

Our next question comes from the line of Maheep Mandloi with Mizuho Securities.

Just a question on the guidance. If you could talk about like the mix of manufacturing versus recurrent in Q2, similar to what we saw in Q1? And also for the U.S. or North America exposure, how to think about the mix in Q2 versus Q1?

Yes, I will let Colin to address this question.

Well, I think, first of all, thank you for your question. With respect to the guidance, we are reiterating our U.S. guidance from last quarter. So we feel confident in our current execution. So we don't expect any significant downside on our reiterated guidance as we put out in our prepared remarks.

Got it. And then just curious on the mix in Q2 versus Q1 as you, for the manufacturing versus the current and North America versus rest of the regions?

I think most of our, if I understand the question correctly, most of our shipments are to third parties, very little to our recurrent operations in terms of our product shipment. I'm not sure if that is at the root of your question.

I'll follow up offline on detail on that. But separately, a question on the e-STORAGE business. How much of the backlog is North America for you guys and for CS PowerTech? And also are you seeing any interest or any orders in the pipeline from data center customers or hyperscalers looking to deploy batteries on site?

Yes. Two good questions, I appreciate you raising it. About 40% of our business is in the U.S. right now. And obviously, we're seeing that demand increase, both build-out of infrastructure, front-of-the-meter, and now we're starting to see a lot of progression into behind-the-meter opportunities.

So today, we're pretty happy about our global pipeline and that we're diversified. We have, just to talk, before I come back to the U.S. and the data center question, we have about 60% of the U.S., or sorry, the Canadian battery market. We have over, I think, 4.5 gigawatt hours contracted there. We're I think, in the leading position in the U.K. market. We're starting to see a lot of progress in Europe now as those key markets in Europe are starting to become very active.

Similarly, in Japan as the BESS market is maturing in Japan, we're seeing a lot of opportunity for that market. And as well, we continue to be steady with a couple of gigawatt hours a year in Australia. So having that diversification, I think, is good for our e-STORAGE business.

But with respect to the question about AIDC. Well, we have been working on this for quite a while. Last quarter, we announced a front-of-the-meter infrastructure project, 2.5 gigawatt hours to support data center growth. And we have developed a very focused business development and technology teams focusing on making sure that our solutions have the right technical requirements, the stringent requirements for fast response for data centers and the other requirements.

And that's getting a lot of traction as well as the fact that we're able to offer fully compliant solutions for data centers. So while we cannot actually disclose who we're working with, I can tell you that we're very engaged right now on data center opportunities. And that it's a big part of our program and our focus, and we expect it to yield some pretty exciting results for us in the next quarters. Hopefully, we'll be able to be a little more forthcoming about as we get further along in the contracting processes.

That's great. I appreciate the detailed color on the different markets as well. And maybe just one last one on the guidance for the rest of the year. I know you obviously haven't guided for Q3, Q4 or the full year. But directionally, like how should we think about the business here with the U.S. factories ramping up? Should we be looking something similar to last year's cadence or something different here? Any color would be helpful.

Well, I guess if we look at the solar side first, there's been a lot of volatility in that market. There continues to be a lot of volatility. And our approach, as you know, has been to focus on profitable business over volume. And so we're, on that basis, we've been reserving guidance, but keeping an opportunistic position to strike with more volume as the market support it.

So we see, I think, on the solar side, hopefully, some improvement that we can take advantage in terms of volume on the second half, but reserving a little bit our position on guidance and focusing on the U.S. where we have a strong line of sight on our volumes and our guidance.

With storage, our pipeline remains strong, as we've mentioned. And we have also, in our prepared remarks, expressed that we will hit record deliveries in our storage side for the second half of this year. These are projects that go through a very sophisticated level of planning and logistics. It's based on that, that we're very confident in the second half of the year on our storage side. We don't see barring any unexpected circumstances, a very strong second half for our energy storage business, probably in record deliveries.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to management for any final comments.

Thank you for joining us today and for your continued support. If you have any questions or would like to set up a call, please contact our Investor Relations team. Take care, and have a great day. Thank you, everybody.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Fourth Quarter 2025 Earnings Conference Call. My name is Melissa, and I will be your operator for today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome, everyone, to Canadian Solar's Fourth Quarter 2025 Conference Call. Please note that today's conference call is the company's slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; and [ Colin Parkin ], President of Canadian Solar and President of e-STORAGE; [ Ismael Guerrero ], Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks.

On this call, Shawn will go over some key messages for the quarter. Colin and Ismael will review business highlights for manufacturing and Recurrent Energy, respectively, and Xinbo will go through the financial results. Colin 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 and 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 20-F 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. Shawn Qu. Shawn, please go ahead.

Thank you, Wina, and thank you all for joining our fourth quarter earnings call. 2025 was another challenging year, marked by persistent market headwinds and a shifting regulatory landscape. Through these turbulence conditions, we demonstrated strategic resilience and operational discipline. We prioritized margin and diversify our profit drivers particularly in energy storage.

Now let's review our operating and financial results. Please turn to Slide 3. In the fourth quarter, we shipped 4.3 gigawatts of solar modules bringing total shipments to global customers to 24.3 gigawatts for the year. In response to the prolonged solar downturn, we have pivoted away from industry's traditional focus on shipment volumes. Instead, we are concentrating on strategic high-value markets.

Notably, in U.S. market, we continue to build on our historically strong track record in 2025, we delivered a record 8.1 gigawatts to the United States.

In energy storage, the volatile tariff environment shifted some shipment volumes into 2026. Even so, we ended the year with a record 7.8 gigawatt hours of global shipments, including 3.9 gigawatt hours delivered to the United States.

Given downward adjustments in both solar modules and energy storage volumes, along with lighter project sales from recurrent energy. Our total revenue of 2025 was $5.6 billion.

Gross margin improved by 106 basis points year-over-year. This was driven by a higher mix of module shipments to high-value regions and a larger share of storage volumes delivered under third-party contracts.

We maintained tight control over operating expenses and achieved operating income of $43 million for the full year. However, our volatile macro environmental increased FX losses and interest costs group as we increase the debt to support our IPP build-out. As a result, we recorded a net loss attributable to Canadian Solar of $104 million or $2.5 per diluted share.

Canadian Solar has continuously evolved over more than two decades in the renewable industry. Global opportunities have shifted over time. We have built a strong global track record across solar manufacturing, storage manufacturing and project development.

Today, we see a compelling opportunity to create value by returning to our home base in North America. In December 2025, we announced a strategic initiative to resume direct oversight of our U.S. operations by forming our new U.S. manufacturing platform, [ CS Power Tech ].

For an update on our U.S. manufacturing road map, please turn to Slide 4. Canadian Solar is spearheading the effort to reach our manufacturing to North America. In [ Mesquite ] taxes we have successfully ramped our solar module factory to an annual production run rate exceeding 5 gigawatts, supported by 1,500 local employees. As we have previously noted, we believe the United States is fast-serve resilient domestic supply chain.

Consistent with this view, we are doubling our nameplate capacity to 10 gigawatt peak by the end of 2026. This expansion is expected to increase our local workforce to 1,700 employees. This will make us the largest crystalline silicon solar module manufacturer in the country.

We are also pleased to report progress as our flagship solar cell factory in Jeffersonville, Indiana.

In response to strong customer demand, we're expanding our initial nameplate capacity beyond the originally planned 5 gigawatt peak as we install and commission additional production lines through 2026. Phase 1 will have a nameplate capacity of 2.1 gigawatt peak and will use state of art, Hydro Junction Technology, our HJT. Trial production is scheduled to begin next month.

Phase 1 will represent the only commercial operational HJT solar cell facility in the United States. Phase 2 will add 4.2 gigawatts of capacity, bringing our total U.S. solar cell name plate capacity to 6.3 gigawatt peak. This will make us the largest crystalline silicon solar cell manufacturer in the country. We expect the trial production of Phase 2 to begin by the end of 2026.

We recognize the significant value of adding Phase 2 to our solar cell facility and we believe the market does as well. This was demonstrated by our recently completed $230 million convertible bond issue.

Demand for storage in U.S. also continues to grow strongly directed build-out of data centers to support AI growth is driving increase in power demand for data center infrastructure. Our BBB compliant storage solutions produced in Southeast Asia have seen very strong demand. As a result, we plan to scale the resources there to increase both system and battery cell capacity throughout 2026.

Hence, we will be both expanding our Southeast Asia and the storage manufacturing capacity and advancing Phase 2 of our U.S. solar cell factory in tandem. Given the commercial priority of these two significant investments, we are strategically delaying progress at our battery cell and bat production facility in Shelbyville, Kentucky.

Given our long-term commitment to U.S. manufacturing, Recurrent Energy will proactively rebalance its business towards monetizing, in construction and operating assets in order to optimize cash flow and manage leverage.

In conclusion, I'm proud of our team for delivering strong performance this year and I look forward to continue the momentum we are building in our U.S. manufacturing initial tariffs.

With that, I will now turn the call over to Colin, who will provide more details on our manufacturing business. Colin, please go ahead.

Thank you, Sean. Please turn to Slide 5. In the fourth quarter, we continued to operate against a challenging solar market backdrop upstream cost increases, particularly in silver, along with the costs associated with underutilization across our global solar supply chain required careful volume management to protect margins. As a result, we delivered 4.3 gigawatts of solar modules below our guidance.

In storage, shipments were delayed into the first quarter of 2026, and due to construction delays at one of our customer sites. As a result, we delivered 2 gigawatt hours slightly below our guidance. These two volume shortfalls resulted in lower-than-expected revenue of $1.3 billion.

Solar module ASPs remained at record lows throughout 2025, we have been an industry leader in pivoting away from volume growth towards value growth. By controlling shipments to less profitable markets and increasing shipments to the U.S. market, we maintain blended pricing above the industry average. In 2025, the U.S. accounted for approximately 1/3 of our global module shipments.

Meanwhile, our storage business in 2025 faced challenges created by tariff volatility and the passage of the One Big Beautiful Bill Act. These policy uncertainties materially impacted customers' project planning.

While we did not lose any opportunities, some volumes shifted into 2026 as we work closely with customers to navigate these trials.

Margins normalized in the second half of the year as we delivered more recently signed contracts with the increase in lithium carbonate prices, we are actively managing our exposure.

Today, the two most important drivers of our manufacturing margin are the mix of solar module shipments to the U.S. and the performance of our storage business. Within U.S. module shipments, domestic manufacturing is becoming increasingly important to margin as we reshore production and deliver a greater portion of our strategy through our own domestic capacity.

Now let me walk you through the latest updates on our battery energy storage business. Please turn to Slide 6. We delivered 2 gigawatt hours in the fourth quarter, corresponding to $297 million in revenue after accounting for volumes delivered to our own projects. Despite the delays caused by policy changes, we ended the year with a record 7.8 gigawatt hours of energy storage shipments delivered globally, a year-over-year increase of 19%. Over the past 3 years, we have tripled our sales in this business.

Our momentum is further reflected in our record contracting backlog of $3.6 billion as of March 13, 2026. This includes contracted long-term service agreements covering 29 gigawatt hours of projects.

Today, we are the market leader in our country of Canada in terms of contracted volume with multiple gigawatt hours under contract. We maintain a strong presence in key markets, including the United States and the United Kingdom, while scaling delivery in new markets such as Australia and Latin America.

At the same time, we continue to actively engage in markets such as Japan and Mainland Europe, where we see attractive new opportunities.

In terms of applications, we see a significant opportunity driven by the rapid build-out of data centers. For example, the 2.5 gigawatt hour supply agreement we recently signed with a major U.S. utility reflects the sharp increase in electricity demand driven by AI and hyperscale data center development.

Battery energy storage is playing an increasingly critical role in supporting the additional power requirements of data center infrastructure. By strengthening regional grid capacity, our storage solutions help ensure reliable power for these emerging loads. We have built a dedicated team focused specifically on the requirements of data centers and related infrastructure and we are beginning to see the strong results from that effort.

Our focus is on delivering comprehensive power solutions, including support for data centers and long-duration applications. Our differentiation lies in providing competitive and reliable total solutions. We combine strong execution capabilities deep experience in complex grid interconnection and commissioning and long-term service expertise with a proven product platform and track record. This allows us to deliver the value our customers are seeking as they navigate the changing demands created by rapidly growing electricity loads.

Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's Global Project Development business. Ismael, please go ahead.

Thank you, Colin. Please turn to Slide 7. In the fourth quarter, we sold a few small [ TV ] projects in Japan, bringing total full year 2025 sales to nearly 1 gigawatt. Revenues from operating solar and battery energy storage projects decreased sequentially due to seasonality, while Power Services performance remained stable.

Two major project sales originally planned for the fourth quarter have now shifted into 2026. One of these projects has already been sold in the first quarter. Gross margin was further pressured by impairments to project assets within our pipeline.

Moreover, without sufficient scale from project sales during the quarter, we were unable to cover operating expenses, resulting in an operating loss of $69 million.

We continue to shift our business mix towards the monetization of operating and under construction assets in order to strengthen our balance sheet and improve cash flow. As we manage the pace of construction activities, we are also optimizing our pipeline for quality, focusing on generating value from existing opportunities.

Please turn to Slide 8 for an update on our pipeline. As of December 2025, we have secured interconnections for around 70 gigawatts of solar and 15 gigawatt hours of energy storage globally, excluding projects already in operation. As part of our continued effort to streamline our pipeline, we have removed projects that have been impaired this quarter.

Following these adjustments, our total project pipeline now stands at 24 gigawatts of solar and 83 gigawatt hours of energy storage.

Now let me hand the call over to Xinbo, who will go through our financial results in more detail. Xinbo, please go ahead.

Thank you, Ismael. Please turn to Slide 9. In the fourth quarter, we delivered revenue of $1.2 billion, revenue was below guidance due to travel sales delays into 2026 and lower-than-expected volumes in both solar and storage.

Gross margin was 10.2% impacted by project asset impairments and Recurring Energy and inventory write-down in our manufacturing business. Selling and distribution expenses decreased 20% sequentially, primarily due to lower shipping costs associated with reduced shipment volumes channel and administrative expenses decreased 8% sequentially, driven by continued cost control measures.

Net interest expense in the fourth quarter was $39 million, up $10 million from the prior quarter. This increase was driven by a modest rise in total debt balances. Net foreign exchange loss in the fourth quarter was $15 million driven by a weaker U.S. dollar and a stronger Chinese renminbi. [ Total net ] loss for the quarter was $131 million. Net loss attributable to Canadian Solar shareholders was $86 million or $1.66 per diluted share.

Now let's turn to cash flow and the balance sheet. Please turn to Slide 10. In the fourth quarter, net cash flow used in operating activities was $65 million, driven by a change in working capital, specifically an increase in project assets. partially offset by a decrease in inventories. As inventory in the prior quarter had increased in anticipation of higher input costs. Capital expenditures for the year totaled $962 million, slightly below forecast. This was primarily due to payment timing which we expect to occur in 2026.

Net cash provided by financing activities was $22 million, as that increased incrementally to provide additional financial flexibility for the group. Of our $6.5 billion in gross debt, [ non-recourse ] debt under Recurrent Energy as of December 31, 2025, was $2.2 billion. We ended the year with a cash balance of $1.9 billion, which we will deploy prudently in line with our strategic priorities.

Now let me turn the call back to Colin who will conclude with our guidance and business outlook. Colin, please go ahead.

Thank you, Xinbo. Please turn to Slide 11. For the first quarter of 2026, we expect our Manufacturing segment to deliver solar module shipments between 2.2 to 2.4 gigawatts. For energy storage, we expect shipments between 1.7 to 1.9 gigawatt hours. We forecast total revenue for the first quarter to be between $900 million and $1.1 billion, with gross margin expected to range from 13% to 15%. Margins in the first quarter are expected to remain soft across both the manufacturing segment and Recurrent Energy. This reflects cost increases across the solar supply chain as well as delayed project sales at Recurrent Energy.

For the full year of 2026, we are issuing new guidance. We expect to deliver 6.5 to 7 gigawatts of module shipments and between 4.5 to 5.5 gigawatt hours of energy storage shipments to the U.S. market. Our solar module shipments in the U.S. are expected to be slightly lower in 2026 compared with 2025. This is due to a limited supply of solar cells qualified as [ non-PFE ] under the [ OBB BA ] during the first half of the year. The elevated cost of these cells will also affect profitability.

We believe this constraint will be temporary as our own domestic solar cell production ramps during the second and third quarters.

Similarly, battery energy storage shipments are expected to be weighted towards the second half of the year. Within our project development business, our focus remains on rebalancing the portfolio towards asset monetization while continuing to optimize our cost structure.

Overall, 2026 will be a transition year as we accelerate our U.S. manufacturing road map to further diversify our long-term profitability drivers.

With that, I would now like to open the floor for questions. Operator?

[Operator Instructions] Our first question comes from the line of Colin Rusch with Oppenheimer & Company.

Congratulations on being able to shift the business so aggressively here. I'm curious about the pricing environment in the U.S. What are you guys seeing in terms of trend lines here and long-term support for pricing that supports the aggressive capacity expansion?

Yes. Colin, this is Shawn speaking. I guess you mean the solar pricing. Solar long-term pricing in U.S. is stable. And as a matter of fact, we see -- I mean we -- our main market in U.S. is the utility-scale project market, which are usually like large scale project, big orders and with a few quarters of lead time in general. So in this market, we have seen the pricing flat going up.

And for example, for the beginning of the year to now we have seen the U.S. pricing on average go up like USD 0.02 to USD 0.03 some more mainly in response to I think, number one, the tight supply of the so-called [ OBB BA ] compliant solar cell supply, but also response to the higher material cost, especially the silver cost. So I think this will allow us to sustain the margin in the U.S. market.

Now for the storage, we also see the price stable and also respond to the higher lithium price, as you probably know, the lithium price leading carbon price also went up along with other commodities, major commodity prices also went up, the leasing carbonate price also went up this year, since late December. So the current new price reflected this. And so this will allow us to maintain the gross margin more or less for the U.S. market, Colin.

That super helpful. And then just from an organizational perspective, as you look at a different strategy around revenue in margin. How should we be thinking about the operating expenses and the baseline there and how that allows for some significant operating leverage as you start to grow again on the top line?

Yes. In terms of operating expenses, we see it going down like proportional to the shipment volume because a large part of the operating expenses is the shipping cost and also the overhead cost to support the volume. So if the volume growth and the operating expenses also grow, but the volume go down, these operating expenses also go down. That's in case of.

So in June, we will see some increase of operating costs for the energy storage but many will see operating cost reduction in the solar area.

I think moving forward, the challenges in the solar -- if solar price continue to go down, that will make the percentage of operating expenses for solar bigger. However, fortunately, I mean since Q1 -- I mean, since January this year, we don't see the absolute ASP of solar module going down anymore. We actually see it go up. And also, we don't see the annual storage price going down, and it is also going up. So I think as long as we can continue control and operating expenses and make our operation will grow more efficient, we'll be able to grow the bottom line. I think that you will see that happen starting from Q2, I believe.

Our next question comes from the line of Philip Shen with ROTH Capital Partners.

On the project delays, I'm sorry if I missed, but what drove the project delays from Q4 into '26? Can you give some additional color also on the impairments that you guys experienced?

Yes. I'll ask Ismael to address this question. and symbol to make any supplement necessary Ismael?

Look, there were a couple of projects that delayed mainly due to permitting delays. One of them was already finalized, the other one is under exclusivity, so it should be finalized on, hopefully, mainly permitting delays. Look, the impairments are on -- I mean, the main reasons are twofold. One is change on legislation in some of the countries quickly and many projects that we were developing early stage, we believe, might not mean making sense anymore, and we stop putting capital into them with the changes in the regulations. So there were advance them on that part and some others on which interconnection suddenly, the interconnection cost went to the roof, and we don't see them viable not for us and not for anyone. We also decided to stop investing on. So those are the main drivers.

Got it. Can you share which countries and that had there -- where you might be downsizing your efforts, either due to legislation or to the interconnection cost?

The biggest book solar in the U.S. because of the changes in regulation there. And Italy also because of the grid reform, also a little bit in France, so those are the main three. A little bit in Spain also, but not major.

Great. And then shifting over to the guidance. For -- if you can, can you explain a little bit more why the '26 guidance is only focused on the U.S., although Q1 has global numbers there. And so I was wondering if you could also share what the U.S. mix for Q1 might be? And then also what the 2026 CapEx might be?

Philip, again, this is Shawn. We have already provided a global guidance in November last year. And so we only added the new guidance or U.S., which we -- usually we mentioned during the call, but we don't put it in writing. So this time, we put it on writing for the U.S. guidance.

In terms of CapEx, I'll let Xinbo to address. I want to mention that the new CapEx for 2026 is mainly in United States. We have some remaining payments for the capacity in the other places, but most of the CapEx in United States. But we also have a new CapEx in Southeastern Asia for the energy storage production, the lithium battery and new storage production, but those capacity are mainly prepared for U.S. Xinbo would you -- do you have some new numbers to share?

Yes. It's not new number, it's the same as what we guided in the last earnings call, it's around $1.2 billion for this year, the top half, there might be some uncertainties because of the -- hopefully, the lower tariff to the U.S.

Great. Okay. One more, if I may. As it relates to the Section [ 337 ] and that investigation, I was wondering if you might be able to provide some color on that as well as, I think, the [ USPTO ] recently projected your attempt to invalidate the first solar TOPCon ad lawsuits. And so just if you can give us some perspective on the IP situation. It looks like you're focused more on heterojunction, so maybe it's not that relevant. Just wanted to touch on this for a bit.

First of all, Philip, we have decided to use Hydro Junction, HJT technology for our U.S. domestic solar cell factory a few years ago. Before the legal challenge from First Solar. So we made a decision independently, because we believe we are a master of the HJT technology. And this technology has very distinguished advantages. First of all, HJT has higher theoretical efficiency limit than the TOPCon solar cell. And second, although both TOPCon and HJT, in type for the application on earth, it's N-type. For the operation in the space, some scholars believe P-type HJT has more advantage. But although the TOPCon and HJT are both N-type, HJT does have higher efficiency. And also thinner wafers has the potential to go thin wafers, therefore, further reduce the cost.

Also, it was another advantage of HJT technology which just appeared become more significant recently, which is the low silver use. When we decided on the -- to use HJT for the U.S. factory, the silver cost was not that high like 2, 3 years ago, [ polysilicon ] cost is still #1, not like today, the silver cost all of a sudden become #1.

But the HJT use the so-called low-temperature process, as you probably know, the processing temperature -- the highest processing temperature is around 200 degrees C rather than for N-type TOPCon, which have to go through some 800, 900 degrees C process. Because it's low temperature, we can potentially use less silver and more copper in the paste. Therefore, it will have very significant savings in terms of silver cost.

Recently, I have called the R&D team in our company to focus on what I call the Zero Silver Technology. And for Zero Silver, we can see that the HJT will go faster than the TOPCon technology. So because of those [ advant ], also, HJT is more of -- is a more automated and equipment-dependent process than operators dependent. And its operator per watt capacity is much less than the TOPCon. So it will make -- reduce the initial operator training burden for us in U.S. That's why we do HJT.

And as I said in my remarks, we will see the first piece of HJT cells of our lines in Jefferson Mill, Indiana by the end of this month. So next quarter, we will start the ramp-up process for the Phase 1.

So I think that the result today, what happened today shows that we made the right decision. on the technology selection, also showed our steps in the R&D and technology reserve in the company.

Now turning to the -- on the legal patent side, I don't want to comment too much on the legal cases. But I do want to emphasize that [ USPTO ] pretty much rejected all the review request for patents. It's not specific to us, but it's rather a change of their practice. I don't think it affect or it will weaken our position in front of the court. We have -- we firmly believe that our technology is sound. And also, we have not infringed any of other patents.

Now in terms of [ 337 ], it's going to be approximately a 1-year process or more than 1 year. So it's a process in front of [ ITC ]. So we'll let the process go. But as I said, we are confident on our technology and our patent determination. And -- but meanwhile, we have also have flexibility. as you see that we have the HJT technology going in U.S. already.

And by the end of this year, we will be ramping up the Phase 2. So in Q1 next year, you will start to see 6 gigawatts, 6.3 gigawatts of nameplate capacity running in the United States. That will more or less cover a large part of our solar cell requirement of our [ Mesquite ] solar module factory. As I also said that our -- we increased our nameplate capacity of the solar module factory in [ Mesquite ], Texas to 10 gigawatt.

So for the remaining 3 gigawatts, we will either use TOPCon to supplement or we might use PERC technology. So altogether, I'm confident that right now, what we are seeing right now is a transition process ongoing.

But starting from second half of this year, overall, you will see the result of this transition. So I think we are the -- one of the most -- will be the most stable players in the global market, especially in the U.S. market.

Our next question comes from the line of Maheep Mandloi with Mizuho Securities.

On the [ HJT ] expansion and even the model expansion, could you just talk about like the capital needs or CapEx needs for those? And then separately, on the [ FIOC ] side or compliance with [ FIOC ], can you just touch upon that with this new strategy that you still need the 45X? Or how do you plan to address the material assistance or any other rules around the foreign [indiscernible] certain language of the OBB BA?

Yes. This is Shawn. I also, as we said, in remark, we are more or less completed our restructuring necessary to be compliant to the OBB BA by December. Reformed a new entity, which is called [ CS Power Tech ] for U.S. manufacturing. This is the [ CS Power Tech ]. And all the subsidiary and as have has 75.1% ownership from Canadian Solar. And Canadian Solar is headquartered in [ Kitchener ], Ontario. And Canadian Solar -- I mean we actually just completed all -- we just had our first Board meeting of 2026 -- in [ Kitchener ], Ontario. And we will have the second Board meeting in Kitchener very sum by May.

So as you see, the major decision-making and those corporate activities are in Canada, which make Canadian Solar clear Canadian operating company. So which -- so with this structure, we believe we are compliant with the OBB BA.

In terms of CapEx, most of happened for 2026 will happen in United States. There are some CapEx spending for the mask factory in the solar module factory, we mentioned that we expanded the capacity there from 5 gigawatts to 10 gigawatt will add limited equipment, but the buildings there, most of the facilities there. So the expanding cost expansion costs as we lower proportional to compare with the historical spending. So that's a very -- I think very efficient expansion. And for the [ Mesquite ] solar cell Phase 1 and Phase 2 altogether, the total CapEx will be over USD 1 billion. That's why you see the numbers most of the CapEx numbers for 2026 happened in -- occurred in -- [indiscernible], Indiana for the solar cell Phase 1 and Phase 2. However, the Phase 1 is pretty much already there, all the equipment are there. Now we are adding the Phase 2 there.

There are also some CapEx expansion in Southeastern Asia for the leading [ lithium ] battery and storage factory. So those are where the expansion and new CapEx beginning this year.

Got it. I appreciate the clarity there. And maybe just a follow-up on the manufacturing for the U.S. Any thoughts on what gross margins you are targeting for either the cell or module or the path manufacturing in the U.S.? And [indiscernible], if you could just talk about any orders you've received for the manufacturing for '27 or '28 at this stage in the U.S. factories.

Yes, the U.S. factory, first of all, we typically don't guide the gross margin for future quarters and future years. However, I do share that -- I can share that for the solar module manufacturing, the typical gross margin, the gross margin demonstrated previous year in 2025 is more than 20% for the U.S., manufacturing and U.S. orders. This year, for this first half of the year, the margin might be a little bit tight because of the tight supply of the so-called OBB BA compliant solar cell supply, as I mentioned in my call and also because we are waiting for our [indiscernible] mill solar cell factory to contribute for the second part of the year.

And so that supply caused a little bit reduced the volume in U.S., also as we guided and also a little bit high priced for the solar cell supply to the U.S. However, I think this is [indiscernible] transitional. First of all, if I -- when I address the one of previous question, I said that the U.S. market seem to be able to respond total cost increase when we tell our customers that cost increase because of the [ silver ] and also because of the tight supply of OBB BA compliance sort of sales and our customers are willing to most of our customers are willing to shoulder some of these costs.

But I also want to mention that from now on, it looks like we will see less tariff impact on the cost. I don't know how long it will last, but I do know that for at least in Q2 or the benefit of lower tariffs.

But moving into the second half and move into next year. we start to switch more and more into our domestic manufacturer solar cell, the tariff will become a small question. So to repeat, historically, we do see over 20% gross margin for U.S. solar manufacturing.

Now for the energy battery, we did say that we are targeting like 20% of higher gross margin. For global shipments, including U.S. and non-U.S. Now Colin, do you have additional comment on this topic? That's okay.

Nothing else on that. Just a quick clarification just on the 25 to 30 gigawatts of shipments which previously had at '26. That's still supplies? Or is that something that will guide later or the buy side there?

Can you repeat your question?

Yes, sure. The -- we previously guided 25 to 30 gigawatts of solar shipments for 2026, right? So does that still hold? Or that's something in revised in second quarter?

Well, first of all, we didn't provide any new guidance this year. However, as we see at this point, we think the volume target for 2026, yes, it's not our priority, but rather the profit is our priority. This is due to, number one, the increase of cost of the solar cell. And number two, you see that total volume in U.S. will go down a little bit compared with last year, but it's more due to the supply chain issue before we bounce back next year for the U.S. shipment.

And the current conflict in Middle East. We also, I think, impact the market, especially the demand from the Middle East. So it hasn't materially line yet, but we do expect some turbulence there.

So for the volume, the volume, the megawatt volume solar where you think is cutting challenging, and we are not focusing on that for this year.

However, we are still early. We're still in March. I have been in the solar industry for 30 years. and Canadian Solar has been operating for 25 years. So we do see in turbulent year, sometimes the volume can switch off and on very fast. So we will provide the annual global guidance on volumes in later quarters for we have more clarity.

Our next question comes from the line of Alan Lau with Jefferies. .

Congratulations on winning major orders in relation to a data center for energy storage. I would like to know -- so how does that project works like? Do you sell power to the utility company, which in turns house or where it is supplying the power to a data center? And do you know how big is the load for the data center?

I think you're asking the question about our new press release, right, on the 2.5 gigawatt hour order. Now Colin is the President for Canadian Solar as well as our subsidiary storage. So Colin, do you want to comment on this question?

Sure. Thanks, Alan, for your question. That particular project, although we can't name the customer, is for a major U.S. utility. And it is part of their strategy to build out power supply for a major hyperscale investments. That is a front of the meter solution. And what we're seeing right now is luxury utilities and infrastructure is being formed around the additional power demands for data centers front of the meter.

We're also seeing trends for behind the meter and direct connected data centers, which this is not the case. This is an infrastructure support project. But we do expect to see the trend moving towards more behind the major total power solutions for data centers, which is why we mentioned in our commentary earlier that we are focusing on providing total power solutions to address both of the meter and direct behind-the-meter connections for data centers.

And part of that is the modeling, understanding the modeling and the requirements for the data centers, particular application, low-low requirements and response requirements, which are very stringent and testing those requirements in advance doing hardware in the loop testing and configuring our total solutions to support the complex needs for data centers.

But as I mentioned, we're seeing both front of the meter and behind the meter, but more this particular one is a front of the meter, and we'll see more of that as well. Did that answer your question, Alan?

That's clear. Just a quick follow-up on that. So for the behind the meter discussion ongoing, you mentioned about a total power solutions. So does it mean that you also have to consider the grid connection requirement to stabilize the load requirement from the data center on parts from the grid. Is it part of the package on top of powering data center?

That's right. That's part of the total solution that we're looking at. We're in some cases, auxiliary equipment, power supply equipment and even potentially generation equipment completes the total power solution. And we can do some part of that with partners. But we're looking at the data center opportunities in a much more holistic power solution approach. And we think that's part of the value that we'll be adding as we look forward to participating in the [ AIDC ] markets. So I think you'll see more coming from us in terms of our advancement of technologies beyond just the known capabilities that we have with our battery technology.

And the other thing that I think we've mentioned earlier is we're focusing on how to bring that additional value to our customer in terms of executing projects, servicing and supporting equipment with long-term performance and guarantees to meet the specific requirements for data centers.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

All right. And thank you for joining us today and also for your continued support. And if you have any questions, I'd like to set up a call, please contact our Investor Relations team. Take care, and have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2025 Earnings Conference Call. My name is Chuck, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Wina Huang, Head of Investor Relations at Canadian Solar.

Thank you, operator, and welcome, everyone, to Canadian Solar's third quarter 2025 conference call. Please note that today's conference call is accompanying slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section.

Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar; Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks.

On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively, and Xinbo will go through the financial results. Shawn 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 20-F 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. Shawn Qu. Shawn, please go ahead.

Thank you, Wina, and thank you for all for joining our third quarter earnings call.

Please turn to Slide 3. In the third quarter, we delivered 5.1 gigawatts of solar modules, in line with our guidance range. In our energy storage business, we achieved a record quarterly shipment of 2.7 gigawatt hours. Total revenue reached USD 1.5 billion, landing at the high end of expectations. Gross margin was 17.2%, exceeding guidance, primarily due to strong contribution from energy storage shipments.

We also achieved a higher share of module deliveries to the profitable North American market. Our solar module factory in Mesquite, Texas, which has now successfully ramped up, contributed meaningfully to both shipment volume and margin. Absent non-recurring expenses for the previous quarter, operating expenses normalized, and we reported net income attributable to shareholders of $9 million or a net loss of $0.07 per diluted share due to the impact of paid in-kind of a preferred shareholder of Recurrent.

Now please turn to Slide 4. Solar industry is at an inflection point. Anti-involution policies in China are gradually taking effect and market conditions have stabilized following the most challenging phase of the solar downturn. A complex macro environment presents both challenges and opportunities.

This year, during the anniversary celebration of Canadian Solar's 24th birthday, I reflected on how we have grown with technology innovation, business model evolution and global diversification. Today's shifting geopolitical landscape allows us to once again differentiate ourselves through a resilient combination of strategy and execution. Most notably, we are making strong progress in our U.S. manufacturing investments.

Phase 1 of our solar cell factory in Indiana is expected to begin production in the first quarter of 2026, while Phase 1 of our lithium battery energy storage factory in Kentucky is on track to start production 2026 year-end. These factories will strengthen our U.S. supply chain, support domestic energy security and reinforce our long-term commitment to the American market.

At the same time, we are planning adjustments to our U.S. business to comply with the One Big Beautiful Bill Act. We are progressing smoothly and remain confident we will be able to successfully position ourselves to continue servicing our U.S. customers.

The rise of AI-driven data center is fueling unprecedented global electricity demand. As I have emphasized in my public speeches over the past 2 years, the most flexible and cost-effective solution for powering data centers is solar-plus-storage. In contrast, traditional energy sources such as natural gas and nuclear power require long construction cycles and have limited scalability.

We are now working closely with multiple data center customers to develop deeply integrated solutions. This requires advanced system engineering where our technical expertise provides a strong competitive advantage.

I'm also pleased to share the significant progress we have made in our emerging business segments. Residential energy storage is on track to become profitable in 2025. We have seen strong growth for our residential energy storage product in Japan, Italy and the U.S., and we are expanding into new markets like Germany and Australia. This marks a major milestone for our energy storage strategy and demonstrates how we are successfully broadening our revenue base beyond utility scale applications.

Recurrent, our solar and energy storage project developer and operator will continue to balance the growth of our operational project fleet to generate recurring cash flow and selective sales of project asset ownership to manage near-term cash flow. Given the current market conditions, I have asked our team to keep the balance a little bit more towards sales of project assets in order to accelerate cash recycling and reduce debt.

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.

Thank you, Shawn. Please turn to Slide 5. In the third quarter of 2025, module shipments totaled 5.1 gigawatts, in line with expectations. Earlier deliveries to 2 energy storage projects shifted volumes from the fourth quarter into the third. This led to our largest quarter to date with 2.7 gigawatt hours of storage shipments.

Revenue was $1.4 billion and gross margin decreased by 730 basis points to 15%. The sequential decline was driven by margin change in both the solar and storage businesses. In solar, incremental upstream price increases and the underutilization raised unit costs. While module pricing in most global markets remained low in storage, second half margins reflect contracts signed at more normalized levels and the volatile tariff environment drove incremental cost increases.

Without last quarter's impairments and benefiting from internal cost controls, operating expenses decreased sequentially from 15.3% of revenue to 12.3% and we delivered $39 million of operating income.

Please turn to Slide 6 for an update on our e-STORAGE business. In the third quarter, we recognized revenue on 2.7 gigawatt hours of storage solutions. Our deliveries reached countries across North America, Europe, the Asia Pacific and Latin America. As of October 31, our contracted backlog, including long-term service agreements, increased to $3.1 billion, supported by newly signed projects in North America and Europe. We continue to build momentum in our established markets while entering new ones.

In Canada, we signed supply and 20-year long-term service agreements with Aypa Power for the Elora and Hedley projects. Together, they totaled more than 2.1 gigawatt hours and among the largest energy storage facilities under development in Ontario.

Also in Ontario, we contracted to deliver a fully integrated energy storage solution and turnkey EPC services for the 1.6 gigawatt hour Skyview 2 energy storage projects. This marks our largest SolBank delivery to date. Once completed, Skyview 2 will be one of the largest battery storage facilities in nation. As a proud Canadian company, we're honored to help drive our country's clean energy transition.

Across the Atlantic, we just signed a BESS supply agreement and 20-year long-term service agreement in Germany with Kyon Energy, a leading storage developer. As demand expands across both our existing and newly entered markets, we expect to continue scaling our backlog and diversifying its global footprint.

In addition to our established utility-scale storage solutions, we continue to expand our offerings and strengthen our capability in both C&I and residential storage. Notably, the residential storage segment is gaining momentum, have turned profitable this year.

Building on the strong growth we have already achieved in Japan, Italy and U.K., we will be launching our new 3-phase solution to drive further expansion in markets such as Germany. We also plan to enter Australia in the first half of next year. In the U.S., we have successfully introduced the second generation of our residential energy storage solution, which better caters to the needs of the market and is demonstrating strong initial performance.

In the C&I storage segment, where we see promising market growth potential, we continue to refine and diversify our portfolio to better serve emerging opportunities. Though smaller in scale, these segments have proven to be profitable and we expect them to contribute more meaningfully next year.

With that, I will hand the call over to Ismael, who will provide an update on Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Yan. Please turn to Slide 7. In the third quarter, we generated $102 million in revenue. We monetized over 500 megawatts of projects, including 2 high-margin sales, the battery storage project in Italy and a hybrid project in Australia. Gross margin was 46.1%, a sequential increase of 137 basis points, primarily driven by the contribution of more profitable project sales.

During the quarter, we closed $825 million in construction financing and tax equity for the 600-megawatt hours Desert Bloom Storage and 150-megawatt Papago Solar projects, both parts of our multi-project partnership with Arizona Public Service. These assets are under construction and are expected to begin operations in the first half of 2026.

In the U.S., in addition to what we have in construction, we have already safe harbored 1.5-gigawatt peak of solar and 2.5 gigawatt hours of battery storage projects. By the summer of next year, we expect to have safe harbored at least 3-gigawatt peak of solar and 7 gigawatt hours of battery storage projects, giving us significant visibility over our execution pipeline for the next 4 years.

Until our IPP business scales further, near-term profitability will continue to depend primarily on global project sales. As maintaining financial discipline remains our top priority, we will balance the growth of our operating portfolio and project assets with selective project ownership sales to prudently manage cash flow and debt levels. Looking ahead to 2026, we expect to increase the level of project ownership sales to enhance cash recycling and reduce leverage.

Now for an update on our pipeline, please turn to Slide 8. As of September 30, we have interconnection rights for approximately 8 gigawatts of solar and 15 gigawatt hours of storage globally, excluding operating projects. Our total development pipeline now includes 25 gigawatts of solar and 81 gigawatt hours of storage capacity. The reduction in solar pipeline reflects a natural rebalancing. Some projects progress into more advanced stages, while others were removed.

At our current scale, our focus is increasingly on executing our high-quality pipeline rather than expanding it. For example, in the U.K., we recently received government approval for our Tillbridge Solar and battery storage projects in Lincolnshire, U.K. This project is planned to be an 800-megawatt PV plus 1,000 megawatt hour BESS project, making it the largest co-located project in the U.K. to date. We are proud that Tillbridge will connect to the grid through a substation that was previously used by a decommissioned coal plant, continuing to support the U.K.'s decarbonization goals while providing reliable and sustainable energy to the communities it will serve.

Over time, energy storage continues to emerge as a key growth driver. Not only are battery energy storage systems becoming increasingly cost effective, but they are also profoundly reshaping energy markets from grid stabilization and peak shaving to enabling renewables to integrate at scale. Notably, data centers are now placing ever greater demands on power infrastructure, requiring round-the-clock reliability and often clean energy integration. In response, the opportunity set for longer duration, higher specification BESS is expanding rapidly.

We have started to deep our toes into the data centers business through regional JVs with data center experts, mainly in Spain and the U.S. We see significant synergies with our core expertise as land acquisitions, interconnection processes, permitting and community engagement are 4 of our core competencies that are crucial to the successful and timely deployment of data centers.

Furthermore, powering data centers with clean and reliable electrons is one of the key bottlenecks to data center development, where we have significant expertise to bring to the table. In Spain, we already have 112 megawatts of projects with interconnections and land secured in Barcelona, Bilbao and Madrid, plus an additional 40 megawatts with interconnections in Madrid waiting to secure land.

Finally, our Operations and Management or O&M business also continues to grow healthily. This quarter, we earned 2 internationally recognized certifications from TUV Rheinland, ISO 9001:2015 and ISO 45001:2018. These certifications affirm that our power services meet globally recognized standards for quality and workplace safety. Today, Recurrent has over 14 gigawatts of solar and storage projects under O&M contracts across 11 countries.

Now I will hand the call to Xinbo to review our financial results. Xinbo, please go ahead.

Thank you, Ismael. Please turn to Slide 9. In the third quarter, we delivered 5.1 gigawatts of solar modules and 2.7 gigawatt hours of energy storage systems. With contributions from accelerated storage shipments, total revenue reached $1.5 billion. Gross margin was 17.2%. The sequential decline primarily reflected the absence of one-time benefits recorded in the second quarter and the normalizing margins in both solar and storage manufacturing businesses.

Operating expenses decreased sequentially to $222 million, reflecting lower shipping costs from reduced module volumes and ongoing internal cost reductions. Net interest expense declined to $29 million, driven by higher interest income. We recorded a net foreign exchange loss of $17 million, primarily driven by the appreciation of Chinese yuan.

Net income attributable to shareholders was $9 million or a net loss of $0.07 per diluted share. This result included a positive $35 million HLBV impact equivalent to $0.51 per share from tax equity arrangements tied to certain U.S. projects. The $0.20 per diluted share preferred dividend impact brought the total diluted loss per share to shareholders to $0.07.

Please turn to Slide 10 for cash flow and the balance sheet. Net cash used in operating activities was $112 million compared with an inflow of $189 million in the second quarter. The difference was primarily driven by change in working capital, notably a decrease in inventories during the prior quarter.

Total assets grew to $15.2 billion, with project assets rising to $1.9 billion. Solar power and battery energy storage systems remained steady at $2 billion as we paced the construction activity to manage leverage at the group level.

Capital expenditures totaled $265 million, primarily related to U.S. manufacturing investments and the existing capacity expansions. This implies a larger CapEx outlay in the fourth quarter and we expect to end the year slightly below our full year guidance of $1.2 billion.

Looking ahead to 2026, we continue to refine CapEx plans amid an uncertain policy environment, but currently expect spending to remain at levels similar to this year. Most investments will continue to target the U.S. market. Total debt increased incrementally to $6.4 billion, mainly due to new borrowings tied to project development assets. We closed the quarter with a cash position of $2.2 billion.

Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead.

Thank you, Xinbo. Please turn to Slide 11. For the fourth quarter of 2025, we expect module shipments to be in the range of 4.6 to 4.8 gigawatts as we continue to maintain disciplined volume management. For our energy storage business, we expect shipments between 2.1 to 2.3 gigawatt hours, which includes approximately 600 megawatt hours delivered to our own projects. This guidance reflects the shift of certain volumes from the fourth quarter into the third.

With Recurrent delivering its largest quarter of product sales this year, we project fourth quarter revenue to range between $1.3 billion to $1.5 billion. We expect gross margin to be between 14% to 16%. For the full year of 2026, we project total module shipments of 25 to 30 gigawatts, including approximately 1 gigawatt to our own projects.

Energy storage shipments are expected to range between 14 to 17 gigawatt hours. We will continue to focus on profitable solar market and drive growth in our storage business. While we will continue to develop solar and energy storage projects, financial prudence remains our top priority. Accordingly, Recurrent Energy will increase project ownership sales in 2026 to recycle more capital and manage the overall debt level.

With that, I would now like to open the floor for questions. Operator?

[Operator Instructions] And our first question for today will come from Colin Rusch with Oppenheimer.

Congratulations on all the progress. On the project sales, can you talk a little bit about the strategy of timing and leverage that you guys are going to deploy in these sales? You obviously have a great land position, nice interconnection queues and certainly potentially can leverage some of those positions into data center deals.

And also you potentially can monetize these things earlier in the process and generate a little bit better returns in select areas. So I just want to get a better sense of where you're coming out in terms of timing and kind of relationships that are going to come out of some of these sales.

Yes. Colin, we are still working on the 2026 AOP. So I don't have the quarter-by-quarter Recurrent project sales number in my hand right now. We target to get that down by February. So when we talk in March, in the March earnings call, we'll give you more detail.

However, we have enough COD operational project to sell. So we don't have to sell project early. When I say project early -- sell project early, I assume you mean sometimes sell at NTP or even before NTP. But before NTP, you don't get the value, right? You leave too much money on the table. So if we can sell after COD, we can not only get the value of the project development, but also the project financing because Canadian Solar, especially Recurrent, is also an expert in the tax equity financing deal in the U.S. market and there's a value there.

So we do have enough project. We have a budget like roughly how many projects we will -- how many megawatts of project ownership we will sell each year. But for next year, I guess, we have enough COD project to sell. And that's for U.S., but we also sell projects in other markets, for example, in LatAm and also in Australia.

Now Ismael, you have anything to add?

Just say, it's great, Shawn. Thank you, Colin. Nice to talk to you. Colin, we have a very strong pipeline and very mature. So we are seeing good opportunities to sell with good margins and we are likely going to take them. That's the overall underlying reasons.

Okay. Perfect, guys. And then thinking about the battery manufacturing and the supply chain, can you talk a little bit about the maturity of your relationships with suppliers to deliver input materials into the U.S. Obviously, 70% of the supply chain is in China and the vast majority is still in Asia. And so shifting things into North America is a pretty substantial effort. I just want to get a sense of how easily that's coming along for you guys? And any sort of risk that we should be thinking about as you start to ramp up that capacity?

Actually, there are a lot of supply chain also supplier outside China these days. So we have good selection, good choice for both solar and for energy storage. So we will -- as you know, the OBBBA have some requirement of the material -- non-material assistance level for both storage and for solar. And there's also the domestic content booster, right, 10% booster for both the energy storage and solar. And we have calculated that. So just by those percentage requirement, we think we will be able to meet those requirements in 2026, no problem.

I think 2027, the number will go up 5% also. I think it's roughly 5% each year and we should be able to manage that stack. So we'll be able to meet the OBBBA requirement. And also if we do -- if we make both cell and module in U.S., we will be able to meet the domestic content rule as well. As I said, we will start production of our own solar cell in U.S. by March. So throughout Q2, we will ramp up. So by second half of next year, we should have reasonable volumes already. And those volume will go -- will come with the domestic content, the 10% domestic content boost.

And for solar -- and for energy storage, our plan is to start the battery cell and pack manufacturing in U.S. at the same time. So I said in the -- in my speech that we expect to start production in December. So in 2027, we will have -- we'll be able to provide the energy storage project, which also mee the domestic boost requirement -- domestic content requirement to let our customers to enjoy the 10% ITC boost.

The next question will come from Philip Shen with ROTH Capital Partners.

First one is on margins. I think your A-share subsidy reported a 7% gross margin in Q3, but you guys reported a 17% gross margin today. So I was wondering if you could help us bridge that gap.

I don't think we reported 7, do we?

17.

17% is for CSIQ, together CSIQ, right? And CSI Solar have a different mix.

Yes. Ismael just commented that the project sales in Q3 were with 46% gross margin.

Okay. So it's the project business that really supported and offset the manufacturing 7% gross margin. Is that right?

Actually, solar may be low, but solar plus the energy storage.

15% for all the manufacturing.

For all the manufacturing, the gross margin in Q3 is over 15%. Now if it's only module, it's low, it's below 10% because there are some where we don't have much margin.

Okay. Moving on to the next question. As it relates to your 2026 guide, you gave us some color there, which is great, and you continue to talk about the ramping of U.S. manufacturing. But how -- can you give us color on how you're able to do that even though there's still substantial FEOC risk as it relates to either ownership or just meeting the OBBBA FEOC requirements could be challenging.

Yes. Philip, I answered this question in the last earnings call. Philip, we believe we can meet the requirement, the OBBBA requirement by doing certain adjustment.

Okay. And then as it relates to the AD/CVD reserve or with the auction case, there could be meaningful retroactive duties. And I was wondering, can you quantify how much exposure that might be? And as a result, do you think you might need to reserve for that situation on the balance sheet?

Yes, it could be. I would say also could not be, right? So the court process is still moving along and there will be a long -- there will be quite a while before there's a final decision if they go to the appeal court. And we have discussed this with our external lawyers and the -- also the audit firms. We don't think we need to book any reserve at this moment.

The next question will come from Brian Lee with Goldman Sachs.

Maybe just a follow-up to Phil's question. I know you guys are wanting to see the AD/CVD process through litigation and the case is still pretty early on. But in the event that you did have to accrue a liability or reserve some amount of funds for a potential negative decision, can you help to kind of quantify the range?

I guess, back of the envelope math suggests it could be well over $1 billion if we estimate your U.S. shipments over the past couple of years. I guess, first, is that the right way to think about it? And then second, how would you -- again, just playing devil's advocate, hypothetically, if you had to do that, what would be your sort of funding strategy to finance that amount just given the cash burn and the high degree of net debt you have right now?

Well, Ben, I guess you are also talking about the auction case. And as I said, when I answered Philip's question, we don't think that we have to make reserve. Therefore, there's no like -- no, I just -- I don't have to do any backup envelope at this moment. This is what my lawyer told me. This is what my auditing firm told me. So I don't want to speculate here.

Why don't you ask the petitioner to speculate how much money they can get or how much money they will be able to get for U.S. government?

Yes. No, I mean, I think there are published research around potential value of the claim here. I don't know how accurate they are, but I do think there is a published number, which again counts into the billions of dollars. But yes, I'll take that offline.

I guess maybe just bigger picture question. We're all just trying to gather more detail. We know there's no finite answer, but it'd just be helpful if you could elaborate, let's say, on the FEOC question as well. You're obviously telling your customers -- your actions you contemplate taking to make sure you're FEOC compliant. Is there any insight into those conversations you can provide to give the financial community the same level of like confidence around what steps you may be taking to make sure that your U.S. manufacturing investments are going to be justified?

Well, OBBBA has very simple and clear rules, which says, a big picture, it will require 75% from -- not from the FEOC and no more than 25% from the FEOC if there's 2 partners, right? If there's only like 1 plus 1 partner. If there are 2 partners, 2 shareholders from the FEOC countries that the 2 together should take no more than 40%. So there are very clear rules there.

So when I said we will make adjustment to meet the OBBBA, so I think it's quite clear. It's something like a 5-year -- like Grade 5 student or no. As long as you are structured yet with these percentage numbers, then you are OBBBA compliant. What else do I have to tell you?

Okay. No, that's helpful color. And then last question for me, I'll pass it on, is on the asset sales. It sounds like that's definitely going to ramp up in '26, which is a bit of a reverse from the past couple of years as you've been moving towards this IPP model. It sounds like it's focused on cash generation and delevering. Can you quantify kind of what volume megawatts, megawatt hours you anticipate monetizing through asset sales as opposed to keeping on the balance sheet for '26? And what kind of delevering potential that might result in for the balance sheet next year?

Well, as I said, we'll continue to build IPP portfolio. However, given the current market condition, we are going to keep the balance a little bit to be a little bit more cautious. And also, as I said when I answered Colin's question, I haven't brought my -- let my Board approve my 2026 AOP annual operation plan yet. So I will give you more details in March, because typically, our Board approved the AOP in February.

So what I can say now is that given the current market situation, we are going to be a little bit more cautious. And I also said that we have enough operational projects, high-quality projects, which we can cash in. But see, every year, we always sell some projects. And Ismael mentioned that we sold some high gross margin projects in Q3 that helped to boost our gross margin in Q3, right, overall gross margin. So I don't have the number yet, but I will let you know. What I can let you know now is that we will be a little bit more cautious. So we are going to recycle more cash.

The next question will come from Alan Lau with Jefferies.

This is Alan from Jefferies. I would like to know there's a lot of questions on U.S. projects already. So I would like to have a more overview on the market demand on 2026. What do you think the U.S. installation on solar and energy storage separately?

Okay. I will ask Yan to share his thought.

So you're asking for the installation demand in the U.S. in 2026, right, on both storage and solar?

Yes.

Yes. I think -- so the demand is there, right? Also, the OBBB compliant -- the safe harbor actually made the storage pipelines there. So I think for 2026, the storage project will be there. And the solar as well, the safe harbor also helped to actually to preserve a lot of demand. But on the solar side, I think the cell supply can be a bottleneck for the total demand.

So although we have a good solution, but does not mean everybody has that. So I think -- I hope U.S. will be -- continue to maintain the similar level compared to this year. That's what I hope. But I do not see any significant growth. But energy storage, I think next year, U.S. will continue to be strong. That's my view.

Shawn, if you...

Yes. So I think investors' focus are concentrated or overwhelmingly concentrated on ESS. So I would like to know what type of growth rate you are looking at? Like is it like 20%, 30% growth or 50% or even in China, I think people are talking about even more aggressive growth rates? And then within that growth, how much do you think is coming from [ AIDC ] demand?

Well, so you're talking about the growth globally or U.S.-China? Sorry.

Mainly U.S.

I think that the data center -- yes, worldwide, you talked about data center worldwide, more than half of the data centers built in the U.S. But I think we see a very strong future demand in our portfolio on data center-related storage demand. But I think in terms of start installation construction, next year is not yet. It's not yet. It's going to be -- you got to wait for a little longer time. So for next year, the storage growth will still come from the harbor projects. So this is a regular storage -- those regular storage projects.

Solar, as I said, I'm expecting flat. That's my hope. But storage, you're talking about growth rate, I don't have the number, but you can check the industry reports. They vary a lot, the industry reports. On average, I think there's a growth. I don't know, it's like 20% growth? Yes. I remember I saw some reports number.

I see. So for demand -- ESS demand related to AIDC, you think probably it's after 2026, right? And then like what type of installation you think will be more relevant? Like is it like 2 to 4 hours of system that is for clipping the peak demand or you are seeing even longer hours acting as some off-grid solution or like the main power supply for the AIDC? Like what type of backlog do you see or request from clients are you seeing?

I think for regular storage, conventional storage projects, you're talking about mostly in the U.S., it's actually load shift -- peak shift. So it's rather like 3, 4 hours, around 4 hours. But for data center, to begin with, I think my knowledge, okay, it's more like 2, 3 hours. It's mainly for smoothing out the load. That's what I -- our study shows.

Of course, longer term -- for longer term, the storage project for data centers will progress into longer and longer period of storage, but the cost is also going up. So the challenge is how do we control costs while increasing the length, the duration. But to begin with, the most important application for data center storage is smooth out the load, smooth out the curve. So that's the most important starting point.

I see. So just to confirm, it's more like there are some rules in ERCOT, maybe like the Senate Bill 6, et cetera, requiring more stability on the load. So the demand you are seeing, at least for now as a start is to cope with that request from the grid, right, instead of having long duration ESS for supplying as the main power supply of AIDC. Is this understanding correct?

Well, I think, as I said, right, for longer term, it will progress, right? But to begin with, I told you, it's more like smoothing up the load, so to stabilizing the supply. And so that's my answer.

That's good. That's good. And then finally, I would like to ask on how much of the 14 to 17 gigawatt hours of shipment is going to be in the U.S.?

Actually, we have well diversified our portfolio, our backlog. So I would say around 2/3 will be outside of the U.S. out of the total guided volume next year.

I see. I see. That's pretty diversified...

Yes, but also a small -- it's small in China and mostly it is between -- outside of China, outside of the U.S. So that's the kind of distribution.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Well, thank you very much for everyone to come to our call. And also thanks for your continued support. And if you have any questions or would like to sign up a call, please contact our Investor Relations team. Take care, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Second Quarter 2025 Earnings Conference Call. My name is Daryl, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

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 Presentations section.

Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar, Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO.

All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will we go over some key messages for the quarter. Yan and Ismael will give business highlights for CSI Solar and Recurrent Energy respective. Xinbo will go through the financial results. Shawn 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 contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the safe harbor where 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 20-F 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. Shawn, please go ahead.

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 nonrecurring 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 PIK 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 the recently passed One Big Beautiful Bill Act, I would like to discuss some potential impacts at this time. Please turn to Slide 4. The One Big Beautiful Bill act as stacking implications for both supply and demand in the U.S. On the supply side, solar and storage domestic onshoring is challenging by increasingly strengthened FEOC requirements and higher import duties on both equipment and components. According to Wood McKinsey, 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, outlook across solar, energy storage and distributed generation appear mixed. Other than 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 project must navigate annual FEOC 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 solution 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 U.S. market. We deliver both solar and storage solutions across utility scale, C&I 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 increased the percentage of recycled and reduced 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 ethical 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 level recognition this year for our solar cell factory in [indiscernible] Province, China. In 2024, we conducted 147 supplier ESG audit, including 31 on-site evaluation, surpassing our 2023 totals. Following collaborative consultations and corrective action plans, all suppliers met our strengthened ESG criteria.

With that, I will now turn the call over to Yan, who will provide more details of our CSI Solar business. Yan, please go ahead.

Thank you, Shawn. 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 gigawatt hours 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 nonrecurring 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 unit costs in the second half. While module pricing shows signs of improvement, we expect price increases to lack rising costs, creating pressure on module profitability. We expect additional pressure from normalizing storage margins.

The cost benefit from decreasing leasing 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 gigawatt hours of BESS and 3 gigawatt hours of battery cell today to 24 gigawatt hours and 9 gigawatt hours, respectively, by 2026 year-end. The expanded BESS 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 SolBank 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 CSC Group and the Energy Safety Responses group.

In residential storage, EP Cube won the Japan International Pioneer Design Award for 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 RedDot award, often described as the Oscars of industrial design. These recognitions are in addition to the If Design Award and the Mus Design Go Award that EP Cube received earlier this year.

EP Cube has made strong progress in its target markets since we earned the prestigious Jet compliance certification. Shipments to Japan have surged, now approaching 1,000 units per month. We're also steadily advancing in Europe and the U.S. 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 Ismael, who will provide an update on recurrent energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Yan. Please turn to Slide 9. In the second quarter, we generated $106 million in revenue. Revenue was sequentially lower, primarily due to lighter project sales. We monetized over 200 megawatts of projects in Europe and Japan, including our first profitable sale of a battery storage project in Italy. While a large project sale in Latin America shifted into the second half of the year.

Gross margin was 32.4% and reflecting healthy project sales returns and a stable margin in electricity sales from our operating portfolio and growing power services business. The solar power system write-down in Latin America, combined with other nonrecurring expenses, led to elevated operating expenses and an operating loss of $74 million. We remain focused on disciplined execution while managing ongoing trade and policy risks. We energized our first merchant 200-megawatt hour for Duncan storage project in Texas. Despite Duncan being a merchant storage project, we were able to secure both project finance and tax equity for this project.

Within the quarter, we also achieved an important milestone at Bluemont Solar in Kentucky, closing $260 million of project financing and tax equity. The offtake for this project is Constellation who will purchase power and renewable energy certificates generating by this nearly 100-megawatt facility.

Please turn to Slide 10 for an update on our pipeline. As of June 30, 2025, we own interconnections for 8 gigawatts of solar and 16 gigawatt hours of storage globally, excluding projects already in operation. Our total pipeline now stands at 27 gigawatts of solar and 80 gigawatt hours of storage. In the U.S. and Europe, we have 500 megawatts of solar and about 1.7 gigawatt hours of storage already in operation. Meanwhile, we are building more than 1.3 gigawatts of solar and 600 megawatts of storage in these markets as we speak. This positions us with one of the largest and most globally diversified pipelines in the industry, giving us significant runway to grow in the future and the flexibility to focus our resources to advance the most attractive projects and markets.

In the U.S., we have already safe harbored 1.6 gigawatts of solar projects that are in execution or late-stage development. We continue to execute our safe harbor strategy on an additional 2.3 gigawatts of solar through off-site start of construction, providing both increased flexibility over the coming years and a competitive advantage as U.S. assets gain value under the updated tax credit policies. At the same time, we are expanding our battery storage pipeline, particularly in the U.S., Europe and Japan, where we already hold a strong market positions.

Our O&M business continues to gain traction with 10.5 gigawatts currently in operation and 3.2 gigawatts contracted coming into service in the next quarters. Finally, we are advancing development of our data center sites in both the U.S. and Spain, where we expect to have the first products ready within the next few quarters.

Now I will hand the call to Xinbo to review our financial results. Xinbo, please go ahead.

Thank you, Ismael. Please turn to Slide 11. In the second quarter, we delivered 7.9 gigawatts of modules near the high end of our guidance. We shipped 2.2 gigawatt hours of storage, below expectations due to delayed shipments. With the additional impact of delayed project sales, total revenue was $1.7 billion. Gross margin was 29.8%, elevated by a sale type C is related to a U.S. project and AD/CVD adjustments. Excluding this onetime impact, gross margin would have been 21.6%, sequentially higher due to a stronger North America module mix and the storage volumes.

Operating expenses increased to $378 million, primarily due to nonrecurring items, including impairment charge related to certain solar and storage assets as well as manufacturing assets. Without these items, operating expenses would have been $259 million or 15.3% of revenue compared to 16.3% in the fourth quarter. Net interest expense rose from $28 million in the first quarter to $35 million, reflecting higher borrowings and recurring energy and lower interest income.

Net foreign exchange loss was $13 million, primarily driven by dollar weakness. Net income attributable to shareholders was $7 million or a net loss of $0.08 per diluted share. This result included a positive $30 million HLBV impact or $0.45 per share from tax equity arrangements tied to certain U.S. projects. $0.19 per diluted share of preferred dividend impact led to the diluted loss per share to shareholders.

Please turn to Slide 12 for cash flow and the balance sheet. Net cash inflow from operating activities was $189 million, compared with an outflow of $264 million in the first quarter. Cash inflow was primarily driven by change in working capital, specifically a decrease in inventory. Total assets grew to $14.8 billion with project assets rising to $1.7 billion. Solar power systems and battery energy storage systems now stand at $2 billion.

CapEx totaled $173 million, mainly reflecting payments for existing capacities. Our full year 2025 CapEx outlook remains unchanged and approximately $1.2 billion, primarily driven by investment in U.S. manufacturing initiatives. Total debt increased to $6.3 billion, mainly due to new borrowings for project development and operational assets. We closed the quarter with a cash position of $2.3 billion.

Looking ahead, we remain focused on disciplined debt management and prudent liquidity oversight, aligned with industry dynamics and our financial fundamentals. In light of ongoing profitability pressures in both manufacturing and the project development businesses, we expect to gradually reduce leverage from current levels over the next month.

Now let me turn the call back to Shawn, who will conclude with our guidance and the business outlook. Shawn, please go ahead.

Thank you, Xinbo. Please turn to Slide 13. For the third quarter of 2025, we expect to deliver module volumes between 5 to 5.3 gigawatts. For energy storage shipments, we expect to deliver 2.1 to 2.3 gigawatt hours, including about 250-megawatt hours to our own projects. We project third quarter revenue to be in the range of $1.3 billion to $1.5 billion, with gross margin expected to be between 14% to 16%. Sequential lower margins reflect the impact of rising solar manufacturing costs, driven in part by supply chain price increases and normalizing storage margins.

For the full year of 2025, we are narrowing our module volume guidance to 25 to 27 gigawatts, including approximately 1 gigawatt to our own project. The reduced midpoint of our module guidance primarily reflect our self-restraint, which results in a decision to reduce exposure to less profitable markets. For energy storage shipments, given increased near-term visibility in the trade environment, we are maintaining our storage shipment guidance of 7 to 9 gigawatt hours for the full year of 2025, including approximately 1 gigawatt hour allocated to our own projects.

We are revising our full year revenue guidance to between $5.6 billion and $6.3 billion. This reflects the delay of certain project sales into 2026 and more conservative module pricing in the second half, driven by weakening demand in China.

With that, I would like to now open the floor for questions. Operator?

[Operator Instructions] Our first questions come from the line of Colin Rusch with Oppenheimer.

Can you talk a little bit about the PERC write-down here and the impact ultimately on margins? I'm just trying to get a sense of how much that really impacts from a percentage basis on your margin sale or on your module sales. Does that start to look like 2 or 3 points or it's a little bit more than that?

Well, we decided to write off pretty much all of our PERC equipment asset this quarter because in Q2, we stopped the manufacturing of PERC product. So we think this is the right time to the write-off. Now the write-off was -- I believe, was quite a big impact. Yes, it's $46 million.

Okay. I'll follow up on the manufacturing afterwards. Just with the treasury rules that have come out, I think everybody is trying to understand how developers are going to approach their safe harbor and strategy and qualification. Can you guys give us a sense of where you're at from a safe harboring perspective? What you're seeing from any of your customers on the module side and how you anticipate some of the enforcement realities for the industry, given just your first look in less than a week of being able to evaluate the new rules?

Yes. Colin, as you know, our subsidiary Recurrent is a long-term player with 20 years of operating in the U.S. market. So we have been safe harboring several times because ITC reached the debt line several times in the past 10, 13 years. Every time we approach the deadline, we safe harbor. So we are very -- we are very familiar with the rules. So -- and we are pleased to see that the newly released guidance -- the new guidance for the safe harbor pretty much confirms that our standard strategy for safe harbor is correct and also its prudent.

So our current safe harbor project, we see no change. And as Ismael said in his speech, we are safe harboring a little bit more. Well, actually, we're safe harboring 2.3 gigawatt more of project, so you Recurrent achieve this goal then 1.6 plus 2.3, 1.6 plus 2.3, We will be able to safe harbor somewhere close to go 4 gigawatts. So that will give us a very strong pipeline in U.S. 4 gigawatts is almost equal to 1 gigawatt each year. So you can see that for 4 years safe harbor is pretty significant. This shows our strong ability recurrent the strong ability and very solid practice in the development procedure.

As for the whole industry, that's a good question. Our -- we have been sending our that up. And -- but it has only been a few days. So I don't have that much industry-wide safe harbor information. However, I would say for the developers who have similar experience, they should see the same thing as Recurrent. So I think the industry has believed that at least their work so far has been recognized. Ismael, you want to add some more color?

Thank you, Shawn. Look, I think, Colin, thanks for the question. I think we've been a little bit lucky to because many of our projects have local community others. So we started to safe harbor to make sure that we enjoy those others. And as a result, we have a pretty advanced pipeline of safe harbor already online. And we always use the offside the start of construction. So it looks like the current regulation is not changing that. So we've been a little bit lucky to stay.

Our next question has come from the line of Philip Shen with ROTH Capital Partners.

This is Matt Ingram on for Phil. Given the OBBB and FEOC in the U.S., do you believe Canadian Solar and its subsidiaries are currently FEOC-compliant? If so, could you please give some details around what gives you confidence? And then if not, like what steps are you taking comply with FEOC? And then lastly, on FEOC, how are you planning for potentially stricter FEOC IRS guidance that could come out sometime next year?

Mark, thank you for the question. I kind of expected this question. Now as you know, OBBB different FEOC requirement for different years. So based on that yearly FEOC requirement, yes, Canadian Solar is compliant with OBBA requirement at this moment and we will continue -- we believe we will continue to be compliant for the future years. As you know, every year, the FEOC condition change, including the percentage change. So we have a plan to make sure that the Canadian Solar has 3 factories, which is solar module factory cell factory and also the energy storage factory continue to meet the OBBA requirement each year.

And just on potential guidance, they're going to release guidance on the FEOC restrictions and those potentially could be a little bit stricter than kind of the language that's in the bill. How are you guys planning for that kind of situation?

Well, we -- our internal legal team, accounting team and the external teams have debated and due diligence in past more than a month, ever since July 4 when the OBBB was. We have been studying and debating and doing due diligence. So we think our understanding of the bill is pretty conservative. And while there may be some change or some clarifications of the guidance, well, I mean, the IRS guidance might clarify some of the points. And -- but I believe as long as those are the guidance to interpret the OBBB, then it can't change very much from the legal language itself in the bill.

Therefore, we believe -- so well, a little bit more restrictive or a little bit less restrictive guidance from IRS will not change our judgment call. So I think our current strategy is quite solid to -- so that we can -- first of all, we will make sure our customers will be able to claim their ITC because our shipment meet the OBBBA rule of that particular year and also our factory, 3 factories in the U.S. will be able to claim the 45X for any of the particular year.

Great. Really appreciate the color there, Shawn. If I could just squeeze in one more on policy. Given like the upcoming Section 232 case on polysilicon and its derivatives as well as it seems like they're reinforcing USLPA Q-cells getting recently detained. How are you guys looking at your upstream supply chain and maybe different strategies there for the U.S. capacity?

Well, you probably know that Canadian Solar filed our comment to the Department of Commerce for the Section 232 polysilicon. And I believe you can get access to our filings through url or whatever. So basically, we believe that polysilicon for solar is not a national security because I don't think U.S. even want that much solar. Anyway, so why is solar grade polysilicon, a national security control -- concern? The country has enough coal, oil, gas everything, right? The country is very also plant. So based on that, we don't feel like polysilicon solar is -- should be a national secure concern. However, we are waiting for the process to run to the end. And at this moment, I don't want to speculate.

Our next questions come from the line of Maheep Mandloi Securities.

Maybe one more on the FEOC side. I appreciate the color there. But could you just talk more about the 45X eligibility for the U.S. assets -- the U.S. manufacturing line, the strategy to be compliant there? Or do you need more information from treasury guidance to help with that? And then I have a follow-up.

Yes. Well, I think our team, including our internal legal team and our external consults believe that OBBBA is quite clear in terms of the FEOC and the material assistance definition requirement. So we pretty much understand the meaning of those language and clauses. As I mentioned, that the IRS guidance may clarify a few points. But so long as those guidance follows the language in the OBBBA itself, then I think our strategy is we have a good understanding. Therefore, our assessment is solid. And for 45X both the 45X and for energy storage and for solar will continue according to the previous schedule.

As you know, there's no change on the -- like in terms of the schedule, in terms of the time frame and also the run down schedule of those incentives. And however, there are different material systems table for each year. So we just have to -- every year, we do due diligence and calculate and just to make sure that our products meet or stable. And fortunately, solar as a global manufacturing energy storage is also more or less a global manufacturer. So there are suppliers of the key material for both solar and for energy storage from several different countries.

So I believe that gives us the ability to navigate the -- navigate and to meet to comply with the material assistance requirement percentage for each year. Now you mentioned IRS guidance, well, people are happy speculate how much -- maybe the IRS guidance can help people a little bit. For example IRS published a table for the domestic companies in the past, which stopped guessing each component. The guidance specified percentage. So it makes the job easy and also. So we will see whether the IRS guidance for material assistance follow the same path or maybe for a different path. So for me, that's something we are waiting to see. If somehow we follow the same path, well, they stop then at least everybody were used to side but maybe you will follow a different path for material assistance.

So that's something we are waiting to see. However, the -- as I said, the OBBBA itself is already quite clear. for example, it defined the component like to be -- for example, over 60% of Chinese6 for energy storage, and I believe 55%, right, or 50% or solar. So that's pretty clear. Any company who have employed a few capable content can do their calculation. So yes, just with this language we can already calculate our percentage. But if IRS instead publish a table for everybody to use, that will also work. So I say we -- we already calculate, look at our product. We think our -- so far, at this moment, our percentage will be way over above the minimal requirement for the next few years. So that's why I think we are we have a good strategy to be OBBB compliant.

A bit of color on the materials, Shawn. Let me just like a quick 1 on the 45X to get that. Do you anticipate reducing CSI Solar's ownership in the U.S. manufacturing? Just trying to understand like the strategy there and the time line on when to expect any changes in the structures of the U.S. manufacturing business?

Yes. This year, we don't have to -- our structure comply. Next year and the year after, we will -- many company will have to do something to make sure they always compliant with the OBBB Act. Canadian Solar do the same. As I said, we have a strategy, so we will be able to be -- will be -- I think we have a solid strategy to the OBBBA compliant every year.

Got it. I'll take it offline.

Our next question has come from the line of Alan Lau with Jefferies.

I would like to ask on -- there was a new in China, I think it was probably on Tuesday in the Ministry of Industry and even technology. So first of all, I would like to know if but Canadian Solar has participated in that meeting? And then secondly is, do you think the price hike in China would lead to a price hike in the rest of the world as well?

Canadian Solar representative -- well, the Canadian Solar China factories have received invitation so we sent representative to the meeting. And the government in Beijing is trying to resolve the -- some of the -- like the supply-demand balance issues. So I think it's a good approach. And this is -- also, I think this is what other countries has been expecting China to do. So I'm glad the Chinese government got the message and start to work with the industry to put a better balance of supply and demand.

So I heard there was clear guidance on a higher module price after the meeting. So -- because in the results briefing, I remember we mentioned that we expect this manufacturing cost hike, I guess, it's the cost hike in polysilicon and wafer. But if module prices are higher, do you think that would actually improve your margins?

Well, I think Yan answered your question. Yan said, we have seen upstream material price increase. I'm not going to say hike, how much, we saw some increase, especially the polysilicon and wafer. And Yan said, we expect the module price to go up or maybe lack the movement of the materials. Yan, do you want to...

Yes. So there's no top-down minimum pricing on module. However, there's an industry -- there's companies volunteered to actually put out some more discipline on pricing, some predefined price, but that's not a top down. And the execution will have price was not carried high efficiency. It's I have to say. So it's basically still mostly market-driven. The up stream is actually price went up because it's easier upper stream because the lack of a number of players. So that's why I said module price likely to go up as well, but maybe not as much as the upper stream.

Sorry, you were breaking. We can't hear you.

Can you hear me?

Yes, now it's clear.

So I would like to know your view on the U.S. solar demand because President Trump yesterday has posted that kind of he would not approve any projects, et cetera. So how do you think like the demand in U.S. and how much projects might be affected with the federal land approval requirement?

I don't know. Well, we're not a market survey company. So you are asking the wrong person and I don't want to comment on White House speech also. I don't want to comment.

Our next questions come from the line of Vikram Bagri with Citi.

I apologize in advance for asking another question on FEOC, but the press release mentioned that there has been some pushouts and I saw that the storage backlog declined marginally also in second quarter. I didn't see a pipeline number in the presentation I was wondering if you saw any cancellations in the quarter? And if there is a common theme that explains the pushouts/cancellations in the quarter, is FEOC playing a role? Are customers asking for confirmation of compliance in a contract before signing a contract? And that's sort of like creating an uncertainty or slowdown in backlog bookings? If you can just explain the pushouts and cancellations and if it's somehow related to FEOC.

The new FEOC requirement also take effect next year. So this year's project is a project, which reached COD this year, and there's no new FEOC requirement. So -- however, I mean, we mentioned that there are some projects pushed to second half due to tariff issues. So tariff is different from foc. I also want to clarify now our pipeline didn't go down. We delivered 2.3 gigawatt hour, but we add new pipeline. Our new energy storage pipeline, in terms of dollar value actually went up a little bit. You can find that in our press release.

So actually, we do have some major deals that is at the very last stage of negotiation. So there's some big numbers there.

Got it. And as a follow-up, you mentioned that the storage margins without the benefit of falling lithium carbonate pricing have been normalizing. Historically, you've mentioned 20% margins and later on, 15% to 17% margins. Is the second half lower than 15%, any indication on current margins or margin on backlog would be helpful?

We are working on 20% as a target.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for any closing comments.

Thank you for joining us today and for your continued support. If you have any questions, or would like to set up a call, please contact our Investor Relations team. Take care, and have a great day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. enjoy the rest of your day.