Canadian Solar Inc. Common Shares (ON) 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and welcome everyone to Canadian Solar's second 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 Colin Parkin, CEO, Dylan Marx, CEO of Canadian Solar's subsidiary, Recurrent Energy, Xinbo Zhu, Senior VP and CFO, and Dr. Shawn Qu, Executive Chairman and CTO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Colin will deliver key messages for the quarter. Dylan will share updates for Recurrent Energy. Xinbo will go through the financial results, and Shawn will discuss sustainability and technology highlights. 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 with GAAP. I would now like to turn the call over to Canadian Solar's CEO, Colin Parkin.

Colin, please go ahead. Thank you, Wina, and thank you all for joining our second quarter earnings call.

Beginning on slide 3, we recognized 3.1 GW of solar modules within guidance. We exceeded our storage guidance, shipping 3.7 GWh and recognizing revenue on 3.3 GWh within the quarter. Revenue totaled $1.2 billion at the high end of guidance. Gross margin was in line with guidance at 13.9%. Profitability was impacted by elevated freight costs from ongoing geopolitical uncertainties. We also faced near-term ramp-up costs for our solar cell manufacturing facility in Jeffersonville. These factors led to a net loss attributable to shareholders of $77 million, or $1.40 per share. Turning now to slide 4. Our manufacturing segment remains the key driver of our financial performance today. It is also where our strategic priorities lie. In our solar business, we continue to prioritize high-margin regions.

We shipped nearly half of our quarterly module volumes to our North America home base. In our energy storage business, we are scaling rapidly and executing well globally. In a single quarter, we delivered to utility scale projects across North America, EMEA, Asia-Pacific, and Latin America. We outperformed guidance due to accelerated deliveries for two projects in the U.S. and Canada. Higher unit shipping costs and ramp-up expenses led to an operating loss of $49 million. As we finish ramping phase 1 of our solar cell facility and expand through phase 2, these costs will normalize. We expect overall module margins to improve as a result. Now turning to slide 5. A major highlight this quarter was the official opening of our state-of-the-art HJT solar cell facility. This marks a historic milestone. Canadian Solar is now the first commercially operational HJT manufacturer in the United States.

We are also proud of the facility's meaningful impact and contribution to the local economy and community. We are currently ramping up phase 1 capacity to 2.1 GW peak. Phase 1 is set to enter full-scale production on October 1st. Before the end of the year, we will begin installing equipment for phase 2, which will bring our Jeffersonville total nameplate cell capacity to 6.3 GW peak in 2027. This facility will be the largest crystalline silicon cell manufacturing plant in North America. Paired with our 10 GW peak module facility in Texas, CSI Solar solidifies its place as one of North America's largest and premier integrated photovoltaic manufacturers. These expansions are backed up by strong customer demand for our high-performance U.S. solar products, which offer valuable domestic content benefits. Turning please to slide 6.

CSI Solar has secured over 13 GW peak in contracted backlog for our domestically manufactured HJT and TOPCon n-type bifacial modules. Deliveries are scheduled through 2029. This backlog includes multiple long-term master service agreements with leading U.S. utilities, IPPs, developers, and EPCs. These commitments continue to grow daily and already represent north of $4.5 billion in value. On the policy front, President Trump released a new Section 232 announcement this month, which is focused on imported polysilicon and its derivative products. We view this new policy structure as supportive of our long-term investment in domestic manufacturing. Key details include minimum import pricing, tariff provisions, and potential manufacturing offsets for companies investing in domestic manufacturing capacity. The Department of Commerce will work to approve U.S. investment plans. We will continue to be active, constructive, ongoing dialogue with Department of Commerce and will continue to participate throughout the 120-day implementation period.

Our current evaluation indicates that these measures will reinforce U.S. solar pricing, and we are actively working with our customers to navigate this period of uncertainty. Overall, we view this policy direction as net positive for Canadian Solar, and we welcome the administration's support for American industrial growth. Now turning to slide seven. For e-STORAGE, we shipped 3.7 gigawatt hours of energy storage solutions this quarter and recognized revenue on 3.3 gigawatt hours after accounting for the more than 400 megawatt hours to internal projects under execution. At the end of this quarter, our contracted backlog stood at $3.5 billion. This includes long-term service agreements covering 34 gigawatt hours of contracted projects. We see demand from data centers transitioning from conversations to contracted opportunities.

Earlier this year, e-STORAGE secured a contract with a major U.S. utility for a 500-megawatt, 2.5-gigawatt hour DC project designed to support data center, grid infrastructure, and resiliency. Energy-intensive data centers and their stakeholders face two primary hurdles: securing power and maintaining grid stability. Interconnection approvals and transmission builds require years to complete. Battery energy storage unlocks the higher throughput from existing infrastructure, responds dynamically to load swings, fortifies grid resilience, and protects mission-critical computing hardware from power disruptions. For on-site behind-the-meter facilities, energy storage integrates seamlessly with other energy generation technology, including natural gas and renewable power generation. We are actively engaging with data center hyperscalers, developers, and utility customers to deliver solutions that help overcome these challenges. Our market value extends well beyond supplying battery containers.

We produce our own battery cells, design the SolBank platform, integrate the power conversion and proprietary energy management controls, and deliver full EPC and commissioning services, and provide ongoing support through long-term service agreements. This end-to-end full stack model offers customers a single accountable partner while supplying us with real-world operating data to refine future solutions. Now let me hand the call over to Dylan to review updates for Recurrent Energy, Canadian Solar's global project development business. Dylan, please go ahead. Thank you, Colin.

Starting on slide eight, we generated $117 million of revenue in the second quarter. Revenue declined sequentially, primarily because several project sales moved into the second half of the year. Electricity sales revenue rose quarter-over-quarter, supported by the commercial operation of a large solar asset in Spain. With muted project sales during the quarter and a $24 million impairment charge related to an upcoming project sale in Latin America, operating expenses rose quarter-over-quarter. As a result, we recorded an operating loss of $19 million. Despite the lowered financial performance, we continued to hit key operational milestones throughout the second quarter. Earlier in the quarter, we brought a 426-megawatt solar asset in Spain into commercial operation, which began contributing recurring energy. Our partnerships with leading global technology companies further validate our development platform.