PVTIME – On March 17, Canadian Solar Inc. (“Canadian Solar” or the “Company”) (NASDAQ: CSIQ) announced financial results for the fourth quarter and full year ended December 31, 2021.
Fourth Quarter 2021 Highlights
- Solar module shipments of 3.8 GW, in line with guidance of 3.7 GW to 3.9 GW.
- 47% increase in revenue year-over-year (“yoy”) to $1.53 billion, in line with guidance of $1.5 billion to $1.6 billion.
- 19.7% gross margin exceeds guidance range of 14% to 16%.
- Net income attributable to Canadian Solar of $26 million, or $0.39 per diluted share.
Full Year 2021 Highlights
- 28% yoy growth in total module shipments to 14.5 GW.
- 52% increase in revenue to $5.3 billion, with steady gross margin improvement in manufacturing operations throughout the year, as guided.
- Net income attributable to Canadian Solar of $95 million or $1.46 per diluted share.
- 896 MWh in battery storage shipments by the CSI Solar segment.
- 2.1 GWp in projects monetized by the Global Energy segment, including 350 MW / 1400 MWh battery storage.
- Global Energy solar project pipeline of 24 GWp and storage pipeline of 27 GWh as of January 2022.
- Carve-out IPO of CSI Solar Co., Ltd. (“CSI Solar” or the “CSI Solar subsidiary”) remains on track.
Dr. Shawn Qu, Chairman and CEO, commented, “We ended 2021 on a high note, delivering 47% year-over-year revenue growth and a nearly 20% gross margin in the fourth quarter. Over the past decade, we have consistently been a top 5 global module manufacturer and have pioneered numerous solar crystalline PV technology advancements as well as business model innovations. This includes our fast growing battery storage business, where we delivered nearly 900 MWh in our first year of launching, and which we expect to double in 2022. While we continue to manage challenging market conditions, we remain focused on leveraging the competitive advantages of our integrated business model to build greater long-term value for our shareholders.
“We are also pleased to report that the carve-out IPO of CSI Solar remains on track. We received approval from the Shanghai Stock Exchange and are currently going through the registration process with the China Securities Regulatory Commission, in line with usual procedures.”
Yan Zhuang, President of Canadian Solar’s CSI Solar subsidiary, said, “Our team’s focus and execution allowed us to deliver on our planned strong revenue growth and improving profitability in 2021. As one of the top global solar module brands, our unparalleled track record and brand recognition create meaningful entry barriers in a rapidly growing renewable energy market. This places us in a strong position to benefit from upstream capacity expansions which will gradually drive costs down. That said, near-term macro challenges remain as material costs have recently increased again and logistics costs stay elevated. We continue to focus on delivering differentiated products and services, expanding our market share, enhancing our brand and pricing power, and reducing manufacturing costs as we weather through the challenges. With solar energy at grid parity in most markets and hybrid solar plus storage approaching the same status, we believe clean energy is more attractive than ever before, providing affordable, reliable and clean energy for many generations to come.”
Ismael Guerrero, Corporate VP and President of Canadian Solar’s Global Energy subsidiary, said, “In 2021, we achieved 2.1 GWp in project sales, including a 1.4 GWh battery storage project, which was one of the world’s largest. We continued to expand our global development portfolio, with 24 GWp of solar and 27 GWh of battery storage pipeline giving us a strong platform for growth. At the same time, we continue to proactively manage risk, as we rebalance our portfolio to reduce potential currency and policy risks in certain markets, such as Latin America, and continue to execute on projects while minimizing the impacts of inflation. Our focus remains on growing our base of recurring revenue both from retained assets and contracted services.”
Dr. Huifeng Chang, Senior VP and CFO, added, “In the fourth quarter, we achieved $1.5 billion in revenue and a 19.7% gross margin. We were active in green financings, securing $84 million during the quarter to support growth in our global project development. We ended the quarter with a total cash position of $1.43 billion which gives us continued financial flexibility to support long term growth opportunities.”
Fourth Quarter 2021 Results
Total module shipments in the fourth quarter of 2021 were 3.83 GW, a 28% yoy increase and 1% quarter-over-quarter (“qoq”) decrease. Of the total, 263 MW were shipped to the Company’s own utility-scale solar power projects.
Net revenues in the fourth quarter of 2021 increased 24% qoq and 47% yoy to $1.53 billion. The sequential increase was driven by a higher solar module average selling price (“ASP”) and an increase in project sales. The yoy increase was driven by higher solar shipment volumes and ASP, and significant growth in the Company’s battery storage solutions business.
Gross profit in the fourth quarter of 2021 was $301 million, up 32% qoq and 114% yoy. Gross margin in the fourth quarter of 2021 was 19.7%, above guidance of 14% to 16%, as the Company benefited from lower manufacturing costs and a higher module ASP, partially offset by lower margin project sales. The fourth quarter also benefited from a U.S. anti-dumping (“AD”) and countervailing duty (“CVD”) true up. Gross margin was 18.0%, excluding the AD/CVD true-up benefit of $26 million.
Total operating expenses in the fourth quarter of 2021 were $234 million compared to $176 million in the third quarter of 2021 and $139 million in the fourth quarter of 2020. The sequential and annual increase was mainly driven by higher shipping and handling expenses, and investments in research and development to support growth.
Non-cash depreciation and amortization charges in the fourth quarter of 2021 were $76 million, up 7% qoq and 29% yoy. The increase was primarily driven by a continued expansion of the Company’s manufacturing capacity.
Net foreign exchange gain in the fourth quarter of 2021 was $1 million, compared to a net loss of $14 million in the third quarter of 2021 and a net gain of $4 million in the fourth quarter of 2020.
Income tax expense in the fourth quarter of 2021 was $27 million, compared to a $3 million income tax benefit in the third quarter of 2021 and a $2 million income tax benefit in the fourth quarter of 2020. The expense was a result of the Company’s higher income before income tax and an increased revenue contribution from higher tax jurisdictions.
Net income attributable to Canadian Solar in the fourth quarter of 2021 was $26 million, or $0.39 per diluted share, compared to net income of $35 million, or $0.52 per diluted share in the third quarter of 2021, and net income of $7 million, or $0.11 per diluted share in the fourth quarter of 2020. On a non-GAAP basis, net income attributable to Canadian Solar in the fourth quarter of 2021 was $10 million, or $0.17 per diluted share. This excludes a $16 million AD/CVD true-up benefit, net of income tax effect and AD/CVD provision true-up attributable to non-controlling interests. For a reconciliation of results under GAAP to non-GAAP results, see the accompanying table “About Non-GAAP Financial Measures”.
The increase in basic and diluted shares outstanding was primarily due to the issuance of 3.6 million shares in connection with the at-the-market equity offering program for the twelve months ended December 31, 2021, of which 1.0 million were issued in the fourth quarter. Earnings per share – diluted (“Diluted EPS”) includes the dilutive effect of the $230 million aggregate principal amount of convertible notes issued in 2020. For the three months ended December 31, 2021, diluted EPS of $0.39 was calculated from total earnings of $27 million, including 2.5% coupon of $1.3 million, divided by 70.5 million diluted shares outstanding, including 6.3 million shares issuable upon the conversion of the convertible notes. For the twelve months ended December 31, 2021, diluted EPS of $1.46 was calculated from total earnings of $101 million, including 2.5% coupon of $5.3 million, divided by 68.9 million diluted shares outstanding, including 6.3 million shares issuable upon the conversion of the convertible notes.
Net cash used in operating activities in the fourth quarter of 2021 was $206 million, compared to net cash provided by operating activities $29 million in the third quarter of 2021. The operating cash outflow was mainly driven by a decrease in advances from customers and accounts payable due to timing of payments, partially offset by a decrease in accounts receivable and advances to suppliers.
Total debt was $2.4 billion, as of December 31, 2021, compared to $2.3 billion, as of September 30, 2021. The increase was mainly driven by an increase in working capital facilities. Non-recourse debt used to finance solar power projects decreased to $515 million as of December 31, 2021, from $558 million as of September 30, 2021.
Corporate Structure
The Company has two business segments: CSI Solar and Global Energy. From November 2021, the Company completed the transfer of the China Energy assets from CSI Solar to the Global Energy segment to avoid any potential competition between the Company and its CSI Solar subsidiary, as part of the CSI Solar carve-out listing process.
As such, the Company’s business segments are as follows:
The Global Energy segment includes all of the Company’s global project development activities for both solar and battery storage project development. The Global Energy segment develops both stand-alone solar and stand-alone battery storage projects, as well as hybrid solar plus storage projects. Its monetization strategies vary between develop-to-sell, build-to-sell, and build-to-own, depending on business strategies and market conditions, with the goal of maximizing returns, accelerating cash turn, and minimizing capital risk.
The CSI Solar segment consists of solar module manufacturing and total system solutions, including inverters, solar system kits and EPC (engineering, procurement and construction) services. The CSI Solar segment also includes the Company’s battery storage integration business, delivering bankable, end-to-end, turnkey battery storage solutions for utility scale, commercial and industrial, and residential applications. These storage systems solutions are complemented with long-term service agreements, including future battery capacity augmentation services.
The distinction of the two battery storage businesses is that the former, Global Energy, is in the project development business, including sourcing land, interconnection, structuring power purchase agreements and other permits and requirements for battery storage projects, whereas the latter, CSI Solar, is in thesystem integration business, delivering turnkey battery storage technology solutions.
Global Energy Segment
Canadian Solar has one of the world’s largest and most geographically diversified utility-scale solar and energy storage project development platforms, with a strong track record of originating, developing, financing, and building over 6.3 GWp of solar power plants across six continents. The Company has built a leadership position in solar project development with over 24 GWp total pipeline, as well as in energy storage project development with over 27 GWh of aggregate pipeline.
The continued pipeline expansion and strong project development track record will support Global Energy’s growth in three key areas:
- Project sales: The Company plans to grow its volume of project sales by a compound annual growth rate of approximately 20% to 2025, while holding and accumulating assets through investment vehicles (see below) in order to better capture asset value.
- Investment vehicles: The Company is optimizing its project monetization strategy by establishing local investment vehicles that will help maximize the value of its project assets. The Company also intends to retain minority ownership in these vehicles. By 2025, the Company plans to reach at least 1 GW of combined net ownership in solar power projects through these vehicles. This approach will help the Company build and grow a stable base of long-term cash flows from contracted electricity. The Company plans to recycle a large portion of the capital into developing new solar projects for growth. Meanwhile, Canadian Solar expects to capture additional operational value throughout the partial ownership period, including long-term cash flows from power sales, operations and maintenance (O&M), asset management and other services (see point 3). The Company currently owns a 15% stake in the Canadian Solar Infrastructure Fund (“CSIF”, TSE: 9284), the largest Japanese infrastructure fund listed on the Tokyo Stock Exchange, and has also established the CSFS Fund I, a closed-ended alternative investment fund of a similar nature in Italy. Through launching these localized vehicles, Canadian Solar is building up its expertise in designing investment vehicles in local markets that will help maximize the value of its project assets.
- Services: Canadian Solar currently manages over 2 GW of operational projects under long-term O&M agreements, and an additional 2 GW of contracted projects that will be operated and maintained by the Company once they are placed in operation. The Company’s target is to reach 11 GW of projects under O&M agreements by 2025.
