Canadian Solar (NASDAQ:CSIQ) Q4 2018 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's fourth quarter 2018 earnings conference call. My name is Aang, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I would like to turn the call over to Ms. Mary Ma, with Canadian Solar's IR department. Please go ahead.

0:26 Thank you, operator, and welcome everyone to Canadian Solar's fourth quarter 2018 earnings conference call. Joining us today on the call are Dr. Zhang Qu, our chairman and chief executive officer, and Dr. Hui-Feng Chen, our senior vice president and chief financial officer. Before we begin, may I remind our listeners that management's proposed remarks today will contain forward-looking statements which are subject to risks and uncertainties, and the management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forewalking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report on Form 20-F, fighting with the Securities and Exchange Commission.

1:22 In addition, any projections as to the company's future performance represent management estimates as of today's call. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. Our proposed remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented by us during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance for results and underlying trends.

2:09 Measurements use 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 compiled in accordance with GAAP. At this time, I would like to turn the call over to our chairman and CEO, Dr. Shang Xu. Shang, please go ahead.

2:32 Thank you, Mary. We appreciate everyone taking the time to join us today. 2018 was an exceptional year for Canadian solar. We achieved a record net income of $3.88 per diluted share and our net profit increased by 140% compared to 2017. In 2018, we shipped around 6.6 GW of solar modules and monetized around 1.7 MW of utility-scale solar project globally, with total annual revenue of $3.74 billion.

3:29 Both of our MSS and Energy Business Group contributed positively to our top line and bottom line. In 2018, our module group, our MSS business, contributed 58% of the total revenue. We successfully maintained a healthy growth margin despite module AS3 pressure that started in May with the policy change in China. We achieved this result through disciplined order management and control of operational costs and inventory, combined with the benefit of the raw material price declines.

4:21 During the year, we also expanded our EPC business and O&M business. In 2018, our energy business contributed 42% of the total revenue. This reflects the strength of our pipeline of thought-after energy assets and the acceleration of sales of certain projects with high profit into 2018 from 2019. In Q4 specifically, Our MSS business contributed 63% of the total revenue for the quarter, which shipped 1,951 megawatt of solar modules during the quarter, which exceeded our guidance.

5:16 Growth margin for our MSS business was 31.7%. or 28.8% if we exclude the CVD reversal benefit. Gross margin benefited from our cost and operational controls, lower material costs, and our premium brand that adds to our competitive strengths and the ability to control the price erosion. As of Q4 2018, We have accumulatively delivered around 2.6 GW of high-efficiency anti-LETID PERC solar modules worldwide. The majority of these modules are polycrystalline-based PERC products, which makes us the undisputable worldwide leader in high-power polycrystalline products.

6:23 In 2019, we plan to convert all of our solar cell capacity, both poly and mono, into perc technology. Our high-efficiency solar module products, such as high-cool, high-dm, and bi-high-cool, are well accepted by our customers. In Q4, contributed around 37% of the total revenue, with a 27.5% growth margin. During the fourth quarter, we sold 857 megawatts of solar project assets globally.

7:09 We achieved revenue of $326.5 million and investment income of $40.4 million from the sales of those solar project assets. Through this process, we also reduced our project tax by approximately $400 million. Our projects in operation as of February 2019 totals 986 megawatt with an estimated resale value of approximately 1.2 billion US dollar. Our portfolio of late stage utility scale solar power project as of February 28, 2019 including those under construction was approximately 2.9 gigawatts.

8:12 Our strategy is to build and sell these projects at COD or to sell them before COD either at NTP or before NTP based on the market conditions. Due to the typical development cycle, we expect to realize sales for the majority of our current 2.9 GW late-stage project pipeline in 2020 or later. In Japan, we energized a 10.8 MW solar power project in November. Our current late-stage project pipeline in Japan of 295 MW reflect the anticipated impact of the final rule of the proposed change to the feed-in tariff program from MADI, or Japanese Ministry of Economy, Trade and Industry.

9:16 Canadian Solar maintains an approximately 15% ownership of the Canadian Solar Infrastructure Fund. which has a capacity of 106.8 megawatts and a total assets under management, or AUM, of approximately 43.4 billion Japanese yen, equivalent to 389 million US dollars. Canadian Solar will continue to provide a right-of-first offer to CSIF to acquire our solar power plant in operation and project in our late-stage pipelines after they reach COD at competitive market price.

10:14 In US, we completed the sale of Garland and Tranquility solar power plants totaling 260 megawatt in October. In December, we sold the 210 megawatt Mustang II at pre NTP stage. In addition, we further expanded of our late stage project pipeline to 1.2 gigawatt in US. Following our Q3 call, we successfully signed two power purchase agreement for additional 398 megawatt projects, namely a 25-year PPA for the 88 megawatt Stanford Solar Station 2 project with Stanford University and a PPA of a 310 megawatt project in Texas.

11:17 with a leading commercial and industry customer. In addition to the 1.2 gigawatt late-stage pipeline, we signed a build-to-transfer agreement for the 100 megawatt AC sunflower project located in Mississippi. The build and transfer agreement is pending regulatory approval. Finally, in February 2019, we provided a preliminary assessment of the potential impact of the PG&E bankruptcy filing on our project pipeline.

12:04 We noted at that time, the company does not have material exposure with respect to previously sold projects. We do have potential exposure with respect to 60 megawatt AC of power purchase agreement signed with PG&E. In addition, the company has potential exposure with respect to interconnection agreements with PG&E, including an early to mid-stage development project and the late-stage state project, which together total approximately 700 megawatt AC. We continue to monitor the situation but have no further update as of today's call.

12:59 Now, let me comment on our guidance for Q1 2019 and the full year 2019. We currently expect Total Q1 module shipment to be in a range of approximately 1.3 to 1.4 gigawatt, including 50 megawatt of shipment to our own utility scale solar project. We expect the revenue for the first quarter of 2019 to be in a range of 450 to 480 million US dollars. We expect the growth margin for the Q1 to be between 16% to 18%, with net profit low or negative.

13:52 Our outlook reflects lower module production and sales during the Chinese New Year holiday season, our IT upgrades during the quarter, continued module ASP pressure, decreased sales of solar power project compared to the previous quarter and an expected foreign exchange loss due to the appreciation of Chinese RMB against the US dollar. For the full year 2019, We expect our total module shipment to be in the range of approximately 7.4 to 7.8 gigawatt and total revenue in the range of 3.5 to 3.8 billion US dollar.

14:52 We expect profit in subsequent quarters after Q1 likely to recover as module production and sales increase and project sales pick up. However, we currently expect our net profit for 2019 will be lower than that of 2018 due to the lower project sales, ASC pressure and appreciation of RMB against US dollar, which results in higher module costs. The current headwinds would normally be offset by an adjustment of module price or cost reduction enabled by technology improvement, but that process takes time.

15:55 Overall, the pullback in our 2019 outlook compared to 2018 is not a reflection of the long-term health, growth, or profitability of our co-business. Our co-business and long-term growth trends remain strong and strong. We expect a rebound in project sales in 2020 and beyond, given our robust 2.9 gigawatt late-stage project pipeline, and we will continue to develop and monetize solar projects. Our focus on new solar module technologies, innovative product and premium channels will help us maintain our competitive edge in our module and solar system business.

16:54 Finally, we announced today the appointment of Mr. Arthur Wong to our board as an independent director. His broad experience in finance, accounting, and as an auditor will add valuable perspective and insight to our board of directors as we continue to maximize the value of our shareholders and focus on delivering improved results. Let me now turn the call over to our CFO, Huifeng Chang, for a more detailed review of our results for the fourth quarter.

17:42 Huifeng, please go ahead.

17:44 Thank you, Xiaohua. We are pleased with the Q4 results, particularly net income and the gross margin. We achieved the higher than expected profitability through a combination of supply chain improvement, cost cutting in the MSS business, and the acceleration in selling solar power plants. As a result, our balance sheet has become stronger. We reduced the debt by about 14% quarter over quarter. And in February, we repaid the entire outstanding balance of our senior convertible notes. We continue to redeploy capital into new attractive project opportunities, establishing the groundwork for future success.

18:36 Now please allow me to go over the details in the financial members. Net revenue for Q4 was $901 million, up 17.3% sequentially from Q3, but down 18.7% compared to a year ago period. The sequential increase is due to the successful monetization of solar power project assets and increased solar module shipments. The year-over-year decrease is a result of reduced solar module average selling prices and a reduction in revenue from project sales. Net revenue for Q4 was comprised of $564.8 million from our MSX business and $336.2 million from our energy business.

19:32 Close profit in Q4 was $271.3 million compared to $200.4 million in Q3 and $218.6 million in Q4 last year. Close margin in Q4 was 30.1% compared to 26.1% in Q3 and 19.7% in Q4 last year. Gross profit in Q4 includes the benefit of a CVD reversal of 16.1 million, which was based on the final rate of Solar One CVD AR5. Including that CVD reversal benefit, gross margin was 28.3% compared to 25% in Q3.

20:22 The sequential increase in gross margin was primary due to the realization of deferred module profits after product sales and a lower blended module manufacturing cost, which is however partially offset by a lower average module selling price. Total operating expenses were $134.7 million in Q4 compared to $104.5 million in Q3 and $88.4 million in Q4 of the prior year. Income from operations was $136.6 million in Q4 compared to $95.9 million in Q3 and $130.2 million in Q4 of last year. Operating margin was 15.2% in Q4 compared to 12.5% in Q3 and 11.7% in Q4 of the prior year.

21:25 Foreign exchange gain in Q4 was $7.3 million compared to a gain of $10.1 million in Q3 and a loss of $9.5 million in Q4 of the prior year. We recorded a loss on change in fair value of derivatives of $7.3 million in Q4 compared to a loss of $8.9 million in Q3 and a gain of $7.6 million in the first quarter of 2017. Income tax expense in Q4 was $36.7 million compared to $13.4 million in Q3 and $28.9 million in Q4 of the prior year. Net income attributable to Killing Solar shareholders for Q4 was $111.6 million or $1.81 per diluted share compared to net income of $66.5 million or $1.09 per dollar this year in Q3 2018 and a net income of $61.4 million or $1.01 per dollar this year in the first quarter of 2017. Move on to the balance sheet. At the end of Q4, our balance sheet of cash or cash equivalents was $444.3 million compared to $519.6 million at the end of Q3.

22:57 Our restricted cash balance was $496.7 million at the end of Q4 compared to $475.4 million at the end of Q3 Inventories at the end of Q4 were $262 million compared to $322 million at the end of Q3 Inventory turnover was 44 days in Q4 compared to 55 days in Q3 Short-term borrowings and long-term borrowings on project assets at the end of Q4 totaled $1.3 billion compared to $1.9 billion at the end of Q3. Long-term borrowings at the end of Q4 were $393.6 million compared to $120.2 million at the end of Q3.

23:48 Total debt at the end of Q4 was approximately $1.96 billion, of which $527.8 million was non-recourse. Short-term borrowings and long-term borrowings directly related to utility-scale products, which include $418 million of non-recourse borrowing, totaled $735.1 million at the end of Q4, compared to $1.07 billion at the end of Q3. As I noted earlier, we repaid the entire 127.5 million outstanding balance of our senior convertible notes in February 2019. Overall, we executed Q4 in a strong business and financial position.

24:37 We will continue to carefully manage our project pipeline in order to secure the highest return for our assets. While we expect 2019 to be lower than 2018 in profits, our core business and pipeline remains strong. We expect to see a rebound in 2020 based on project development cycles. As always, Canadian solar is not chasing lower margin volumes. We remain focused on driving profitability and building value for our shareholders. With that, I would like now to open the call to your questions. Operator?

25:22 Yes, thank you. Yes, ladies and gentlemen, we'll now begin the question and answer session. If you have a question, please press star 1 on your telephone and wait for your name to be announced. And to cancel the request, it is the pound or hash key. We have our first question coming from the line of Brian Lee of Goldman Sachs. Please go ahead.

25:45 Hi, guys. Thanks for taking the questions. I had a couple that I wanted to run through with you, maybe just on the guidance for 2019. You know, it's a much softer start to the year than maybe we would have expected and definitely compared to 2018. Can you give us some sense of the cadence of projects? I know you're saying of the 2.9 gigawatts, a lot of it is happening in 2020. Maybe can you give us some sense of What percent of sales were from the project's business from the energy segment in 2018, and what percent of sales that segment is expected to be in 2019?

26:27 We provide the 2018 percentage. I believe for 2018, the module segment accounts for 52% revenue and the project accounts for 48%, as I said previously. Now, this year will be slightly different. We'll see more revenue from the project business and less from the project. More from the module business and less from the project business. However, the revenue itself doesn't always reflect the profitability because we are selling some of the project pre-NDP.

27:16 As you know, if we sell a project at NTP or pre-NTP, then the margin can be high, but the revenue can be low. The current annual guidance of 3.5 to 3.8 billion reflects our current focus of how many of the pipeline projects will be sold in 2018. Thank you very much. but there will be some project which we have already brought on the market to sell as a NTP or pre-NTP package.

28:25 We will update you when that process move along. But we do expect to sell some of those projects as NTP or prior NTP. So those projects will contribute to the profit in 2019.

28:47 Okay, that's helpful. Maybe staying on that topic then on the margins, you know, 2018 obviously you had a strong gross margin year even with the pricing challenges that the industry saw for half the year. Just wondering How should we be looking at gross margin targets for both the module and the energy segments in 2019? Just in the context of some of the commentary you made here about NTP and MIGS, are margins expected to be flat to up in both segments in 2019, or just any kind of color you can give on what to expect for the profit targets here? Thanks.

29:36 Thanks. For the module business, our current guidance reflected a lower gross margin than 2018. This forecast is based on a few factors. First of all, we forecasted the material price slightly going down, but not going down a lot. But meanwhile, the module ASP reduction will catch up. Because last year, especially second half of last year, the raw material costs dropped a lot. But Canadian Solar had successfully hold on and slowed the reduction of our module ASP. Due to our branding and channel capability, but eventually we think the module ASP will decline, continue to decline until it achieves some kind of balance. So we did focus the gross margin to be lower in 2019.

30:52 But we also included this particular headwind, which is the currency. late last year the Chinese RMB is at 6.9 and at some point even close to 7 RMB to one US dollar and because a lot of our products are still made in China especially and a lot of our material raw material purchased in China that help us to reduce the cost But in the past three months, the Chinese currency appreciated a lot against U.S. dollar. I guess expecting a resolution on the China-U.S. trade dispute.

31:46 but that has a negative impact on us because that drives up our module cost. So we included these factors into our module profit guidance. However, as you know, the market can swing one way or another. So I hope by through a better management of the cost and also the price. I hope we can achieve a better result on the MSS. Now for the energy business, The growth margin will probably be high because we are selling more project NTP. Therefore, you will see a high growth margin, but the revenue will be low. So if you look at the net profit, I think it's more or less the same.

33:00 Okay, no, that's super helpful. Maybe last one, and I'll pass it on, just more of a housekeeping question. Can you, or maybe a bigger picture question, just on China demand, what percent did China represent of shipments in 2018, and then how much do you expect it to be as a percent of shipments in 2019? And then just... Maybe broadly speaking, what are your expectations for installations in the China market in 2019 overall for the market? And just lastly, any expectations on solar policy updates in China? What's maybe the latest you've been hearing there on when we might hear something official? Thank you.

33:44 All right. For Canadian solar, the percentage of module cells in China was around 20% in 2017 and reduced to close to 10% in 2018, especially in the second half of 2018. For 2019, we budgeted around 10%, or slightly higher than 10% in terms of solar module sales of Canadian solar. Now, your next question is the China market itself. So far, all the third-party independent firms believe China will install somewhere around 40 gigawatt in 2019. So we are using that as the base of our of our annual operating plan as well. However, China hasn't announced its 2019 policy yet. It has been in consultation for three, four months now, but it's still in consultation.

35:11 Before the Chinese New Year, some people expect it to be announced before the Chinese New Year, which means in January. At that point, Canadian Solar said, hey, be cautious. And then after the New Year, people thought it would be announced before the end of March. But now it looks like it's still in consultation. So personally, I don't see it to be announced in March. But I think eventually it will come out. I just hope it will come out early. then later.

35:52 Okay, thanks a lot for the questions.

35:55 Thanks. Thank you. Our next question is from the line of Colin Rush of Oppenheimer. Please go ahead.

36:04 Thanks so much, guys. Sean, can you talk about the cadence of non-silicon cost reduction with the manufacturing process? Are you continuing to see ongoing benefits there or are you really shifting into a Higher value, higher price products with a little bit more expensive process.

36:24 I think for non-silicon cost, most of cost reduction now come from the increase of the solar module wattage now. I haven't seen that much increase. The reduction of the cost itself. I do see the reduction of silver usage, for example, on the solar cell stage. But we also see the increase of the solar glass price. So more or less offset, I guess. But since the module wattage has been going up, so the average per watt, Now Silicon Prize has been going down. That seems to be the main driver now.

37:18 Okay. And then, you know, in terms of, you know, targeted markets and emerging markets, are there areas in the world that you see is growing in some of the emerging markets that may surprise us in 2019 where you feel like you're in a strong position to benefit from that sort of growth. There's always typically some sort of surprise market, but I'm wondering if you're seeing that coming at this point for 2019.

37:42 Well, we have turned most of the surprise market into our strong market. For example, Latin America used to be a surprise market, but now we already become the strongest player in that market So it's not a surprise at all for us to continue to maintain the strength. And Australia used to be a surprise market, and now we have so much market share there, and it's not a surprise to me anymore. Now, US market, as some of analysts noted, it may have a safe harbor rush by the end of this year.

38:30 It might be a short-term rush and I'm not sure how much capacity is available to supply that rush demand anyway. There are some Market demand, like additional demand from Middle East. Let's see how much of those demand will materialize. Now, Europe, we do see some potential demand upside from, for example, Netherlands, Spain, and Italy.

39:12 Great. Thanks so much, guys.

39:16 Thanks, Colin. Thank you. The next question is from Philip Chen of Ross Capital Partners. Please go ahead.

39:24 Hi, guys. Thanks for the questions. You know, we've been hearing a lot about strong global demand outside of China. So, frankly, I was a bit surprised by your Q1 guidance, which looks light for both revenue and margins. I know you've talked about margins a bit already. But first, can you comment on A little bit more on that global demand. I know you just addressed some of that with Colin, but if there's some additional color, that'd be great. And then also, can you provide some more, Colin, on the Q1 revenue guide? Specifically, you know, how much of the revenue in Q1 and the Q1 guidance is being impacted by your IT or ERP implementation?

40:11 You know, what was the potential revenue impact? from the ERP system perhaps being implemented resulting in lower utilization. So if you can comment on prospect capacity utilization,

40:26 that'd be great. Thanks. Yes, Philip. We shut down the operation for about five days in Q1 in order to complete the ERP upgrade. and also the factory, most of the factories had been down for about three or five days during the Chinese New Year. So those are the major loss in production. And we're also upgrading some of our production lines. For example, we have been upgrading our cell lines in Thailand. in order to allow for more product and more high-efficiency product. That also results in some reduced shipment.

41:23 So Q1 is a typical low season, but these factors also somehow contribute negatively to the production in Q1. But I expect those issues, go away in Q2. But in particular, another factor in Q1 is the foreign currency. The Chinese yen appreciation happened so sudden that we expect to have a sizable foreign exchange loss in Q1. I hope that it will be absorbed more or less in Q2. It will still impact the production cost, but at least we will not see a sizable foreign exchange loss.

42:27 Okay, and then- What's your next question? Go ahead. Sean, thank you. As it relates to the ERP implementation, Can you talk about the cost benefit? Obviously, there's a cost in terms of shutting down the facility for five days or your facilities for five days. What benefits do you expect to reap from the implementation of this new system?

42:56 Well, shut it down for five days and you will get a benefit for the next five years. So overall, it's still beneficial. And our previous SAP-based ERP system was implemented around six, seven years ago. And at that time, our production is probably around one gigawatt, one to two gigawatt. We only have less than 10 major products. so the production like the product codes were all and also material code were all developed at that time and it doesn't support our current production level the complexity of our our you know product mix and also materials and also we are now operating 15 factories around the world. So there are totally different scales.

44:01 We think that to make this upgrade, it's necessary for us to continue to be competitive and also to handle the increased complexity of the production. Also in the long term, we have to reduce the labor cost, the headcount in a factory. and to have the system ready will help us to do that so there will be the future benefit but as you know that it will take time to see the the benefit of any IT upgrade and I hope to discuss this question with you after 12 months and I hope I can and many others. So these details give you some clear details of what benefit we achieved.

44:59 Great. Thanks, Sean. In terms of a housekeeping question on the Q4 ASP, you know, we calculated 26 cents, but that seems much too low. Can you help us understand what the Q4 module ASP was for external shipments, please? Thanks.

45:21 I don't think it's that high. The ASP should be around $0.30, right? Yeah, you're right. It's around $0.30. But the manufacturing cost is in low 20. So that gives us close to 30% gross margin.

45:47 Okay, great. And one last one here. In terms of CapEx, what do you expect for 2019? I know you laid out some expansion for Cell. Can you kind of talk to us about why you're expanding Cell and what the CapEx number might be for 2019?

46:04 Thank you. We have a very wide estimate, somewhere around maybe 400 million U.S. dollar. and maybe some of that is new, around 300 and maybe 100 carry from 2018.

46:30 Great. And then, thanks, Xinlong. In terms of the rationale for cell expansion, I mean, to what degree do you see the, you know, is there a global demand surge at this point or is that a little bit too robust of a perspective?

46:46 Yeah, first of all, we disclosed the matrix for the capacity expansion in terms of mostly on the module side and slightly expand the cell. And I think wafer and ingus remain constant. And of course, we have a strategy in mind why we set up this way. And then also, because of all these tariff issues, et cetera. Location-wise, we also have a plan.

47:22 Okay, great. Thank you, Sean and Wei Feng. I'll pass it on.

47:27 Okay, thank you. Thank you. Thank you. Our next question is from Paul Costa of JPMorgan. Please ask.

47:37 Yes, thanks so much for taking my questions. Quite a lot to unpack here. The accounts receivables going into the new year are pretty elevated, I think nearly $500 million, which seems up a lot year on year, and yet the first quarter is pretty light. Perhaps you could just sort of help us square that one away.

47:58 Hi, this is Huifeng. The increase of accounts receivable, the reason are two, very straightforward. One is that we are selling some projects in China, but some of the income is to be received. And the other one is that we have very sizable module order in Europe, and also it's payment to be received. but nothing unusual happened.

48:30 Okay, all right, fine. Then the next question I've got is the... So, Sean, it sounds to me like you're seeing the impact of the second half weakness in module pricing and it's kind of flying through to this year and now we're sort of paying the price for that. But do you think that module prices will be fairly stable over the course of Do you expect 2019 to also be a year in which module prices decline significantly?

49:08 Now, Paul, we believe our module price will be more or less stable. We modeled some, I will call it ordered or disciplined module price reduction Thank you for watching. are stable. Now moving forward, let's see how it happened to other manufacturers. But for us, we think we'll be able to maintain the, let's say for the module price to orderly going down.

50:10 Right, got it. So I think most investors will be now looking through 2019, at least as far as it relates to Canadian solar into 2020. and obviously you've got a lot of projects that will be coming to COD and NTP next year. How much of a line of sight do you have into the margins for 2020?

50:33 Yeah, Paul, I think it is the right way to look into 2020 rather than dwell on 2019. Margin-wise, to realize those projects in 2020 allow us to increase margin, we believe. Now in a project business, actually the later you wait, usually the lower the components price you can receive. So to have the project COD in 2020 is not necessarily A bad thing, especially we can secure the safe harbor ITC, 30% ITC safe harbor this year.

51:28 And we realized those projects in 2020 and 2021.

51:35 Okay, one last question. It looks like the business in North America is shifting a little bit towards CNI. and a lot from utilities and IPPs. Does that have any bearing on margin or ASPs or is it the business the same in those two different end markets?

52:01 Our business, our project business still focus on the utility scale, large utility scale project. But the PPA provider can be a private PPA from a leading corporate rather than regulated utilities. But we will focus on large scale utility scale project in U.S.

52:31 Okay, got it. Thank you.

52:35 Thanks, Paul. Thank you. Our next question is from Alex Lee of UBS. Please go ahead.

52:45 Thanks, Paul. Thank you for my question. I have two questions. Number one is considering the waiver AFC rally yesterday and potentially tighten the waiver supply demand. So what's your starting strategy for waiver? Will you consider maybe extending the waiver capacity or still stick to buying from the others? And do you think that any waiver price increase further, you can maybe pass through some of the increase to your customers? And my second question is, what's your breakdown of your cell module capacity in terms of monosilicon and multisilicon? And what's your view of the mono and multicompensation for this year and maybe the year after? Thank you.

53:27 Yeah, thanks, Alex. I believe this is the first time I answered a question during our call, so welcome, Alex. And now, thanks. Now, on the wafer price side, we will, you know, we will stick to our current internal capacity for in-gun wafer. which means we are going to purchase more and more wafers from external suppliers at least for this year and probably also for next year. The reasoning is straightforward. We believe that in-ground wafer is the most oversupplied segment along the module value chain. If you look at poly, in-ground wafer, and then cell and module, We believe that, hey, wafer capacity is the highest. Now, the solar cell side, the total solar cell capacity is also high, but a high efficiency solar cell, namely the PERC solar cell capacity, PERC, but with a strong anti-LETID ability, those capacities are still limited.

54:52 and that's why our strategy is to source more wafers from external suppliers. Now among old external suppliers, we will continue to source more poly wafer. The reason is also straightforward. Simply because a lot of our competitors move to mono, we believe that the mono wafer supply will have some uncertainty. And we have much better control on the multi wafer supply. Also to control the cost of multi-weavers. And Canadian Solar developed the high-efficiency multi-perk technology.

55:42 And we became an undisputable leader in this particular segment, the multi-per. We can also produce very high efficiency. We can produce 400 megawatt modules and even higher. And this gives us a different advantage, a differentiator. And so this will be our wafer, in-ground wafer strategies. And what's your next question, Alex?

56:13 My next one is what's your view about multi and mono computation this year? And maybe what's your estimate about demand breakdown in terms of mono and multi? And what's your current capacity breakdown of mono and multi? And your further capacity extension will be more mono or multi?

56:34 Well, now this is an interesting question. I have seen the multi-mono swing a few times, the cycle a few times in my 23-year career path in solar. So it always swing back and forth. At this moment, the mono is taking more market share in multi-mono. which is the trend in the past few years. However, we believe that multi is actually competitive in many market segments. For example, in the utility skill project segment. Many of our customers realize that.

57:21 Many of our customers actually understand that multi has much longer Field, track record, and mono. So we see strong enough demand for our high power, high efficiency multi product. Now in the future, Canadian Solar will continue to produce both, both mono and multi. Now multi will be more than 50% of our project portfolio. But for some of our residential premium product, we do use mono. and for our new solar cell capacity, we announced, actually we disclosed some of our continuous expansion of solar cell.

58:17 For all those new solar cell capacities, we also made sure that those cell capacity are exchangeable between mono and multi. So we are flexible on two technologies.

58:35 Okay, got it. Very helpful. Thank you, Xiang.

58:38 Thank you, Alex. All right, thank you. That's the end of our question and answer session. I'll now turn the call back to our presenters. Please go ahead.

58:53 Thank you, everyone, for your continuous support. And if you have any further follow-up questions, please contact our investor relationships Thanks and have a nice day.