Ed Job - IR Director Dr. Shawn Qu - Chairman and CEO Michael Potter - Senior Vice President and CFO.

Paul Coster - JP Morgan Nitin Kumar - Nomura Josh Baribeau - Canaccord Frank He - Goldman Sachs Colin Rusch - Northland Capital Markets Philip Shen - ROTH Capital Markets Aditya Satghare - FBR Capital Markets Pierre Maccagno - Dougherty.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar’s Third Quarter 2014 Earnings Conference Call. My name is Mark, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ed Job, Canadian Solar’s IR Director. Please go ahead, sir..

Thank you, Mark. Thanks and welcome everyone to Canadian Solar’s third quarter 2014 earnings conference call. Joining us today on the call are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Mr. Michael G. Potter, Senior Vice President and Chief Financial Officer.

Before we begin, may I remind our listeners that in today’s call, management’s prepared remarks will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions.

Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from management’s current expectations and therefore, we refer you for a more detailed discussion of the risks and uncertainties in the company’s annual report on Form 20-F filed with the Securities and Exchange Commission.

In addition, any projections as to the company’s future performance, represents management’s estimates as of today, November 12, 2014. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. At this time, I would like to turn the call over to Dr. Shawn Qu. Shawn, Please go ahead..

Thank you, Ed. Thank you all for joining us on the call today. We are very pleased to report another quarter of record revenue and profitability. Our Q3 revenue module shipments and profit were all well above our guidance. Our Q3 revenue was over US$914 million.

Module shipments were 770 megawatts and we achieved a gross margin of nearly 23% with net income reaching approximately $104 million or $1.75 per share. Our record financial performance was driven by higher contribution from our higher margin solar energy solution business, as well as the strong performance of our solar module business.

Our solar energy solution business contributed 53.8% of revenue in Q3 compared to 32.6% in Q2. In Q3, our team was able to close and recognize the sales of five utility-scale solar power projects in Canada.

This is the first quarter in which our downstream solar energy solution business contributed more than 50% of the company’s revenue and is our strong [capital] to the strength of our team and our overall leadership position in this promising market segment.

We are also pleased to report that our module business delivered another solid performance in Q3 as we maintain our focus on profitable growth and providing high quality products rather than simply competing volume at attractive prices, however, at the expense of product quality.

It is worth to mention that our module business made significant contribution to our bottom-line profitability in the quarter.

Our brand reputation and strong position in premium market allowed us to compete in a global marketplace including some of the price sensitive in the emerging markets, while still maintaining our average selling price at $0.69 per watt in Q3. From a geographic standpoint, we continued to maintain a leading position in Japan, North America and Europe.

In Japan, we have maintained our position as the leading foreign brand with shipments of 181 megawatt under the Canadian Solar brand in the quarter. Meanwhile, we are clearly gaining market share in U.S., a market which is expected to show strong growth in 2015.

Now let me provide the highlights of the progress we made on our Solar Energy Solutions business. In total, our global utility scale pipeline including owned and joint venture project, as well as EPC service contract stands at approximately 1.4 gigawatt EPC.

In Q3, we exceeded our plan in Canada by completing the sales to investors of five projects valued at over C$300 million. We also experienced a milestone target in the third-party project, which we acted as EPC. One of the examples is the 135 megawatt (inaudible) renewable project developed by Samsung.

Canadian Solar and its sub-contractors executed very well in this project. As a result, we were also awarded the second Samsung project of 114 megawatt which we kicked start in Q3.

Our performance demonstrates that we have advanced very well our utility-scale solar project learning curve and are ready to replicate our success to other market in the world. Our backlog of late-stage solar project and EPC service contracts in Canada now totaled around 387 megawatt.

This represents an estimated revenue opportunity of over C$1.4 billion, once the project built and connected to grid. We expect to realize such revenues through the course of 2015. I shall update you on our situation in Japan, which attracted the investors’ attention in the past few weeks.

Despite the announcement of grid capacity study by a few local utilities, our solar energy solutions business in Japan continues to gather momentum. We plan to expand our utility-scale pipelines to approximately 540 megawatt DC in the fourth quarter of 2014.

As we noted before, approximately 150 megawatt of this project already have full grid connection approval. We have officially put [shareholders] on the ground on our several projects in the past few weeks and currently a total of 28.4 megawatt are in construction.

We currently have another 6 megawatt to 8 megawatt ready to build and this number is expected to increase. We currently plan to connect approximately 80 megawatt to the grid in Japan during 2015. In the U.S. our pipeline of solar project at the end of Q3 totaled approximately 81 megawatt DC compared to 106 megawatt DC at the end of Q2.

During Q3, we completed construction of solar project totaling 21.7 megawatt DC in U.S. We continue to evaluate opportunities to expand our pipeline in U.S. through sales development, our joint venture and hope to announce positive results when available.

In China, we started construction on several projects totaling approximately 100 megawatts in the past few weeks. Meanwhile we are working on a few major partnerships which will help us to significantly expand our business in China. We also continue to pursue numerous other project opportunities worldwide.

We see good opportunities in Europe, Asia, Latin America and Asia and Africa. We were just awarded 140 megawatt of PPA in Brazil where Canadian Solar will develop, build and own the solar power plant and there is 20-year PPA with the Brazilian government entity.

We have been working underwater for more than a year in Mexico and Central America and are closely examining a few opportunities there. We have also been active in UK market and have identified a few good projects in this market.

The recent extension of current REC or Renewable Energy Certificate to March 2016 helps to stabilize this market by allowing us to plan and schedule our project in a economic way. We have been watching the development of the solar reverse building program in Germany with great interest.

We believe that we should be able to participate in that market by working together with our European partners. Finally, we continue to evaluate our long-term securitization strategy regarding our solar energy portfolio including the possibility of launching a YieldCo.

We understand this is the important decision and we intend to find ways for facilitate exponential growth of this business and maximize shareholder return. We expect to be in the position to discuss our approach by early 2015. We have seen a positive pricing dynamics for good quality solar assets with other YieldCos being launched.

As a result, we are operating from a position of increasing strength with regard to options around our pipeline. Now let me comment on our guidance for Q4 and full year 2014. We expect Q4 shipment will be in the range of approximately 810 megawatt to 860 megawatt.

Revenue for the fourth quarter of 2014 is expected to be in the range of US$925 million to US$975 million. This guidance assumes the completion of sales of six utility-scale projects; five in Canada and one in U.S. For full year 2014, we are increasing our annual module shipment guidance for the range of 2.73 gigawatt to 2.78 gigawatt.

We are also increasing our net revenue guidance for the 2014 to the range of US$2.93 billion to US$2.98 billion. In order to meet the expected demand growth, we’ll add 500 megawatt of solar module capacity at our Changshu and Luoyang plants.

The new capacity will come online throughout the first and second quarter of 2015 and will expand our total module capacity to 3.5 gigawatt. In addition, the construction of our 80 megawatts high efficiency multi-crystalline cell line in Funing is progressing well.

And we’ve planned to further expand this high efficiency facility to 400 megawatt by the second quarter of 2015 bringing our total cell capacity to 1.9 gigawatt.

This new workshop once completed is expected to be one of the most advanced large scale multi-crystalline silicon solar cell workshop in the world, bringing the solar cell efficiency over 19%. We have also commenced the upgrade of our current cell line to bring the average cell efficiency of these facilities to above 18%.

Finally, we planned to upgrade the furnaces at our ingot and wafer plant in Luoyang, which will allow us to expand total wafer capacity from today’s 260 megawatt to 400 megawatt by the middle of 2015. Let me now turn the call over to our CFO, Michael Potter for a more detailed review of financials. Michael, please go ahead..

Thank you, Shawn. Net revenue for the third quarter of 2014 was $914 million, up 46.6% sequentially and up 86.3% compared to the year ago period. Gross profit in Q3 was $209.3 million compared to $118.2 million in Q2 and $100.2 million in the comparable period last year.

Gross margin in Q3 was 22.9% compared to 19% in Q2 and 20.4% in the third quarter of 2013. Our gross margin exceeded our original guidance of 19% to 21% as we closed the sales of more projects in Ontario than we had expected. In addition our ASP in Q3 was $0.69 per watt, $0.02 higher than planned.

Operating expenses were $53.2 million in Q3 compared to $50.5 million in Q2 and C$44.9 million in the third quarter of 2013. Interest expense in Q3 was $12 million compared to $12.8 million in Q2 and $11.8 million in the comparable period last year.

The sequential decrease in interest expense was primarily due to lower interest rate, as well as lower bank borrowings. Interest income was $3.7 million in Q3 compared to $3.6 million in Q2, and $2.7 million in the year ago period.

In Q3, we recorded a gain on change in fair value of derivatives of $15.4 million compared to a loss of $3.2 million in Q2 and a loss of $1.6 million in Q3 of last year. Net foreign exchange loss in Q3 was $20.9 million compared to a net foreign exchange gain of $7.6 million in Q2 and a foreign exchange gain of $2.3 million in Q3 of last year.

As we have discussed in previous calls, we have foreign exchange exposure to the RMB, the Canadian dollar, the Euro and the Japanese Yen. And in periods where the U.S. dollar is strong, we are subject to currency losses.

Over the past few quarters we’ve been working on our currency pairing to try and reduce the impact of foreign exchange on our results. We have manage the better match or inter-company transactions to both increase the amount of national hedging and to move exposure the markets where we have more hedging capability.

While it is impossible to completely eliminate our foreign exchange exposure, we’re very pleased with our progress in this area. Income tax in Q3 of 2014 was $33.4 million compared to income tax expense of $8.3 million in Q2 and income tax expense of $12.5 million in Q3 of last year.

Net income attributable to Canadian Solar shareholders for Q3 2014 was $100.2 million, or $1.75 per diluted share, compared to net income of $55.8 million, or $0.95 per diluted share, in Q2, and net income of $27.7 million or $0.56 per diluted share in Q3 of last year.

Moving on to the balance sheet, in Q3 cash and cash equivalents was $408.1 million at the end of Q3 compared to $341.3 million at the end of Q2. The restricted cash balance was $409.1 million at the end of Q3, compared to $447 million at the end of Q2.

Our accounts receivable balance, net of allowance for doubtful accounts, was $347.3 million at the end of Q3, down from $382.8 million at the end of Q2. Inventories decreased to $390.5 million at the end of Q3, compared to $441.7 million at the end of Q2.

Short-term borrowings at the end of Q3 totaled $718.1 million, compared to $876.3 million at the end of Q2. Long-term debt at the end of Q3 was $146.7 million compared to $150.1 million at the end of Q2.

Senior convertible notes outstanding totaled $150 million, short-term borrowings and long-term debt directly related to utility scale solar power projects totaled $163.1 million at the end of Q3. Over the past several quarters, we’ve made significant investments to improve execution in our project pipeline in Ontario, which are now paying off.

We are taking advantage of our strong cash generation in part to pay down debt, our net debt defined as total debt minus cash and restricted cash, totaled $197.5 million at the end of Q3, representing less than 30% of equity.

Clearly, we now have one of the strongest balance sheets in the industry, which gives us flexibility to selectively redeploy our capital to support our profitable growth in the quarters ahead. Our gross margin in Q4 is impacted by several main factors when compared to Q3. Firstly, the current expense associated with duty deposits due to the U.S.

anti-dumping cases is approximately a 2% reduction in gross margin compared to our Q3. ASP decline to the lower currency and a mix to more emerging markets in Q4 is between 1.1% to 2% impact. We sell the majority of our volume in Europe and Japan in local currency.

In Japan, we historically have been able to adjust the local currency price overtime to reflect currency movements. Finally, our current mix of projects -- our current expected mix of project sales in Q4 is not as margin rich we experienced in Q3.

As mentioned previously, we’re exploring different financing solutions to allow us to bridge projects from construction to possible securitization. We hope to reduce the need to sell equity in our projects before they reach commercial operation.

In addition, we’re also exploring several potential paths to securitization of our pipeline including launching a YieldCo. We’re planning on discussing this in detail by early 2015. In summary, Q3 was another record quarter for us.

Our total solutions business continues to deliver solid results, while at the same time we continue to experience strong, profitable demand for our modules from all of our key target markets.

We continue our strong project pipeline development in key international markets such as Japan, China and now Brazil, which should position us well in coming years. We’re confident entering Q4 that we remain well positioned to deliver record results for the full year. With that I’d like to now open the call to your questions.

Operator?.

(Operator Instructions). Your first question comes from Paul Coster from JP Morgan..

Thank you for questions.

Two questions really, the first one is, can you talk about 2015 in the context of this additions to capacity? Can we sort of take the capacity increase about 20% prior price reduction and sort of compute this something in the region of 10% to 15% revenue growth from that module guidance, the capacity guidance, so is that just too simple an approach?.

We have other capacity, other than our own internal capacity. So, I wouldn’t limit anything you did just based on pure internal capacity. It obviously is an indication we expect next year to be another strong year for module sales..

Yes, Paul. This is Shawn. Just to add to Michael what just said. What we announced is the expansion we are doing right now. On the module side, we’re looking at further options. On the solar cell, as the industry know we always adopt a flexible supply chain strategy. So, we have solid solar cell supply base for the growth in 2015..

Got it, okay. Shawn, obviously no megawatt service signed, you’ve got a growing pipeline and it’s becoming more internationally diverse.

Can you though talk to us little bit about the how the incentive rate of return or the gross margin profile of that future pipeline might play out, switching out to back end of ‘15 and maybe even into ‘16?.

Yes. Paul, it’s tough to focus for a few years down the road, but it really depends on the regions. For example, we’re looking at acquiring some portfolios in U.S. Now these port volumes will, if we own those projects will give us reasonable return, probably at 7% or 8% unlevered IRR.

Now on the other hand, because of the need to source [tax aggregate], we may still opt to sell the project to the investors. In those cases, we still expect to make somewhere around 10% flip margin for the U.S. project. And for the UK projects, I believe our unlevered IRR is around 7% range.

And for the Brazilian projects, we are expecting the unlevered IRR to be in the high-teens..

And just as general….

Sorry, not high-teens, excuse me, in the high single-digit..

Just as a general reminder when people ask about if we’re continuing the build and sell model in Japan, we’ve said in the past that the gross margins for the Japanese projects are at least as good as the Canadian projects and the ASPs have been increasing over the last year.

So, we certainly think that there would be a good source of revenue and gross margin if we did not do a securitization. That’s not our first choice, but would support our current model if we chose to do that as well..

Thank you..

Your next question comes from the line of Nitin Kumar from Nomura. Please proceed..

Yes. Hi guys, solid quarter. Congratulations. Couple of things, I think one is probably on I think the insurance payment for 1Q.

Should we expect that to one-off sometime in 4Q or is there no visibility on that?.

Nitin, it could arise Q4, it could arise in Q1. We’re not 100% certain exactly when it will show up, but we can’t recognize it until we get definitive prove from the insurance company of exactly when they’re going to pay and we expect that to be relatively soon.

It’s not included in our guidance, because we can’t accurately forecast exactly what it’s going to happen..

Is there amount that you can disclose probably what that number could be?.

Not right now, no, but it’s not going to make a very, very material change in the numbers, but it will be a small improvement for our gross margin when it does happen. I mean it cost us about 1% or so gross margin earlier in the year and we should be able to recover some of that, however our revenue base is much higher.

So, the total dollars applied won’t have as much impact as it did earlier in the year..

I understand. And in terms of the expectations of doing a securitization, I mean you’re probably looking to guide somewhere in first half.

But I’m just trying to understand what kind of in markets or what kind of portfolio could we be looking at, because if you are just looking at 80 megawatt in Japan that may not be sufficient for Japan-only kind of YieldCo or any other market also doesn’t have any such big numbers.

So I’m just kind of curious, what kind of vehicle should we expect actually?.

The only thing I really want to our reserve is discussion to Q1 next year, because of -- there is a lot of movement right now, quite a few things are being cooked right now. So, we’re rather wait until at least some of the important pieces set all before we forecast..

I understand that. And in terms of the U.S. and Canada pipelines, I mean you mentioned that in U.S. you could be doing that JV or looking to buyout some project pipeline.

I mean, is there -- have you already kind of figured out who are you looking to I mean take these projects from or do a JV with or is that a process -- I mean is that still in process?.

So, Nitin, we haven’t many opportunities in the U.S.; we’ve had quite a few people approach us with projects both the JV with or with buy projects outright. Like all areas and all projects we have to complete our analysis and make our decisions on it. I am just indicating we have plenty of opportunities to expand our pipeline in the U.S.

Previously; we were a lot more capital constrained while there were good quality American projects by U.S. project standards; we were putting our money into Japan instead. Now we’re able to exploit more opportunities and save some profitable markets like the U.S.

even if the returns are a little lower because we do have a better balance sheet and better capital base today..

I see.

And in terms of Canada, I remember there was an auction that was supposed to -- the bidding process for next year’s projects roughly about 150 megawatt and so some expectation that we could have some more project wins there; any updates on that?.

Nitin, we’re still examining that one and there is still some time to go..

I understand. And any comments regarding the possibility of the U.S., China great deal I mean that apparently is in discussion? I mean there is rumor coming….

Yes, some unofficial. We don’t have any official government channel information but we do get unofficial briefing from the industry association. We have both, members of CS and we have also member of CCCME. So, we have unofficial information briefings there.

As far as what we know, there has been at least two rounds of face to face meetings and also video conference calls. But now, I don’t have the privileges of the direct information..

I understand, right. I think that’s all from me for now. If anything, I’ll go back. Thank you. .

Thanks, Nitin..

Thank you. Thanks Shawn..

Your next question comes from Josh Baribeau from Canaccord. Please proceed..

Hi, thanks. Just want to follow up I guess on one of the questions asked earlier. It relates to the supply chain. So, obviously you are very confident in -- or maybe let me ask.

How confident are you that there are enough high quality and maybe mostly duty free cells in the market to support your additional module capacity, because as you know, a lot of your peers are also kind of starting to split out module versus cell capacity as well. And so, there is a lot of demand for those products..

This is Shawn; it’s a very good question. For the duty free cell, at this moment, there is really not many, because the duty [got slashed] in China and U.S. and pretty much big majority of the cell supply are under duty. But on other hand, even with the current duty scheme, the manufacturers can still make money by shipping modules to U.S.

and paying the duty. It’s not what we like to do and it does impact our margin. As Michael said, it does show an impact to our gross margin in Q4. However, we can still make some money in U.S., but also because of that we have been diversifying and putting more volumes outside the U.S. in Q4..

We could bring online more sales capacity outside of China, but considering the fact that we know that governments are talking to each other, this isn’t the time to make a large investment in a facility when it may not be needed.

So, we’ve definitely done a lot of work to identify where we might do something and could execute quite quickly if necessary. But right now, we’re working more with partnerships and securing some of the supply that is out there..

Okay.

And then maybe again sort of on the same lines, what are you seeing in terms of pricing of let’s say those components wafers and cells again given that you’re not fully vertically integrated and everybody is kind of sourcing a lot of those same components with high utilization rates on the module front?.

The wafer price has been stable and slightly down throughout the year. The cell price, we have to talk about solar cell from Taiwan and from China. For the solar cell from China, it has always been in the range of $0.33, $0.35 per watt throughout the year.

For the solar cell from Taiwan, it was over $0.40 per watt before the preliminary anti-dumping ruling from U.S. pull back to the same level of Chinese solar cell after the announcement. Now for the limited supply of solar cells outside Taiwan and China, the pricing is around $0.40..

Okay. And maybe just two more for me.

You’ve talked a lot about the utility-scale pipeline, any updates or any sort of strategy around more of a distributed or rooftop type of strategy in the project business?.

So, we haven’t entered owning model for the distributed generation where we would own in this like some of our large customers do. We have been slowly expanding the offerings we do in terms of what we can provide and install or if you were at the [FDI show] you saw we had a Canadian solar micro inverter available for example.

So, our strategy is to sell into that market and it’s quite strong for us in all of our regions. In Japan, we offer a complete system kit that makes us very good margins and with slow return to ambulate that in some of the other markets we’re in as well..

Okay. And then lastly for me, I guess switching back more towards the utility side. As you’re looking to expand into new markets you do talk about project acquisition and/or joint ventures. So, I guess this is more alongside of the project acquisition. Again, given that everybody is targeting some of the same emerging markets.

Are you seeing any sort, I don’t know a bit of speculative bubble or any sort of price increases from early, very early stage projects or is it too early for that?.

No, we’re not really seeing that. The universe of solar project is enormous. And there is only a small number of classes, top class solar developers like Canadian Solar. So, we don’t really even bump into the other developers very often.

If you look at for the Brazil one for good example, we were able to secure I think around 13% of the total option that was offered and we found the pricing ended up being fairly reasonable with decent returns.

I think that if you’re early enough stage or you’re careful enough when you select projects and be a partner with, it’s still a very good business to be in..

Great. That’s it for me. Thanks and congratulations..

Thanks..

Your next question comes from the line of Frank He from Goldman Sachs. Please proceed..

Hey, congratulations on the result. And just a follow-up question on Brazil project, Shawn you just mentioned the IRR is a high single-digit. So, could you give us some other financials such as the investment cost, margins for this particular project? And also when should we expect this project to be connected to the grid? This is first question..

So, Frank we don’t reveal our entire financial models to the public for the projects we do. We’re going to make good returns on those projects and we expect them to continue to do well for us. Connection I believe is as late as 2017..

Okay. Then the second question regarding the visibility of the total solution project in Q4, we learned that the temperature in North America is getting lower in these days.

So, should we face any issues in the construction works these days for completing these six projects you’re targeting at?.

Frank, the Canadian temperature also always goes lower in winter. And as far as there is no snowstorm, then we are okay. And usually, you don’t want to do too much civil work, like drilling holes and putting pipe, pilots to the ground, but once you have the structure there, then installing modules and doing testing is not a problem.

So far I haven’t heard any report of snowstorm in Ontario, so which will be okay..

Okay, got it. And last question, you identified 200 megawatt project in the other regions such as Europe and Asia. So, just wonder if you have any idea within these 200 megawatts, how much you expect should be total solution i.e.

build and transfer, and how much you expect to be self operated one?.

Frank, as we mentioned, we would like to discuss the overall strategy in early next year. In general, we would like to retain high quality projects for longer period. Usually that means the project in low risk countries such as OECD countries.

And we may also retain some projects in developing countries, if the return is good and if we can secure some investment insurance policies. Now for some other projects, we may choose to sell, basically to flip to partners, other investors who may have better handle for the local situations of that particular market..

Okay, got it. And last question is about the Q3’s total production cost for the module.

Any update on the number?.

Approximately $0.50 a watt for self made modules..

Okay..

That’s everything, right. That’s the module cost; the cells; the wafers; the processing; the whole thing is about $0.50..

Okay, got it. Thanks..

Your next question comes from the line of Colin Rusch from Northland Capital Markets. Please proceed..

Thank so much, guys. Cold we talk for a minute about the energy storage offering? You made the announcement this week on this 4 megawatt deal.

Can you talk a little bit about the opportunity for incremental sales on your past projects and the opportunity to upsell on distant projects going forward? And then also if you could talk about what the next offering is from the technology basis? Where you’re sourcing materials and what sort of warranty exposure you’re going to have on those?.

So Colin, this is a new government research program. It’s intended to try out different technologies. We won a 4 megawatt opportunity to participate. So, it’s not like this is a commercial product we’re exposed to warranty and other flames.

This is a product where the idea is the utility will gain experience and what’s necessary to have good storage products. And we get a chance to commercialize and tryout some of the technologies we’ve been working on. It’s a lithium ion based storage system and we’re getting very good experience from this program.

And we’re quite happy to participating in our home province of Ontario in something like this..

Okay.

So, what you’re saying is we shouldn’t be thinking about this as a near opportunity at all for cells?.

I wouldn’t say in the next six months or something but if this works well, there certainly is a lot of opportunity across the world for good storage solutions and we’ll gain very valuable experience working with the utility with the product in it and it will give us an advantage as we market it elsewhere..

Great. And then….

This is the first demo of grid-connected storage bidding, the Ontario grid yet. And so, we are very excited. And we do anticipate this market to grow in the next let’s say 5 years, 5 or 10 years as the penetration of renewable energies become higher and higher. And the storage and the grid stabilization device will become necessary.

So, this project is very valuable for us to gain experience. But as Michael said, I’m not expecting repeat sales in short time period..

Okay, perfect. And then in terms of your understanding of the potential structure for a bilateral agreement between the U.S. and China, we had heard that basically the initial kind of draft of what this might look like is -- would include price floors, no tariffs for you guys and then progressive step downs. What is your sense of….

Colin, we don’t have intimate knowledge of what the governments were actually discussing. So, other than the fact that they are actively talking to each other, we really don’t have anything else to say on it right now..

Okay, perfect. Then I will change directions real quick for a final question. Just the dynamics in the China market, last year you had some linear sales where you were able to opportunistically take advantage of demand there and we know that you don’t have a ton of exposure to the China market for module sales.

What can you tell us about your opportunity set there, what you are seeing on the ground in terms of sell-through on the modules in China right now?.

Yes. We’re selling module to selected customers who have good payment, offer good payment terms. We also sale module to some strategic partners, and other than that most of our module sales are still outside China. And our November and December demands have way exceeded our capacity. So, we’re struggling to fulfill order demand right now..

Yes. I always caution people when they look at the geographic split; we do it by revenue. And obviously when you sell large revenue projects in Canada, it drives the Americas revenue to be quite high. If you look at actual module shipments, Japan and U.S.

are two very strong markets for us and China will be much better than it’s been in prior quarters of the year for us in Q4, because the situation has improved. However, it’s hard to move against the metric of the high project sales revenue in the Americas region..

Okay. Thanks a lot guys..

Thanks..

Your next question comes from the line of Philip Shen from ROTH Capital Markets. Please proceed..

Hi everyone, congrats on a nice Q3. I would like to start off by touching on 2015.

Can you tell us how you see the industry structure evolving in 2015 and what is your view of the balance of supply and demand of modules? And where do you think we are in the current solar cycle?.

Yes. Philip, this is Shawn speaking. I will reserve from giving the 2015 guidance to next year, usually we do that in March. So far the information it shows a continuous strong growth in demand in 2015. So, I’m quite feeling very confident and I think we are in -- and I believe we are in up part of a cycle globally.

And I think this up cycle will continue for a while..

Great.

Shifting gears to ASPs, I was having some technical difficulties earlier so I may not have heard if this question was asked, but can you talk to us about where you see module pricing going into Q4 and then also the early part of 2015 by region?.

Hi Philip, this is Michael. So, overall ASPs will be down in the area of $0.63 to $0.64 a watt for us in Q4, a downturn about $0.69 a watt. That’s driven by two things; one to shift out of some of the higher margin markets into places like China, because of the demand that’s here this quarter.

The second is the currency movement in the last month or so of also somewhat depressed ASPs. I think that the actual ASPs in local currency terms have not changed much in our main markets. And we’re not seeing actually any pricing pressure to drive prices down in different markets right now. Obviously the U.S. has been distorted by the trade case.

So, if and when that changes, there might be a change in that market. And Europe has a fixed selling price based on the undertaking. So again that one is easy to predict..

Yes. Sort of just to add on what Michael said, we can’t talk just purely talk about ASP. U.S. is a high ASP market but they have the antidumping and CVD duty. So it’s not necessarily with the highest margin while the Japan market and the ASP start or jump, but it’s more due to the weakening of Japanese yen.

However, Japan still offers a better margin to us than U.S. when you take into account the duty we have to pay for import into U.S. Now on other hand, our volume will continue to increase in Q4. Therefore, the great action on the margin should be more or less offset by the increase of volumes..

Thank you, Shawn and Michael. One last one and I’ll jump back in queue.

Given your capacity expansion plans in 2015, what kind of CapEx should we expect to factor into our models and then what was cash flow from operations in the third quarter?.

So in terms of CapEx for the stuff that Shawn talked about, it will be somewhere in the area of (inaudible). We’ve got financing lined up for some of that and the rest of it will just use our available cash for it. I believe the number was about $200 million of operating cash flow in Q3. So, it was quite a strong quarter for us..

Great. Thanks Michael..

Thank you..

Your next question comes from the line of Aditya Satghare from FBR Capital Markets. Please proceed..

So, my first question was on Japan. Could you elaborate on the timing of construction on your projects in Japan? It looks like the smaller scale projects are getting built in 2015 with some of the largest scale projects built in ‘16 and ‘17.

So maybe could you talk about sort of the relative comfort in building small scale versus some of the larger scale projects?.

Hi, this is Shawn speaking. We are starting construction on both small projects and some large projects.

Now the reason you see more small projects COD in 2015 is because shorter construction period but also the shorter connection period by the grid, for some large project even you can finish construction within six months, the utility may only promise you a connection in 2016. Then a COD date is we moved to 2016..

Yes. If you look at the profile when things are happening in ‘16, we have some larger projects that are being connected reaching COD at the beginning of ‘16. And we have relatively conservative construction schedule internally right now.

We’re trying to not over guess when projects are going to happen and be more conservative as we ramp up; just like in Canada, we’ll get better and better predicting exactly how long it will take and we’ll get better at pulling in things where we can. And actually more construction activity is happening.

And I am quite pleased with the progress our team there has made in the last three months..

And I’m also pleased that our team, we have a strong team so that we can quickly switch our strategy in order to maintain the momentum. For example, some investors are concerned about the announcement of the grid study by some of the Japanese utilities, but our team was able to quickly switch directions to pull in many small projects.

And therefore we actually increased the COD target for 2015 rather than reducing it. That shows the ability of our Japanese team to respond to the changing environment there..

And I always look at the year-end balance, we’ve always talked about 2015 being a transition from Canadian projects to Japanese projects and that’s exactly how it’s turning out. And then if you look at 2015 it’s a very big year for Japanese projects.

So, we have very good visibility of two, three years in our project pipeline I think it’s quite good visibility and we’re able to execute on that plan. We’ve got bunch of Chinese projects and our Chinese project pipeline should get stronger as we bring in some of our partners like the Sichuan Development Corporation that we announced.

And I also expect win in other markets like Brazil and add an even more international dimension to our project pipeline. The question for us is not -- is there enough opportunity, it’s a screen out all the opportunities that come to us..

Thank you. Thanks for that update.

My next question if we think about your balance sheet, how much capacity do you have? If you had to hold projects on the balance sheet while you finalize your HoldCo or YieldCo strategy, are there any other avenues where you could potentially to temporary hold projects on your balance sheet while you finalize this?.

I think Shawn and I both talked about it in our script section, about we’re looking at different ways to securitize and hold projects without straining our balance sheet much. So, Sichuan Development Corporation since one of them, we have several other mezzanine installed financings that we’re examining right now.

As a general rule of thumb, you need about 30% equity and 70% construction debt while you build in projects. So, you can figure it out from that, if you’re trying to calculate it. A few $100 million of cash gives you a lot of project..

All right. Thank you. Thanks for the update..

Yes. And for the capital side, 70% capital side, usually in many situations we can bring in another layer of mezzanine financing..

Thanks guys..

Your last question comes from Pierre Maccagno from Dougherty. Please proceed sir..

Hey, congratulations on the quarter, Shawn and Michael..

Thank you. .

Thank you..

So, can you give us a breakdown of the module to third parties versus the internal use of modules in your projects?.

So, the total amount going into our projects this year is still it’s around 300 megawatts I think and not all which will be recognized this year, some of it will be recognized next year. The guidance we give is projects that are sold and module shipments that we have done to outside parties.

And there will be at least several hundred megawatts more of things that go into projects that won’t be recognized into our future period..

So, if I understand the guidance is 300 megawatts projects in 2015….

We have about 3 gigawatts approximately of module capacity now and our guidance for module sales recognizes below that. And we’re running pretty full. So, you can pretty much assume the rest of it going into our own project..

Okay.

But my question was for the third quarter, is there a breakdown there for the amount of megawatts shipped?.

We did breakdown the amount of megawatts recognized for both the margin and on the total solutions business. It’s mostly 170, but 172 megawatts for total solutions business and the rest is for the pure module cell business, but that ship didn’t recognize.

We never talked really about how much we shipped, because it just goes into the balance sheet into the project assets category. It’s not really a metric that’s relevant, it’s when it will recognize it as what people usually are focusing on..

Okay. Regarding the costs, how do you see the polysilicon pricing developing on a quarterly basis or going into the future..

This is Shawn speaking. I believe the polysilicon price has been stable these days. And the wafer price has also been stable in the past few weeks. The wafer price has -- both poly price and wafer price has been gradually moving down over this year but in the past few weeks it’s more or less stable.

Moving to next year, the industry consensus is a stable poly and wafer price if not down..

Okay. And then regarding your expansion of the sale capacity, that’s going to be multicrystalline and I would imagine P-type.

Are you looking to expand into N-type anytime soon or is that part of your plan?.

Yes. At this moment, all of our commercial productions are mono P-type and multi P-type. And as I mentioned with multi P-type, we can achieve 19% to 19.5% efficiency and at a very good costs. Cost wise it’s in line with today’s multicrystalline solar cell and module price.

So we have N- type technology in our lab and in our future roadmap? However, we believe that in the next couple of years, the P-type technology is still going to be the dominant technology, because it’s stable and cost is low. And the equipment and material supply is mature and it can be easily scaled up.

So that will be the technology we adopt in the next couple of years..

And we’ve always been cautious Pierre in capacity expansion and we’ve been careful to choose well understood commercialize technologies as well. And that’s served us very well when we have ramped up our capacity.

We’ve not had many periods where we had pretty empty factories only in the real hard of downtime in 2012 and our strategy of not having a 100% cell capacity to module capacity really helps our capital efficiency there.

The real story would be the improvement of our overall efficiency and our existing cell factory over the next year or two as we take the techniques we learnt in the Funing factory and then bring them back into our existing factory to bring efficiency up.

We’re going to have very competitive good quality products that we can marry with our very strong brand name and our good international sales force. And I expect the module business to be quite strong for a few years to come..

Great. Just a final question, clarification on the CapEx.

You said $80 million that is for this year or for the quarter?.

That’s for the plants that Shawn talked about. The expansion of -- we upgraded the furnaces in Luoyang, the expansion of the module capacity and the first phase of our cell capacity expansion. We do not have to add any facilities to do any of that. So, the energy in such infrastructure is pretty much all there.

So, it’s just equipment costs or upgrade costs, it’s not particularly burdensome and we could add good capacity to meet the demand we see coming..

So that’s for 2015, right?.

That’s just for the stuff that Shawn talked about. We have not talked about 2015 in total. For example, if we needed to build an overseas facility because of the different trade situations that would be a different type of discussion.

If we didn’t and we’re able to expand inside China that would be a different number and we’ll know more by the end of the year and that’s when we’ll talk about our plans for next year..

Okay. Well great, thank you very much..

Thank you..

I would now like to hand it to management for closing remarks..

Thank you, operator and thank you everyone for joining the call today. And thank you for your continued support. If you have any further follow-up questions after today’s call, please contact us. And have a great, great day..

Thank you very much. This concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day..