Ed Job - Investor Relations Shawn Qu - Chairman, Chief Executive Officer Michael G. Potter - Senior Vice President, Chief Financial Officer.

Mark Strauss - JPMorgan Philip Shen - ROTH Capital Partners Frank He - Goldman Sachs Colin Rusch - Northland Capital Emily Liu - Arete Research.

Ladies and gentlemen, thank you for standing by. Welcome to the Canadian Solar's First Quarter 2015 Earnings Conference Call. My name is Tiya and I'll be your operator for today. At this time all participants are in listen-only mode. Later, we will conduct the 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 Mr. Ed Job, Canadian Solar's, IR Director. Please go ahead..

Thank you, operator. And welcome, everyone to Canadian Solar's first quarter 2015 earnings conference call. Joining us on the call today 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 to 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 related to the company's future performance represent management's estimates as of today, May 7, 2015. Canadian Solar assumes no obligation to update these projections in the future, unless otherwise required by applicable law. Finally, we are scheduled to hold an Analyst Day in New York City on May 18, 2015.

Anyone on today's call interest in attending should email me at ed.job@canadiansolar.com. The event will also be webcast for those unable to attend in person. At this time, I would like to turn the call over to Dr. Shawn Qu. Shawn, please go ahead..

Thank you, Ed. And thank you all for joining us on the call today. 2015 started out strong for Canadian Solar, with both solar module shipments and revenue exceeding our first quarter guidance. We have set a new record in quarter megawatt shipment.

Our results continue to reflect our leadership position and the competitive advantages of being leaders in both module and thus gain solar total solution business. Overall for Q1 the revenue balance shifted more toward module sales compared with the past four quarters.

This partially reflected the shift of our business strategy from build-to-sell the solar project that are build to own model and intention to launch our YieldCo with our high quality operating assets. In Q1, we benefited from strong demand worldwide. This was led by Japan, Europe and emerging market in Latin America.

Sales to Americas represented 49% of revenues driven by project sales in Canada. Asia represented 33% of revenue, primarily driven by a strong quarter in Japan. Meanwhile, Europe accounted for about 18% of the revenue. We continue to deliver strong results in our total solutions business. In Q1 we closed the sales of three solar power plants in Canada.

This totaled 30 megawatt AC and were valued that over C$200 million. We also turn on four solar power plants in UK totaling 40.2 megawatt.

We exited Q1 with a late stage pipeline totaling approximately 2.5 gigawatt, including about 1 gigawatt DC in US, 340 megawatt in China, 720 megawatt in Japan and 52.5 megawatt in United Kingdom and 140 megawatt in Brazil.

In addition to our internal growth, we further solidified our position in Q1 as a Tier 1 global leader with the close of our Recurrent Energy acquisition at the end of March.

With this acquisition we strengthened our position in US market and deepened our capability with addition of a highly motivated world class team which has a long history of successful project development and sales.

All of this gives Canadian Solar added momentum as we continue to pursue our YieldCo strategy which will be the next major catalyst to build value for Canadian Solar and its shareholders. We'll discuss our YieldCo trend in more details when we meet at our Investor Day on May 18.

In the past several months we have been benefiting from cost reduction of key solar module materials, including polysilicon and wafers. This combined with the improvement of our solar module efficiency and production process helped us to keep up with the industry cost curve and to provide our customers with competitively priced products.

As we look into the future we expect to see overall demand for solar PV product continue to increase driven by policy factors, such as the ITC change in 2016 in the US and the higher target for the domestic China market in 2015, along with continued strength in markets where we have established our leadership presence.

As one of the top three module providers and a dominant Tier 1 company, we will have powerful advantage to gain market shares. As we have done in the past we will make strategic capacity additions in order to meet the increased demand levels we are seeing.

We will address our cost reduction and manufacturing roadmap in details at our Investor Day on May 18. Now let me comment our guidance for Q2. We current expect total Q2 shipment to be in the range of approximately 950 to 1000 megawatt, including 165 megawatts of shipments to our own utility-scale project.

Revenue for the second quarter of 2015 is expected to be in a range of $570 million to $620 million, with gross margin expected to be in between 13% to 15% which mirrors our normal gross margin for module manufacturing and EPC business.

Meanwhile, we are holding on the 40.2 megawatt of solar projects which we just connected in UK to be included in our proposed YieldCo I would like to point out that our revenue will be much higher if we in fact sell these projects, as we did last year.

However, we believe that the build to own an YieldCo strategy will ultimately provide higher value to our shareholders. Let me now turn the call over to our CFO, Michael Potter, for more detailed review of our results for the first quarter. Michael, please go ahead..

Thank you, Shawn. Net revenue for the first quarter of 2015 was $860.9 million, down 10% sequentially, and up 84.6% compared to the year ago period. Q1 revenue came in above our guidance range $725 million to $775 million. Gross profit in Q1 was $153 million, compared to $184.9 million in Q4, and $68.6 million in the comparable period last year.

Gross margin in Q1 was 17.8%, compared to 19.3% in Q4, and 14.7% in the first quarter of 2014. This was at the high end of our guidance. The sequential decrease in gross margin was primarily due to lower module ASP and lower margin from total solution business during the quarter.

Income from operations was $78.7 million in the first quarter of 2015, compared to $116 million in the fourth quarter of 2014, and $26.6 million in the first quarter of 2014. Operating margin was 9.1% in the first quarter of 2015, compared to 12.1% in the fourth quarter of 2014 and 5.7% in the first quarter of 2014.

Net foreign exchange gain in Q1 was $6.8 million, compared to net foreign exchange loss of $4.9 million in Q4 and net foreign exchange loss of $6.5 million in Q1 of last year. Income tax expense in Q1 of 2015 was $19.7 million, compared to income tax expense of $27.5 million in Q4 and income tax expense of $7.3 million in Q1 of last year.

Net income attributable to Canadian Solar shareholders for Q1 2015 was $61.3 million, or $1.04 per diluted share, compared to net income of $75.7 million, or $1.28 per diluted share in Q4 and net income of $3.8 million, or $0.07 per diluted share, in Q1 of last year. Moving onto the balance sheet.

In Q1, cash and cash equivalent was $407 million compared to $549.5 million at the end of Q4. The restricted cash balance was $630.1 million at the end of Q1, compared to $475.2 million at the end of Q4.

Our trade accounts receivable balance, net of allowance for doubtful accounts decreased to $327.8 million at the end of Q1, down from $366.9 million at the end of Q4. Inventories decreased to $400.1 million at the end of Q1, compared to $432.3 million at the end of Q4.

Short-term borrowings at the end of Q1 totaled $885.6 million, compared to $725.5 million at the end of Q4. Long-term debt at the end of Q1 was $125.9 million, compared to $134.3 million at the end of Q4. Senior convertible notes outstanding totaled $150 million.

Short-term borrowings and long-term debt directly related to utility-scale solar power projects totaled $123.8 million at the end of Q1. In summary, we are pleased with our record results for the first quarter and the underlying positive trends of our business. Q1, 2015 was the best first quarter in company history.

We continue to fortify our balance sheet and use it support the growth opportunities that will drive the highest value for our company and shareholders. We're doing this both organically and through M&A, as we did with our acquisition of Recurrent Energy.

These improvements further reflect our ongoing efforts to improve organizational efficiencies and to reduce manufacturing cost where ever possible. We have noted a significant increase in the opportunities we're being presented with since the results of our strong 2014 were announced.

We are excited by these opportunities and hope to further improve by both enhancing our business model to launching a YieldCo and improving our execution in our current business. With that, I'd now like to open the call to your questions.

Operator?.

[Operator Instructions] The first question comes from the line of Paul Costner with JPMorgan. Please proceed..

Good morning, this is Mark Strauss for Paul. Thanks for taking our questions. So didn’t hear anything about fourth year guidance.

Just real quickly, are you maintaining that or you're going to wait until Analyst Day to update on that?.

There is no change in the guidance. So we didn’t repeat it..

Okay. Fair enough. And then given Shawn's expectations for supply constraint in the second half of this year. Can you just remind us I mean, your near term [Technical Difficulty] the longer term strategy.

I mean, just given over the next two or three years it would be great?.

So as Shawn has explained in the energy on Bloomberg and also in person, when he is been talking to analyst, he believes that the second half of this year were likely to experience more demand and supply for Tier 1 supply and that’s driven by policy in terms of the ITC expiring in the US at the end of next year and also seasonality in some emerging markets such as China.

So because of that we believe that demand will be stronger and the corollary to that is ASP should at least get some stability and there is even a small chance ASPs could increase towards the end of the year. So what we're doing is that we've added some capacity this year both through our own capacity and the use of an OEM.

And we will continue to evaluate how we feel the next few years will be before we start adding more capacity for that. We are increasing capacity on both modules and in sales.

What we'll probably do in Q2 is we'll probably build a little bit of inventory in order to be better prepared for Q3 to make sure we can supply our customers, if for some reason the demand isn’t as strong as we hope it would be, we'll just burn off the extra inventory at the beginning of Q3.

Does that answer your question?.

Yes, very much. Thank you very much Michael..

The next question comes from the line of Philip Shen with ROTH Capital Partners. Please proceed..

Hi. Thanks for taking my questions. With the 320 megawatts of potential projects connecting in China this year, and the loan agreement announced this morning with Minsheng Bank.

Can you help us understand how the financing environment is improving or evolving in China? How is it changed if at all relative to the prior 6 to 12 months?.

For our project in China we have been always been able to secure the project that were financing, as long as the project fully permitted.

And for our oversea project activities, for example the Recurrent acquisition and the construction of the 1 gigawatt pipeline in US, we actually received several offers from the – from banks, including several offers from banks in China. And Minsheng Bank provided the most competitive offer. So the overall financing environment is healthy to us.

I can't really comment for others, but we have been able to secure the financing support for the project we want to do..

Yes, I'd just like to highlight a little bit around the financing for Recurrent, because I think it shows our real expense for Canadian Solar. For the acquisition Recurrent, we are able to do an equity bridge loan with Credit Suisse and syndicated [ph] lenders that they brought in.

We are able to get letter of credit support from Export Development Canada, so we had piece of the Canadian government, a prime [ph] corporation in Canada helping us.

And we also managed to get acquisition financing from Minsheng Bank in China showing pretty much a very unique ability to access the credit markets and support both outside of China and inside of China even for project that are not in China. So I think that’s important to highlight.

That’s an ability that we have, that I don’t think anybody else in the industry really can do quite as well as we can..

Great. Thanks.

Coming back to ASPs for a moment, can you talk about your current order book, have you started to actually see pricing power in certain regions to give you some sense that ASPs are firming up any color?.

Well, we provided the Q2 volume guidance in which we feel comfortable about and for Q3 and Q4 we have been constantly talking to our major customers. So we understand the demand from some of the major customers.

And that we also sell to the residential and the commercial market where you can get a sense of how much the demand - the customer will order. However, they don’t book the product 6 months ahead. However look at the seasonal behavior of this industry in the past few years and also look at some of the policy factors which will affect the trend.

In the next 2 years we think that the demand should continue to grown in the next few quarters..

Great. Shawn and Michael, thanks very much. I'll jump back in queue..

Thank you..

The next question [Operator Instructions] The next question comes from the line of Frank He with Goldman Sachs. Please proceed..

Thanks for taking my question. Just a question on the second quarter guidance on the shipment. So we see Q-on-Q weakness in the shipment, so just wonder if you could provide some comment in terms of geography, which part of the region is showing some increase and some – which part is facing some pressures? Thanks..

Now, our Q1 is particularly strong, and traditionally Q1 is the lowest season in the year. And as you can see from the past years result and also from what other solar companies have guided for Q1. In our case, our Q1 is particularly strong and Q2, the Q2 total megawatt is slightly – and as a result the Q2 megawatt is slightly below the Q1.

But if you compare our Q2 guidance with what we delivered in Q4 last year its pretty much flat. And overall the first half of the year, typically you will see last May in the second part of the year and it’s always the pattern. So I don’t think that anything particularly surprising. In terms of country-by-country Japan, in Japan their Q4 is our Q1.

So this quarter Q2 is their Q1, so this is typical a weak quarter for Japan.

However, our delivery in Japan is still going to be decent and for the China market we think that we're going to see, after we see slightly higher activity this quarter than in the past during last year, because this year the provincial level of energy agency giving out the permit, the project permits the first half of year and than the second half year.

So we already received a certain permit for project, which we will finish by June, and ever but else we'll have to finish by June. And if people don’t finish their quarter whatever they are assigned in June those quarter will be taken back and re-distributed in next year.

So I think in China market the Q2 activity this year will be higher than the last Q2. And so the other market I think more or less normal. In US last year Q2 was a strong season, because the companies are rushing or rushing to take product before the preliminary [indiscernible] rule in last year. Now this year there was no effect like that.

So we don’t see that kind of rush in the US market. However, moving to second half of the year, we believe the demand in US will start to pick up and also we believe the activities in China will also pick up..

Yes, I think the final thing to note is because we're shifted to a build an hold model, module shipments with other might be recognizing when we sell projects instead are staying on our balance sheet, so that also another difference.

And your direct example would be the projects we connected to the grid at the end of the quarter for the UK, we likely would have sold them in this quarter if we were not pursuing a YieldCo strategy and that would have been another 40 megawatts from that.

Also several of the Recurrent projects will be entering construction this quarter and very often to US projects you sell them in NTP and you start getting revenue and module recognition now. So there will be some distortion in our numbers what – compared to what they would have been if we had not pursued that YieldCo strategy.

And we'll talk more about the YieldCo on May 18 at the Investor Day and give a lot more detail then, but – so that is certainly causing some effect on our numbers this year..

Okay. That’s very helpful.

And second question is about the Samsung Phase III projects, so we discussed that before, I just wonder if any update on the project bidding for this particular project?.

We don’t have a update, as far as we know the project, the permitting of the project is proceeding well. We are in regular contact with Samsung..

Okay. Got it. Thank you, Shawn and Michael..

Thank you..

[Operator Instructions] The next question comes from the line of Colin Rusch with Northland Capital. Please proceed..

Thanks, so much guys.

Could you walk us through the capital allocation decision making process, as you look at building out new module capacity versus investing in projects and how are you guys are looking at that, what kind of metrics are you looking at and what kind of timeframe do you need to make a decision on a module factory before you get that factory up and running?.

Yes, we separate somewhat internally into a module business and a project business when we're trying to make those types of decisions. We obviously have a very strong module business, top two – number two or number three in the world right now and it’s consistently performed for many years.

So decision on that is more what do we feel long-term demand is going to be, and the possibility of that demand and that if we feel we make a reasonable return for the module business, we'll invest in new capacity.

Where we think this demand maybe more temporary or we maybe need to use different geographies, maybe with an OEM partnership either a longer term one or shorter term one. It takes us about 6 months to make a decision and start ordering equipments for our module factory and somewhat longer for a sell factory because the CapEx is much larger.

And usually it’s driven by our feeling on long-term demand and the market share positioning I would like to maintain. The overall theme for all of our businesses is profitable growth. So we only look at putting new module capacity in if the growth will continue to drive profitability for us..

I want to comment further on what Michael just said, as we just discussed that even in Q2 which is not a typical strong quarter, we believe we'll still maintain mid-teen gross margin for our module business, therefore its profitable business for us.

And so far, our manufacturing capacity expansion based on our existing manufacturing base, based on our existing factories, we have one module factory in Changchun [ph] China, we are adding new equipments and deep organizing in order to increase capacity in that particular compound.

And we have reported a new manufacturing base in Funan [ph] also in China. We will add 400 megawatt of sell capacity by Q4 this year. We are also doing some de bottlenecking in Loueina [ph] which is another factory site in China..

Great. And then….

Yes, to the energy business we have not changed the really for several years, our strategy for which projects to pick, even though we're pursuing a YieldCo we still have a disciplined approach to assume that we'd be selling the project into the market instead and we have to generate a good return both on the money we invest and on an absolute gross margin level.

So that’s the way we evaluate projects and we tend to stick to markets where we are pretty sure that financing and op-takers for the projects are available necessary and if we do do something like recently that we won some options in Brazil.

We tend to focus on maybe one new market and try and build expertise who kind of beachhead into that market and make sure we understand how that market works and how we can generate profitability from that.

So we're quite careful and disciplined in our approach to projects and although we have a lot of opportunities coming our way we're not chasing lot of them very aggressively..

Okay. Great.

And then – and the next one is on trending with OpEx, obviously you've added a number of people, how should we think about the OpEx spend as go into 2Q and then to the balance of the year?.

I think there is about $4 million of additional one time expenses in Q1 related to the Recurrent transaction for advisors and other such. And said on the base line Recurrent add 7 million, so you would take 4 million out and then add 7, so its net plus 3 from the current quarter and that would be the ongoing expense for the Recurrent team.

Part of the salaries and such capitalizes is part of regular development, but the rest of it flow through operating expenses..

Okay. Thanks guys. I'll take the rest of it offline..

[Operator Instructions] The next question comes from the line of [indiscernible] Please proceed..

Hi, Michael, Shawn. Just a quick question I am trying to understand, the end market for the project, you did mention that you have – you didn’t sell the UK project because it seems to be much more profitable in the portfolio.

If you could give some sense on what is the – if you were to sell, what is the general pricing of these kind of end project that you would get from some strategic or insurance players or some other kind of buyers.

And I know that it depends a lot on PPN and everything, I just want to get a sense I mean, how is that price changed, how does it vary over different geographies, say Japan or UK or US? And I had one follow up?.

I am a little bit hesitant to give an ASP for the UK project because we're in the market to buy other projects in the UK and I don’t want to kind of push the price my co developers after – because of a number I give but looking at the numbers UK probably would have been a 15% to 20% type of market in terms of a gross margin we would have made on it and would have been [indiscernible] Canadian project, but better than our US market, some where in that range.

So it would have been a fine market. And there is a lot of interest in completed projects in the UK right now.

I said in the call, last quarter for YieldCo purposes we sort of focusing on sort of very high quality countries, so we thinking about US, Canada, UK and Japan, those are the countries where we're focusing most of our efforts on in terms of maintaining projects. We're also changing somewhat some of the COD date and our strategy for building things.

We're not quite so tied to a quarterly earnings cycle and not quite so tied right now to end customers who want completed projects as soon as possible. So we're timing CODs more around the long-term build and hold strategy and making sure that we don’t strain our cash flow to hard with the construction demand as the project start up.

So we are modifying some of our internal portal [ph] little bit around, but in the projects right now..

Fair enough. That’s very helpful.

And a last one, you did mention earlier on the call you are financing for the Recurrent, can you repeat that, I am sorry I missed it?.

So we did an equity bridge loan with Credit Suisse being the leader ranger for that. That was $150 million. LC backed off facility, so this an actual cash but its backed off being LCs.

We don’t have to put cash down, that was for $75 million and that came from EDC, and we just closed the $250 million facility with Minsheng bank just over $200 million of that was a loan and the rest is in LC facilities. So again, we don’t have to put cash down and we can make deposits and stuff for construction.

We're working on a few other financing arrangements, to support LC and some of the equity requirements to build the Recurrent projects and the Recurrent projects finance team has lined up a very strong stable both tax equity and straight construction and term financing for the project.

So we're in pretty good shape on construction and tax equity financing as well..

Got it. And the CS equity bridge loan, when does it mature, in one year or….

In short term, its meant to bridge until either you do an exit via a YieldCo or you do something more permanent, more of a permanent type of solution for it..

Okay. So you have – its kind of contingent thing, you can extend it, it’s not like hard so date….

It’s a one year loan, it’s a current loan, there is no mechanism in the loan to extend it after a year. But I don’t think it’s difficult to find that type of short term financing, particularly in today's environment. And it’s within our plan currently to have that paid off.

So it was essentially a shorter term loan meant to replace in a company loan and sharply put it into Recurrent and without having to do a – some other transaction around the same time..

Got it, got it. Thank you so much guys..

Okay..

[Operator Instructions] The next question comes from the line of Emily Liu with Arete Research. Please proceed..

Hi, thanks for taking my question.

I just wondered because historically CSI doesn’t have a lot of exposure to the module market in China, do you think this would change that’s starting this year?.

You are correct, so we are active in China market, but we are very selective in customer and also we are – we demand a reasonable payment term and I think we will ship more modules in China this year. Our volume in China will also increase because I see that we start to establish good customer base and so that we can ship more modules..

Right..

We're hoping that this year the government more steady policy on awarding permits will allow a better quality customer base to plan more in advance and that will allow us even being selective to pick up a few more better quality customers and increase our shipments in China.

We're still being very, very selective, we don’t want to tie a lot of cash up in receivables for long periods of time. We prefer to invest that in other things..

Right. And another follow up on the module business, because Europe accounted for like 18% of the revenue in the first quarter, and I assume this is because the UK was very strong.

How do you see the second quarter to trend and will there be impact from the EU investigation on the minimum price – minimum input price undertaking?.

As a matter of fact, the shipment into euro in Q1 does not just come from UK there is also strong contribution from other countries.

For example we had shipped good volume to customers in France in the first quarter and I think our volume in UK – in Europe will continue because on one hand we believe that we have been doing the right thing and follow in the policies in undertaking agreement, where on the other hand we do have [indiscernible] out of China.

So in case we have to we can still ship product or still ship product from the facility outside China to our customers..

Q1 was an abnormally large quarter in terms of European sales, we did have a large order outside the UK for one customer and that UK was stronger because of the exploration of the 1.4 LC..

Okay. Thank you. I'll jump back to the queue. Thanks so much.

There are no further questions in the queue at this time. I would now like to turn the call back over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Please proceed..

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

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day..