Dr. Shawn Qu, Chairman and CEO, commented, “We achieved strong results in the second quarter of 2022, with solar module shipments, revenue and gross margin all at or exceeding the high end of prior guidance. Sequentially, we grew our module shipments by nearly 40% and battery storage solutions revenues by 2.8 times, while significantly expanding our profitability and completing a large volume of project sales. Our capacity growth strategy is also well on track, which we expanded per our recent announcement to invest in our own polysilicon capacity in a region rich in renewable energy resources. This will allow us to gain further control over sourcing, technology and supply chain, and is part of a long-term plan to increase our market share while meaningfully reducing the carbon footprint of our supply chain. We provide additional details of our environmental efforts and performance in our latest ESG Sustainability Report, published last month.
Yan Zhuang, President of Canadian Solar’s CSI Solar subsidiary, said, “CSI Solar delivered strong results in the second quarter, significantly growing volume and increasing pricing, while taking cost control measures in a difficult environment as polysilicon prices continue to go up. Our performance in the second quarter was also boosted by a substantial foreign exchange gain from a strong U.S. Dollar relative to the Renminbi. From a market standpoint, we are encouraged by signs of a shift in customer behavior driven by a growing awareness of solar energy’s attractive economics and its importance in energy security and climate change mitigation efforts, especially when paired with battery storage. Reflecting this positive trend, our battery storage shipments in the first half of 2022 have already exceeded 1 GWh, a record level for us. We will continue to build on our strong channels and relationships, especially in premium markets, and make capacity expansion preparations to accelerate our global market share gains in the coming years.”
For the three months ended June 30, 2022, diluted EPS of $1.07 was calculated to include the dilution effect of the outstanding convertible notes. Diluted EPS of $1.07 was calculated from total earnings of $76 million, adding back the 2.5% coupon of $1.3 million, divided by 71.1 million diluted shares, including 6.3 million shares issuable upon the conversion of the convertible notes. For the three months ended March 31, 2022, diluted EPS of $0.14 was calculated from total earnings of $9 million divided by 64.7 million diluted shares. For the three months ended June 30, 2021, diluted EPS of $0.18 was calculated from total earnings of $11 million divided by 61.3 million diluted shares. Net cash flow provided by operating activities in the second quarter of 2022 was $293 million, compared to net cash flow provided by operating activities of $159 million in the first quarter of 2022. The increase in operating cash inflow was mainly driven by higher earnings and monetization of project assets. Total debt was $2.7 billion as of June 30, 2022, unchanged from March 31, 2022. Non-recourse debt used to finance solar power projects decreased to $264 million as of June 30, 2022, from $550 million as of March 31, 2022, mainly due to the monetization of project assets.
The Global Energy segment carries out the Company’s global project development activities for both solar and battery storage project development, which include sourcing land, interconnection agreements, structuring PPAs and other permits and requirements. The Global Energy segment develops both stand-alone solar and stand-alone battery storage projects, as well as hybrid solar plus storage projects. Its monetization strategies vary between develop-to-sell, build-to-sell, and build-to-own, depending on business strategies and market conditions, with the goal of maximizing returns, accelerating cash turn, and minimizing capital risk. The CSI Solar segment consists of solar module manufacturing and total system solutions, including inverters, solar system kits and EPC (engineering, procurement and construction) services. The CSI Solar segment also includes the Company’s battery storage system integration business, delivering bankable, end-to-end, turnkey battery storage solutions for utility scale, commercial and industrial, and residential applications. These storage systems solutions are complemented with long-term service agreements, including future battery capacity augmentation services.
Solar Project Pipeline As of June 30, 2022, the Company’s total project pipeline was 26.2 GWp, including 1.3 GWp under construction, 3.9 GWp of backlog, and 21.0 GWp of projects in advanced and early-stage pipelines. We have updated our project pipeline classification as follows: Backlog projects are late-stage projects that have passed their Risk Cliff Date and are expected to start construction in the next 1-4 years. A project’s Risk Cliff Date is the date on which the project passes the last high-risk development stage and varies depending on the country where it is located. This is usually after the projects have received all the required environmental and regulatory approvals, and entered into interconnection agreements, feed-in tariff (“FIT”) arrangements and PPAs. Over 90% of projects in backlog are contracted (i.e., have secured a PPA or FIT), and the remaining are reasonably assured of securing PPAs. Advanced pipeline projects are mid-stage projects that have secured or have more than 90% certainty of securing an interconnection agreement. Early-stage Pipeline projects are early-stage projects controlled by Canadian Solar that are in the process of securing interconnection.
Battery Storage Project Pipeline In addition to developing utility-scale solar power projects, the Global Energy segment has also been developing hybrid solar plus energy storage projects, as well as stand-alone battery storage projects. Since the first quarter of 2021, the Company has been co-hosting energy storage facilities with solar power plants on the same piece of land for nearly all projects under development. By using a single interconnection point per project, the Company expects to significantly enhance the efficiency of its development and the value of its assets under development. Canadian Solar’s storage development business model also includes signing storage tolling agreements with a variety of power purchasers, including community choice aggregators, investor-owned utilities, universities, and public utility districts. In addition, the Company has signed development services agreements to retrofit operational solar projects with battery storage, many of which were previously developed by the Company.
Business Outlook The Company’s business outlook is based on management’s current views and estimates given factors such as existing market conditions, order book, production capacity, input material prices, foreign exchange fluctuations, anticipated timing of project sales, and the global economic environment. This outlook is subject to uncertainty with respect to, among other things, customer demand, project construction and sale schedules, product sales prices and costs, the global impact of the ongoing COVID-19 pandemic and shutdowns, supply chain constraints, and geopolitical conflicts. Management’s views and estimates are subject to change without notice. For the third quarter of 2022, the Company expects total revenues to be in the range of $2.0 billion to $2.1 billion. Gross margin is expected to be between 15.0% and 16.5%. Total module shipments recognized as revenues by CSI Solar are expected to be in the range of 6.0 GW to 6.2 GW, including approximately 140 MW to the Company’s own projects. For the full year of 2022, the Company raises total revenue guidance to $7.5 billion to $8.0 billion, from $7.0 billion to $7.5 billion previously. The Company expects full year volume targets for CSI Solar and Global Energy to remain unchanged from the ranges communicated in the prior quarter: total module shipments of 20 GW to 22 GW and battery storage shipments of 1.8 GWh to 1.9 GWh (CSI Solar), and total project sales of 2.1 GW to 2.6 GW (Global Energy).
Safe Harbor/Forward-Looking Statements Certain statements in this press release, including those regarding the Company’s expected future shipment volumes, revenues, gross margins and project sales are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the “Safe Harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by such terms as “believes,” “expects,” “anticipates,” “intends,” “estimates,” the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include general business, regulatory and economic conditions and the state of the solar and battery storage market and industry; geopolitical tensions and conflicts, including impasses, sanctions and export controls; volatility, uncertainty, delays and disruptions related to the COVID-19 pandemic; supply chain disruptions; governmental support for the deployment of solar power; future available supplies of high-purity silicon; demand for end-use products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers; changes in demand from major markets such as Japan, the U.S., China, Brazil and India; changes in effective tax rates; changes in customer order patterns; changes in product mix; changes in corporate responsibility, especially environmental, social and governance (“ESG”) requirements; capacity utilization; level of competition; pricing pressure and declines in or failure to timely adjust average selling prices; delays in new product introduction; delays in utility-scale project approval process; delays in utility-scale project construction; delays in the completion of project sales; continued success in technological innovations and delivery of products with the features that customers demand; shortage in supply of materials or capacity requirements; availability of financing; exchange and inflation rate fluctuations; uncertainties related to the CSI Solar carve-out listing; litigation and other risks as described in the Company’s filings with the Securities and Exchange Commission, including its annual report on Form 20-F filed on April 28, 2022. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. Investors should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today’s date, unless otherwise stated, and Canadian Solar undertakes no duty to update such information, except as required under applicable law.