Canadian Solar releases Q2 results

Canadian Solar released its second quarter financial results highlighting a dramatic change in their geographical source for revenues. Overall revenue increased but a massive change in European fortunes has had to be made up in Asian and other markets.

Net revenue for the second quarter of 2013 was $380.4 million, up 44.3% from $263.6 million in the first quarter of 2013 and up 9.2% from $348.2 million in the second quarter of 2012. Total solar module shipments in the second quarter of 2013 were 455 MW, compared to 340 MW in the first quarter of 2013 and 412 MW in the second quarter of 2012. Guidance for the second quarter of 2013 was for module shipments to be in the range of 380 MW to 420 MW. Solar module shipments to the Japanese market were up 95.0% from the first quarter of 2013, representing 35.7% of total solar module shipments in the second quarter of 2013. Total solar module shipments in the second quarter of 2013 included 35 MW used in the Company's total solutions business, compared to 23 MW in the first quarter of 2013, and 9 MW in the second quarter of 2012.

By geography, in the second quarter of 2013, sales to European markets represented 10.6% of net revenue, sales to America represented 37.8% of net revenue, and sales to Asia and all other markets represented 51.6% of net revenue, compared to 24.7%, 17.9% and 57.4%, respectively, in the first quarter of 2013 and 69.4%, 15.7% and 14.9%, respectively, in the second quarter of 2012.

Gross profit in the second quarter of 2013 was $48.7 million, compared to $25.6 million in the first quarter of 2013 and $43.2 million in the second quarter of 2012. The sequential quarterly increase in gross profit was primarily due to higher shipment volume and increased revenue contribution from the Company's higher margin total solutions business. The year-over-year increase in gross profit was primarily due to the increased revenue contribution from the Company's higher margin total solutions business as well as lower manufacturing cost, partially offset by a decline in average selling price during the period.

Total operating expenses were $36.4 million in the second quarter of 2013, up from $7.5 million in the first quarter of 2013 and down 21.2% from $46.2 million in the second quarter of 2012. Total operating expenses in the first quarter of 2013 included the reversal adjustment relating to an arbitration award charge totaling $30.0 million that was incurred in the fourth quarter of 2012 and reversed in the first quarter of 2013. Total operating expenses in the first quarter of 2013 were $37.5 million prior to the impact of the above mentioned reversal adjustment.

General and administrative expenses were $13.5 million in the second quarter of 2013, up from negative $13.7 million in the first quarter of 2013 and down 26.8% from $18.4 million in the second quarter of 2012.

Research and development expenses were $3.0 million in the second quarter of 2013, up 24.5% from $2.4 million in the first quarter of 2013 and down 12.1% from $3.5 million in the second quarter of 2012. The sequential increase in research and development expenses was primarily due to increases in headcount, and yearly salary adjustments. The year-over-year decline in research and development expenses was due to better and more efficient management of the product development activities.

Operating margin was 3.2% in the second quarter of 2013, compared to 6.8% in the first quarter of 2013 and negative 0.9% in the second quarter of 2012. The sequential decline in operating margin was primarily due to the increase in operating expenses. The year-over-year increase in operating margin was primarily attributable to higher gross profit, and lower operating expenses in the second quarter of 2013.

Net loss attributable to Canadian Solar in the second quarter of 2013 was $12.6 million, or $0.29 per diluted share, compared to net loss of $4.4 million, or $0.10 per diluted share, in the first quarter of 2013,and net loss of $25.5 million, or $0.59 per diluted share, in the second quarter of 2012. As of June 30, 2013, the Company had $540.6 million of cash, cash equivalents and restricted cash, compared to $606.1 million as of March 31, 2013.

Inventories at the end of the second quarter of 2013 were $218.5 million, compared to $291.3 million at the end of the first quarter of 2013. Inventory turnover was 75 days in the second quarter of 2013 compared to 117 days in the first quarter of 2013.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, remarked: "Our second quarter results exceeded the high point of our revenue and gross margin guidance. We have been consistently pursuing our strategy of geographic diversification and have focused on new growth market such as Japan, leveraging our global sales network and brand reputation. This has contributed to not only the volume but most importantly the gross margin improvement in the quarter.

"We again took several major steps forward in our business strategy thereby giving us improved business visibility and stability. We announced multiple utility-scale solar power plant sales. With our existing relationships, quality module supply and track record of success, we are one of the only companies in Canada with the ability to execute a project of this scale."