CSIQ

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's first quarter 2026 earnings conference call. My name is Melissa, and I will 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 Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome everyone to Canadian Solar's first quarter 2026 conference call. Please note that today's conference call is accompanied with slides which are available on Canadian Solar's investor relations website within the Events and Presentation section. Joining us today are Dr. Shawn Qu, Executive Chairman and CTO, Colin Parkin, CEO, Ismael Guerrero, CEO of Canadian Solar subsidiary Recurrent Energy, and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Colin and Ismael will review business highlights for manufacturing and Recurrent Energy respectively, and Xinbo will go through the financial results. Colin will conclude the prepared remarks with the business outlook, after which we will have time for questions.

Before we begin, I would like to remind listeners that management's prepared remarks today, as well as their answers to questions, will contain certain forward-looking statements that are subject to risks and uncertainties. The company claims protection under 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. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP.

Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data provided in accordance to GAAP. Now I would like to turn the call over to Canadian Solar's Executive Chairman and CTO, Dr. Shawn Qu. Shawn, please go ahead.

Thank you, Wina, and thank you all for joining our first quarter 2026 earnings call. Beginning on slide thee, we started the year with strong momentum. We recognized revenue on 2.5 GW of solar modules and 2.1 GW hours of energy storage solution, both of which exceeded our guidance range. Revenue totaled $1.1 billion, reaching the high end of our expectations. Gross margin of 25.1% outperformed our forecast, aided by the accrual of IEEPA tariff refunds. Profitability was impacted by elevated non-logistics operating expenses, foreign exchange losses, and tax expense accruals related to the tariff refund. This led to a net loss attributable to shareholders of $32 million, or $0.71 per diluted shares. The solar downturn has lasted longer than expected. Against this backdrop, we have consistently made the right strategic decisions.

We have repositioned our solar module business to focus on key attractive markets, culminating in the formation of CS PowerTech, which is now leading our efforts in the domestic reshoring of manufacturing in the U.S. At the same time, we have strategically dialed back volumes in less profitable markets, maintaining a steadfast profit-first strategy. Furthermore, energy storage represents a pioneering strategic move for us. Throughout this business, we have transformed from a pure PV module manufacturer into an integrated energy solutions provider. The boom in artificial intelligence has also provided new clarity. As the world chases digital breakthroughs, our core foundation is still physical power infrastructure. With rising global geopolitical friction and the push for energy independence, nations are increasingly seeking self-sufficient, reliable, local energy solutions. Renewable energy paired with energy storage has become an inevitable imperative.

Turning to slide four, our journey from our founding in Ontario, Canada, to our current position as a global leader in integrated clean energy is a testament to our enduring resilience. Today, we are navigating a pivotal shift from volume-driven expansion to value-driven leadership. This evolution calls for strategic succession. I am proud to transition the Chief Executive Officer's role to Colin Parkin. Colin is a veteran of the company and renewable energy industry. He previously served as President of Canadian Solar and was pivotal in establishing our first mover advantage in the energy storage sector as President of e-STORAGE. This transition follows a thoughtful long-term succession planning process approved, and unanimously by the board of directors.

I will transition to the role of Executive Chairman and Chief Technology Officer, focusing on our technology roadmap and long-term R&D strategy, while working closely with Colin to execute this transition. With that, I will now turn the call over to Colin. Colin, please go ahead.

Thank you, Shawn. It is an honor to take over the chief executive role, and I look forward to your continued guidance as we navigate our next phase of growth. Beginning on slide five, as Shawn highlighted, the first pillar of our global strategy is U.S. manufacturing. Since our last update, we have achieved critical milestones in reshoring the renewable energy supply chain. Phase one of our flagship solar cell factory in Jeffersonville, Indiana, produced its first trial HJT solar cell at the end of March. With a nameplate capacity of 2.1 GW peak, it will be the first and only commercial operational HJT solar cell facility in the United States once it ramps up over the next 2 quarters. In response to strong customer demand, we are increasing our domestic solar cell capacity beyond the original planned 5 GW peak.

We expect to begin trial production for phase 2 the beginning of next year. This expansion will add 4.2 GW peak of capacity, bringing our total U.S. solar cell nameplate capacity to 6.3 GW peak and making us the largest crystalline silicon solar cell manufacturer in the country. Parallel to this is the expansion of our successful solar module factory in Mesquite, Texas. This facility reached full ramp last year, and we are currently expanding capacity at the existing site. By the second half of this year, we expect nameplate capacity to double to 10 GW peak, allowing us to fulfill all future U.S. volumes from this Texas facility. Now let's walk through this quarter's manufacturing numbers. Turning to slide six. In the first quarter of 2026, we delivered 2.5 GW of solar modules globally.

We maintained a disciplined approach, strategically managing volumes in response to elevated feedstock costs, including silver, to mitigate losses. Our domestic manufacturing in the U.S. contributed robust margins as we maintained an optimized geographic mix of volumes. Storage shipments recognized as revenue reached 2.1 GWh, slightly above guidance, supported by steady construction progress across multiple customer sites. Revenue for the manufacturing segment reached $950 million, and our gross margin was 29.1%. The sequential 1,460 basis point increase was driven by healthy energy storage volumes and the tariff refund. With unit shipping costs holding steady and disciplined management of operating expenses, we achieved operating income of $127 million. Now referring to slide seven regarding e-STORAGE.

We shipped 2.6 GWh of energy storage solutions this quarter, including 500 MWh to internal and external projects under execution, recognizing revenue on 2.1 GWh of volume. We are now delivering to a diversified global customer base within a single quarter what we delivered in a full year just a few years ago. We have also significantly advanced our manufacturing capabilities. For example, our internal production of lithium iron phosphate prismatic cells is proving to be a distinct advantage in today's market. As we have now achieved a cost basis below the market price of third-party cells. This strategic vertical integration provides an economic buffer during cyclical fluctuations, while equipping us with the proprietary technical expertise necessary to drive further innovation.

To support our global momentum and markets, we are also expanding capacity at our integrated battery energy storage system and battery cell factory in Southeast Asia. We plan to double both our battery cell and SolBank capacities to ensure strong coverage of annual volumes with internally sourced compliant solutions. The new production lines are currently being constructed and will come online in the first half of 2027. As we focus on maintaining our stellar execution track record, we are also balancing growth and profitability. As of May, our contracted backlog totaled $3.5 billion, including 34 GWh of operating projects under long-term service agreements. As we continue to scale our storage business, these recurring revenue streams will also increase. Finally, we continue to actively pursue opportunities within both front of the meter and behind the meter data center applications.

While most commercialized demand today is manifesting through front of the meter contracts, we are seeing steady industry progress in the planning, permitting, and technical development required for future behind-the-meter opportunities. As this market gradually matures, we remain closely aligned with the key stakeholders driving these opportunities forward. Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Colin. Beginning with slide eight. We generated $139 million in revenue in the first quarter. Revenue improved sequentially, primarily driven by the sale of the Fort Duncan project. However, the overall contribution of this project sale was offset by related tax equity arrangement, as we had recognized tax equity gains when the project was placed in service. Fort Duncan is a milestone. It is the first standalone BESS project in our portfolio that was financed with non-recourse project finance and had no capacity contract in place. We have now successfully monetized and sold the asset profitably, demonstrating that we can also achieve profitable sales for these merchant market project types. With relatively muted project sales this quarter and ongoing platform operating costs, we posted an operating loss of $60 million.

As we continue to monetize more operating and under construction assets, the P&L impact may not be optimal in the near term. This strategy remains necessary to deliver our balance sheet and recycle capital. Turning to slide nine. As of March 31st, 2026, we have secured interconnections for 7 GW of solar and 14 GWh of storage globally, excluding projects already in operation. Our total project pipeline is comprised of 24 GW of solar and 81 GWh of energy storage. Our focus in 2026 is to reduce debt and mature our pipeline. Our pipeline is one of the largest in the industry, with a focus on the most stable geographic markets. Our strategy will also allow us to reduce operating expenses by concentrating fewer geographies within our core footprint. We are now focused on unlocking the value of the existing pipeline as it matures.

At the same time, we see the rising global energy demand trend and growing appetite for these projects. Our O&M platform continues to grow steadily and holds a contracted portfolio of 15 GW, of which 11.2 GW are already operational. The remainder is currently under construction and will join our managed project portfolio over the coming quarters. Now let me hand the call over to Xinbo, who will go through our financial results in more detail. Xinbo, please go ahead.

Thank you, Ismael. Beginning with slide 10. In the first quarter, we recognized revenue on 2.5 GW of modules and 2.1 GW hours of energy storage solutions, both slightly above guidance. As a result, revenue reached $1.1 billion at the high end of our forecast. Gross margin of 25.1% strongly exceeded guidance. It increased both sequentially and year-over-year due to the accrual of tariff refunds, which contributed 860 basis points. Without this one-time benefit, our gross margin still exceeded guidance on strong storage volumes and a healthy geographic mix of solar modules volumes. Operating expenses increased 5% sequentially as lower freight costs were offset by the absence of one-time gains recorded in previous quarters. Net interest expense in the first quarter was $36 million, down from $39 million in the first quarter of 2025.

Cost of debt was lower following refinancings in the project development business. Net foreign exchange loss was $29 million, driven by appreciation in the Chinese yuan and the weakness in the U.S. dollar. Total net loss attributable to Canadian Solar was $32 million or $0.71 per diluted share. Let's turn to cash flow and the balance sheet on slide 11. Net cash flow used in operating activities during the first quarter of 2026 was $209 million. This upflow was primarily driven by increased inventories associated with the U.S. solar and storage business. Total assets grew to $15.5 billion, driven by increased inventories to support the U.S. solar and storage business as well as U.S. manufacturing investments. In the first quarter, we invested $173 million in capital expenditures, primarily toward U.S. manufacturing initiatives.

We expect 2026 CapEx to total around $1.3 billion. We ended the quarter with a cash balance of $1.9 billion and total debt of $6.8 billion. Total debt increased mainly due to new convertible notes issued to support U.S. manufacturing. Let me turn the call back to Colin, who will conclude with our guidance and business outlook. Colin, please go ahead.

Thank you, Xinbo Zhu. Turning to slide 12, for the 2Q of 2026, we expect to recognize revenue on 3.1 and 3.3 GW of solar modules. We expect to deliver between 2.8 and 3.2 GWh of energy storage solutions, including approximately 400 MWh to internal and external projects under construction. Revenue and profit recognition for volumes delivered to these in-progress projects may be subject to timing lags. Our storage guidance range is slightly more conservative and wider due to delays related to ongoing shipping congestion. We project total 2Q revenue to be in the range of $1 billion-$1.2 billion, with gross margin expected to be between 13% and 15%. The broader solar market remains complex as incremental price increases have not yet fully absorbed upstream cost pressures.

In the storage business, we expect record volumes in the second half of the year, though margins are projected to normalize, and we remain partially exposed to fluctuations in the lithium carbonate pricing. In the face of these challenges, we remain committed to a balanced strategy focused on rigorous execution and continuous innovation. For the full year of 2026, we reiterate our U.S. volume guidance, 6.5-7 GW of module shipments and 4.5-5.5 GWh of energy storage shipments. With that, I would like to open the floor for questions. Operator?

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Colin Rusch with Oppenheimer & Co. Please proceed with your question.

Thanks so much. Shawn, this is actually a question for you on the technology side, you know, congratulations on getting the battery costs down to where you've gotten them. You know, I'm just curious about the evolution of the battery chemistry, you know, notably around incremental silicon doping for the anode side, as well as the form factor and chemistry optimization for data center duty cycles. Can you just talk about how quickly things are changing and how we can see that start to translate into some advantage pricing over time?

Yeah. Thanks, Colin. That's a good question. Now, we are working on several front of the battery storage system. You mentioned the pre-lithiation, I think, which is a way to, you know, dope additional lithium into the anode so that we can achieve like almost no degradation in the first five years and also slow degradation in the future. These are good technology and process-wise, we are all ready. However, that indeed, that will increase the cost of the battery because you have to build more lithium into it.

It become a cost balance issue. We propose this technology to our customers, and some customers see benefit, some customer get concerned about the cost because as you know, the lithium carbonate price has been, you know, has doubled in the past five minus six. The technology is ready. We can implement it on any project where this technology can provide more volume. Another approach in the chemistry of the battery is the sodium-ion battery. We also have research in this area. You know, sodium is not subject to the fluctuation of raw material. You know, sodium is everywhere, not like lithium. When the lithium carbonate price go to today's level, sodium become price competitive.

Also the sodium will have better low temperature performance and almost doesn't require any thermal management. You can also save the 2% annual, you know, thermal management electricity cost. That's another chemistry we are doing research. There are a few other technologies. I'm, you know, more than willing to go through that with you know, later on in any, you know, dedicated conversations, Colin.

Perfect. That's super helpful, Shawn. Thank you. Then on the Recurrent side, you know, given, you know, kind of where utility scale prices are in the U.S., I'm just curious about your ability to renegotiate PPAs or start cutting PPAs at substantially higher prices to support margins. Just curious about that dynamic and potential timing around that.

I would just make a quick comment here. Now for the mature product, project already in operation, the PPA is fixed. The advantage is that, it's PPA and cash flow is secure, and you can do financing, the bank financing, and non-recourse financing easily. However, it will be difficult to renegotiate a PPA already signed in place. Usually, you will have to pay, you know, pay back, your, you know, LCs through which, you know, guarantees or support PPA, if you want to do a higher PPA. I think we did one project in the past which we paid the LC and cancel PPA and renegotiate. Normally we don't.

On the other hand, Colin, we have a large pipeline of middle stage and early-stage project. This project, we have not signed PPA yet, so we'll be able to, like, repurpose it for example, the AI-DC specific applications and therefore drive higher values. In short, the mature pipeline, operating pipeline with PPA give us certainty. Meanwhile, the large pipeline of mid stage and early stage project will help us to create more values in the future. Colin.

Great. Thanks so much, guys. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.

Hi, everyone. Thanks for taking my questions. Wanted to check in with you guys more on the US cell manufacturing ramp, cell capacity ramp. You guys have had first cell out. Congratulations on that. When would you expect the commercial shipment of those cells to go into your modules? When do you think your first US module with US cell is available commercially for your customers? Thanks.

Hi, Philip. It's an interesting question. We have answered, we mentioned that in several places in the press release and also in the prepared speech. We expect somewhere in July or two months later to have commercial operations. Then we'll be able to make our own modules with the HJT solar cell and deliver to customer. That process should be fast. If we can have a commercial delivery in July, then probably in August, September, we'll have the first module delivered to our customer. I would like to caution you, all these expectation right now, they are still two, three months to go. This is the first time the industry ever start to produce HJT, heterojunction cells in U.S.

It will be a milestone and, it's not an easy task. I just want to caution you about that. However, our expectation is in Q3.

Great. Thank you for the additional color, Shawn Qu. As it relates to your sourcing of third-party cells, can you remind us what countries or places you're sourcing those cells from? Do you have any exposure to Ethiopia? You know, there was that new petition that was filed a couple days ago or yesterday on a potential new anti-circumvention tariff on cells coming from Ethiopia. Finally, do you buy any blue wafers at all? Is that or in your supply chain, do you have exposure to blue wafers? Thanks.

Thanks, Philip. That's a very tricky question. However, I will give you a straightforward answer. Now, we do source outside cells and also import cells from other countries to U.S. We are transitioning to more and more domestic cell. As I have mentioned in several previous calls, 2026 is a transition year for us. Now, we don't provide the geographic distribution or sources of our cells in this transition period. However, as far as I know, we are not subject to the exposure of the recent petition, as you mentioned.

Okay. Thank you, Shawn. Anything on blue wafers? Do you have any thoughts on that, and is that in your supply chain?

No, there's no blue so-called blue wafer. Whatever cell made in a certain country, those cells should go through the necessary solar cell steps. We, you know, for our factory, we only, you know, use so-called green wafer. The cell production process are completed in the whatever is that country.

Great. Okay, thank you. One last one here. On the IEEPA tariff in the quarter, you guys booked it. Can you talk about the accounting for that? Specifically, did you guys secure cash with that refund, or is that expected sometime in the future? If it doesn't come, then what happens to the accounting? Thanks.

Yeah, I will, you know, I will let Xinbo to supplement. Now the refund, IEEPA tariff refund, consists of, basically, I guess I would say three components. One is the refund on the tariff for imported, let's say imported solar cell or other manufacturing components. These, those refund, I believe will be approved in the COGS, which is the standard accounting. There are also some refunds of the machines we shipped to U.S. Those will not go into COGS. I think those will be used to reduce the cost base of our CapEx investment in U.S. Therefore, later on benefit on the depreciation of the machineries, machines.

Those refund, some of those will go into the CSI Solar subsidiaries because CSI Solar have done importing last year. Some of this, I believe will go to the CSIQ company because CSIQ also imported materials early this year. In terms of cash flow, I'm glad to report that we have already started to receive the IEEPA tax refund, receive the cash as of today. We have already received that cash. You will see the, you know, cash component in the Q2 accounting. In Q1, those IEEPA will be recorded. But there will be a account receivable or something like that.

Q2, you will see real cash, a credit to those, you know, account receivable. I hope I answered the question right. You know, Xinbo can supplement.

Not much to add. We received the cash tariff together with interest. Thank you.

Yeah. So far, we have started to receive tariff refund together with the interest. As you probably know, those refunds are batch by batch. It depends on every entrance or every entry of the import. What CBP do's and don'ts is to verify and refund entries by entries. Therefore, there will be like, you know, cash flow refund come to us depending on the entry. It was a lots of entries. It will be a process. However, we have already started to receive cash. Some cash already arrived in our account, bank accounts.

Great. Thank you for all the color, Shawn and Xinbo. I'll pass it on.

Thank you.

Thank you. Our next question comes from the line of Alan Lau with Jefferies. Please proceed with your question.

Thanks for taking my question. The margin in first quarter is very solid actually, even taking out the refund of tariff. Would like to know how much of the module shipment is coming from the U.S. plant. As you have mentioned, the margins from your U.S. manufacturing plant was decent. We'd like to know at approximately at what levels is it?

Yeah. I think, around 30%, 40% of the module shipment come from U.S. factory. It's more or less the same ratio as before. Wina, do you have some color to provide?

Yes. In line with our profit first strategy, we have been emphasizing our key strategic markets. You'll see quarter-over-quarter, we've maintained a very healthy mix of North American volumes. This quarter, out of our 2.5 GW, 45% came from North America. A very healthy mix that supported our module margins.

Understood. Basically, almost all of the shipment to the U.S. is manufactured by the U.S. plant.

All of, not almost all.

Thank you. Thank you. How about the margins there? Like, what's the approximate margin of the U.S. manufacturing plant?

Yeah. I will let Colin to provide colors there.

Hi, Alan. Thanks for your question. you know, we're in a transitional period in the U.S. as we transition our scale our Mesquite module operations, but bring online our cell manufacturing in Jeffersonville. There will be a transitional period. I think what we can say is with the combination of the 45X manufacturing credits, also with the economies of scale that we're building in the U.S. and the fact that we're going to be using the most advanced HJT cell technology in our products, that during this transitional transition, as we mentioned, we start to scale in Q3, Q4, and heavily into 2027, that those will all be combined and complementary to a pretty robust margin.

We strongly believe that all these factors are gonna lead to a, you know, a strong and robust, U.S., profitable business model.

Understood. Then, actually the company is already ramped up its HJT cells. Wonder if you are seeing a premium of HJT products versus other products like PERC or TOPCon products in the U.S. markets.

Yeah, Alan, we haven't commercially delivered the HJT cell yet. As I said, in answer to a previous question, we expect in Q3 we start to deliver that. However, based on the contract booking, we do price a premium of HJT cell compared to the TOPCon cell. Yes, we do price, you know, for the contract we already signed, the customers willingly accepted a premium for the HJT cells.

That's impressive. How much is the premium like, in terms of U.S. cents?

Well, it's still a ongoing process. We just start to book those contract. As far as I remember, you're talking about over 10% or maybe 10%-15% of the price premium of the HJT cell, HJT modules versus TOPCon modules. We'll give you better numbers, I guess, after Q4, when we have actual comparison of the module shipment.

Understood. If it's 10%-15%, that's equivalent to more than $0.03 maybe, which is pretty impressive. Switching gear to ESS segments. Would like to know if the margins is at around 20% level?

Can you repeat which area?

ESS, energy storage. What's the margins for ESS storage?

Understood.

-in the first quarter? Yeah.

Okay. I will let Colin to address this question.

Yeah. I think, Alan, one of the things that I'd like to point out is that our backlog continues to be very healthy. Energy storage around $3.5 billion in order backlog. We have you know, a reasonably long view on our energy storage pipeline and the margins. With that, I think everybody recognizes that there's continued price pressures. I think by diversifying our supply chain and giving ourselves a lot of flexibility in our supply chain, that we're confident in our pipeline and in the margins associated with that.

We do know that there is fluctuations in the commodity pricing and in lithium pricing, so we may see some improvements on that, but perhaps more of a cautious approach in how we present our forecasted numbers with that in mind.

Understood. Wonder if the going forward, the local production of the battery pack would help the margins?

I think everything we're doing to control our own supply chain is giving us very good strategic advantage, but also control of all aspects logistics, manufacturing costs and seamless project integration. It continues to be our strategy to grow our capabilities all the way from our lithium cell manufacturing through our complete battery systems, but also in our total ESS solutions. Total integrated ESS solutions, including software, technology, the PCS, the battery themselves and supporting that with a very strong engineering and execution team as part of our strategy to also deliver lots of value for our customers.

Also the as we mentioned in the prepared remarks, our long-term service contracts to support this is also very valuable to our customers and to us as it continues to be ongoing, recurring business for our energy storage business.

Understood. Understood. Last question from [audio distortion]. Is there any difficulty or any challenges in expanding the cell capacities, given there were some rumors saying that the export of solar cell capacities might be prohibited, et cetera. I wonder if when you're expanding your capacities to 6.3 GW, wonder if you get any challenges in getting your equipment in place?

So far, we don't see that challenge. I know what you are talking about, and I hope that this, the President Trump's visit to Beijing, I believe he just shake hand with President Xi of China, several hours ago. I hope that visit will help to smooth out and the trade relationship. However, so far, we don't see any challenges for our, especially for our phase two equipment deliveries. We haven't started to take delivery of the phase two solar cell equipment. As we mentioned, phase one, we plan to ramp up in 2023, and phase two will start to move in equipment in 2024, probably in October, November timeframe, and we'll start ramp up in of the phase two of Jeffersonville early next year.

We haven't taken deliveries of those machines yet, but so far, we don't have, we haven't see any restriction, at least not to our contract. By the way, we signed the related, equipment contract for the phase two machineries very early. That was before any noise around this issue. I believe that the fact we have already signed those equipment contract, we have also paid some down payment, also give us of advantage, if there's any restriction. I think restriction may be to the future equipment, not for our machines. I think our machine is more or less, you know, grandfathered, whatever, if there's any restrictions, you know, come out.

However, I do hope that President Trump's visit will help to further clear any of the uncertainties in this area.

Thanks, Shawn. It's very clear and hope things goes smooth in expansion as well. Thanks a lot. I'll pass on. Thank you.

Thank you, Alan.

You're welcome.

Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho Securities. Please proceed with your question.

Hey, hello, everyone. Thanks for taking the questions here. Can we just question on the guidance, if you could talk about, like, the mix of manufacturing versus Recurrent in Q2, is it similar to what we saw in Q1? Also for the U.S. or North America exposure, how to think about the mix in Q2 versus Q1? Thanks.

Yeah. I will ask Colin to address this question.

Well, I think, first of all, thank you for your question. With respect to the guidance, we are reiterating our U.S. guidance from last quarter. We feel confident in our current execution. We don't expect any significant downside on our reiterated guidance as we put out in our prepared remarks.

Gotcha. Just to get you on the mix in Q2 versus Q1, for the manufacturing versus recurrent and North America versus rest of the regions.

I think, if I understand the question correctly, most of our shipments are to third parties, very little to our recurrent operations in terms of our product shipment. I'm not sure if that is at the root of your question.

That's all. I'll follow up offline on detail on that. Separately, a question on the e-STORAGE business. How much of the backlog is North America for you guys, and for Canadian, for CS PowerTech? Also, are you seeing any interest or any orders in the pipeline from data center customers or hyperscalers looking to deploy batteries on-site? Thanks.

Sure. Yeah. Two good questions that I appreciate you raising. About 40% of our business is in the U.S. right now. Obviously, we're seeing that demand increase, both the build-out of infrastructure, front of the meter, and now we're starting to see a lot of progression into behind the meter opportunities. Today we, you know, we're pretty happy about our global pipeline and that we're diversified. We have, just to talk before I come back to the U.S. and the data center question, you know, we have about 60% of the U.S., or sorry, the Canadian battery market. We have over, I think, 4.5 GWh contracted there.

We're, I think, in the leading position in the U.K. market. We're starting to see a lot of progress in Europe now as those key markets in Europe are starting to become very active. Similarly in Japan as the BESS market's maturing in Japan. We're seeing a lot of opportunity for that market. As well, we continue to be steady with 2 GW, GWh a year in Australia. Having that diversification, I think is good for our e-STORAGE business. With respect to the question about AI-DC, well, we have been working on this for quite a while.

Last quarter, we announced a front-of-the-meter infrastructure project, 2.5 GWh, to support data center growth. We have developed a very focused business development and technology teams focusing on making sure that our solutions have the right technical requirements, the stringent requirements for fast response for data centers and the other requirements. That's getting a lot of traction, as well as the fact that we're able to offer fully compliant solutions for data centers.

While we cannot actually disclose who we're working with, I can tell you that we're very engaged right now on data center opportunities, and that, it's a big part of our program and our focus, and we expect it to yield some pretty exciting results for us in the next quarters that, hopefully we'll be able to be a little more forthcoming about as we get further along in the contracting processes.

No, that's fair. I appreciate the detailed color on the different markets as well. Maybe just one last one on the guidance for the rest of the year. I know you obviously haven't guided for Q3, Q4 or the full year, but directionally, like, how should we think about the business here with the U.S. factories ramping up? Should we be looking something similar to last year's cadence or something different here? Any color would be helpful. Thank you.

Well, I guess if we look at the solar side first, there's been a lot of volatility in that market. There continues to be a lot of volatility. Our approach, as you know, has been to focus on profitable business over volume. On that basis, we've been reserving guidance, but keeping an opportunistic position to strike with more volume as the market support it.

We see, I think on the solar side, hopefully some improvements that we can take advantage in terms of volume on the second half, but reserving a little bit our position on guidance and focusing on the U.S. where we have, you know, a strong line of sight on our volumes and our guidance. With storage, our pipeline remains strong as we've mentioned, and we have also, in our prepared remarks, expressed that we will hit record deliveries in our storage side for the second half of this year.

These are projects that go through a very sophisticated level of planning and logistics, and it's based on that that we're very confident in the second half of the year on our storage side. We don't see barring any unexpected circumstances, a very strong second half for our energy storage business, probably in record deliveries.

Thank you. Appreciate the color, Colin, and congratulations on the appointment. Thank you.

Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to management for any final comments.

Thank you for joining us today and for your continued support. If you have any questions or would like to set up a call, please contact our investor relations team. Take care and have a great day. Thank you, everybody.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's fourth quarter 2025 earnings conference call. My name is Melissa, and I will 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 Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome everyone to Canadian Solar's fourth quarter 2025 conference call. Please note that today's conference call is accompanied with slides, which are available on Canadian Solar's investor relations website within the Events and Presentation section. Joining us today are Dr. Shawn Qu, Chairman and CEO, Colin Parkin, President of Canadian Solar and President of e-STORAGE, Ismael Guerrero, Corporate VP and President of Recurrent Energy, Canadian Solar, and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Colin and Ismael will review business highlights for manufacturing and Recurrent Energy, respectively, and Xinbo will go through the financial results. Colin will conclude the prepared remarks with the business outlook, after which we will have time for questions.

Before we begin, I would like to remind listeners that management's prepared remarks today, as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under 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. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F, filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP.

Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. Now I would like to turn the call over to Canadian Solar's chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Thank you, Wina, and thank you all for joining our fourth quarter earnings call. 2025 was another challenging year, marked by persistent market headwinds and a shifting regulatory landscape. Through these turbulent conditions, we demonstrated strategic resilience and operational discipline. We prioritized the margin and diversified our profit drivers, particularly in energy storage. Now, let's review our operating and financial results. Please turn to slide three. In the fourth quarter, we shipped 4.3 GW of solar modules, bringing total shipments to global customers to 24.3 GW for the year. In response to the prolonged solar downturn, we have pivoted away from industry's traditional focus on shipment volumes. Instead, we are concentrating on strategic high-value markets. Notably, in U.S. market, we continue to build on our historically strong track record. In 2025, we delivered a record 8.1 GW to the United States.

In energy storage, the volatile tariff environment shifted some shipment volumes into 2026. Even so, we ended the year with a record 7.8 GWh of global shipments, including 3.9 GWh delivered to the United States. Given downward adjustments in both solar modules and energy storage volumes, along with lighter project sales from Recurrent Energy, our total revenue of 2025 was $5.6 billion. Gross margin improved by 160 basis points year-over-year. This was driven by a higher mix of module shipments to high-value regions and a larger shares of storage volumes delivered under third-party contracts. We maintained tight control over operating expenses and achieved operating income of $43 million for the full year.

However, a volatile macro environment increased FX losses and interest costs throughout, as we increased debt to support our IPP build-out. As a result, we recorded a net loss attributable to Canadian Solar of $104 million, or $2.5 per diluted share. Canadian Solar has continuously evolved over more than two decades in the renewable industry. Global opportunities have shifted over time, and we have built a strong global track record across solar manufacturing, storage manufacturing, and project development. Today, we see a compelling opportunity to create value by returning to our home base in North America. In December 2025, we announced a strategic initiative to resume direct oversight of our U.S. operations by forming our new U.S. manufacturing platform, CS PowerTech. For an update on our U.S. manufacturing roadmap, please turn to slide four.

Canadian Solar is spearheading the effort to reshore manufacturing to North America. In Mesquite, Texas, we have successfully ramped our solar module factory to an annual production run rate exceeding 5 GW, supported by 1,500 local employees. As we have previously noted, we believe the United States is best served by resilient domestic supply chain. Consistent with this view, we are doubling our nameplate capacity to 10 GW peak by the end of 2026. This expansion is expected to increase our local workforce to 1,700 employees. This will make us the largest crystalline silicon solar module manufacturer in the country. We are also pleased to report progress at our flagship solar cell factory in Jeffersonville, Indiana. In response to strong customer demand, we're expanding our initial nameplate capacity beyond the originally planned 5 GW peak as we install and commission additional production lines through 2026.

Phase I will have a nameplate capacity of 2.1 GW peak and will use state-of-the-art heterojunction technology or HJT. Trial production is scheduled to begin next month. Phase I will represent the only commercially operational HJT solar cell facility in the United States. Phase II will add 4.2 GW of capacity, bringing our total U.S. solar cell nameplate capacity to 6.3 GW peak. This will make us the largest crystalline silicon solar cell manufacturer in the country. We expect the trial production of phase II to begin by the end of 2026. We recognize the significant value of adding phase II to our solar cell facility, and we believe the market does as well. This was demonstrated by our recently completed $230 million convertible bond issuing. Demand for storage in U.S. also continues to grow strongly.

The record build-out of data centers to support AI growth is driving increase in power demand for data center infrastructure. Our OBBBA compliant storage solutions produced in Southeast Asia have seen very strong demand. As a result, we plan to scale the resources there to increase both system and battery cell capacity throughout 2026. Hence, we'll be both expanding our Southeast Asia energy storage manufacturing capacity and advancing phase II of our U.S. solar cell factory in tandem. Given the commercial priority of these two significant investments, we are strategically delaying progress at our battery cell and BESS production facility in Shelbyville, Kentucky. Given our long-term commitment to U.S. manufacturing, Recurrent Energy will proactively rebalance its business towards monetizing in construction and operating assets in order to optimize cash flow and manage leverage.

In conclusion, I am proud of our team for delivering strong performance this year, and I look forward to continue the momentum we are building in our U.S. manufacturing initiatives. With that, I will now turn the call over to Colin, who will provide more details on our manufacturing business. Colin, please go ahead.

Thank you, Shawn. Please turn to slide five. In the fourth quarter, we continued to operate against a challenging solar market backdrop. Upstream cost increases, particularly in silver, along with the cost associated with underutilization across our global solar supply chain, required careful volume management to protect margins. As a result, we delivered 4.3 GW of solar modules below our guidance. In storage, shipments were delayed into the first quarter of 2026 due to construction delays at one of our customer sites. As a result, we delivered 2 GWh slightly below our guidance. These two volume shortfalls resulted in lower than expected revenue of $1.3 billion. Solar module ASPs remained at record lows throughout 2025. We have been an industry leader in pivoting away from volume growth towards value growth.

By controlling shipments to less profitable markets and increasing shipments to the U.S. market, we maintain blended pricing above the industry average. In 2025, the U.S. accounted for approximately 1/3 of our global module shipments. Meanwhile, our storage business in 2025 faced challenges created by tariff volatility and the passage of the One Big Beautiful Bill Act. These policy uncertainties materially impacted customers' project planning. While we did not lose any opportunities, some volume shifted into 2026 as we work closely with customers to navigate these trials. Margins normalized in the second half of the year as we delivered more recently signed contracts. With the increase in lithium carbonate prices, we are actively managing our exposure. Today, the two most important drivers of our manufacturing margin are the mix of solar module shipments to the U.S. and the performance of our storage business.

Within U.S. module shipments, domestic manufacturing is becoming increasingly important to margin as we reshore production and deliver a greater portion of our strategy through our own domestic capacity. Now let me walk you through the latest updates on our battery energy storage business. Please turn to slide six. We delivered 2 GWh in the fourth quarter, corresponding to $297 million in revenue after accounting for volumes delivered to our own projects. Despite the delays caused by policy changes, we ended the year with a record 7.8 GWh of energy storage shipments delivered globally, a year-over-year increase of 19%. Over the past three years, we have tripled our sales in this business. Our momentum is further reflected in our record contracting backlog of $3.6 billion as of March 13, 2026.

This includes contracted long-term service agreements covering 29 GWh of projects. Today, we are the market leader in our home country of Canada in terms of contracted volume with multiple gigawatt hours under contract. We maintain a strong presence in key markets, including the United States and the United Kingdom, while scaling delivery in newer markets such as Australia and Latin America. At the same time, we continue to actively engage in markets such as Japan and mainland Europe, where we see attractive new opportunities. In terms of applications, we see a significant opportunity driven by the rapid build-out of data centers. For example, the 2.5 GWh supply agreement we recently signed with a major U.S. utility reflects the sharp increase in electricity demand driven by AI and hyperscale data center development.

Battery energy storage is playing an increasingly critical role in supporting the additional power requirements of data center infrastructure. By strengthening regional grid capacity, our storage solutions help ensure reliable power for these emerging loads. We have built a dedicated team focused specifically on the requirements of data centers and related infrastructure, and we are beginning to see the strong results from that effort. Our focus is on delivering comprehensive power solutions, including support for data centers and long-duration applications. Our differentiation lies in providing compatible, competitive and reliable total solutions. We combine strong execution capabilities, deep experience in complex grid interconnection and commissioning, and long-term service expertise with a proven product platform and track record.

This allows us to deliver the value our customers are seeking as they navigate the changing demands created by rapidly growing electricity loads. Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Colin Parkin. Please turn to slide seven. In the fourth quarter, we sold a few small PV projects in Japan, bringing total full year 2025 sales to nearly 1 GW. Revenues from operating solar and battery energy storage projects decreased sequentially due to seasonality, while power services performance remained stable. Two major project sales originally planned for the fourth quarter have now shifted into 2026. One of these projects has already been sold in the first quarter. Gross margin was further pressured by impairments to project assets within our pipeline. Moreover, without sufficient scale from project sales during the quarter, we were unable to cover operating expenses, resulting in an operating loss of $69 million. We continue to shift our business mix towards the monetization of operating and under-construction assets in order to strengthen our balance sheet and improve cash flow.

As we manage the pace of construction activities, we are also optimizing our pipeline for quality, focusing on generating value from existing opportunities. Please turn to slide eight for an update on our pipeline. As of December 2025, we have secured interconnections for around 7 GW of solar and 15 GWh of energy storage globally, excluding projects already in operation. As part of our continued effort to streamline our pipeline, we have removed projects that have been impaired this quarter. Following these adjustments, our total project pipeline now stands at 24 GW of solar and 83 GWh of energy storage. Now let me hand the call over to Xinbo Zhu, who will go through our financial results in more detail. Xinbo Zhu, please go ahead.

Thank you, Ismael. Please turn to slide nine. In the fourth quarter, we delivered revenue of $1.2 billion. Revenue was below guidance due to project sales delayed into 2026 and lower than expected volumes in both solar and storage. Gross margin was 10.2%, impacted by project asset impairments at Recurrent Energy and the inventory write-down in our manufacturing business. Selling and distribution expenses decreased 20% sequentially, primarily due to lower shipping costs associated with reduced shipment volumes. General and administrative expenses decreased 8% sequentially, driven by continued cost control measures. Net interest expense in the fourth quarter was $39 million, up $10 million from the prior quarter. This increase was driven by a modest rise in total debt balances.

Net foreign exchange loss in the fourth quarter was $15 million, driven by a weaker U.S. dollar and a stronger Chinese renminbi. Total net loss for the quarter was $131 million. Net loss attributable to Canadian Solar shareholders was $86 million or $1.66 per diluted share. Now let's turn to cash flow and the balance sheet. Please turn to slide 10. In the fourth quarter, net cash flow used in operating activities was $65 million, driven by change in working capital, specifically an increase in project assets, partially offset by a decrease in inventories, as inventory in the prior quarter had increased in anticipation of higher input costs. Capital expenditures for the year totaled $962 million, slightly below forecast. This was primarily due to payment timing, which we expect to occur in 2026.

Net cash provided by financing activities was $22 million, as debt increased incrementally to provide additional financial flexibility for the group. Of our $6.5 billion in gross debt, non-recourse debt under Recurrent Energy as of December 31, 2025 was $2.2 billion. We ended the year with a cash balance of $1.9 billion, which we will deploy prudently in line with our strategic priorities. Now let me turn the call back to Colin Parkin, who will conclude with our guidance and business outlook. Colin Parkin, please go ahead.

Thank you, Xinbo. Please turn to slide 11. For the first quarter of 2026, we expect our manufacturing segment to deliver solar module shipments between 2.2-2.4 GW. For energy storage, we expect shipments between 1.7-1.9 GWh. We forecast total revenue for the first quarter to be between $900 million and $1.1 billion, with gross margin expected to range from 13%-15%. Margins in the first quarter are expected to remain soft across both the manufacturing segment and Recurrent Energy. This reflects cost increases across the solar supply chain as well as delayed project sales at Recurrent Energy. For the full year of 2026, we are issuing new guidance.

We expect to deliver 6.5-7 GW of module shipments and between 4.5-5.5 GWh of energy storage shipments to the U.S. market. Our solar module shipments in the U.S. are expected to be slightly lower in 2026 compared with 2025. This is due to a limited supply of solar cells qualified as non-FEOC under the OBBBA during the first half of the year. The elevated cost of these cells will also affect profitability. We believe this constraint will be temporary as our own domestic solar cell production ramps during the second and third quarters. Similarly, battery energy storage shipments are expected to be weighted towards the second half of the year. Within our project development business, our focus remains on rebalancing the portfolio towards asset monetization while continuing to optimize our cost structure.

Overall, 2026 will be a transition year as we accelerate our U.S. manufacturing roadmap and further diversify our long-term profitability drivers. With that, I would now like to open the floor for questions. Operator?

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Colin Rusch with Oppenheimer & Company. Please proceed with your question.

Thanks so much, guys, and congratulations on being able to shift the business so aggressively here. You know, I'm curious about the pricing environment in the U.S. You know, what are you guys seeing in terms of trend lines here and long-term support for pricing that supports the aggressive capacity expansion?

Yeah, Colin, this is Dr. Shawn Qu speaking. I guess you mean the solar pricing.

That's correct.

Long-term price. Solar long-term pricing in the U.S. is stable. As a matter of fact, I mean, our main market in the U.S. is the utility-scale project market, which are usually like larger-scale projects, big orders and with a few quarters of lead time, in general. In this market, we have seen the pricing per watt going up. For example, from the beginning of the year till now, we have seen the U.S., you know, pricing on average go up by like $0.02-$0.03, some more, more mainly in response to, I think number one, the tight supply of the so-called OBBBA compliant solar cell supply. But also response to the higher material cost, especially the silver cost.

I think this will allow us to sustain the margin in the U.S. market. Now, for the storage, we also see the price stable and also respond to the higher lithium price. As you probably know, the lithium carbonate price also went up along with other commodities. Major commodity prices also went up. You know, the lithium carbonate price also went up this year, you know, since late December. The current new price reflected this. This will allow us to maintain the growth margin more or less for the U.S. market, Colin.

Thank you so much, Shawn. That's super helpful. Then just from an organizational perspective, as you you know look at a different strategy around revenue and margin, how should we be thinking about the operating expenses and you know the baseline there and how that allows for some you know some significant operating leverage as you start to grow again on the top line?

Yeah. In terms of operating expenses, we see it going down, like, proportional to the shipment volume because a large part of operating expenses is the shipping cost. Also the overhead cost to support the volume. If the volume grow, then the operating expenses also grow. If the volume go down, this operating expenses also go down. That's in case of. In June, we will see some increase of operating costs for the energy storage. Meanwhile, we'll see operating cost reduction in the solar area. I think going forward, the challenges are in the solar. If the solar price continue to go down, then that will make the, like, percentage operating expenses for solar bigger.

However, fortunately, I mean, since Q1, I mean, since January this year, we don't see the absolute ASP of solar module going down anymore. We actually see it go up. Also we don't see the energy storage price going down. It is also going up. I think, as long as we can continue to control and operating expenses and make our operation more efficient, we'll be able to grow the bottom line. I think that you will see that happen starting from Q2, I believe.

Perfect. Thanks so much, guys.

Thanks, Colin.

Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.

Hi, all. Thanks for taking my question. On the project delays, sorry if I missed, but what drove the project sale delays from Q4 into 2026? Can you give some additional color also on the impairments that you guys experienced? Thanks.

Yeah. I'll ask Ismael to address this question and Xinbo Zhu to make any supplement if necessary. Ismael?

Sure.

Ismael?

Thank you, Shawn. Thank you. Look, there were a couple of projects that delayed mainly due to permitting delays. One of them was already finalized. The other one is under exclusivity, so it should be finalized soon, hopefully. Mainly permitting delays. Look, the impairments are on. I mean, the main reasons are twofold. One is change on legislation is in some of the countries we play, and many projects that we were developing early stage, we believe might not be making sense anymore, and we stopped putting capital into them with the changes on the regulations. There were a bunch of them on that part and some others on which interconnection suddenly the interconnection costs went through the roof, and we don't see them viable, not for us and not for anyone. We also decided to stop investing in. Those are the two main drivers.

Got it, Ismael. Thanks. Can you share which countries and where you might be downsizing your efforts, either due to legislation or to the interconnection costs? Thanks.

The biggest bulk on solar in U.S. because of the changes on regulation there. Italy also because of the grid reform, also a little bit in France. Those are the main three. A little bit in Spain also, but not major.

Great. Thanks. Shifting over to the guidance. If you can you explain a little bit more why the 2026 guidance is only focused on the U.S.? Although Q1 has global numbers there, was wondering if you could also share what the U.S. mix for Q1 might be. Also, what the 2026 CapEx might be. Thanks.

Philip, again, this is Shawn. We have already provided a global guidance in November last year. We only added the new guidance for U.S., which we usually mention during the call, but we don't put it in writing. This time we put it in writing for the U.S. guidance. In terms of CapEx, I will let Xinbo Zhu address. I want to mention that the new CapEx for 2026 is mainly in United States. We have some remaining payment for the capacity in other place, but most of the CapEx are in United States. We also have some new CapEx in Southeast Asia for the energy storage, you know, productions and the lithium battery energy storage production. Those capacity are mainly prepared for U.S. Now, Xinbo, do you have some new numbers to share?

Yes. It's not new numbers. The same as what we guided in last earnings call. It's around $1.2 billion for this year, the CapEx.

There might be some uncertainties because of, hopefully, the lower tariffs to the U.S.

Great. Okay. Thank you, Xinbo and Shawn. One more, if I may. As it relates to the Section 337, that investigation, I was wondering if you might be able to provide some color on that as well as I think the USPTO recently rejected your attempt to invalidate the First Solar TOPCon and lawsuits. Just if you can give us some perspective on the IP situation. It looks like you're focused more on heterojunction, so maybe it's not that relevant. Just wanted to touch on this for a bit. Thanks.

First of all, Philip, we have decided to use a heterojunction, HJT technology for our U.S. domestic solar cell factory a few years ago, before the legal challenge from First Solar. We made a decision independently because we believe we are a master of the HJT technology, and this technology has some very distinguished advantages. First of all, HJT has higher theoretical efficiency limit than the TOPCon solar cell. Second, although both TOPCon and HJT are N-type, you know, for the application on Earth, it's N-type, right? For the application in the space, some scholars believe P-type HJT has more advantage.

You know, although the TOPCon and HJT are both N-type, HJT does have higher efficiency and also thinner wafers. It has the potential to go thin wafers, therefore further reduce the cost. Also, there was another advantage of HJT technology which has just become more significant recently, which is the low silver use. You know, when we decided to use HJT for the U.S. factory, the silver cost was not that high. Like two, three years ago, polysilicon cost is still number one, not like today, silver cost all of a sudden become number one. HJT uses the so-called low-temperature process.

As you probably know, the processing temperature, the highest processing temperature is around 200 degrees Celsius, rather than for N-type or TOPCon, which you have to go through some 800, 900 degrees Celsius process. Because it's low temperature, we can potentially use less silver and more copper in the paste. Therefore, it will have very significant savings in terms of of you know, silver cost. Recently, I have called the R&D team in our company to focus on what I call the zero silver technology. For zero silver, we can see that the HJT will go faster than the TOPCon technology. Because of those events, you know, HJT is more of a automated and equipment-dependent process than operators dependent.

Its operator per watt capacity is much less than the TOPCon. It will make reduce the initial operator training burden for us in U.S. That's why we choose HJT. As I said in my remark, we will see the first piece of HJT cells off our lines in Jeffersonville, Indiana by the end of this month. Next quarter, we will start the ramp up process for this one. I think that the result today, you know, what happened today shows that we made the right decision on the technology selection. Also showed our, you know, depths in the R&D and technology reserve in the company.

Now, turning to the on the legal patent side, I don't want to comment too much on the legal cases. I do want to emphasize that USPTO pretty much rejected all the review request for patents. It's not specific to us, but it's rather a change of their practice. I don't think it affect or it will weaken our position in front of the court. We have you know we firmly believe that our technology is sound and also we have not you know infringed any of you know other patents. Now, in terms of 337, it's going to be approximately a one-year process or more than one year. You know, it's a process in front of ITC. We'll let the process go.

As I said, we are confident our technology and our patent determination. Meanwhile, we have flexibility. As you see that we have the HJT technology going in U.S. already. By the end of this year, we'll be ramping up the phase II. In Q1 next year, you will start to see 6 GW, 6.3 GW of nameplate capacity running in United States. That will more or less cover a large part of our solar cell requirement of our Mesquite solar module factory. I also said that we increased our nameplate capacity of the solar module factory, you know, in Mesquite, Texas to 10 GW.

For the remaining 3 GW, we will either use TOPCon to supplement or we might use a PERC technology. Altogether, I'm confident that right now what you are seeing right now is a transition process, you know, ongoing. Starting from second half of this year overall, you will see the result of this, you know, transition. I think we will be one of the most stable players in the global market, especially in the U.S. market. Phil.

John, thank you very much for the comprehensive answer. I'll pass it on.

Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho Securities. Please proceed with your question.

Hey, hello, and thanks for the questions here. On the Jeffersonville expansion, and then even the module expansion, can you talk about like the capital needs, so CapEx needs for those? And then separately on the FEOC side or compliance with FEOC and just touch upon that with this new strategy. Did you still need the 45x, or how do you plan to address the material assistance or any other rules around the foreign entity of concern language in the OBBBA? Thanks.

Yeah. This is Shawn. As I also, as we said in the remark, we are more or less completed our restructuring necessary to be compliant to the OBBBA by December. We formed a new entity, which is called CS PowerTech for U.S. manufacturing. This is, you know, the CS PowerTech and all the subsidiary under it has 75.1% ownership from Canadian Solar. Canadian Solar is headquartered in Kitchener, Ontario. I mean, we just actually had our, you know, first board meeting of 2026 in Kitchener, Ontario.

We'll have the second board meeting in Kitchener, Ontario, very soon by May. As you'll see, the major decision-making and those corporate activities are ongoing in Canada, which makes Canadian Solar a clear Canadian operating company. With this structure, we believe we are compliant with the OBBBA. In terms of CapEx, most of CapEx for 2026 will happen in the United States. There are some CapEx spending for the Mesquite factory, the solar module factory. We mentioned that we expanded the capacity there from 5-10 GW. That will add a little bit of equipment, but the buildings there, most of the facilities there.

The expansion cost is way lower proportional to, you know, compared with the historical spending. That's a very efficient expansion. For the Mesquite solar cell phase I and phase II all together, the total CapEx will be over $1 billion. That's why you see the numbers. Most of the CapEx numbers for 2026 occurred in, you know, Jeffersonville, Indiana, for the solar cell phase I and phase II. However, the phase I is pretty much already there. All the equipment are there. Now we are adding the phase II there. There are also some CapEx expansion in Southeast Asia for the lithium battery and storage factory. Those are where the expansion and new CapEx are happening in this year.

Got it. No, appreciate the clarity there. Maybe just a follow-up on the manufacturing for the U.S. Any thoughts on what gross margins you're targeting for either the cell or module or the battery manufacturing in the U.S.? Secondly, if you could just talk about any orders you've received for the manufacturing for 2027 or 2028 at this stage in the U.S. factories.

Yeah. The U.S. factory, you know, first of all, we typically don't guide the gross margin for future quarter and future years. However, I can share that for the solar module manufacturing, the typical gross margin demonstrated in previous years, in 2025, is more than 20% for the U.S., you know, manufacturing and U.S. orders. This year, for this first half of the year, the margin might be a little bit, you know, tight because of the tight supply of the so-called OBBBA compliant solar cell supply, as I mentioned in my call, and also because we are waiting for our Jeffersonville solar cell factory to contribute for the second part of the year.

That tight supply caused a little bit, you know, reduced the volume in U.S., also as we guided, and also a little bit higher price for the, you know, solar cell supply to the U.S. However, I think this is purely transitional. First of all, when I addressed one of the previous questions, I said that the U.S. market seems to be able to respond to the cost increase when we tell our customer that the cost increased because of the silver and also because of the tight supply of the OBBBA compliant solar cells. Most of our customers are willing to shoulder some of this cost.

I also want to mention that, from now on, looks like we'll see less tariff impact on the cost. I don't know how long will it last, but I do know that for at least in Q2 we'll see the benefit of a lower tariff. Moving into second half and moving into next year, when we start to switch more and more into our domestic manufacture solar cell, the tariff will become a small question. To repeat, historically, we do see over 20% gross margin for U.S. solar manufacturing. Now, for the energy battery, we did say that, we are targeting, like, 20% or higher gross margin for global shipment, including U.S. and non-U.S. Now, Colin Parkin, do you have additional comment on this topic? Audio? That's okay. I think we can just move on.

Yeah, maybe. Nothing else on that, but just, like, quick clarification just on the 25-30 GW of shipments that you previously guided for 2026. That's still wise or is that something you'll guide later or revise that later?

Can you repeat? I repeat your question.

Yeah. No, sure. You previously guided 25-30 GW of solar shipments for 2026, right? Does that still hold or that's something you'll revise in coming quarters?

Yeah. Well, first of all, we didn't provide any new guidance this year. However, as we see at this point, we think the volume target for 2026, yes, you know, it's not our priority, but rather the profit is our priority. This is due to, number one, the increase of cost of the solar cell. Number two, you see that, our total volume in U.S. will go down a little bit compared with last year, but it's more due to the supply chain issue, you know, before we bounce back next year for the U.S. shipment. The current conflict in Middle East will also, I think, impact the market, especially the demand from the Middle East.

You know, it hasn't materialized yet, but we do expect some turbulence there. For the volume, the megawatt volume of solar, we think it's getting challenging, and we are not focusing on that for this year. However, we are still early. We are still in March. You know, I have been in the solar industry for 30 years, and Canadian Solar has been operating for 25 years. We do see, in turbulent years, sometimes the volume can switch off and on very fast. We will provide the annual global guidance on volumes in later quarters when we have more clarity.

Thank you. Appreciate it.

Thank you. Our next question comes from the line of Alan Lau with Jefferies. Please proceed with your question.

Thank you for taking my question. Congratulations on winning a major orders in relation to AI data center for energy storage. Would like to know how does that project work? Like, do you sell power to the utility company, which in turn or where it is supplying the power to a data center? Do you know how big is the load for the data center?

Oh, I think you are asking the question about our new press release, right? On the

Yes.

2.5 GWh order. Colin is the president for Canadian Solar, as well as our subsidiary, e-STORAGE. Colin, do you want to comment on this question?

Sure. Thanks, Alan, for your question. That particular project, although we can't name the customer, is for a major U.S. utility, and it is part of their strategy to build out a power supply for a major hyperscale investment. That is a front-of-the-meter solution. What we're seeing right now is much of the utilities and infrastructure is being formed around the additional power demands for data centers front-of-the-meter. We're also seeing trends for behind-the-meter and direct-connected data centers, which this is not the case. This is an infrastructure support project.

We do expect to see the trend moving towards more behind-the-meter total power solutions for data centers, which is why we mentioned in our commentary earlier that we are focusing on providing total power solutions to address both front-of-the-meter and direct behind-the-meter connections for data centers. Part of that is the modeling, understanding the modeling and the requirements for the data centers particular application load, flow requirements and response requirements, which are very stringent. Testing those requirements in advance, doing hardware-in-the-loop testing and configuring our total solutions to support the complex needs for data centers. As I mentioned, we're seeing both the front-of-the-meter and behind-the-meter, but more this particular one is a front-of-the-meter, and we'll see more of that as well. Did that answer your question, Alan?

That's clear. Just a quick follow-up on that. For the behind-the-meter discussion ongoing, you mentioned about a total power solution. Does it mean that you also have to consider the reconnection requirement to stabilize the load requirement from the data center drawing power from the grid? Is it part of the package and on top of powering data center?

That's right. That's part of the total solution that we're looking at. In some cases, auxiliary equipment, power supply equipment, and even potentially generation equipment completes the total power solution. We can do some or part of that with partners, but we're looking at the data center opportunities in a much more holistic power solution approach. We think that's part of the value that we'll be adding as we look forward to participating in the AIDC markets. I think you'll see more coming from us in terms of our advancement of technologies beyond just the known capabilities that we have with our battery technology. The other thing that I think we've mentioned earlier is we're focusing on how to bring that additional value to our customer in terms of executing projects, servicing and supporting the equipment with long-term performance and guarantees to meet the specific requirements for data centers.

Thank you. Thank you.

Thank you, Alan.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any final comments.

All right. Thank you for joining us today and also for your continuing support. If you have any questions or would like to set up a call, please contact our investor relations team. Take care and have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.