Canadian Solar Inc.
Q3 2020 Earnings Call Transcript

Published: 19 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2020 Earnings Conference Call. My name is Rachel, 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 Isabel Zhang, IR Manager at Canadian Solar. Please go ahead.

[Isabel Zhang:]

Thank you, operator. And welcome everyone to Canadian Solar's third quarter 2020 conference call. Please note that we have provided slides to accompany today’s conference call, which are available on Canadian Solar's investor relations website.

[Shawn Qu:]

Thank you, Isabel. And hello, everyone. Welcome and thanks for joining us today. I am pleased to report a strong effect of third quarter results as we achieved 3.2 gigawatt in module shipment, achieved total revenue of US$914 and gross margin of 19.5%, which was all ahead of our expectations.

[Yan Zhuang:]

Thank you, Shawn. On the MSS business, Q3 shipments were up 33% year-over-year to 3.2 gigawatts above guidance. Revenues and gross margin of $695 million and 18.5% respectively were also better than our expectations, as demand came back strong and costs did not increase as fast as we anticipated. Shawn briefly talked about the strategic direction of the MSS business. Turning to slide five, please. We're making a deliberate strategic shift as we enter a new era of growth in solar energy driven by grid parity. Historically, we took a capitalized approach that gave us the flexibility to quickly respond to unexpected policy and market change. Today, as global decarbonisation efforts intensify, and solar energy continues to improve its competitiveness, we expect more stable and sustainable demand growth. This is why we're shifting our strategy towards growing market share facing vertical integration to better control our manufacturing costs. Specifically, we're planning to nearly double our manufacturing capacity across the supply chain and increase our ingot wafer cell and module capacities to 11, 18 and 23 gigawatts respectively, by the middle of 2021. All new capacity will be in the latest technology and will produce our latest 500 and 600 watt plus modules, which we introduced during the past Q3. The new capacity will contribute to our 2021 gross margin as soon as 2022 next year and it will support our 18 to 20 gigawatts shipping guidance for 2021. This is a long term growth plan that will be supported by the China listing of CSI Solar, which includes our MSS business, and the China Energy business. We believe that extending access to China's deep and liquid capital markets will continue to reduce our cost of financing and boost our long term growth opportunities. Despite the relatively strong performance in Q3, we are facing near term challenges driven by a combination of factors. Turning to slide six please, to give you a sense of the magnitude. The cost of polysilicon increased by around 70% between June and September this year. And while it has come down somewhat, it remains around 50% higher than where it was in June. Glass and EVA prices have also almost doubled since June. Logistic costs mostly shipping also doubled over the past quarter following another round of COVID lockdowns. And, on top of all this, between June and November, the U.S. dollar depreciated approximately 9%, relatively to the RMB. As a standalone, any of these factors would have put pressure on our gross margins. But when you combine everything together, like the situation today, this is quite unprecedented. The impact of COVID led to a weak market earlier this year, which was then followed by a massive surge in demand. This created an acute, but temporary shortage of all basic materials, including aluminum, copper, glass, etcetera. So we are still talking about impact of COVID. However, I think we're now at the point of maximum pain, or very close to it. And things should start improving from here.

[Ismael Guerrero:]

Thank you, Yan. I'm pleased to join today's call. On the Energy business looking at slide eight, we made significant progress during the last quarter towards overcoming the challenges that arose from COVID-19. The availability of financing, including the availability of tax equity in the U.S. was a key challenge. We have now secured most of the necessary financing in order to execute on our projects. In the U.S., we started construction on two large projects in Texas, totaling over 500 megawatts. In Mexico, we closed non-recourse project financing and started construction on a 126 megawatts project. We currently have two projects under construction in Mexico and we are working hard to complete the interconnection on one of these projects as we speak. In terms of business development, we secured 862 megawatts in PPAs in Brazil, a few days ago, through a private auction with a large local utility and bilateral corporate agreement with one of the largest financial institutions in Latin America. This is in addition to the 274 megawatts we find earlier in Q2. We were one of the first companies to enter the Brazilian market both as project developer and as module supplier and systems integrator. And we see significant potential as we continue to expand our leadership position in the key Brazilian market. In Japan, we announced our success in securing 22 megawatts in the fixed hidden tariff auction. Japan is another high project market where we continue to have a position of leadership. While the country is transitioning from a subsidized hidden tariff market to an options market, the recent changes in the government gain with Japan's carbon neutrality pledges, review of land use planning and connection infrastructure initiatives.

[Huifeng Chang:]

Thank you, Ismael. Please turn to slide 10. Revenue in Q3 was $914 million, up 31% from Q2, and up 20% year-over-year. Gross Margin Q3 was 19.5% well above our guidance of 14% to 16%. If we exclude the benefit from the U.S. anti-dumping and countervailing duty true up in Q2, gross margin would improve by 130 basis points quarter-over-quarter. Selling expenses were flat quarter-over-quarter but up year-over-year, due to higher shipping costs. G&A expenses were down 9% year-over-year. The quarter-over-quarter increase reflects net of one-off benefits in Q2 2020, such as insurance gain. Overall, our G&A expense relative to revenue has been declining over the recent quarters. The net foreign exchange loss in the third quarter was $13 million, a significant hit on our net income as compared to previous quarters. This negative impact was caused by the sharp depreciation of the U.S. dollar relative to the RMB around 5% during Q3, which is the largest quarterly change of the past 12 years. While we have a comprehensive hedging program in place, covering more than a dozen currencies, the U.S. dollar RMB exposure is by far the largest since most of our revenue is earned in U.S. dollar, while most of our cost is spent in RMB. We have significantly reduced our U.S. dollar RMB exposure with higher hedging positions and expect the impact in Q4 to be much smaller, despite another four percentage points depreciation of U.S. dollar since the beginning of October. Net income attributable to Canadian Solar in Q3 was $8.8 million or $0.15 per diluted share. This was significantly impacted by the $12.6 million withholding tax expense in China related to the special dividend distribution from the MSS business to the parent company. Excluding this one-off tax impact, net income in Q3 would have been $21.4 million higher than our Q2 net income. Moving on to the balance sheet on slide 11, while we ended Q3 with an enlarged balance sheet. While we increased our total debt to $2.3 billion this quarter, mainly driven by the convertible bond issuance, our total unrestricted cash balance was 1.1 billion or more than double our usual average of 500 million. Note that there is an element of timing here as we closed both the convertible bond and the pre-IPO fundraising for our MSS business near the end of the quarter. Since then, we have started to deploy the capital raised to support our capital, our capacity expansion plans. Power packs in the first nine months of the year was approximately $180 million We are raising the full year 2020 contracts plan to approximately 500 million, which includes building capacity in both model in Q4. The higher expected CapEx is well supported by the cash raised in Q3. For 2021, we expect CapEx to be around $700 million, which is significantly higher than in previous years. The higher level is in support of our long term growth strategy with our level of vertical integration, and continue to roll out cutting edge products. Now, I would like to spend a few minutes going through the latest corporate structure of Canadian Solar. On slide 12 following the successful close of our pre-IPO final raising at the end of Q3, we will start reporting results for different segments next quarter. Specifically, we will change the MSS versus Energy structure to CSI Solar versus Global Energy. As Yan earlier, we will move directly with relative small churn energy business from Energy to CSI Solar, which makes sense from a management perspective. In terms of Energy storage, we have teams on board, the CSI Solar and the Global Energy business. SSES or System Solutions and Energy Storage delivers four integrated energy storage system solutions. This is a team behind the recent storage supply and a service agreement announcement with the Mustang project in the U.S. This team is part of CSI Solar and expects to deliver around 560 megawatt hour next year, including the Mustang project. On the Energy business side, which Ismael talked about earlier, our focus is on developing solar plus storage or stand-alone storage projects. And our developers have built up a sizable backlog and a pipeline of projects over the past few quarters. This structure will allow us to benefit from the synergies of having both teams, i.e. Integrator and developer under one corporate umbrella, while also benefiting from the synergies of attaching storage into previously solar only contracts. Meanwhile, the accounting of the revenue and the profits from the two businesses will be separate. From modeling standpoint, it’s also important to remember that we sold the 20.4% of CSI Solar to minority investors. The additional 4.7% representing the ESOP platform will only be reflected after the completion of the IPO. We will continue to fully consolidate the CSI Solar business; the 20.4% of minority interest will be subtracted from CSI Solar earnings and are reflected as income or loss attributable to non-controlling interests. Now, let me pass it back to Shawn, who will conclude with our guidance and the business outlook. Shawn?

[Shawn Qu:]

Thanks, Huifeng. For the fourth quarter of 2020, we expect the total module shipments to be in the range of 2.9 to 3 gigawatts. Total Revenue is expected to be in the range of $980 million to $1.015 billion. Gross margin is expected to be between 8% to 10%. This means that for the full year 2020, we now expect total module shipment to be in a range of 11.2 to 11.3 gigawatts, meeting the prior guidance range. Meanwhile, we are reiterating our full year 2021 module shipment guidance of 18 to 20 gigawatt. Our updated guidance reflect the impact of the shortage and the price increase of certain raw material. However, we expect the environment to improve in the first half of 2021. As raw material supply expands, module ASP increased, and we start production of our upstream ingot capacity, which should reduce our manufacturing cost. Despite the near term challenges, we remain very excited about our mid-to-long-term growth outlook given the strong underlying market fundamentals, and Canadian Solar's leadership position across manufacturing, project development and energy storage solution factory. With that, I would now like to open the call to your question. Operator?

[Operator:]

Certainly, ladies and gentlemen, we will now begin the question and answers session. . Your first question comes from the line of Colin Rusch of Oppenheimer. Please ask your question.

[Colin Rusch:]

Thanks so much guys. So historically what we've been able to do is pass on some of these supply chain costs on your customers. Shawn, could you talk about those dynamics. How long that might take? And how effective those efforts might be as you look at the next couple of quarters?

[Shawn Qu:]

Well, I will let Yan to expand these -- first and our settlement.

[Yan Zhuang:]

Well, actually, the demand came back, started to come back in August. And -- but the cost came back even harder. So, it takes time, a few rounds of negotiations with the customer to accept this market reality. And so, we feel right now, the discussion is pretty hated already at this moment for Q4 shipments. So I believe after at the end of Q4. After the so called mainly year end rush is down and the one that market realized that the cost is not coming down, they will have to face the reality. So we believe that Q1 will already be improved in terms of market acceptance about the module price adjustment. And we also believe that by Q1, a few cost items will likely to slowly improve going down more mild. So we believe Q1, we will see improvement and Q2 we're going to see more significant improvement.

[Shawn Qu:]

Thank you.

[Colin Rusch:]

Great. And then looking at the energy storage business, I know, you're talking about that becoming profitable. I guess given what we're seeing in terms of demands versus availability supply, how should we think about the margins on that business relative to historic levels for the module on MSS business?

[Yan Zhuang:]

So, I cannot give you a specific numbers. But I can tell you that for any storage system integration is not a manufacturing business. So the OpEx level is relatively much lower. So the net profit level is actually much better than module business.

[Colin Rusch:]

Okay. That's it all for you guys. Thanks so much.

[Operator:]

Your next question comes from the line of Brian Lee of Goldman Sachs. Please ask your question.

[Brian Lee:]

Hey, guys, thanks for taking the questions. Maybe the first one just on gross margins. The 8% to 10% for Q4, can you give us a sense for how it breaks out between modules and/or MSS and energy?

[Shawn Qu:]

The MSS gross margin is slightly lower. And the energy of gross margin is slightly higher, but there is not so much different. However, in terms of revenue, the MSS revenue accounts for about two-thirds or little more than two-thirds in the total Q4 revenue. Therefore the 8% to 10% reflect more of the MSS or the module business growth margin.

[Brian Lee:]

Okay. Thank you, Shawn. That's helpful color. And I guess I know, you're saying that gross margin should improve in Q1 and then significantly improving Q2. So, I don't want to put words in your mouth. But it's really the second half of 2021, when we start to see more of the normalized gross margins, and would you say normalize gross margins are -- is it 15% to 20%? Is that kind of the new normal? Or do you think we're back to a 20% plus gross margin across the business in the second half of 2021?

[Shawn Qu:]

That's a very good question, Brian. It will be from at least above 15% as normalized gross margin. I hope it can be more than 20%. But it's too far to tell. And that we do have a plan that we believe that in Q1 we still had a good chance to have the gross margin go above 10%. Hopefully in Q2, we will target. We'll try to reach mid-teen in Q2 and Q4. And since our new capacity, especially the ingot and wafer capacity start to make significant contribution. We hope that the gross margin can further improve. But of course, there are still some unknowns, see, we can control or we can influence many of the micros. But it's difficult to us -- for us to control the macro. For example, the exchange rate between U.S. dollar and the Chinese RMB and other currencies. So all this assumption is based on a reasonable foreign exchange between U.S. dollar and RMB.

[Brian Lee:]

Okay. Fair enough. And maybe last question from me, then I'll pass it on. I know, you guys are making a strategic shift here to do more vertical integration, it should help the cost structure. And so like you said, Shawn, you're kind of controlling the micro where you can? What's out of your control, like currency and the macro, that's the uncertainty. How do you think about, I guess, in the macro side of things? It seems like there's been a significant amount of module capacity addition announcements from both yourselves, but your peers in Tier-1 China manufacturing, suppliers heading into kind of the next 12 to 18 months. So, does that give you pause at all, in terms of potential for supply demand imbalance heading into next year? Just we'd love to hear your thoughts around the macro. What you're seeing competitively around the capacity side? Thank you.

[Shawn Qu:]

Thank, Brian. Let's talk about micro and macro. I think from a micro point of view, I have a lot of confidence in the growth potential of solar business. And you can see that the whole world is going for renewable and going for solar. And so that on the macro side. However, the demand, let's say the solar demand in a particular year also depend on macro conditions. For example, prices. Let's say for 2020/2021, the solar module price, another component price is at a reasonable level. Well, I believe our customer can tolerate or can you accept a moderate solar module price increase, I believe. However, if the module price increase too much, well, it will put a cap to the total demand. So let's assume the solar module price is at a reasonable level then the most of the third-party research agencies are now expecting around 160 or 70 gigawatts of capacity. And now, you mentioned that there are some module capacity announcements, and the shipment target announcement recently, we are watching that as well. We're not really looking at the smaller -- the small module players. We rather pay attention to the top six, or top eight. The top six and top eight altogether, the total announcement so far for next year is around 161 to 170 gigawatt, I believe, which means there will be some competition. Let's assume if the total market demand is in the 160 gigawatts and the target, the total target shipment of the top six, also 160 to 170 gigawatts. Then well, it looks like, well, there will be some competition. But I believe that competition is still in a management manageable scale. In terms of Canadian Solar, we have been looking at our channels, and also our technical abilities. And when we decided to put our target on page into 20 gigawatt next year. And in the past 20 years or so -- 19 years to be more accurate. We have always -- almost always been achieving our target. So I do believe that we will achieve our targets in 2021, as well. I can't really comment on other people's target. But I do believe that whatever Canadian Solar says, we do EMEA. So, Yan, do you want to add more comment?

[Yan Zhuang:]

Just want to add a little bit more. So, we feel that the demand from both China and U.S. would be very strong next year. And you know that we have a pretty sizable capacity in Southeast Asia, that will help us to grab more market share in the U.S. And we have a strong move right now in China to significantly enhance our market share here. So, we'll be in better position because China pricing -- because of the strong demand and also the fact that the exchange rate between RMB and USD and also there's ocean shipping cost difference, China pricing is now actually better, significant better than overseas pricing. So this will help us next year to gain more profit, healthier profit.

[Brian Lee:]

Alright. Thank you both. Appreciate all the color and context. Thanks.

[Operator:]

Your next question comes from the line of Philip Shen of ROTH Capital. Please ask your question.

[Philip Shen:]

Hi, everyone. Thank you for taking my questions. I have a question on your capacity expansion. If you look at the ratio of wafer to your total module capacity as of 2020, it's about 40%. And I think you're maintaining that mostly the same for 2021 at about 44%. So philosophically, do you think you could ever increase that wafer to module capacity ratio? And why keep that where it is where as sale has increased from 60% to 71% of your module capacity? Thanks.

[Shawn Qu:]

Hi. Philip, this is Shawn speaking. Vertical class -- we are doing that. We are increasing the ratio of vertical integration. However it takes time. It’s not really above wafer capacity, but the ingot capacity. Because otherwise we're have to buy ingot than cutting slice into wafer. It doesn't add that much to our gross margin. When we look at the principal solar value chain these days, the polysilicon stage makes the most money of course. And the second one is the ingot and then wafer sale on a module. So the key next year. One of the key drive here for next year is to increase our ingot capacity. As you can see from our chart, we are increasing our -- we used to be very focused on more multi-crystalline wafers. We still do that. We still plan to have a reasonable amount of multi-crystalline sale as a module. However, next year we are -- at this moment, we are building our first large scale mono ingot factory, mono ingot workshop is 3 gigawatts ingot workshop we're turning on early next year and will reach full capacity by Q2 next year. So that we see the more significant margin improvement, much more significant in the wafer. But will catch up wafers as well. So if you're looking at the capacity, the new capacity update in our new earnings release, we are increasing both ingot and wafer capacity. And by the end of next year, both ingot and wafer capacity will be around 10%, which is significantly higher than today.

[Yan Zhuang:]

10 gigwatts.

[Shawn Qu:]

Sorry. It will be about 10 gigawatt. Both ingot and wafers will be around 10 gigawatt by the end of next year, which is significantly higher than today.

[Philip Shen:]

Great. Thanks, Shawn. As a follow up there, I see a lot of the industry shifting to –those as you were mentioning the larger wafer and cell formats with I guess, two camps. There's the 182 millimeter camp and then the 210. And so, what percentage of your modules do you think will have the larger format, either 182? I believe you're that standard versus the 210? What do you think that average is for the large format of your shipments in 2021? Do you think you can get as high as 50% of your shipments overall in 2021 to that higher 182 millimeter formats? Or do you think it's a little bit less than that or perhaps more?

[Shawn Qu:]

Yes. We're asking Ian to get into the detail numbers. However, all of our new capacity, meaning new ingot and wafer capacity, also the new solar cell capacity and solar module capacity designed around the large -- wafer large cell format. As you know, Philip, Canadian Solar is actually a leader in adopting a new, larger cell and module format. We were the first one in industry to introduce the 166 millimeter format. And now we are also went on the first to introduce the 182 and also the 220 millimeter format. And you asked about which standard, which will be become a main standard? The good news is that Canadian Solar is on both camp, because we think that both camp make sense. And so we actually designed the product based on both standard and both sizes. And so, which means, by once we have all the capacity -- new capacities online, we want to use this all new capacities to produce the -- only produce the large format. And therefore, from second half of next year, and also 2022, you would expect that more than half of our product from those new format. For 2021, is our transition year. So some products will be introduced over like Q1, Q2 and Q3. So there will be some transition process. Also I want to mention that, the smaller wafer size doesn't mean outdated, because some of the product are designed around the smaller size. For example, some of the rooftop project actually is better suited. The smaller wafer size may be better suited. Also some of our customers, for example, Japanese customers, they actually want us to continue to support them with the previous format. Now, Yan?

[Yan Zhuang:]

Yes. Hi, Philip. So, in terms of capacity, actually, by end of 2021, we're going to have, like almost 10 gigawatts of our cell line will be compatible for both 210 and 182. Like 8, 9 gigawatts already. And we're going to have a 10 gigawatts of wafer and ingot, both large wafers. And for module, all the new module capacitor on top of whatever we have today will be compatible to either 210 or 182. So we're in pretty good shape in terms of capacity offering. And also, even the existing old capacity -- even the existing capacity, or we call that the midstream capacity of 166, we're actually -- its a relatively not so bad capacity, comparing to others in the market, which are we still see a lot 150, 158.75. So now 166 still be able to compete in the first half of next year at least.

[Philip Shen:]

Thank you both for all that detail. One other very quick question on capacity of the new announcements that you've shared? How much of that or what percentage of that? Where is that new capacity? So for example, how much of that is in Southeast Asia versus perhaps even in a new country or region?

[Yan Zhuang:]

Well, they're -- most, the majority of the new capacity is still in China. And we have some upgrade -- capacity upgrade, the minor expansion in Thailand. And we are actually actively study and explore the possibilities of new capacity, new technology in other markets, depending on the policy shift mainly from U.S.

[Philip Shen:]

Can you share which geographies that might be?

[Shawn Qu:]

Now, Philip, by the way, we only have more than 3 gigawatts of solar cell capacity in Thailand, which is -- also which is a pretty new capacity. So -- and looking at the total market size in U.S., I believe that our Thailand cell capacity, and also the Vietnam module capacity at this moment more than adequate to support our U.S. customers.

[Philip Shen:]

Great. Thank you guys. I'll pass it on.

[Shawn Qu:]

Thank you.

[Operator:]

Your next question comes from the line of William Griffin. Yes, Ma'am, go ahead. Please go ahead.

[Shawn Qu:]

William.

[Isabel Zhang:]

Can we take the next question, please?

[Operator:]

Your next question comes from the likes of William Griffin of UBS. Please ask your question.

[William Griffin:]

Great. Thank you. So just wanted to ask about the capacity expansion. Historically, you guys have been committed to this, what you've called the reverse pyramid structure, which I think has been advantageous in a declining price environment. I'm just curious, why pivot away from that now if we think that the disruption in the market for raw materials is going to be temporary?

[Yan Zhuang:]

Well, so Shawn has mentioned that he's very confident about the growth -- sustainable growth of the industry. I share the same opinion. So, we -- by looking at the LCOE of solar energy around the world. And the strong policy shift towards decarbonisation and, whatever election in the U.S. results, the new announcement from President Xi in China, we actually -- we're actually very confident about the mid-to-long term growth potential. So in terms of capacity, and expansion, part of that is for next year, but more is for the year after, the years after next year. So next year will be somehow a transition year for the industry, with very strong inherent demand on the project level, with a little bottleneck on some upstream of supply and some after effect from the COVID-19. But the industry has realized that. The industry has realized that the demand would be very strong. And everybody is expanding capacity to actually meet the demand after next year. So this is a common knowledge in our industry. This is why you see so many news about the capacity expansion. And also on top of that, the industry is becoming much more market driven, because the demand is less policy driven, and the cost of solar is low, coupled with the rapidly cost reduction on the energy storage side. So we see that more and more markets are adopting solar without subsidy. And consumption also growing really fast. So we believe that demand is less volatile and is sustainable.

[Shawn Qu:]

Hi, William, this is Shawn speaking. I'm going to add a few more comments. Yes, indeed, our strategies in the past used to be the reverse pyramid. And we have benefited from that structure, from that relatively capitalized manufacturing structure. However, the opinion model is now something never changed. It has to change when the market change. We believe that the market is changing that this industry, solar industry is getting into a consolidation phase. And the winner of this consolidation phase will require more integrated capacity in order to win the competition. Therefore, we are changing our business model. And that's number one. Number two, I want to just bring your attention, even after all this environment, investment into mid and upper stream. Canadian Solar manufacturing business model is still a reverse pyramid. Our modular capacity is still larger than cell. Cell larger than a wafer, and wafer larger than ingot. So we're still maintaining the flexibilities to be able to respond to the market demand change.

[William Griffin:]

Yep. Very helpful. Thank you. And then just one other one on the third quarter specifically, but obviously, the margin was better than guidance and better than we were expecting. I'm just curious how the increase in polysilicon pricing in the quarter impacted you overall? I mean, are your contracts for polysilicon supply, do they sort of lag the actual spot pricing in the market? Or how does that all work?

[Yan Zhuang:]

I think actually, partially, it came from the demand come back after the lockdown, the first week of lockdown in Q2. But more than that there series of explosions in Xinjiang province in a few silicon factories that caused a pretty significant shortage of silicon. So that drove up the price pretty significantly. That had a pretty strong impact on our profitability. But we had cheap poly inventories coming from Q2 purchasing. There's a delay on the material purchasing. So we benefited from there in Q3. That's why the cost impact on us is more mild. And the demand came stronger. So that helped. So the impact of silicon price up will actually more reflected in Q4.

[Shawn Qu:]

Yes. William, yes, indeed, there's a time lag from the polysilicon material enter into our ingot factory to the module out and module shipped out and recognize ourselves. There can be several weeks or even a couple -- one or two months of delay -- of like time difference. So -- and also in Q3, we have seen that the polysilicon price may be coming up, because usually, sometimes the polysilicon factor want to do the machine maintenance in the summer. So we strategically accumulated some stocks, polysilicon, low price, which turned out to be right. So indeed, we didn't see much impact in Q3. However, you will do see that impact in Q4. That's why somehow in Q4 turned out to be our lowest gross margin quarter. But also, fortunately, that as we mentioned, as Yan mentioned, we do have a plan. We believe that our gross margin will recover in Q1 and then in Q2, and we're target to get it back to our normalized gross margin range by Q3 of next year.

[Operator:]

As we are now at the top of the hour, I will turn the call back to Canadian Solar's Chairman and CEO, Dr. Qu for the closing remarks.

[Shawn Qu:]

Thank you for joining today's call and for your continuous support. If you have any questions or would like to set up a call, please contact our investor relationship team. We hope you and your families stay safe and healthy. And enjoy the coming Thanksgiving holidays. Take care and have a nice day.

[Operator:]

Ladies and gentlemen, this concludes our conference for today. Thank you for participating. You may now disconnect.