SOURCE: Canadian Solar Inc.

March 14, 2007 09:10 ET

Canadian Solar Reports Fourth Quarter and Year 2006 Results and 2007 Developments

JIANGSU, CHINA -- (MARKET WIRE) -- March 14, 2007 --

    2006 Results
    
--  Fourth quarter 2006 net revenues increased to $24.4 million, compared
    to 6.8 million for the fourth quarter of 2005
--  2006 unaudited net revenues increased to $68.2 million, compared to
    $18.3 million for 2005
--  Full year 2006 non-GAAP diluted earnings per share increased to $0.27,
    compared to $0.25 for 2005 (see "Use of Non-GAAP Financial Information"
    below)
    
    2007 Developments
    
--  2007 net revenues expected to be $220 million to $230 million, with
    average gross margin in the range of 13% to 15%
--  More than 80% of 2007 module sales forecast reconfirmed with firm
    contracts
--  More than 70% of 2007 silicon, wafer and cell supply requirements
    forecast reconfirmed with firm contracts; the balance will be reconfirmed
    before the end of March
--  First of four planned 25MW solar cell production lines installed; the
    second line on track to be installed by the end of June 2007, and the third
    and fourth lines ahead of schedule
    
See "Safe Harbor/Forward-Looking Statements" below.

Canadian Solar Inc. ("the Company," "CSI," or "we") (NASDAQ: CSIQ) today reported its unaudited financial results for the fourth quarter and year ended December 31, 2006.

Net revenues for the fourth quarter of 2006 were $24.4 million, including $8.3 million in one-time silicon materials sales, compared to net revenues of $6.8 million for the fourth quarter of 2005. Net loss for the fourth quarter of 2006 was $5.2 million, or $0.21 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share, for the fourth quarter of 2005. Excluding share-based compensation expenses of $2.7 million, or $0.11 per diluted share, non-cash tax provision of $0.85 million, net loss for the fourth quarter of 2006 would have been $1.67 million, or $0.07 per diluted share.

Unaudited net revenues for 2006 were $68.2 million, compared to $18.3 million for 2005. Net loss for 2006 was $9.5 million, or $0.5 per diluted share, compared to net income of $3.8 million, or $0.25 per diluted share, for 2005. Excluding share-based compensation expenses of $6.1 million, or $0.32 per diluted share, and non-cash charges related to the convertible notes of $8.9 million, or $0.46 per diluted share, net income for 2006 would have been $5.54 million, or $0.27 per diluted share.

The non-cash charges in 2006 consisted primarily of (a) a total of $8.9 million one-time charge before our private equity investors converted their convertible notes into common shares in July 2006 as a financially prudent company we do not speculate in financial derivatives market; (b) $6.1 million share-based compensation expenses, which contributed to a significant increase in the selling, general and administrative expenses in 2006.

On the balance sheet side, we received net proceeds of approximately $83.0 million from our initial public offering on Nasdaq in November 2006. Till the end of December 2006, we had repaid bank borrowing of $20 million, made capital investment of nearly $8.0 million mainly on in-house cell production facility, and procured $13 million materials for the production in the first quarter of 2007. At the end of 2006, on our balance sheet, we had $40 million cash and virtually no debt. This indicates our strong financial position to support our growth in 2007.

Bing Zhu, our Chief Financial Officer, said: "Our net income and gross margin for the fourth quarter were adversely affected by a few factors, such as lower average selling prices, higher costs of materials mainly purchased in the third quarter of 2006, lower contribution from our silicon supply chain activities and increased general and administrative expenses as a result of us becoming a public company. Although we anticipate that these trends will continue in the first half of 2007, we expect to be able to mitigate some degree of their impact by increasing our module sales, reconfirming supply contracts at lower prices and increasing margin contribution from our in-house solar cell production."

Recent Developments

We successfully completed the installation of the first of our four planned 25MW in-house solar cell production lines on February 10, 2006, approximately one month ahead of schedule. The line has achieved 16.2% average cell conversion efficiency and less than 3% breakage. We have seen continuous steady improvement on the conversion efficiency and expect to commence commercial production in April. We expect to complete the second line on schedule by end of June 2007. The third and fourth lines will be slightly ahead of schedule. As a result, we will have 100MW of in-house solar cell production capacity in place by the middle of the fourth quarter of 2007.

We have recently passed the factory audit for UL1703 certification on our solar module products. The UL1703 certification is necessary for sales of products to residential market in the US.

We have recently landed our first building integrated photovoltaic (BIPV) contract in China.

We added the following senior executives in the first Quarter of 2007:

--  Charlotte Klein, Financial Controller: Educated both in China and in
    United States, with CPA designation and a MBA degree from the Midwestern
    State University (Wichita Falls, TX), Charlotte brings 11 years of
    accounting experience in the U.S., including holding controller and
    compliance responsibilities in public listed companies. Charlotte worked as
    Director of Accounting for Aramark Corporation before joining us. Prior to
    Aramark, Charlotte worked as Director of Internal Control and Compliance at
    TV Guide Magazine.
    
--  Jeffrey Calabro, Director of US Sales: Jeffrey brings 12 years of
    extensive professional experience in the U.S., including eight years in
    sales and marketing of photovoltaic solar products. Jeffrey worked as the
    National Grid Tied PV Sales Manager for Kyocera Solar USA prior to joining
    us.
    
Commenting on the recent development, Dr. Shawn Qu, our Chairman and CEO said, "We have made great efforts to strengthen our sales and technical services, and to improve our position in the key European and U.S. markets. In the past few months, we have added five major customers and distributors, more than doubling our customer base in Europe. We expect to open our European sales office in the second quarter. We significantly enhanced our sales team in North America and successfully completed all the steps required for UL1703 product certification. On the standard module side, we recently introduced a new product capable of producing 220 watts to 240 watts power output per module. This product is currently one of top sellers for CSI. On the specialty side, we further cemented our relationships with key customers and expect to see increased sales of several specialty solar products."

Outlook

Based on current market conditions and customer forecasts, we expect our net revenues for 2007 will range from approximately $220 million to $230 million, with gross margin in the range of 13% to 15%. We also expect our share-based compensation for 2007 to be approximately $8.1 million, or $ 0.30 per diluted share.

Looking forward, Mr. Qu commented: "We have been working diligently to improve our customer portfolio and to shore up our silicon supply arrangements. At this point, we have already reconfirmed 80% of our forecast sales of 64MW and 70% of our silicon, wafer and cell supply requirements for 2007. Being able to reconfirm this high level of sales and supply contracts this early in the year and in the winter season gives us confidence that 2007 will be another strong year for CSI. We have taken the opportunity of the traditional Chinese New Year holiday season to upgrade our Suzhou and Changshu module manufacturing facilities. These two facilities have been running at full capacity since March 1st. We will open our new solar module factory as planned in Luoyang at the end of April. We expect to significantly increase our shipment in the 2nd quarter to meet our customers' demand. We remain focused on vertical integration, combined with customer support and diversification. Going forward, the management will give more attention to execution and margin improvement. We expect that the upside will come from improvements on our silicon supply chain and continuous vertical integration."


                   Revenue by Geography (US $ millions)

                 Q405        Q306        Q406        FY05        FY06
Region       Revenue  %  Revenue  %  Revenue  %  Revenue  %  Revenue  %
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
Europe
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
 Germany        5.5 81.3%  13.2 74.1%   5.7 23.4%  13.8 71.3%  38.8 56.9%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
 Spain          0.8 12.1%   3.4 19.3%   5.3 21.8%   0.4  2.3%  13.2 19.4%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
Europe Total    6.4 93.5%  16.6 93.3%  11.0 45.2%  15.3 78.9%  52.0 76.2%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
China           0.0  0.2%   0.6  3.2%  13.4 54.6%   0.5  2.6%  14.1 20.7%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
North
 America        0.4  6.3%   0.6  3.2%        0.0%   2.6 13.2%   2.0  2.9%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
Others          0.0  0.0%   0.0  0.2%   0.0  0.2%   1.0  5.3%   0.1  0.2%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====
Totat Net
 Revenue        6.8  100%  17.8  100%  24.4  100%  19.3  100%  68.2  100%
              ===== ====  ===== ====  ===== ====  ===== ====  ===== ====


The financial information presented in this press release remains subject to additional review and final year-end closing procedures performed by us and the completion of year-end audit by our external auditors. We expect our audited financial result will be finalized in late April 2007 or early May 2007 and we will file our financial statements with the securities regulator shortly thereafter.

Investor Conference Call / Webcast Details

A conference call has been scheduled for 9:00 p.m. on Wednesday, March 14, 2007 (in Jiangsu). This will be 9:00 a.m. on Wednesday, March 14, in New York. During the call, time will be set-aside for analysts and interested investors to ask questions of executive officers.

The call may be accessed by dialing 800-659-2032 (domestic) or 617-614-2712 (international). The passcode to access the call is 19241649. A replay of the call will be available starting one hour after the live call and continuing until noon on Sunday, April 1, 2007 (in Jiangsu) or midnight on Saturday, March 31, 2007 (in New York) at www.csisolar.com and by telephone at 888-286-8010 (domestic) or 617-801-6888 (international). The passcode to access the replay is 27259452.

About Canadian Solar Inc.

Founded in 2001, Canadian Solar Inc. (CSI) is a vertically integrated manufacturer of solar module and customer-designed solar application products serving worldwide customers. CSI is incorporated in Canada and conducts all of its manufacturing operations in China. Backed by years of experience and knowledge in the solar power market and the silicon industry, CSI has become a major global provider of solar power products for a wide range of applications. For more information visit www.csisolar.com.

Safe Harbor/Forward-Looking Statements

Certain statements in this press release including statements regarding expected future financial and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the "Safe Harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by such terms as "believes," "expects," "anticipates," "intends," "estimates," the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include general business and economic conditions and the state of the solar industry; governmental support for the deployment of solar power; future shortage or availability of the supply of high-purity silicon; demand for end-use products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers, including customers of our silicon materials sales; changes in demand from major markets such as Germany; changes in customer order patterns; changes in product mix; capacity utilization; level of competition; pricing pressure and declines in average selling price; delays in new product introduction; continued success in technological innovations and delivery of products with the features customers demand; shortage in supply of materials or capacity requirements; availability of financing; exchange rate fluctuations; litigation and other risks as described in the Company's SEC filings, including its registration statement on Form F-1 originally filed on October 23, 2006, as amended. Although the Company believes that the expectations reflected in the forward looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise stated, and CSI undertakes no duty to update such information, except as required under applicable law.

                            Canadian Solar Inc.
        Unaudited Condensed Consolidated Statements of Operations
(In Thousands of U.S. Dollars, except share and per share data and unless
                            otherwise stated)

                              Three Months              Twelve Months
                            Ended December 31         Ended December 31
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
Product Sales           $    24,372  $     6,812  $    68,144  $    18,324
Others Sales                      -            -           68            -
                        -----------  -----------  -----------  -----------
Total net revenues      $    24,372  $     6,812  $    68,212  $    18,324
Total cost of revenues       24,272        4,507       55,872       11,211
Gross Profit                    100        2,305       12,340        7,113

Operating expenses:
Selling expenses              1,233           58        2,909          158
General and
 administrative
 expenses                     3,583          480        8,098        1,724
Research and
 development expenses            38            7          121            -
                        -----------  -----------  -----------  -----------
Total operating
 expenses                     4,854          546       11,128        1,882
                        -----------  -----------  -----------  -----------
Operating income (loss)      (4,754)       1,760        1,212        5,231

Interest Expenses              (197)        (239)      (2,177)        (239)
Interest income                 271           13          362           21
Loss on change in fair
 value of derivatives             -         (316)      (6,997)           -
Loss on financial
 instruments related to
 convertible notes                -         (263)      (1,190)           -
Other income
 (expenses), net                (77)          (4)         (90)        (604)
                        -----------  -----------  -----------  -----------
                                  -            -            -            -
Income (loss) before
 income taxes                (4,757)         951       (8,880)       4,410
Income tax expense             (420)        (263)        (623)        (605)

                        -----------  -----------  -----------  -----------
Net income (loss)            (5,177)         688       (9,503)       3,804
                        ===========  ===========  ===========  ===========

Basic earnings per
 share                         0.21        (0.04)        0.50        (0.25)
Diluted earnings per
 share                         0.21        (0.04)        0.50        (0.25)

Basic weighted
 averaging outstanding
 share                   24,120,000   15,427,995   18,986,498   15,427,995
Diluted weighted
 averaging outstanding
 share                   24,120,000   15,427,995   18,986,498   15,427,995




                            Canadian Solar Inc.
  Reconciliation of US GAAP Gross Profit, Operating Income (Loss) and Net
                             Income (Loss) to
  Non-US GAAP Gross Profit, Operating Income (Loss) and Net Income (Loss)
                                (Unaudited)
                  Use of Non-GAAP Financial Information

To supplement its condensed consolidated financial statements presented
in accordance with GAAP, CSI uses the following measures as defined as
non-GAAP financial measures by the SEC: adjusted gross profit, adjusted
operating income (loss) and adjusted net income (loss), each excluding
share-based compensation and other one-time non-cash charges, expenses
or gains, which we referred to as special items. CSI believes that
non-GAAP adjusted gross profit, adjusted operating income (loss) and
adjusted net income (loss) measures indicate the company’s baseline
performance before subtracting other charges which the management
considers to be outside of the company’s core operating results. In
addition, these non-GAAP measures are among the primary indicators used
by the management as a basis for its planning and forecasting of future
periods.  The presentation of these non-GAAP measures is not intended to
be considered in isolation or as a substitute for the financial
information prepared and presented in accordance with GAAP.


                         Three Months Ended        Three Months Ended
                          December 31, 2006         December 31, 2005
                       Gross  Operating    Net    Gross  Operating   Net
                       Profit   Income   Income   Profit  Income   Income
                                (Loss)   (Loss)           (Loss)   (Loss)
                       ======= ========  ======   ====== ========= =======
US GAAP Amounts            100   (4,754) (5,177)   2,305     1,760     688

  CN charge
  ESOP charge               72    2,651   2,651        -         -       -

Total special items         72    2,651   2,651        -         -       -

Non-US GAAP
 Profit/(Loss)             172   (2,103) (2,526)   1,746     1,246   1,237

Adjusted Gross Margin                      0.71%                      38.5%
Adjusted Operating
 Expense - % of
 Revenue                                   9.04%                      11.0%
Adjusted Operating
 Margin                                   (8.63)%                     27.5%




                         Twelve Months Ended       Twelve Months Ended
                          December 31, 2006         December 31, 2005
                       Gross  Operating    Net    Gross  Operating   Net
                       Profit   Income   Income   Profit  Income   Income
                                (Loss)   (Loss)           (Loss)   (Loss)
US GAAP Amounts         12,340    1,180  (9,503)   4,808     3,472   3,116

Special items
  CN charge                               8,893        -         -       -
  ESOP charge              169    6,145   6,145        -         -       -

Total special items        169    6,145  15,038        -         -       -

Non-US GAAP
 Profit/(Loss)          12,509    7,325   5,535    4,808     3,472   3,116

Adjusted Gross Margin                     18.3%                      41.8%
Adjusted Operating
 Expense - % of
 Revenue                                   5.6%                      11.6%
Adjusted Operating
 Margin                                   10.7%                      30.2%

Non-US GAAP adjusted condensed consolidated statements of operations are
intended to present the Company's operating results, excluding special
items.



                            Canadian Solar Inc.
              Unaudited Condensed Consolidated Balance Sheets
                      (In Thousands of U.S. Dollars)


                                                 December 31,  December 31,
                                                      2006         2005
                                                  ------------ ------------
Cash and cash equivalents                               40,911        6,280
Restricted cash                                            825          112
Accounts receivable, net of allowance for
 doubtful accounts                                      17,344        2,067
Inventories                                             39,700       12,162
Value added tax recoverable                              2,178          815
Advances to suppliers                                   13,484        4,740
Other current assets                                       366           65
Other receivable                                         1,894           98
Deferred tax                                             1,111           94
                                                  ------------ ------------
TOTAL CURRENT ASSETS                                   117,813       26,433

Property, plant and equipment (net)                      7,910          932
Intangible assets                                           39            -
Land use right                                           1,103            -
Deferred tax assets (non-current)                        2,792           65
                                                  ------------ ------------
TOTAL ASSETS                                           129,657       27,430
                                                  ------------ ------------

Short-term borrowings                                    3,311        1,300
Accounts payable                                         6,050        4,306
Other payable                                            1,176          892
Advance from customers                                   3,225        2,823
Accrued payroll and welfare                                494          199
Income tax payable                                         -66          914
Other tax payable                                          577          552
Amount due to related parties                              274          431
Deferred tax liabilities                                     4           59
Other current liabilities                                  825          212
                                                  ------------ ------------
TOTAL CURRENT LIABILITIES                               15,870       11,688
                                                  ------------ ------------

Deferred tax liabilities(non-current)                        -            -
Accrued warranty costs                                     875          341
Convertible notes                                            -            -
Financial instruments related to convertible
 notes                                                       -            -
Derivatives related to convertible notes                     -        8,173
Other non-current liabilities                                -          261
                                                  ------------ ------------
TOTAL LIABILITIES                                       16,745       20,463
                                                  ------------ ------------

Paid-in capital                                         93,697          211
Retained Earnings                                       -2,855        6,647
Additional paid-in capital                              21,020            -
Accumulated other comprehensive income (loss)            1,050          109
                                                  ------------ ------------
Total stockholder’s equity                             112,912        6,967
                                                  ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY             129,657       27,430
                                                  ============ ============

Contact Information

  • Contacts:

    In Jiangsu, P.R. China
    Bing Zhu
    Chief Financial Officer
    Canadian Solar Inc.
    Phone: +86-512-62696755
    ir@csisolar.com

    In the U.S.
    David Pasquale
    The Ruth Group
    Phone: +1-646-536-7006
    dpasquale@theruthgroup.com