Canadian Solar (NASDAQ:CSIQ) Q1 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's first quarter 2020 earnings conference call. My name is Amber and I will be your operator for today. At this time, all participants are in the listen-only mode. Later, we will conduct the question and answer session. As a reminder, this conference is being recorded for replay purposes. I'd like to turn the call over to Ismael Zhang, Director of Investor Relations at Canadian Solar. Please go ahead. Thank you, Operators, and welcome everyone to Canadian Solar's first quarter 2020 Earnings Conference Call. Joining us today are Dr. Sean Chu, Chairman and Chief Executive Officer, Yan Zhuang, President and Chief Operating Officer, and Dr.

0:49 Hui Feng Chang, Chief Financial Officer. On this call, Sean will provide an update on the market impact from COVID-19 and perspective on Canadian Solar's long-term positioning. followed by Yen, who will review our recent progress and outlook. And Huifeng will then review our financial results and actions we have taken to further improve our balance sheet for liquidity. We will then have time for any questions. Before we begin, may I remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risk and uncertainty. Therefore, the company claims the protection of the safe harbor for a forward-looking statement that is contained in the private security's litigation reform act of 1995.

1:36 Actual results may differ for 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 the risks and uncertainties can be found in the company's annual report on Form 20S, followed by 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 our GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.

2:28 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. At this time, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Xu. Shawn, please go ahead. Thanks, everyone, for joining us today. Over the past two months, a number of COVID-19 cases, assets, and economic closures have steadily expanded globally. Needless to say, a lot has changed since we last spoke at the end of March. At Canadian Solar, we moved quickly and took bold measures to protect and support our employees, customers, and partners, first in China and then in the rest of the world.

3:27 We have not only implemented strict preventative protocols, but have also taken steps to support the local communities in which we operate across the globe. According to the latest data, the worst seems behind us now. Here, I hope that you and your families are safe, healthy, and wish you all the best. Now, let me give you an overall picture of the current market situation and some color of our long-term view. In 2020, global demand for solar equipment are expected to decline for the first time in 20 years.

4:16 Recent market reports forecast global demand to be somewhere in between 95 to 100 gigawatts compared to last year's estimate of approximately 120 gigawatts. Meanwhile, supply side capacity is expected to grow which will lead to additional ASD pressure and market consolidation. These effects will likely be felt across the supply chain causing input costs to decline as well. On the flip side, currently contracted solar projects are expected to benefit from the lower equipment ASD with the deployment of solar becoming even more attractive relative to other energy sources given the lower capex cost.

5:20 Originally, the US and Latin America market have been the most volatile around COVID-19. In the US, The biggest impact has been on the reduction in the availability of tax equity financing and the increase in the cost of capital for certain project buyers. This sets up potential delays in 2020 project sales. In Latin America, the impact has been amplified in the sharp depreciation of local currency, local market to delay purchases and installation of USD price solar modules.

6:12 On the positive side, the COVID impact has been limited in Europe, Japan, and Korea. China was able to reopen and now appears on track to have strong demand in 2020, supported by favorable policies and a healthy transition towards great parity. In general, the execution of commercial and utility-scale project has been relatively smooth with delays mostly driven by permitting and other frictions given by the lockdown. While we expect near-term volatility, the long-term growth drivers remain strong.

7:00 We remain optimistic about the industry and Canadian solar's long-term prospects. Global efforts to decarbonize will continue, if not accelerate, especially as the cost of clean energy becomes increasingly competitive. The cost and performance of battery storage continues to improve, which will be critical as solar plus storage reaches great parity across a growing number of markets. And a lower or longer interest rate environment means that solar power plants will become even more attractive investment assets for investors seeking stable, counter cyclical and climate friendly yields.

7:58 Canadian Solar's globally diversified revenue and manufacturing basis, strong relationship with customers, suppliers, and financing partners, and our healthy balance sheet and liquidity position give us significant competitive advantages. We continue to strategically invest in R&D and innovation as well as in significant momentum as a key solutions provider in the solar plus storage solutions market. In the downstream energy business, we are positioning ourselves for long-term growth.

8:45 We will continue to grow our global backlog and pipeline while selectively retain ownership in solar project to capture New sources of recurring and predictable cash flow. While in the process of executing our solar project monetization strategies that we have shared with you last quarter, preparing ourselves for the recovery that is all to come. Together, Canadian solar is well positioned to weather the near-term uncertainty and capture Long-term growth opportunities to deliver sustainable returns to shareholders.

9:32 Before I turn the call to Yan, I'm pleased to announce that Yan has been appointed as President and Chief Operating Officer of Canadian Solar. I'm grateful for Yan's leadership and his incredible dedication during his nine years tenure at Canadian Solar. I look forward to working closely with Yan on entirety at Canadian Solar. With that, I would like to pass the line to Yan. Yan, please go ahead. Thank you, Sean. As always, let me start with some key takeaways from this quarter. Firstly, we achieved a strong financial and operating results for Q1 2020.

10:23 With revenue and profitability both above our expectations, we were affected by manufacturing disruptions in China. But the overall COVID-19 impact was limited. We expect a more significant impact in the second half, as Sean noted. Near term, our approach is to conservatively manage a healthy economy We have a strong track record in doing that. Longer term, we are reinforcing the company's position for growth. And an area we are excited about is the solar plus storage market.

11:13 We see a window of opportunity from the declining battery storage costs. Higher capacity needs and accelerating retirements of fossil fuel plants across the world. Canadian solar is uniquely positioned to benefit from this as we leverage our competitive manufacturing base and large captive markets. In fact, we have built a solid 2.5 gigawatt-hour storage pipeline and it 320 megawatt hour backlog. We're currently in advanced negotiations on various projects and look forward to sharing more information with you as we reach key milestones.

12:05 Furthermore, we continue to grow and monetize our solar assets. Currently we have 956 megawatts in projects under operation, 807 megawatts under construction, 3.7 gigawatts in backlog and 12 gigawatts in pipeline. This quarter, we are sharing with you for the first time our five-year plan for growth in the energy business. We've made strategic and organizational decisions to ensure we maximize value capture in the asset monetization. Our plan is to selectively retain minority stakes in key markets with strong energy demand, attractive power prices, and stable capital markets.

12:58 Over time, this will allow us to generate higher margins and capture stable and recurring sources of cash flow while recycling a large portion of the capital invested. This strategy has been one of our key successes in Japan, so we intend to replicate it in certain other markets. We're in the process of executing this strategy and look forward to updating you with exciting developments. Now let me go through our Q1 results. On the energy business side, Q1 revenues were $238 million, with a 37.7% gross margin, Revenue and profit growth saw a significant contribution from the sale of the 56 MW solo power plants in Japan, as well as the sale of an 18 MW portfolio of subsidy-free solo plants in Italy.

13:59 Meanwhile, we continued to secure project financing and execute on our project backlog. For example, in Italy, we secured and the rest of the members of the team. $55 million in non-recourse project finance from BNB for the 151 megawatts LAPRAS project, which started construction in Q2. It closed several additional project financings since Q1 ended, mainly in the Latin America region.

14:54 This further demonstrates the strong bankability of Canadian solar developed projects. We expanded our presence in the distributed generation market. In Australia, we made significant inroads in the commercial and industrial segment, recently finding the milestone TPA with a global e-commerce player in Chile. We acquired a portfolio of small distributed generation projects currently still under development. totaling 48 megawatts to bring clean and reliable energy to rural areas in the country. On the module and system solutions or MSS side, shipments in Q1 were 2.2 gigawatts in line with guidance. Q1 revenues were $690 million, up 47% year over year and down 10% sequentially.

15:58 The sequential decline reflects COVID-19 related manufacturing closures and lower ASPs. As a result, growth margin also declined sequentially to 21.6%. We remain committed to research and development and continue to innovate. For example, in Q1, we opened the new R&D center in Jiaxin, China. The new center is focused on cutting-edge heater junction technology and we will be putting down test lines over the next few months, setting ourselves up for mass production next year. Now let me comment on guidance for Q2 and outlook for 2020.

16:46 The second quarter of 2020 We expect total module shipments to be in the range of 2.5 to 2.7 gigawatts, including approximately 200 megawatts of module shipments to Canadian Solar's own projects that may not be recognized as revenue. Total revenue is expected to be in the range of $630 to $680 million, with gross margin expected to be between 18.5 to 20.5%. For the full year of 2020, we continue to expect total module shipments to be in a range of 10 to 12 gigawatts. However, COVID-19 has caused significant uncertainty regarding business conditions in the second half of 2020, especially related to the timing and the scale of ASP and cost declines and the timing of certain project sales. Therefore, we are withdrawing our 2020 financial guidance.

17:51 Looking beyond the near-term uncertainties, we are confident that Canadian Solar's competitive position will allow us to capture a greater share of the industry's secular growth opportunities. Our long-term outlook remains optimistic as we continue to execute on our strategy and create value for the company and its shareholders. Now, let me turn over the call to Huifeng for additional color on our financial results and latest risk mitigation strategies. Huifeng, please go ahead. Thank you, Yan. As both Xiang and Yan noted, we delivered a strong quarter on revenue and profit despite the sharp decline in the market SPs.

18:41 We continue to command a higher pricing than the overall market given our strong brand and the customer and the channel relationships. Q1 results also benefited from a large project sale in Japan where the revenue and the profitability per work is several times that of other regions. Note that our divisional results, we reclassified our operations and the maintenance subdivision from MSS to the energy business. to better reflect logical structure of our business and operations. You will find the details in our press release. Total OPEX was 110 million US dollar during the quarter, 9% higher year over year, but 7% lower than last quarter.

19:35 Selling expenses were higher sequentially, mainly from higher shipping and handling costs due to the logistical challenges in Q1. However, we have put a tight lid on all discretionary spending, so G&A expenses were lower in the quarter. During the quarter, we recorded an income tax benefit of $29 million, which included a $49 million tax benefit from the net operating loss carryback provision under the U.S. Coronavirus Aid and Economic Security Act Combining all this, we generated a Q1 2020 net income of $111 million and a diluted EPS of $1.84. Moving on to the balance sheet, we have maintained healthy leverage and liquidity levels, pursuing a more cautious than usual approach as we communicated in the last quarter.

20:39 We reduced our total debt to $1.87 billion and further reduce our short-term debt level. As we noted last quarter, the majority of our short-term debt is rolled over annually with Chinese banks, where we do not see any material risk. Likewise, there are no major principal repayments due in 2020. Our credit facilities were increased to 3.4 billion, of which 1.1 billion remain undrawn. Our non-GAAP total debt to trailing EBITDA declined to 3.4 times, while the trailing EBITDA to net interest coverage increased to 8.3 times.

21:28 Both metrics are at their healthiest level in the past five years. We remain focused on managing our working capital. Although inventory days at the end of Q1 increased to 92 days. It mostly reflects our strategic decision to increase module inventory in the U.S. to qualify all the investment tax credit. Overall, our cash recycle remains at a robust negative 20 days. Cardback spending in Q1 was 42 million. Our plan for the rest of 2020 is approximately 270 million. While we are committed to investing to support long-term growth, we are also cautious and prudent with our capital expenditures, especially in the current environment.

22:24 So we marginally reduced our capacity expansion plans for this year. However, this is not set in tone In stone, and the final CapEx plan for 2020 can be adjusted, upper or down, depending on the external market circumstances. Finally, we have suspended our share repurchase program to preserve cash and maximize liquidity in the current market environment. All in all, we are confident that our strong balance sheet and liquidity will allow us to navigate the market uncertainty and prepare us for the macroeconomic recovery. With that, I would now like to open the call to your questions.

23:09 Operator? Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press the star 1 on your telephone and light for your name to be announced. If you wish to counsel your request, please press the counter hash key. Once again, ladies and gentlemen, the star 1 for questions. If this question comes from the line of Colin Rush from OpenHelmet, please go ahead. Thanks so much, guys. Can you speak to the pricing dynamics and channel inventory levels for both the direct sales channel as well as the bifacial modules that you have going on right now? Well, this is Yan. First is the bifacial. We just heard the news actually yesterday. So Well, it certainly helps, both on our side and customer side.

24:07 But we also understand that this is not forever. So while we're actually benefiting from this new progress, but we're also preparing for the end of this. But yes, for the next few months, I believe two to three months, we don't know, maybe even longer, we will have significant benefits on this policy change, policy progress. And on the- But I'm looking to, in the drug sales channel, I'm looking for pricing and kind of channel inventory levels, trying to get a sense of self-reliance on that part of the business. Yeah.

24:53 for our direct sales into the residential and DG market. So we have been experiencing a downside because of COVID-19. But what we are seeing is it's actually warming up. It's actually improving in the recent weeks. We had been observing, actively contacting our customers and monitoring their inventory level. It was on the uptrend for quite a while. And it caused some customers, they had payment difficulties. So we reduced our shipping to that channel late in Q1 and early Q2.

25:43 So to manage the payment risk. However, in the past two weeks, it's been improving. The sell-through is improving. Pricing-wise... Okay, thanks. Yeah. Go ahead. For residential market, the price drop is less. It's less than the utility skill project. So it's still a better pricing than utility. Okay, thanks. And then on the storage side... We're trying to get a sense of the real technology position that you guys have relative to some of the other solutions out there. Can you speak to your battery management system, performance, cycle time, how you're performing versus some of the other solutions that are out there as you're outbidding on some of these PPAs and other projects?

26:39 I think our main strength is actually We have the ability to develop such projects, PV plus storage. So we already have a pretty significant pipeline on the ground. And we have over, actually in the past years we've been, we have, we had experience accumulated from the past years Project Executions on EPC and O&M. So we learned that we have ability on the execution of solo project. And the solo plus storage is the space that we need to create our business model, the value chain, supply chain, economic and financial modeling, risk management, and how to provide The wrap-up service as a total solution for this project.

27:32 So in terms of technology, I don't think we have time to go into details, but we are actively working on closing the first solution for our first project in the U.S. It gets a little delayed because of the COVID-19 crisis, but it's coming. Okay. Thanks so much, guys. Thank you. Our next question comes from from Ross Capital. Please go ahead. Hi, everyone. Thank you very much for sharing your five-year plan for your energy business. I think it's very helpful for everybody. So just was wondering if you could give some additional detail on that plan. So specifically with your targets of annual project sales in 2020 and 21, and so forth, was wondering if you could speak to the geographic mix that you expect there. I'm guessing, you know, it's largely based clearly on your pipeline and your backlog, but was wondering if certain years may have a greater emphasis in certain geographies.

28:45 And then also, similarly for the projects expected to be retained, you know, for example, in 2020, the 30 megawatts, I'm guessing a lot of that is Japan, but was wondering if you could speak to the geographic mix for 2020, 2021, and 2022 as well for the projects retained on balance sheet. So thank you. Hi, Philip. This is Xiaohua speaking. For the 2020, most of the projects, macro-wise, are going to be U.S. projects. and we have good premium Japan projects in terms of megawatts. The megawatt size is not big, but of course, each megawatt in Japan contributes a lot more than the U.S. project.

29:33 And then moving into the future, let's say in 2023, 2024, we expect the EMEA project to catch up. Now, also we have some projects in Latin America. and namely Brazil and Mexico, as you know. We expect to connect those projects more or less in 2021. And in terms of project retain, as you said, Japan, we have the CSIF and so most of the projects expected to drop into CSIF as long as the yield support. Sometimes the private fund, A market provide even better pricing, then we might sell those projects into those kind, those project funds.

30:27 But sometimes we hold position, minority position in those funds as well. And for U.S. market, at this moment, we don't plan to hold any positions because the ITC, the ITC scheme on one hand helps to, to support the U.S. project. On the other hand, also to support the cash flow. So as a share B, Class B investors, we don't get much cash flow in the first five, six, seven years. So unless we can use some kind of discount method to discount the future cash flow to the near terms, unless that happens, we don't plan to hold too many U.S.

31:17 projects. But on the other hand, the ITC is going to be a phase out in a few years. So I expect going into 2004 and 2005, we are going to hold more and more U.S. projects. Great. Thanks for the call there, Sean. Shifting over to the scrutiny on Chinese companies listed in the U.S., Was wondering if you guys could speak to that, you know, given the expected requirements from an accounting standpoint as well as disclosure of investments. Was wondering if you could address that and how it might impact you and how, if at all.

32:02 Thank you. Can you repeat your question? What accounting? PCI will be sure. Sure, yeah. Given for Chinese companies listed in the U.S., the Senate and House have passed a bill and it's going to Trump now to increase the scrutiny of these Chinese companies listed in the U.S. exchanges. So there's the, you know, they're trying to get the PCAOB to, the PCAOB wants to collaborate more closely and get access to accounting documents with the CSA Okay, I understand. Good. Okay, if you could speak to that overall, the criteria of that upcoming bill and what it might mean for you guys. Thanks.

32:54 Now, first of all, we are a Canadian company and not a Chinese company, but we do have some Chinese operations. And so far, as far as I understand, SEC can get the accounting paperwork from our and all different in China without any question. I will leave Huifeng to provide more color. Huifeng? Sure. Phil, thank you for asking this question. First of all, as Sean has said that we are Canadian company. From day one, we were legally registered in Canada and the business started in Canada. It's like many other international companies.

33:40 Many years ago, Sean, when he started manufacturing, and then he opened a factory in China. So this is the fact with a very clear legal track record. Now, you may ask then why our company is on the list of the PCAOB list. Now, that is because a lot of operations of our company is based in China. So when we were considering hiring which auditor to audit our book, and we choose the auditor who has an office in China. And for that, we also, every time we file our Form 20 with SEC, we indicate that the PCAOB at this point They cannot regularly access the working paper at our auditor.

34:47 However, we have been in the markets for many years. This issue of auditing, first of all, it's the third time this issue came to the market and some investors were spooked and later on the issue went away. Now, this time, the Senate has passed, but the House needs to vote, and we don't know what the White House will handle this issue. But if that happens, according to the latest bill, I mean, there are several bills in the history on this issue. According to the latest version of the bill, there will be a three-year window time for a company to address this issue. And for us, of course, we can switch to an auditor based in Canada and then we are on par with many other U.S.

35:50 companies in terms of PCAOB compliance. Now what do I mean by that? Taking, let's say, Tesla example. Tesla also has a huge factory in Shanghai now. The auditing process of the Shanghai factory, it has to be done by a China-based auditor. So for those accounting books, PCLB will do the same process, carry out the same process like they audit our book. That is a deal PCLB SEC had signed with Chinese regulator five years back that with Chinese regulators first filter the documents for any national security concern, then PCAOB can get whatever paper they want. This has been going on process for several years, and at a mystery level, it has been working very well.

36:52 Actually, more than 10 companies in the same auditing structure which is their paper, filed at SEC, was done by an auditor based in China, and then PCAOB had no problem to getting those working papers, so-called working paper. Now, if you pay close attention to whatever in the media and in the Congress, you'll notice that there's no words from PCAOB or SEC stating that They cannot get what they need from the Chinese auditor. So we need to take this issue from on the factual basis and also look into history.

37:42 And then right now we take a, you know, we're like you, we're watching the development of this issue. And because we are a Canadian company and we have a flexibility to address this issue, if it becomes a reality, And I don't think our investors should be concerned or worried. We will continue to be a U.S., NASDAQ-listed company. Thank you, Phil. Great. Thank you, Weifeng. Hey, one other quick question here, just as a follow-up on the pricing question earlier. I think we roughly calculate pricing for Q1 to be roughly, for this module, cents per watt, to be about 28 cents per watt. I was wondering if you could comment on, is that first of all correct, and then How do you expect that ASP to trend on a blended basis for Q2 and into Q3? Thanks.

38:37 I think Ian will ask your question. Ian, please. I think the price movements varies from market to market. For example, the price erosion in U.S. and Japan are much slower, and the price erosion is in the residential BG market is lower than utility-scale projects. So the pricing for big utility projects in other markets going down faster, so in different paces. And so going from Q1 to Q2, it's the pricing and into second half. I think the price will go down and then stabilizing.

39:32 I think the price, we're seeing some very low pricing, sub 20 cents pricing. That's the bottom. If you're talking about ASP, some other channels, the price may continue to move. But for the lowest pricing segment, I think it's likely to be stabilized towards the end of this year. So Q1, our ASP is like 27 cents. And Q2, it's like 20, we cannot tell you that. But for Q2, it will come down a little bit, but the drop, the reduction is slowed down. And Q4, we believe the market may warm up. It will recover the demand.

40:21 So pricing is likely to be stabilized. That's my answer. Great. Thank you again. I'll pass it on. Thank you. Once again, ladies and gentlemen, if you wish to ask a question now, please press Star 1 on your telephone. Our next question comes from the line of Brian Lee from Goldman Sachs. Please go ahead. Hey, everyone. Thanks for taking the questions. Yan, maybe if I could just follow up there. I know you don't want to give specific numbers, but the directional color on pricing is helpful here. So 2Q is going to be down from 1Q. It sounds like, based on your comments, 3Q pricing will also be down from 2Q, and then 4Q may be stable to even better, just based on the directional trend you sort of articulated.

41:16 Given where spot pricing is today and kind of given the lag between when you contract volume and ship, it seems like the worst pricing impact in the year may be in 3Q. So is that a fair assumption that 2Q is down but then 3Q could be down even more before you start to see stability into the very end of the year? Well, it's more or less that's the trend, but I wouldn't oversimplify the situation. Out of the PANIAC in the recent months, we've been seeing some super low prices. I would say those super low prices would not go down anymore, less likely, because it's just PANIAC pricing.

42:09 And also for residential market, It's coming back. And the residential and the digital market is coming back. And proportionally, if there's more volume shipping in that channel, the overall pricing down situation will be eased. So that's, this can be complicated. But overall, I cannot, I mean, I agree, Q3 price cannot be better than Q2. But Q4 will be stabilizing. Okay, that's helpful. And then maybe just related to that, from a gross margin perspective, obviously Q2 is down here based on the guidance. Fair to assume that Q3 is also softer on a sequential basis before you maybe see some margin stability or improvement in 4Q, and I'm speaking specifically to the module segment, not the project side.

43:08 I think part of the reasons we're withdrawing our financial annual guidance is because of uncertainty, the big uncertainty, significant uncertainty caused by this situation. We're not sure how ASTM cost is going to coordinate in the next couple of quarters. So in terms of gross margin, I really cannot give you clarity at this moment. But I can say that Canadian solar, we have more share of our shipments into the rooftop market, as well as more share into the high-price market.

43:58 More proportion of our shipment goes to Japan, Korea, and the US and also the residential market and also to our own projects. So I think maybe our position is slightly better. Okay, that's fair. And then last question and I'll pass it on here. I think, you know, last quarter you guys had mentioned that the residential market rooftop was seeing impact from COVID. But my read was that you weren't seeing any real impact as of that point in the utility scale segment. Your comments today suggest that's kind of changed here where you've seen impact across all buckets of your business.

44:49 So can you maybe help quantify? I know you can't give us guidance for the year, but sort of quantify what sort of impact you're expecting here. In the utility skills segment, I guess if I look at the 1.1 to 1.3 gigawatt range for project sales for 2020 in your five-year outlook, how much would you say that's changed owing to incremental COVID uncertainty since the last quarter? I know you didn't have those targets out last quarter, but assuming you did, would they have looked the same or can you give us a sense of how much that's changed here? I think the impact is mainly in U.S. and some projects in Latin America as well. So on the module side, the impact is delayed. So Q2, we have certain, some volume that's delayed, but that comes from both the residential market and also the Grandmont utility projects.

45:49 The utility part is, I would say, it's more like two-thirds of the volume. But on the project sales, it's a similar reason. It's delaying of project sales and the project financing delaying. And some of them is because of the lockdowns. So the construction gets delayed. So our current five-year plan already reflect that. And if you're talking about the impact, comparing to end of March, we do see We do see some impact on the pace and speed of financing closure and project sales. So, however, we're actually trying to fix that.

46:37 And there will be some impact compared to our planning in end of March. But whatever impact it is, it's already within our five years plan. So, and we're working on solutions to deal with that. Hi Brian, this is Xiaohua speaking. The current number of 1.3, 1 to 1.3 already takes in some of the potential delay of the project, delay of project sales into 2021. It looks like some of the project sales closing will end up in Q4 at this moment, but Q4 means A little bit delay will become Q1 next year.

47:23 So for those projects, we'd rather put into next year than this year. So Q1 and Q, no, 1.1 and 1.3 is the number we are reasonably comfortable at this moment. But of course, things change. So that's why we say uncertainty. So by August, we'll update you again. Okay, that's fair. I mean, 1.1 to 1.3, I know that's your most reasonable projection at this point in time, but is that sort of embedding a 10% slippage from 2020 to 2021, or is it a larger percentage than that? I guess just trying to get a sense of how much things have moved out to the 2021 timeframe, if it's a modest amount or if it's maybe more significant.

48:20 In terms of management estimate, we always take a conservative view. So we moved more than 10%, more than 10% of previously planned for 2020 to 2021. But, you know, maybe we'll be able to close it before December 31st, and you'll get a pleasant surprise. Okay, great. Best of luck. Thanks, guys. Thank you. Thank you. As a reminder, ladies and gentlemen, that's Dial 1 for questions. Next question comes from Mark Stroth from J.P. Morgan. Please go ahead.

49:07 Yeah, thank you very much for taking our questions. First, when you talk about potentially replicating the Japanese infrastructure fund strategy in other markets, How should we think about timing? Is that something that could occur within the next 12 months, or is that more of a longer-term view? Mark, this is Xiaohua speaking. Without COVID-19, we think we would be able to sign some strong letter of intent this year. So something will be launched next year. However, with this current situation, Things become fluid. I still expect within 12 months we can have something more concrete.

49:53 But we will have to see. Because we have this structure in Japan. Japan is one of the stable countries. We are active in some other markets such as Latin America and Europe. Latin America got hit by this local currency depreciation. So we'll have to see when that market, when that financial market stabilizes. And for EMEA, we expect large numbers of our project reaching COD. Let's say reaching MTB and then COD in a matter of two to three years. So we only have to get our structure prepared in the next two years. Then we'll be fine.

50:45 Okay, that's helpful. Thanks, Sean. And then just lastly, I think this is pretty clear, but I just want to be certain. So regarding second half, you know, it's fair to say that there is some uncertainties regarding potential delays. But as of today, have you seen any project cancellations? This is Sean again. We haven't seen project cancellations. If we have the PPA, then we don't cancel yet. But we do see that sometimes the tax equity become a problem or the financing costs become high. Although the interest rate, the fact rate move down, but people become so risk averse.

51:32 So our actual lending rate, we haven't seen really actual lending rate drop yet. So that will delay the project. and if the project still have, if we still have room before the COD drop that date, then we are okay, we have time to negotiate. If we are somehow coming close to that date, then we will negotiate with the local utility to extend the COD date. We haven't really run into that much situation like that, but if we do, then I would expect The utility will be tolerated. Okay. Very helpful. Thank you very much.

52:22 Thank you. And I'd like to hand the conference back to management team for the closing remarks. Please continue. All right. Thank you for joining today's call and also for your continued support. If you have any questions, I would like to set up a call. Please contact our investment relationship team. We thank you for your continued support again. I hope you and your families are safe and healthy. Thanks and have a nice day. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.