Ed Job - Director, Investor Relations Shawn Qu - Chairman and Chief Executive Officer Michael Potter - Senior Vice President and Chief Financial Officer Huifeng Chang - CFO

Colin Rusch - Oppenheimer Philip Shen - Roth Capital Partners Carter Driscoll - FBR Wang Yang - CICC Sven Eenmaa - Stifel

Thank you, Leslie and welcome everyone to Canadian Solar’s first quarter 2016 earnings conference call. Joining us on the call today are Dr.

Shawn Qu, our Chairman and Chief Executive Officer, Mr. Michael G.

Potter, Senior Vice President and Chief Financial Officer, and Dr. Huifeng Chang who will be taking over the CFO position on May 22, 2016.

Before we begin, may I remind our listeners that in today’s call, management’s prepared remarks will contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from management’s current expectations and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company’s Annual Report on 20-F filed with the Securities and Exchange Commission. In addition, any projections as to the company’s future performance represent management’s estimates as of today, May 11, 2016.

Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. At this time, I would like to turn the call over to Dr.

Shawn Qu. Shawn, please go ahead.

Thank you all for joining us on the call today. Q1 was another strong quarter for us.

Shipments, revenue and gross margin all came in above guidance, reflecting strong demand for PV modules and stable ASPs. Our results continue to reflect our leadership position in both solar module and downstream total solution businesses.

In Q1, we benefitted from strong demand from several key markets. The U.S.

in particular is a bright spot with shipments for the quarter exceeding 400 megawatts. Sales to the Americas as a whole represented 43% of revenue mainly driven by module sales in U.S.

Asia, on the other hand represented 44% of revenue, primarily driven by solid demand for modules in Japan, China and India. Meanwhile, Europe and other regions accounted for about 13% of revenue.

We also made solid progress in the execution of our energy business strategy. We exited Q1 with nearly 438 megawatt of solar power plants in operation in Holdco.

These plants have a resale value estimated at over $950 million and potential gross margin of close to $200 million. In addition, our late stage solar project pipeline totaled approximately 2.1 gigawatt with an estimated resale value exceeding $4.5 billion and gross margin contribution of over $850 million.

This gives us considerable flexibility as well as visibility into our business results in the quarters ahead as we consider selling some of our solar power plants assets to enhance revenue and recycle capital. Our capacity expansion, technology and cost reduction efforts remain on track.

We expect to end the year with 1 gigawatt of wafer, 3.9 gigawatt of cell and 6.4 gigawatt of module manufacturing capacity. Our focus is really to operate our technology and to improve our cost structure through selective investments especially in the midstream part of the value chain.

The new and state of art wafer and cell capacity will help us to raise the module power output and lower our cost and to prepare us for future competition. Our capacity expansion plan include our 700 megawatt cell and 800 megawatt solar module manufacturing capacity in South-eastern Asia that is expected to start production in August and fully ramp up in Q4 of this year.

Overall, we are executing our long-term strategy to remain global scale and manufacture cost advantages while also leading the way with a competitive technology and a differentiated business model. We have stressed these key themes over years.

This approach continues to serve us well and drive profitable growth as we build our tier 1 position in solar modules and our total solution business. We remain confident in our outlook with our power project pipeline, market growth expectations and our technology and cost reduction roadmaps.

We continue to expect long term growth as solar energy continues to take share from other source of energy. The fact remains unchanged, solar penetration is still in a low single digit worldwide and is expected to go through long growth journey in the years ahead.

Now let me comment on our guidance for Q2, 2016. We currently expect total Q2 module shipments to be in a range of approximately 1,200 megawatt to 1, 250 megawatt including 30 megawatt of shipments to our own utility scale solar project.

Revenue for the second quarter of 2016 is expected to be in a range of $710 million to $760 million with gross margin expected to be between 15% to 17%. Our Q2 revenue will mainly come from the sales of solar modules and electricity revenue for the operating solar power plants and our ownership.

For the full year 2016 we continue to expect total module shipments of 5.4 gigawatt to 5.5 gigawatt with approximately 5 gigawatt to third party customer and therefore recognize into revenue. Meanwhile we are raising our revenue guidance for the year by $100 million to the range of $3 billion to $3.2 billion as we prepare to sell some of our operating solar power plants in the second half of the year.

We expect to add 1.1 gigawatt of operational solar power plants to our portfolio by the end of 2016 which provides us with valuable inventories and great flexibility. Our annual revenue may increase by additional $200 million to $400 million should we decide to sell more solar power plants.

We are actively considering several options to monetize power, solar power plant asset. These options include for example, outright sales of solar power plants, our asset-backed securitization and potentially our public or private YieldCo depending on the market condition.

We believe that our solar power plant asset in low risk OECD countries are valuable and very liquid. Our goal is to maximize the long-term return to our shareholders.

And finally, before I hand the call over to Michael, let me welcome Dr. Huifeng Chang to our management team.

Huifeng will be taking over the CFO position from Michael. He brings to Canadian Solar many years of valuable experience in capital markets and risk management in a global context and we look forward to his contribution in this new phase of our development.

Meanwhile we are indebted to Michael for his years of service during which Canadian Solar has transformed itself from a solar module manufacturing and sales company to a vertically integrated global leader in the solar industry. Michael has made important contributions to the development of Canadian Solar in his nine years with us, five years as the CEO and before that as a Independent Director for the Company.

I personally will miss his advice but I’m happy that he will be available to consult us if necessary. We wish him well in his future endeavours.

Let me now turn the call over to Michael for a more detailed review of our results for Q1. Michael, please go ahead.

Thank you, Shawn. Net revenue for the first quarter of 2016 was $721.4 billion, down 35.6% sequentially and down 16.2% compared to the year ago period.

Revenue for the quarter was well above our guidance of $645 million to $695 million. Gross profit in Q1 was $112.5 million compared to $200.5 million in Q4 and $153 million in the comparable period last year.

Gross margin in Q1 was 15.6% compared to 17.9% in Q4 and 17.8% in the first quarter of 2015. Q1 gross margin came in well above our guidance as a result of higher than expected module ASP and lower module manufacturing cost.

Total operating expenses were $74.1 million in Q1 compared to $95.2 million in Q4. Income from operations was $38.4 million in the first quarter of 2016 compared to $105.3 million in the fourth quarter of 2015 and $78.7 million in the first quarter of 2015.

Operating margin was5.3% in the first quarter of 2016 compared to 9.4% in the fourth quarter of 2015 and 9.1% in the first quarter of 2015. Net foreign exchange gain in Q1 was $3.5 million compared to $10.4 million in Q4 and $6.8 million in Q1 of last year.

The company recorded a gain on the change in fair value of derivatives of $2.7 million in the first quarter of 2016 compared to a loss of $9.4 million in the fourth quarter of 2015 and a gain of $7.9 million in the first quarter of 2015. Income tax expense in Q1 of 2016 was $12.3 million compared to $31 million in Q4 of 2015 and $19.7 million in Q1 of last year.

Net income attributable to Canadian Solar shareholders for Q1, 2016 was $22.6 million or $0.39 per diluted share compared to net income of $62.3 million or $1.05 per diluted share in the fourth quarter of 2015 and net income of $61.3 million or $1.04 per diluted share in the first quarter of 2015. Moving on to the balance sheet, in Q1, cash and cash equivalents were $412.4 million compared to $553.1 million at the end of Q4.

The restricted cash balance was $587.1 million at the end of Q1 compared to $581.6 million at the end of Q4. Our trade accounts receivable balance was $394 million at the end of Q1, down from $426.8 million at the end of Q4.

Inventories increased to $413.2 million at the end of Q1 compared to $334.5 million at the end of Q4. Short-term borrowings at the end of Q1 totaled $1.35 billion compared to $1.16 billion at the end of Q4.

Long-term debt at the end of Q1 was $818.5 million compared to $606.6 million at the end of Q4. Senior convertible notes outstanding totaled $132.2 million down from $150 million at the end of fourth quarter of 2015.

Short-term borrowings and long-term debt directly related to utility-scale solar power projects totaled $758.9 million at the end of Q1. We are very pleased to deliver a gross margin of 15.6% which is well above our guidance of 12% to 14%.

This reflects the overall health of our solar module business, the higher margin opportunities we are capturing and our ability to closely manage both costs and inventory. We expect the benefits from higher efficiency in our manufacturing as we move through 2016 with investments made in advanced production technologies.

We remain in a period with a strong gets stronger. We will continue to leverage our global track record of performance and blue chip portfolio of solar power projects to capture an even greater share of the more profitable solar module and sought after project opportunities worldwide.

One recent notable financing transaction for us this quarter was the closing of $100 million LC facility with Export Development, Canada. This facility will allow us to support the global development efforts of our energy business without requiring us to use cash on deposits for certain programs and bids.

We continue to be able to close project financing as required which is a reflection of our reputation as a prudent and bankable global developer. With the greatly reduced ability to launch an IPO for the YieldCo in the short term, we are executing on our secondary plants to sell projects.

This is reflected increasing our annual guidance by $100 million as our certainty of some sales has increased. We expect to sell more projects in the second half and will update you on our progress and expectations next earnings call unless we have material news before that.

Now I would like to say a few words about the CFO transition. Nine years ago I joined the Canadian Solar board as an Independent Director.

About five years ago, Shawn asked me to step down as an independent board member and help him transform the company as a CFO. Surely after I joined, I also took over the legal function.

It’s been a hard and rewarding nine years. I’ve been able to help Shawn and his team board [ph] the company up to a global leader.

Not many people are blessed with perhaps such an opportunity in their lives and I thank Shawn and our board for their trust and support during this time. When I started as CFO, I moved to Shanghai for a few years and I moved back to the USA a few years ago.

I told Shawn when I started, I could probably last maybe four years and then I need to reduce the constant time zone changes and dateline processing travel. In the end I made a one year longer than my original guess, but I seem to be good at underestimating what I can do.

The reality is as I tend to be my biggest critic and never allow myself to give less than 100%. I’ve been running full out as we executed to maximize growth while the window is open.

Today, I have personal obligations that require me to spend more time closer to home than a 12-hour plane flight would allow me to do. I’ve been working closely with Ray Fund [ph] for a while now even before I joined the company and will be available to help if needed, but I honestly doubt you’ll need much help.

Thank you for all the partners, investors and financial industry professionals that believed in us. A special thank you to my finance and legal teams who are truly extraordinary and the results they delivered and their friendship.

I expect to be doing something different soon but will take a short break to try some personal projects that I wanted to try for a long time. Before we open the call to your questions, let me turn the call over to Dr.

Huifeng Chang for some closing remarks. Huifeng, please go ahead.

Thank you, Michael. Everyone on the phone thank you for joining us.

Please allow me to say a few words to introduce myself. Actually much has been said about me in the press release.

Given my 17 years in the capital market and many of you have met with me before and know me pretty well. I think my Wall Street background will enable me to be more focused on enhancing shareholder values or atleast more communications with you in the future.

I will make myself more available to meet with you in New York or Hong Kong or many other cities. When I decided to join Canadian Solar, my friend asked me, hey Chang you have been in the capital market business for so long, why did you join the Solar Company?

Well, I see three things unique in Canadian Solar. First, the company had built a sound global platform with huge potential to grow in many countries like the TMT sector in the early 1990s.

Second, great leadership, Shawn and Michael have built a high quality globalized management team, among the middle up 50 managers we have about 25 [Indiscernible]. We are truly a global business managed by global team.

Third, we have a stable manufacturing business in upstream and a high gross project business in the downstream. We are strategically well positioned.

So what is my work plan? Well several years down the road when I look back, I hope I have accomplished the following.

First, implement a sound risk management process. Like Charlie [Indiscernible] said, know where and how others die and they never go there.

I will make sure we will always stay within the safe zone during the rapid development. And second, build a strong partnership with super big and cheap capital providers.

And third, make you our shareholders happy. So again, thank you very much and I look forward to working with you for the years to come.

With that, I would like now to open the call to your questions. Operator?

Thanks a lot and congratulations to everybody. It sounds like this is actually a well thought out transition that is going to work for everybody.

As you guys talked about the strong getting stronger here in this environment, can you talk a little bit about what's happening in terms of module sales, the demand environment and the dynamics as you have seen some of your larger competitors go out of business and potentially looking at some of the local Chinese suppliers looking for new markets in the second half of this year?

Hi, Colin, this is Shawn speaking. See, in the first quarter we've delivered closed to 1.2 gigawatts.

And a second quarter, our guidance is 1.2 to 1.25 gigawatts. And for the whole year we guided a shipment of 5.4 to 5.5 gigawatts, which means we see more shipments, more megawatt shipments in the second half than the first half, so that speaks about our look into the solar module business.

Now, the markets always switch, always change, and we do see the markets in the past like 10 years with the past 10 years experience, we do see market kind of roll from one country to another country. However, Canadian Solar has diversified market coverage.

So we do have a well balanced sales network. So, we think this network will allow us to handle the market fluctuation from one or two particular market.

And you also asked me to comment on some of our competitors. See every year we see probably one or two major players either fail or trip, but I think that's natural for any business, and this will only help the industry to consolidate.

And Canadian Solar has been constantly maintained our position in one of the Tier 1 Top 3, Top 4 solar module manufacturer. And I see myself, Canadian Solar continue to maintain this position.

And I also want to make a comment that Canadian Solar's target for the module on the module side is to be strong Tier 1 player. Strong Tier 1 player means megawatt shipment-wise we want to be in a Top 3, Top 4 and -- but we want to have a reasonable profit structure and also have a strong private and account receivable control.

We never aim to be just the number one shipment company in solar, but we aim to be a Tier 1 solar module provider with a combination of strength. I think that’s what separates the winner from loser.

Great, thanks. And then as you shifts your strategy a bit on the project business, can you guys -- and this is specifically for the finance team, talk about how you are expecting to be able to access capital, the opportunities you are seeing out there for flexible project facilities and then your expectation in terms of managing cost of capital going forward?

You know, your plans for how you do that and support the credit comments that Shawn just made?

Hi, Colin. This is Michael.

So, I've actually been working with Huifeng on a lot of this stuff over the last year or so. Our ability to access the capital markets and project financing is quite strong.

We're very well regarded in the banking community as a company that can execute, and it's quite reasonable in the projects that we bring them. We've been able to close innovative financing in Japan for example, where we have an asset back financing about 1.4% interest for 20 years for our project.

In Canada we able to leverage our strength as a leading Canadian company and exporter to deliver $100 million of LC capacity that allows us to not tie up cash when we bid for PPAs and make interconnect agreements. We're able to access local financing in China with strong support over the years from CDB for example, particularly for long term financing.

I think our cost of debt financing has always been better than many other players in the industry and I expect that to continue. The real trick is going to be figuring out how the balance of the equity commitment and how we can drive the cost of equity down.

And we talked about that in a few times in our calls for the last year, obviously a YieldCo would be a nice option if it would work. But market reality now says, we need to focus more on private partnerships and other sources of less expensive equity.

There is lots of indication of people like you know coming and joining and partner with us and Huifeng will be kept quite busy closing on a bunch of these deals that are stacking up.

Correct. Thanks a lot guys.

Great, thanks. Michael, best of luck with your next steps, and Huifeng, we look forward to working with you.

In terms of your guidance for the year, it looks like you took it up by about $100 million and that suggests maybe 50 plus megawatts of project sales. What factors may influence your decision to perhaps increase that number and do you see more partial sales or more outright sales ahead?

In addition to that, have you identified the buyers and also which geographic locations do you expect to sell down as we get into the back half of the year?

Philip, that's a good question. We think with the current project asset price where the market is currently talking about, we can make money by selling assets in several countries.

For example our U.K. assets, China assets and also Japanese assets, we can definitely make money or make margins in for those assets.

And our decision will base on a few factors. I guess one is to manage the cash flow, and managing the cash flow means we recycle the capital with the most efficient ways either by ABS or bond structure or through signing a project.

Second, will be through managed our revenue. And we have this nice asset inventory, for me, that's a very valuable inventory, which make us, give us the possibility and to support our revenue if we see that country for a certain quarter.

So that will be another consideration.

And one comment I would make on the U.S. market.

The pricings look quite reasonable in the U.S. market right now.

One advantage we have in selling projects in the U.S. market with the ITC extension.

We have over five years of runway to develop and add more projects to our portfolio. So it’s a market that we can easily execute in and where the financing is quite deep and market is quite mature in terms of buyers and financing.

So that's also a market we're quite good and quite strong in.

Great. Thanks.

Let's talk about module shipment mix. You guys increase it in the first quarter to 40-ish percent.

Can you breakout this specific volume shipped to China, India and Japan for example? And then, how do you expect that mix to shift in Q2 in the back half of the year?

I don't have that number handy at this moment. I can dig it out for you.

However, overall in Q1, the number one market in terms of shipment is U.S. And the number two is let me see.

I think number two, if I look at the megawatt, number two is China and number three is Japan, and number four is India. And in all these countries we shipped more than 150 megawatt.

And so should give you a rough picture.

Great. I will squeeze one more in there.

China looks like it was number two and gaining some of the mix. With the step down of the feed-in tariff on June 30 in China, how do you expect the China shipments to evolve in Q3?

And also China recently announced that utilities will be required to generate 15% of their power from renewable energy by 2020 excluding hydro. Do you expect an immediate impact on the demand for solar as a result of this policy?

And if not, what do you see as the impact from this policy? Thank you.

Yes. That's a very good question, Philip.

We're not giving specific guidance for Q3 and Q4 yet, so let's wait until that time. Wait till August before I give specific guidance numbers for Q3 and Q4.

Now your comment on a few factors for the China market. As far as we know, we are expecting – the Chinese government expecting NEA [ph] to reduce the – no, not to reduce, to publish the quarter for this year and some part of the quarter for this year.

I think China this year will divide into its total quarter into a few categories. One is associated with the project for like poor countryside area.

There was a specific target there and kind of rail project assign to for that to support the poor and underdeveloped area in countries. The talk in the street is that we will probably see those quarters release by NEA either this month or next month.

I hope it is this month. Now, you also talk about the new sort of renewable energy portfolios standards requirement indicated by the NEA.

We have seen those documents too. I think this document will provide another stimulus to China's PBA market.

Now, but meanwhile we're watching for the detail plans about how is that going to be implemented.

Okay. Fair enough.

Thank you. And I'll jump back in the queue.

Thanks.

Good morning, gentlemen, and congratulations on moving on to your next endeavour, Michael. The first question is you talked about additional projects you are hoping to add by the end of year.

Can you talk maybe geographically where you are hoping the composition of that additional project capacity?

I think you are talking about numbers about new project COD by end of this year.

Correct.

For that, in terms of megawatt, the biggest challenge comes from United States. In total we have seven large projects; a total is close to 1.2 gigawatts to be CODs in Q2 and Q4.

Now, we have sold some of these shares and the ownership of those projects. So our effective ownership in those 1.2 gigawatts will be just over 700 megawatts, somewhere around 700 to 800 megawatts.

So that how much we were up in U.S. And then in U.K., we just recently add around 140 megawatts in the first quarter is to catch the [Indiscernible] 1.3 support in U.K.

and after March 31 the U.K. support scheme you have [Indiscernible] 1.2.

But 1.2 is still quite economic, we can still develop project with good return. So we think we'll add another at least 50, 60 megawatt, so that for the total year we could reach 100 megawatts or even more in U.K.

Now, I do want to mention that U.K. is a support cycle for solar is from April to March.

So, maybe some of those projects will be connected before March 31, next year rather than December 31, this year, but for U.K. as considered like 12 month season.

And another place is Japan, we think we will add 40, 50 megawatt in Japan COD, but we're going to NTP [ph] a lot of projects. We are going to start construction on many projects in Japan, so we should see higher COD number for Japan in 2017 and 2018.

All together we still have somewhere close to 600 megawatt of project in our Japanese project pipeline. And as I mentioned around 14 megawatts will be COD this year.

And the balance we hope to COD then to bring them to commercial operation in the next three years. Of course, you know that in Japan METI is considering another review of solar project by March 31, 2017 and we're waiting – also waiting to see that particular requirement by METI to become to be finalized.

And the last region for COD will be China and we look at somewhere around 100, 200 megawatts of COD's of new project in China.

Okay. Appreciate that detail.

And then, just a clarification, I think I heard you in your prepared comments talk about ending 2016 with 6.4 gigawatts of module capacity. I think previous plans are maybe closer to 5.7, 5.8.

Can you just comment on that? And then, in the context of certainly some industry discussion maybe there would be some overcapacity in the second half of the year and then just kind of that with your strong gets stronger comments and why you feel comfortable.

It sounds almost as though your expectations for margins might be higher than people had originally forecast for the back half of the year which I think would give a lot of relief to the street? Thank you.

Okay. Thank you.

Its interesting question and I have an interesting answer for you. We added around 500 megawatt of new capacity, because there was 1 billion factory building just close to our solar cell factory which is available for sale.

Now we can get that land and the buildings at a very low cost. We don't have to spend much money to convert into a module factory, so we think it's perfect.

Logistically, the logistic cost where shipping sale is almost a zero. It just cross street, 200 meters from our cell factory.

And the building is perfect. So we like it.

So we just snapped on that opportunity. And meanwhile, although we showed 6.3 gigawatts on module capacity by end of year, but remember we are delivering, shipping and delivering 5.5 gigawatts this year, right.

So even if we don't growth next year, 2017 we're still be 5.5 gigawatts, which is very close to 6.3 gigawatt of module capacity. Now, the module machine is relatively inexpensive, so adding here little bit capacity to prepare for the high season is good, because if you talk about our annual production of 5 or 6 gigawatts you don't expect the shipment or production to be perfectly even.

You will have well over one month with more order, one month with less order, so you do need to have a little bit extra capacity to handle that. And because in the past we do some module OEM, so if we have extra demand for module, for particular quarter or month we outflow it to OEM module assembly factory.

However, that's a cost and we did a calculation that as long as we can make our internal module workshop 17% full, we'll be making money, we'll make more money by doing ourselves than farm out. And not to mentioned that doing the module ourselves will help us to control the quality and also reduce the vendor risk.

So, that's all the reasons. But 6.6 megawatt is not aggressive at all, considering our current shipment and considering next year I think its 6.6 gigawatt is write-off and even 6.6 gigawatt, but I still have run over time, let's say a particular high demand month.

Excellent. I appreciate all the detail.

Thanks. I'll get back in the queue.

Thank you.

Hi. Thank you for taking my question.

So, first of all, I wanted to ask about your [Indiscernible]. As I noticed you raised your capacity expansion target by 2015 and by about 700 megawatts.

I just wanted the consideration behind the risk of the expansion of the module? The second is about module ASPs.

So you mentioned about the higher gross margin due to higher ASP and lower cost. So can you just give a number of ASP and the manufacture cost in 1Q and give guidance in the remainder of the year?

Thank you.

This is Michael. The higher ASPs I'll address first.

Our mix was a little bit more focused on higher ASP countries. We did a little better in Japan than we expected and we did little better in the U.S.

than we expected. And we also have some help from currency.

The U.S. dollar was weaker towards the end of the quarter and that's help push our ASPs up.

In terms of the factory we've done a lot with less than a $0.01 different at our expectation, but when your cost are below $0.40 like they are for us now, it certainly easy to get a percentage do better just from a small moment in cost. So that was the main driver there.

And we've said we're going to have our cost at least $0.39 a watt by the end of this year and we have an update of that guidance but obviously we're working as hard as we can to beat that. So that's the information on that.

I think in terms of why we're adding the capacity and the extra increased compared with the last time, Shawn just explain to the last caller that recently we had an opportunity to purchase from lands right across the street from our cell factory. And if we look at during peak season sometimes we have to use OEM, having a little bit of flux capacity of module only is actually economically viable if you only keep it 70% full.

So that's the main reason for the change there. If for some reason markets not as strong as we think it might we'll just postpone adding the module equipment a little bit and weigh that little bit longer until demand is little further.

Okay. Thank you.

The module price just go down a bit in the last several weeks so what is your outlook for the module price where the rush order and price in the second half were below us?

I'm sorry, but we don't really talk about like for last couple of week trends when we do calls, and we don't focus on the China market as our main market for us. We're in a lot of strong markets across the globe and demand is expected to grow and be strong this year based on outside forecasters say.

So, prices always go down, usually interact with ASPs with our cost, we're expecting our cost to go down or competitors are expecting cost to go down, so naturally in the solar industry ASP tend to follow. So lowering ASP is normal than what we expect.

And then the final question is about your sell for the power is and so where are you likely to sell more China assets in the world? What about the gross margin for those sales?

You mean that selling China power plants.

Yes, yes, yes, where do you sell more China power plants and what about the gross margin for those sales?

We haven't sold the China power plant yet so I better not say it before I sell it. And I don't want to complicate it my negotiation.

But meanwhile typically for the China power plant based on our development and EPC cost we are looking for somewhere around 10% to 15% gross margin, that's our target. But it really depends on a project.

For example, we have one project where the performance is just exceptionally good. So, then you can't do a cost plant.

It's really an IRR question.

And I can give you another bit of color about selling projects. We've been talking about expected margins in Japan for quite a long time if we did sell any project.

And we thought it would at least as good as the projects in Canada if 20% plus gross margin, but we sold a little bit over a megawatt in the form of two small projects in Japan and we were much higher than even our 20% numbers. So, we certainly have good projects and good locations that can generate very good margins for us.

And the choice of which to keep and which to sell that will depend on investor interest and our ability to replace those projects in the future.

Okay.

Shall we go on to the next question, operator?

Great. Thanks for taking my question and let me add my best wishes and congratulations here.

First, wanted to ask in terms of your plans to recycle capital this year, I understand that some of the thoughts here on how it will be done are evolving still. But what is the kind of ballpark amount of capital you look to recycle this year?

Well, I guess we gave guidance. We have mentioned that we plan to sell 100 megawatt worth of project.

$100 million.

Those are $100 million. And then we also mentioned that if we choose to sell more than we think we are budgeting maybe additional 200 million to 400 million, that's in our press release.

We did give you some kind of ballpark estimate in our press release.

Yes and if you are conservative and assume that sales are in places like China and the U.S. where we say 10% to 15% gross margin, you know we’ll get a bunch of the catch we put in the form of equity financing is about 30% equity, 70% debt is a [Indiscernible] so when you sell a project you get your equity back and you get your gross margin on top of that.

So if you want a rough guide of how much additional cash that could be recycled, that should help you.

Got it, thank you. And second question I had is, in terms of could you just tell us where do you spend on your blended internal kind of module production cost currently?

And where would you expect that to trend here in the second half of the year?

The blended module cost is if its’ purely internal source is flexible over $0.40 per watt right now with purchase cell it’s a little bit above $0.40 a watt right now. So it depends if it’s purely internal or not.

We have less than 50% of our module capacity supplied by our internal cells. On average we are pretty close to $0.40 a watt now and we are expecting that to go as low as $0.39 a watt by the end of the year.

Obviously, if we can do better, well we are going to take the opportunity to come up with a lower price, lower cost. We had said that next year we expect cost to be atleast $0.36 a watt, so we are expecting more cost downside in 2017, and we haven’t changed that guidance.

Got it. Thank you.

Hey guys congratulations on the solid quarter. Two quickies, just house-keeping question.

What was, I think you reported operating cash flow in the press release, but can you share CapEx or just the free cash flow for the quarter?

Can you ask the second question, I’ll get you the CapEx number in a second?

Yes just I guess it just captures the CapEx just the free cash flow in the quarter.

I -- we don’t really measure free cash flow. CapEx in the first quarter was relatively small we don’t count the investment into the solar power projects.

Yes.

$60 million.

Great. And then just one question on the U.S.

market. Were you shipping from China to the U.S.

and paying the tariff or are you using an OEM partner in Vietnam or Thailand? And are U.S.

shipments margin accretive or margin dilutive? I know that ASP accretive but on the margin side are they helping or hurting margins?

We are mainly shipping from China to the U.S. and paying the tariff, although we do ship some product from Vietnam using Taiwanese sales and pay a lower tariff.

And the margins in the U.S. are lower than our corporate average.

Right, thanks. Got you.

It’s accretive as in its positive gross margin but it brings our total margin average down, because it’s lower than corporate average. So the more sales we do in the U.S.

the lower our gross margin is as a percent.

Right. Thanks guys, congrats on Q1 and a solid guidance.

Thank you. Yes, go ahead and [Indiscernible] next one.

Okay, we just wanted to say thank you to everybody for joining the call. Shawn and Huifeng look forward to taking your calls, your questions and answering them next quarter and if you have any follow up questions, please contact Ed Job.

Thanks everybody.

Thank you.