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Canadian Solar Inc (NASDAQ:CSIQ)
Q2 2020 Earnings Call
Aug 7, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Second Quarter of 2020 Earnings Conference Call. My name is Annie and I'll be your operator for today. [Operator Instructions]

I would now like to turn it over to Isabel Zhang, Investor Relations Manager at Canadian Solar. Please go ahead.

Isabel Zhang -- Investor Relations Manager

Thank you, operator, and welcome everyone to Canadian Solar's second quarter 2020 earnings conference call. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President and COO; and Dr. Huifeng Chang, Senior VP and CFO.

On this call, Shawn will provide an update on the market environment and Canadian Solar's long-term strategy, followed by Yan, who will review our recent progress and business outlook. Huifeng follows them to review our financial results and capital management strategy. After the prepared remarks we will have time for 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 risks and uncertainties. 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. 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 20-F filed with the Securities and Exchange Commission.

Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and 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. Management uses non-GAAP measures to better assess operating performance and to establish operational results. 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 over the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Thank you, Isabel, and hello, everyone. Welcome and thanks for joining us today. Canadian Solar delivered strong second quarter results as we managed through the ongoing impact of COVID-19 pandemic. We continue to deliver clean, reliable and affordable solar energy to our customers while operating under strict health protocols.

Despite these challenges, we delivered higher than expected diluted earnings per share of $0.34 in the second quarter. Now, let me give you an update on the market environment and Canadian Solar's long-term strategy. I will also share some thoughts on our recent announcement to access China's capital market. On the last call, I said that global demand for 2020 might decline for the first time in 20 years. Well, even as a veteran in this industry, I think I might have underestimated the sequence of the solar market. The global demand situation was soft in the first half but we continued to grow our shipment and gain market share.

Over the past few weeks, we have seen a sharp reimprovement in demand across most of our end markets including the U.S., LATAM, Europe, Japan, Australia and China. Amicably, some projects have been delayed by a quarter or two but overall, the demand situation is very strong and we are now running at full capacity. Our team has done an excellent job, staying focused on serving our customers in the face of COVID-19 challenges. R&D, manufacturing innovations and increased level of economics of scale in the past few years have brought solar grid parity in growing number of cities. This is why demand quickly rebounded.

Today, projects are less driven by subsidy allowance but more by project economics and other [Technical Issues] factors. So the underlying demand is strong. BNEF forecasted 110 and -- to 140 gigawatt of global demand this year. We now believe it will be somewhere in the middle or probably toward the higher end of this range. The only limiting factor is the availability of raw material supply and ability to sort that [Phonetic] in the next few quarters in a few -- next few months. For 2021 and 2022, BNEF middle-point estimates for global demand of 150 to 160 gigawatt, respectively. This is consistent to what we have heard through our own channel trends.

We are extremely excited about the long-term opportunities in the industry and we are positioning Canadian Solar more assertively for the growth. On our module and system solutions or MSS business side, we recently announced our strategic decision to list our wholly owned MSS subsidiary on the Chinese stock market. If the listing is successful we expect to have greater access to cheaper sources of capital that will support us in capturing a greater share of market growth and value creation.

Additionally as market consolidation accelerates, we have a unique advantage having spent so many years building a top-tier brand and reputation, robust global sales channels and an incredibly strong operational and financial track record. We believe we are better positioned for growth than anyone else. And by accessing into China's capital market, we will also benefit from the low cost of capital.

Another key motivation for pursuing that listing is to unlock value for shareholders. We hope that they would share what is in our view and find justified the recent gap[Phonetic] between Canadian Solar and on our China listing here. As an update on where we are in the process, we have started the pre-IPO capital raising process with a new partner to power MSS business and converting it into a Sino-foreign joint stock company. This is required by the Chinese security regulation while listing in China's stock market.

This investment is expected to be completed by the end of September and we're growing in cash capital to support the forthcoming MSS expansion and growth plans for the next year before expected listing. Capital raised from the pre-IPO will also allow us to use the fast available technology and equipment to support our new module shipment plan for 2021. We'll update you further as we reach further milestones. At the same time we remain fully committed to our NASDAQ listing and to grow in our global energy business. We reiterate the five-year growth guidance we did last quarter, which includes achieving around 25% share in the project sales volume.

With that, let me turn over to Yan for a go-through on our business results and outlook. Yan, Please go ahead.

Yan Zhuang -- President and Chief Operating Officer

Thank you, Shawn. Let me start with the three key messages. Firstly, we achieved strong financial and operating results in Q2 with revenue and profitability both above our expectations. We are proud that even under the challenging market circumstances, we adjusted swiftly and continued to deliver strong results.

However, in the near term, we see some margin pressure due to cost increases from polysilicon supply shortages. But given our strong market position and pricing power, we expect to share a portion of the higher costs with customers. Most importantly, we are positioning ourselves for long-term growth by expanding capacity and increasing vertical integration in our module businesses and strategically investing in solar plus storage capabilities.

Now let me go through our Q2 2020 operating results. On the MSS business side, shipments in Q2 grew over 30%, both sequentially and year-over-year to 2.9 gigawatt well above guidance. Q2 revenues of $669 million well also ahead of our expectations but were down sequentially as the volume growth was not enough to offset the ASP decline.

Manufacturing costs were also lower in Q2 and despite the expected decline, gross margin remained at a healthy level of 21.1%. One of the exciting developments in Q2 was our new product launches as we introduced modules of 500 to 600 watts. When I joined Canadian Solar back in 2007, the standard module wattage was over 100 watts. So we have come a very long way. And over that time, Canadian Solar has been the leader by bringing a series of innovative new solutions to the market as we increase the benefits to customers.

Our latest modules have higher cell efficiencies, larger wafer sizes, longer product warranties and ultimately offer our customers from lower LCOE and better returns. On the energy business side, due to the previous higher volatility in the capital markets, we had some delays in project sales. This is the main reason why both our energy revenues and gross profits were down in Q2. Our strategy is to take a balanced approach between recycling our capital quickly while maximizing the valuation of our solar power plants.

Financial markets appear to have stabilized over the past few months and currently demand for our projects is strong. For example, we recently announced the financial closing of our Maplewood projects of 367 megawatts. We expect to make more announcements over the coming months as we reach closure. While energy business revenues were soft in Q2, gross margin was higher than usual at 43.4%. Gross margin benefited from stable high margin revenues from our operations and maintenance business, which now has around 3 gigawatts of projects under contract. We expect to drive additional growth in our O&M business as we accumulate a growing portfolio of partial ownership in operating assets.

In terms of business development, we find two private PPAs in Q2 in Brazil totaling 274 megawatts. Brazil is one of our key markets. We were one of the first solar companies to enter this market in 2013 and even set up a module factory in Sao Paulo. Over the past seven years, we have cemented our leadership position in the Brazilian market, both as a project developer and as a module supplier and system integrator. We continue to see significant growth potential in this market given the strong energy demand, higher solar irradiance, stable capital markets and attractive project returns.

Now, let me comment on our guidance and business outlook. For the third quarter of 2020, we expect total module shipments to be in the range of 2.9 to 3.1 gigawatts.Total revenue were expected to be in the range of $840 million to $890 million and gross margin is expected to be between 14% and 16%. For the full year of 2020, we now expect total module shipments to be in the range of 11 to 12 gigawatts.

In the near term, as reflected in our guidance, we are seeing some margin pressure due to higher costs from the polysilicon supply shortage however, given our leadership position in premium markets and the strong overall demand rebound we expect well -- we expect we'll be able to share part of the higher costs with customers and have already started to raise module prices. We currently expect the impact of the polysilicon supply disruption to lessen as supply expands in the coming quarters.

On the energy side, the exact timing and recognition of certain project sales remain uncertain. In terms of volume, we expect to recognize a large part of this year's project sales in Q4 with some projects potentially moving into next year, as we previously communicated, mainly due to delays and impact of COVID-19.

Over the longer term I'm very excited about our growth outlook given the compelling solar market dynamics and Canadian Solar's company-specific catalysts, where we are expanding capacity in the increasing vertical integration for our module business, which will allow us to capture more global market share, enhance pricing power, control costs and improve profitability.

In fact next year we are planning on 18 to 20 gigawatts of shipments. We're in the process of completing capacity and the capex plans that will support our long-term growth and we plan to give an update during next quarter's results tentatively scheduled for November. Importantly, we are seeing industry consolidation accelerate and as the global leader in both the energy and module businesses, we are uniquely positioned to capture an outsized share of industry profits to generate long-term sustainable returns for investors.

For our technology standpoint, we are building our expertise and ramping up quickly in the solar PV plus storage space. In this quarter, we almost doubled our total pipeline and backlog of storage projects. In the U.S., for example, some of the customers that we previously sold utility-scale solar projects to are coming back to us to help them retrofit the power plants with our proprietary batteries storage solution.

We're also starting to build our storage pipeline in other parts of the world including Latin America, Europe and Australia. Everyday, I'm reading news articles about how conventional fossil fuel generators are being retired earlier than expected. So I think we will see a lot more growth in the solar plus storage space. At Canadian Solar, we're committed to innovation and building the technology DNA to lead the next wave of growth in the energy industry.

Now let me turn over the call to Huifeng for more details on our financial results and capital management strategies. Huifeng, please go ahead. Huifeng?

Isabel Zhang -- Investor Relations Manager

Huifeng, are you still on the line?

Huifeng Chang -- President and Chief Operating Officer

David, can you connect me?

David Pasquale -- Global IR Partners

You are connected.

Yan Zhuang -- President and Chief Operating Officer

You're on the line. We can hear you now with a lot of echoes.

Isabel Zhang -- Investor Relations Manager

Right.

Huifeng Chang -- President and Chief Operating Officer

Thank you. Thank you, Yan. Yeah, sorry for the technical problem. Before I review the numbers, I'd like to share a quick thought with you. The keyword I will used to describe Canadian Solar in 2020 is resilience. In Q1, as the coronavirus first hit China...

Operator

I think we lost Mr. Huifeng Chang.

Huifeng Chang -- President and Chief Operating Officer

I am here now. Can you hear me?

Isabel Zhang -- Investor Relations Manager

Yes, we can.

Huifeng Chang -- President and Chief Operating Officer

Hello. Can you hear me?

Yan Zhuang -- President and Chief Operating Officer

Yes.

Huifeng Chang -- President and Chief Operating Officer

So I can continue.

Isabel Zhang -- Investor Relations Manager

Right.

Huifeng Chang -- President and Chief Operating Officer

Hello? Okay, thank you.

Yan Zhuang -- President and Chief Operating Officer

Yes.

Huifeng Chang -- President and Chief Operating Officer

Yeah. The key word I would use to describe Canadian Solar in 2020 is resilience. In Q1, as the coronavirus first hit China, we lost the production for a few weeks but our teams worked incredibly hard to catch up safely. As the production issues were resolved, demand issues emerged in Q2 and we became extremely cautious with our liquidity management.

Over the years, our management team has developed a habit of being extra alert to potential challenges. When we see warning in the horizon, we are ring the alarm bells and a plan for the worst. We always face a situation head on and because of this habit most times, things eventually turn out to be better than what we initially expected. I'm very proud of our teams for working through these challenging times with resilience, focus and excellent results.

Now, back to the financials. Yan reviewed the revenues and the profitability, so I won't go through it again. Total operating expenses in Q2 were U.S. $102 million down 17% year-over-year. The decline was partly driven by lower travel expenses as well as our continued efforts to control opex.

The net foreign exchange loss in the second quarter was $4.5 million, which was larger than usual. As a global company, we managed our currency risk through a comprehensive hedging program. While a hedging 100% is cost prohibitive, so we take a balanced approach by hedging our exposures only to a level we can see they're reasonable and it takes some currency risk. In this quarter for example, the high FX loss was mainly due to the unfavorable moves in the Brazilian real and the Thai baht.

Moving onto the balance sheet. As demand and the capital market conditions have both improved, we are working to strike a balance between investing for the long-term goals and preserving cash. Our leverage and the liquidity metrics was stable this quarter. Total debt was at $1.9 billion. Non-GAAP net debt to EBITDA was 2.4 times and the EBITDA to net interest coverage was 7.9 times. Both of these metrics are healthy and are broadly unchanged from the previous quarter.

We also continue to focus on working capital management. Where one could argue that we have been too successful at managing working capital, given the recent raw material price increases, we almost wish we had built a larger inventory. But the tide could turn quickly and it is not a risk we are willing to take. Capex in the first half was $86 million. Our capex plan for the full-year of 2020 is slightly higher than what we said last quarter, around $300 million.

As we are expediting capacity expansion as a response to the stronger demand at the same time, we remain disciplined in our capital allocation decisions. And our goal is always to pursue returns accretive opportunities. Our potential listing in China, if successful, will give us the additional resources to deliver higher future earnings growth and a return on capital.

Given the confluence of several factors, including the opening of China's financial markets, strong solar demand growth and the cost of solar reaching grid parity across an increasing number of markets and accelerating market consolidation, we currently see a strategic window of opportunity to invest in growth and to capitalize on long-term opportunities and to unlock sustainable value for our shareholders.

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

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions] First question is from the line of Philip Shen of Roth Capital Partners. Please go ahead.

Philip Shen -- Roth Capital Partners -- Analyst

Hi everyone, thank you for taking my questions. The first one is on your 2021 guidance. It's a nice and large increase versus 2020. And Shawn, I think you mentioned in your prepared remarks that today is driven less by subsidy and more by project economics. Was wondering if you're seeing, with the lower module pricing, any result of greater unsubsidized demand creation?

We saw this pattern in early 2019 after the May 31, 2018 downturn when China reduced its -- and changed its feed-in tariff program. Do you think we could see something similar for 2021? And how much of 2021 demand do you think could come from unsubsidized markets versus what we've seen in prior years.

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Hi Philip, this is Shawn speaking. Well, my answer is that I believe almost over the years 2021 demand -- Sorry, almost all of the 2021 demand will come from unsubsidized demand rather than the government subsidized demand.

Philip Shen -- Roth Capital Partners -- Analyst

Great. And how much of 2021 do you have visibility into? Let's say, your guidance is 19 gigawatts at the midpoint. Do you have already visibility or even contracts for 25% of it or something even more?

Dr. Shawn Qu -- Chairman and Chief Executive Officer

No, this is -- the demand was 18% and this is what we believe we can ship. We did all our channel checks. We think there are -- first of all, there are like demand toward our trend area project getting pushed to 2021 that will be one of the demand source. And second, there are many projects prepared for 2021 anyway. And third, our availability, our increased financing in the capital market will see the growth in 2021.

So that -- and as a matter of fact, we believe that the the module ASP will probably start to be stable, more stable than through the remaining of 2020 through 2021 rather than the big decline we have seen in the past few years. Because of that, right now we are focusing on new product and we're offering new products to the market, rather than to rush out to sign off a contract. But we do have a lot of quotations out already and we're monitoring and in close negotiations on many of the big potential contracts.

Yan Zhuang -- President and Chief Operating Officer

Let me add on Shawn's comments. So Philip, actually when we're talking about how much volume has locked in, I think it's not just the contract we signed. Remember, there's a lot of demand that are more reliable than contracted demand. So this depends a lot on our long-term contract signing for example in U.S. and also demand-supply relationship like the U.S. demand can only be met by the South East nation capacity that is -- that does not have that much bankable capacity.

So we have over 3 gigawatts of capacity in Thailand that are almost I would consider zero for the U.S. And we have, like -- we have acquired a few large contracts that are three years long-term contracts based on cost-plus model and that is already locked. And I think the entire U.S., Thailand capacity 3 gigawatts are to me is locked because U.S. demand is high and their margin is healthy.

And also, we have market like Japan because in Japan, we have different channels including the residential system sales that are -- it's a distribution business that are very loyal channel, they are repeat customers, so they are not going to change. So we know that volume of business is coming in every year with stability and also even for utility-scale projects in Japan. The demand is close to two or three years ahead of time, so it doesn't change suddenly. So that will come in for sure.

And globally, we have direct sales channel handled by separate team selling small volume at a higher price to the installers, going into residential and the commercial rooftop. And those customers are repeat customer, so they were coming in. And we have our own project that need module and that the volumes could not significant that next year, that volume is locked. So if you count all those in, I think we have half already locked in. So that's my answer, I hope that downs your question.

Philip Shen -- Roth Capital Partners -- Analyst

It does, Yan. Thank you very much. That's very helpful. So looking at the other side of the equation in terms of your capacity expansion potential, I know you mentioned that you would like to share more on the next call but given the visibility that you have, was wondering if you might be able to provide a little bit of color today. So specifically, how much expansion could you see potentially in '21 as it relates to wafer and cell and module? And then how much do you expect to have to spend to invest in that vertical integration and expansion? Thanks.

Yan Zhuang -- President and Chief Operating Officer

Sorry. Phil, if I can give you some indication but I can get -- cannot give you details in number because we're still in the last phase of planning and we need to get the Board's approval. But before that I cannot share that the tangible numbers but I can tell you that we already have the shipment guidance for next year. So we need to expand our capacity to support that volume of shipment and also to sustain our profitability.

So, you know our culture, you know Shawn, you know our management team that we're very rational and we're very number driven. Once we invest in capacity, we have of margin target, a profit target, so the vertical integration and the capacity expansion needs to support both volume and profit and return.

Philip Shen -- Roth Capital Partners -- Analyst

Okay, great. Thanks. One last one, if I may. As it relates to the China listing, how much do you think you could raise via the pre-IPO process? And then ultimately, how much would you target during the IPO process in China?

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Well, Phil, we do have our target but we are in the pre-IPO talk right now. I would rather share this number with you after we close the call only going to be less than two month sales. And so, I would rather share -- but what I can let you know is that the demand for the pre-IPO like, while the available in the next -- the demand for the pre-IPO target is a very, very strong. We are receiving phone calls from some of the large and very credible investment funds on a daily basis. So we think that our pre-IPO fund like, quarter will be over-subscribed.

Philip Shen -- Roth Capital Partners -- Analyst

Okay. Thanks for the color there, Shawn. I'll pass it on.

Operator

Thank you. [Operator Instructions] Next question is from Brian Lee of Goldman Sachs. Please go ahead.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Hey, guys. Thanks for taking the questions. Maybe just a quick follow-up to Phil's last one on the pre-IPO discussions you're having, any sort of sense of range of valuations that you're hearing investors are comfortable with for that segment?

Dr. Shawn Qu -- Chairman and Chief Executive Officer

That's another question I would rather answer after we have the numbers. I don't want to give a indication, so that the pre-IPO investors know how to negotiate with me. But on other hand, as I said in my answer for the previous question, the demand to our investment quarter is very high. So while we see -- I think we'll see some healthy competition, so that the valuation will be probably on the high-end of what we have been expected.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

All right, fair enough. Maybe a couple of housekeeping questions for Huifeng. Huifeng, on the 3Q guidance can you give us a sense of what mix of energy versus MSS sales is embedded in that and the kind of gross margin ranges for each of the segments given how lumpy it's been through the first couple of quarters here?

Huifeng Chang -- President and Chief Operating Officer

That breakdown -- we don't have -- don't provides a number yet but mostly still in the MSS side. In the Q3, there will be some project sales closure but not significant to contribution. And there also is uncertainty of the closing time but I think before the end of the year between Q3, Q4, there will be some closure.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Okay, fair enough. I guess, maybe just to follow up on that, though, if you take the implied price per watt in 2Q, since 2Q revenue was almost all modules and you assume a fairly small contribution from energy in 3Q, that would imply module pricing is going up from 2Q to 3Q, which I don't think we're really expecting that. I don't know if that's what you're telegraphing here but it seems like 3Q is embedding a decent amount of energy revenue relative to 2Q, I think more in line with what you saw in 2Q -- in 1Q but just trying to understand the puts and takes here because the pricing otherwise would be implicitly going up here.

Huifeng Chang -- President and Chief Operating Officer

Okay. Well, maybe I'll come back to you later on the follow up with more details.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Okay, I'll take that offline.

Huifeng Chang -- President and Chief Operating Officer

Okay.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

But then maybe just one last one for you on the gross margins presumably, they're going down for modules in 3Q since the majority of your revenues in 3Q are still going to be module-based. Should we expect gross margins to sequentially decline further in 4Q, just given the volatility and poly pricing and the timeline between what you're purchasing and ultimately what you're passing through in terms of higher costs?

Yan Zhuang -- President and Chief Operating Officer

Let me take that question. This is the Yan, Brian. Well for Q3 the margin is lower for module businesses because module contract was signed few months earlier for Q3 and suddenly we're experiencing a polysilicon shortage and price up, significantly up. So we are increasing our module pricing but for the contracts that are already signed that were not -- we would not be able to raise the pricing for all the signed contracts. So that is why you're seeing lower margin for Q3 in our module business and for -- when we enter into Q4 because few months ago, like in the past few months we decided not to take on those the super low price deals for Q4.

So we still have and when the cost came up, when the cost went up, we had a pretty good idle capacity for Q4 to sell that we will be able to sell at a better pricing today. So that was a good decision, it was a good call. And so Q4 -- and also we believe that the cost up will be stabilized when we get into Q4. So -- and maybe at certain point of Q4 -- I mean, I don't know, I wouldn't say it will go down but at least it would not go up more but module pricing we can do better in Q4 than Q3. So I think the margin going down trend will not continue into Q4. Q4 we should do better.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Okay. Thank you, everyone. Appreciate it.

Yan Zhuang -- President and Chief Operating Officer

And also on project side in Q4, we might have a chance to close -- to have more closure on project sales in Q4 than Q3.

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Understood. Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Thanks so much, guys. Can you talk a little bit about the -- any mix shifts and changes with the direct sales channel? And how we should think about pricing with some of these bigger volume deals versus pricing dynamics with the direct sales channel?

Yan Zhuang -- President and Chief Operating Officer

We experienced some impact from COVID-19 on direct sales channel on the residential markets and commercial markets. In some markets, for example, in the U.S. and they starting to warm-up. And however, the impact varies from country to country. And like Japan, which is the -- in terms of revenue, the biggest residential market for us was not affected at all, so there is no impact and other markets, Europe, I think is come back already, so there's no impact anymore.

And the only -- China is strong. The only markets that are still have -- were experiencing negative impact is U.S. and Brazil but there's still -- even in the U.S., the market is already better than -- now it's better than Q2. So direct sales channel I think for Q2 we still did well, actually on the direct sales channel. The proportion is close to 50% for the total shipment in Q2, so that's actually pretty high. And that is why we have achieved a 21% of gross margin for Q2. And so it's -- I would say, the pricing for direct sales channels is actually got more robust than the utility-scale projects during the pandemic crisis. Maybe its the nature because this market is more inertia to pricing. The price elasticity is not that sensitive than the professional utility-scale markets.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

That's very helpful. And then, in the project business, can you guys talk about opportunities for acquiring distressed projects, what's happening with your customers in terms of push-outs and challenging -- challenges on financing where you guys might be able to step in and capture some out-sized value?

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Colin, if we see any good but distressed assets, we're interested and we will take that opportunity. And this moment we haven't really -- we haven't seen big ones yet. But as usual, let us know if you heard any opportunity we'll be interested Colin.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Okay, great. Thanks so much guys.

Operator

Thank you. [Operator Instructions] Next question is from Mark Strouse of J.P. Morgan. Please go ahead.

Mark Strouse -- J. P. Morgan & Co. -- Analyst

Yeah, thanks for taking our questions. Most of them have actually been answered. I wanted to follow up on one of Brian's questions. So Huifeng, are you able to quantify the impact of the poly supply shortages in 3Q, the 14% to 16% guidance. Can you say what that might have been without the poly disruption?

Huifeng Chang -- President and Chief Operating Officer

I think Yan knows the answer better. Yan, would you please answer the question?

Yan Zhuang -- President and Chief Operating Officer

Well, I think the impact is pretty major. I have made a calculation. I mean, I think, majority of the impact comes from the Silicon, right but however when something happened, everybody has tried to ride the same boat to reach their pricing. So altogether, I think when it comes to module the impact is like U.S. $0.02. And so -- however in Q3 for pricing, for module price up. we tried to raise price for module but it does not mean we can reach 100%. So I would say, we still lost at least 5% than our margin, that's probably the right number.

Mark Strouse -- J. P. Morgan & Co. -- Analyst

Okay. Okay, that's helpful. That's it for us. Thank you.

Operator

Thank you. Ladies and gentlemen, that's the end of our question-and-answer session. And I'd now like to turn the conference back to our CEO, Dr. Qu for closing comments. Please continue.

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Well, thank you for joining today's call and for your continued support. If you have any questions or would like to set up a call, please contact our Investor Relationship team. We thank you for your continued support. And I hope you and your families are safe and healthy. Thank you.

Operator

Thank you. [Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Isabel Zhang -- Investor Relations Manager

Dr. Shawn Qu -- Chairman and Chief Executive Officer

Yan Zhuang -- President and Chief Operating Officer

Huifeng Chang -- President and Chief Operating Officer

David Pasquale -- Global IR Partners

Philip Shen -- Roth Capital Partners -- Analyst

Brian Lee -- Goldman Sachs Group Inc. -- Analyst

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Mark Strouse -- J. P. Morgan & Co. -- Analyst

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