This morning, Canadian Solar (NASDAQ:CSIQ) announced preliminary fourth-quarter 2013 results and the market wasn't at all pleased with what it saw, pushing the stock 5% lower. We can't overlook that 2.6 million share offering along with $100 million in convertible notes, which dilutes shareholders, but the figures from Q4 are most important today.

Below I have built a table showing what Canadian Solar reported in the third quarter and what it expects to report in the fourth. You can see that shipments are up dramatically but revenue didn't rise all that much and gross margin was actually down in the quarter.


Q3 2013 

Q4 2013 


478 MW

605-620 MW

Net Revenue

$490.9 million

$510-$520 million

Gross Margin



Source: Canadian Solar press releases.

This may seem alarming at first but we need to consider that Canadian Solar, like SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR), now generates a significant portion of its revenue from project sales, not just panel sales. From quarter to quarter, projects may be in different phases of construction, complicating the revenue comparisons.

Workers installing panels at the utility scale California Valley Solar Ranch. Image courtesy of SunPower.

For example, last quarter Canadian Solar closed the sale of two projects totaling 16 MW to TransCanada at a value of C$95 million and Blackrock acquired two projects totaling 20 MW valued at $120 million. These last two projects are partially completed but depending on when they meet different phases of completion their revenue could be recognized in Q4 or Q1 of 2014.

Since projects are selling for around $6 per watt and panels are selling for around $0.65 per watt the mix of the two can have a huge impact on the company's revenue figure. You can see above that shipments grew at a rapid rate in a single quarter, but revenue didn't grow, indicating that projects probably played a much smaller role in the company's income statement last quarter than it did in the third quarter.

The same balance holds true with SunPower, who reports tomorrow and First Solar, who is almost 100% focused on the project business. The revenue number is almost meaningless at these companies; instead, investors should focus on shipments and gross margins.

Canadian Solar expects to report gross margins of 16%-18%, up from its previous expectation of 13%-15%, which didn't include any project sales. This tells me that panel prices were higher than expected, which should be true across the industry given the high demand last quarter.

Today's announcement from Canadian Solar is reason for solar investors to cheer, not fear, fourth-quarter results, it just takes a nuanced look at the numbers to understand what's happening. Long term, the dilutive offering will have more impact on shareholders than a delay in project revenue recognition, which investors are focusing on today.

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