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Canadian solar is one of the world's largest solar power companies and a leading provider of solar power products, services and system solutions with operations in North America, South America, Europe, Africa, the Middle East, Australia and Asia. The company designs, develops and manufactures solar ingots, wafers, cells, modules and other solar power products. Canadian Solaris is incorporated in Canada and conducts most of its manufacturing operations in China and south-east Asia. The products include a range of solar modules for use in a wide range of residential, commercial and industrial solar power generation systems.

Canadian Solar has the following business segments: MSS segment and Energy segment. MSS segment primarily involves the design, development, manufacturing and sale of solar power products. The Energy segment primarily consists of solar power project development and sales, operating solar power projects and sales of electricity.

According to its Annual Financial Report the company had a portfolio of solar power projects in operation totalling 986.3 MWp in 2018 compared to 1,211.1 MWp in 2017 with an estimated resale value of approximately $1.2 billion compared to $1.5 billion in 2017.

Total net revenues increased by $354.1 million, or 10.4%, from $3,390.4 million in 2017 to $3,744.5 million in 2018. The increase was primarily due to an increase in revenue from the sale of solar power projects.

Geographically, Asia contributed 42.0% or $1.57 billion, the Americas contributed 39.4% or $1.47 billion, and Europe and others accounted for 18.6% or $0.69 billion of the total net revenues in 2018. Net revenue in Asia decreased by 18.4%, net revenue in Americas increased by 33%, and in Europe and others by 96%. The top five customers by revenues collectively accounted for 31.9% of net revenues in 2018 compared to 14.5% in 2017.

Segmentally, revenues generated from the MSS segment accounted for 96.2%, 80.0% and 57.9% of total net revenues in 2016, 2017 and 2018, respectively. Revenues from the MSS segment are affected primarily by average selling prices per watt and unit volumes shipped. Revenues generated by the MSS segment amounted to $2,414 million in 2018 and decreased by $437.0 million or by 15.3% from $2,851 million in 2017. $142.1 million of the decreased revenues was due to a 5.3% decline in the volume of shipments of solar modules and $361.2 million to a 14.2% decline in the average selling price of solar modules.

Revenues generated from the Energy segment accounted for 3.8%, 20.0% and 42.1% of total net revenues in 2016, 2017 and 2018, respectively. Revenues generated by the Energy segment amounted to $1.575 million in 2018 and increased by $898 million or by 132% from $677 million in 2017.Revenues from the Energy segment were affected primarily due to an increase of $910.6 million in sales of solar power projects, of which $584.9 million were in U.S. and $134.3 million in China.

Total cost of revenues increased by $216 million or by 7.9%, from $2.752 million in 2017 to $2.969 million in 2018. The increase was primarily due to an increase in sales of solar power projects. Total cost of revenues as a percentage of total net revenues decreased from 81.2% in 2017 to 79.3% in 2018.

Segmentally, cost of revenues in the MSS segment decreased by 467.6 million or by 19.6% from $2.390 million in 2017 to $1.923 million in 2018. The decrease was primarily due to lower module manufacturing costs and a decrease in shipments of solar modules.

Cost of revenues in the Energy segment increased by $829.3 million or by 175% from $473 million in 2017 to $1.302 million in 2018 due to an increase in sales of solar power projects.

Total gross profit increased by $137.5 million, or by 21.6%, from $637.6 million in 2017 to $775.1 million in 2018. Total gross margin increased from 18.8% in 2017 to 20.7% in 2018.

Gross profit for the MSS segment increased by $30.6 million, or by 6.6%, from $460.2 million in 2017 to $490.8 million in 2018, primarily due to a decrease in our solar module manufacturing costs. Gross margin increased from 16.1% in 2017 to 20.3% in 2018.

Gross profit for the Energy segment increased by $68.8 million, or by 33.7%, from $204.0 million in 2017 to $272.8 million in 2018, primarily due to an increase in sales of solar power projects. Gross margin decreased from 30.1% in 2017 to 17.3% in 2018, primarily due to a higher proportion of sales of low margin solar power projects in 2018.

Operating expenses increased by $42.2 million, or by 11.5%, from $368.3 million in 2017 to $410.4 million in 2018. Operating expenses as a percentage of total net revenues increased from 10.9% in 2017 to 11.0% in 2018. Operating expenses decreased in 2016 and increased in 2017 and in 2018. The Company expects a further increase in its operating expenses as net revenues grow in the future.
Research and development expenses increased by $15.4 million, or by 53.6%, from $28.8 million in 2017 to $44.2 million in 2018. The increase was primarily due to an increase of $3.7 million in materials consumables and $5.5 million in labour costs. Research and development expenses as a percentage of total net revenues were 0.8% in 2017 compared to 1.2% in 2018. Research and development costs amounted to $17.4 million, $28.7 million and $44.2 million or as a percentage 0.6%, 0.8% and 1.2% of total net revenues for the years 2016, 2017 and 2018, respectively. Canadian Solar expects that research and development expenses will increase as the company dedicates more efforts to research and development in the future.

At the end of 2018 the company had $444.3 million in cash and cash equivalents and $496.7 million in restricted cash. Net cash provided by operating activities was $216.3 million in 2018, compared to $203.9 million in 2017 and $278.1 million in 2016. The increase in 2018 was primarily due to a $139.5 million in net income and a $109.8 million decrease in net operating assets. Net cash used in operating activities was $278.1 million in 2016, compared $413.7 million in 2015. The change was primarily due to a $511.1 million increase in working capital investment. Capital expenditures were $1,111.5 million, $310.7 million and $316.3 million in 2016, 2017 and 2018, respectively. Capital expenditures were primarily to maintain and increase ingot, wafer, cell and module manufacturing capacity and to develop solar power systems.

If the supply of solar modules grows faster than demand, and if governments continue to reduce financial support for the solar industry and impose trade barriers for solar power products, demand and the average selling price for company´s products could be materially and negatively affected.