Emeren Group Ltd (SOL) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Power's First Quarter 2021 Earnings Conference Call. (Operator Instructions)

Please note that we are recording today's conference call. I will now turn over the call to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia. Please go ahead, Mr. Dvorchak.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss first quarter 2021 results. We released our shareholder letter after the market closed today. It's available on our website. There's also a supplemental slide deck posted on the website that we will reference during our prepared remarks.

On the call with me today are Mr. Yumin Liu, Chief Executive Officer; Mr. Ke Chen, Chief Financial Officer; and Mr. John Ewen, President of North America.

Before we continue, please turn to Slide 2. I let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ReneSola Power's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under the Risk Factors section and elsewhere in ReneSola Power's filings with the SEC.

Please do not place undue reliance on these forward-looking statements, which reflect ReneSola Power's opinions only as of the date of this call. ReneSola Power is not obliged to update you on any revisions to these forward-looking statements. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars.

With that, let me now turn the call over to Mr. Yumin Liu? Yumin?

Thank you, Gary. And thank you, everyone, for joining the call. Before we discuss our Q1 results, let me quickly start by addressing the inflation of the commodity input costs, one of the key challenges facing the solar industry these days. The good news is, by far, the higher input costs have not been an issue for ReneSola Power.

Now let's turn our attention to Q1 results. I will summarize our financial performance and review our operating highlights in the quarter. I will then turn our call over to Ke, who will cover financial results in more detail and will provide 2021 guidance. We will then open the call to questions.

Revenue was $22.8 million, up 39% sequentially and up 8% year-over-year. Gross margin of nearly 30% was well above expectations. Our operating income on a GAAP basis was $4.1 million, up significantly both sequentially and year-over-year. Adjusted EBITDA increased more than 250% from last quarter. Importantly, we reported our fourth consecutive quarter of profitability. Our development pipeline remains strong, ending the quarter with late-stage projects of over 1.3 gigawatts. Business momentum continues. Expanded pipeline of business activity indicates greater demand for project development, and we remain optimistic about our multiyear growth prospects. We continue to focus on profitable markets, including the U.S. and Europe, where we see tremendous growth opportunities with high-quality projects.

Let me now discuss the recent operational highlights. First, we completed the sale of our 12.3 megawatt portfolio of projects in Hungary to Obton, a leading international solar investment company in Denmark. The portfolio comprises 20 solar farms with a combined capacity of 4.3 megawatts. These 20 solar farms are now in operation and are qualified under the Hungary 25-year KAT feed-in tariff scheme. Second, we successfully closed the sale of a 10-megawatt portfolio of solar projects in Utah to Greenbacker Renewable Energy Company. The portfolio consists of 3 ground-mounted commercial distributed generation sites located in Utah. The projects are so-called behind-the-meter and will sell electricity directly to 2 offtake parties. The projects were sold at the notice-to-proceed stage and Greenbacker will complete the construction and retain long-term ownership.

Third, we executed the JV agreement with Eiffel Investment Group last month. The collaboration between the 2 companies aims to accelerate the development and financing of our current and future solar projects across Europe.

With the signing of the JV agreement, ReneSola Power and Eiffel Investment Group had created European solar energy development JV. The initial portfolio will consist of 340 megawatts at the one-stage development projects located in Poland, Spain and France, which both partners will support and develop to reach ready-to-build stage. The joint venture company intends to fund the development of up to 700 megawatts of solar projects in the next 3 years across Europe. Fourth, we strengthened our financial position through debt reduction and capital raise in Q1. As shown in our balance sheet, we reduced short-term borrowings by $31 million in the quarter, a major achievements for us. Additionally, we further shore up the balance sheet, leveraging the capital markets to raise capital. In the first quarter, we reached $290 million through our registered direct placement of ADS. As a result, we significantly improved our capital structure and debt to asset ratio of 0.19.

From a capital allocation standpoint, we intend to use the net proceeds to expand our solar pipeline, further penetrate the solar-plus-storage market, for working capital and for potential strategic M&A opportunities. We believe the capital infusion will enable us to execute our long-term strategic growth plan as we further consolidate our transformation into an asset-light solar project developer.

First, we remain positive on our storage strategy. Energy storage is a large and growing market. The solar storage assets we acquired from Nova Development Management last year are highly complementary to our existing business. Additionally, the acquisition provides us with access to utility projects and development activities in a number of states across the U.S. Building on the successful acquisition of the energy storage business from Nova, we expect to grow our pipeline in the solar-plus-storage market. We are actively evaluating opportunities in both solar plus storage and independent storage facility solutions in the U.S. and U.K. We are making good progress and looking forward to capture more market opportunities. Putting it all together, we are making great progress growing our business and achieving our mission to become a leading global product developer.

I will now update you on our project pipeline. At quarter end, our late-stage pipeline was 1.3 gigawatts, up from 1 gigawatt last quarter. We continue to direct resources to the markets with the best profit potential. Our objective is to add incremental project pipeline in our core markets to reach 2 gigawatts by the end of 2021. We also intend to monetize approximately 300 megawatts this year.

Let's review highlights from certain key geographies. First, let's turn our attention to the U.S., shown on Slide 7. Our late-stage projects stand at 340 megawatts, of which 82 megawatts are community solar in Maine, Minnesota and New York. Additionally, we have projects under development with a mix of corporate, municipal and utility off-takers in other states, such as California, Pennsylvania, Florida and Illinois. Meanwhile, we operate 24 megawatts of small-scale utility projects in North Carolina.

In Poland, shown on Slide 8, our key asset is a portfolio of project rights. We have a pipeline of 271 megawatts of ground-mounted projects under development and construction.

Slide 9 refers to Hungary, where we also invest in small-scale DG projects. Our pipeline had a combined capacity of 42 megawatts in the country. Both projects are all under development.

Slide 10 and 11 detail our pipeline in France and Spain. We have 100 megawatts in France and expanded our pipeline to 180 megawatts in Spain. All of which are ground-mounted and under development.

We are also getting traction in Germany as shown on Slide 12. We have a project portfolio topping 50 megawatts, all of which are ground-mounted projects under development.

In the U.K., shown on Slide 13, we have a project pipeline of nearly 210 megawatts, including ground-mounted projects and solar-plus-storage deal. All of those projects are under development. In addition to our development pipeline, we operate a portfolio of 173 megawatts of solar projects that generate high-margin recurring revenue.

As you'll see on Slide 15, our operating assets, including 148 megawatts of commercial rooftops in China and 24 megawatt of utility solar in the U.S. In China, we are preparing to build at least 100 megawatts of commercial rooftop projects within 2021 and plan to operate them in our light IPP model.

In conclusion, we are off to a solid start in 2021. The strong momentum reflects high demand in the markets we serve, the redundancy of our business model and the excellent execution by our team.

Let me now turn the call over to our CFO, Ke Chen, for comments on our financial performance. Ke?

Thank you, Yumin, and thanks again, everyone, for joining us on the call today. Our shareholder letter and the supplemental slides contain all the figures and the comparisons you need. I'm not going to repeat every number. Instead, I'm going to focus on the factors that influence results. As I speak, please keep in mind that we will discuss certain non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors, along with the GAAP measures. A non-GAAP to GAAP reconciliation is included in our shareholder letter.

Let's begin with our Q1 financial highlights on Slide 19. Revenue of almost $23 million was up both sequentially and year-over-year. As expected, revenue was in line with the updated guidance we provided in our April 30 press release. As discussed, our revenue can vary significantly quarter-to-quarter because of timing. We judge our success over a longer time period that smooths out the quarter-to-quarter variation. Revenue this quarter was mainly from the sale of projects in Hungary, Utah and Poland, and from power generation in China. Gross profit of $6.8 million was up very significantly from last quarter and up from the same period last year. Gross margin was almost 30% compared to 12% in Q4 and 6% in the same period last year. The increase was due to higher contribution from NTP sales.

Moving down the P&L. Non-GAAP operating expense up 17% sequentially and up 4% year-over-year. G&A expense was up due to the incremental cost associated with the capital raise in Q1 and the noncash option expenses. Non-GAAP operating income was $4.6 million compared to non-GAAP operating income to $0.2 million in 4Q last year and a non-GAAP operating loss of $0.7 million in the first quarter 2020. GAAP operating income was $4.1 million and the GAAP operating margin was 18%.

Nonoperating expenses were up sequentially but down year-over-year. We had a foreign exchange translation loss, which was caused by the depreciation of euro and the Romanian [round] against U.S. dollar. This led to exchange loss on the balance sheet. All this result in GAAP net income attributed to ReneSola Power of $0.8 million. Earnings per ADS on a GAAP basis was $0.01.

Now let's review the balance sheet shown on Slide 20. At the quarter end, we had cash and equivalents, including restricted cash, of more than $300 million. It's about [$4.50] of ADS per share. The Q1 -- in Q1, we used a registered direct placement to raise capital that we will use to grow our project pipeline and for working capital. The deal has further strengthened our balance sheet, provided capital flexibility and enhanced our ability to execute our long-term strategic growth plan. As Yumin mentioned, we significantly paid down our short-term borrowings in Q1, reduced our borrowings to $800,000 in Q1 from $32 million in Q4.

Please note that mainly all our debt is project-based and are nonrecourse. Also, I would like to highlight that our debt to cash ratio is only 19%. A significant improvement in our capital structure is also represented as well as the low debt to asset ratio when compared to other solar industry players.

Now let's cover 2021 guidance as shown on Slide 25. For full year 2021, we continue to expect total revenue in the range of $90 million to $100 million and a gross margin of over 25%. And we are anticipating a profitable full year 2021 with significant profit growth compared to 2020. For the second quarter, we're guiding revenue in the range of $19 million to $22 million and the overall gross margin in the range of 36% to 39%. Our 2021 outlook has 2 key factors. First, the COVID-19 and global economic conditions remain highly uncertain. We continue to monitor how the health effect of pandemic are playing out as well as the effect on the economy. We anticipate some slowdown in activity in some geographic regions in the first half of 2021. That being said, we expect to see global recovery in a number of key markets around the world in the second half of the year.

In sum, we believe it's prudent to factor in the variability in our outlook. Second, we consider the normal fluctuation typical of the project development cycle. Overall, we focus around [straight back] to solar markets, Europe, U.S. and China. We are very optimistic about our long-term project results.

With that, we will open up the call for Q&A. Operator, please go ahead.

(Operator Instructions)

Our first question comes from the line of Pavel Molchanov from Raymond James.

Based on the guidance that you are giving for Q2, it looks like approximately 60% of your full year revenue will be in the second half. And of course, that percentage varies from year-to-year. But last year, it was the opposite. The first half was much, much more weighted. I'm curious what explains that change in the sequence.

Again, in the first half, there's more NTP sales. And again, in the second half, we will have more COD sales. So I think that drive the revenue mix.

And that also explains why the implied gross margin in the second half will be lower compared to the first half.

I would say that in general, COD margin will lower the NTP margin. So -- but again, at this moment, we'll still try our best to achieve higher margins. So...

Okay. I mean at the beginning of the year...

I'm sorry -- go ahead.

No, please.

I was adding a point that the -- as we mentioned, COVID-19 still play some effect in the development cycle or in the execution of our projects. That's why that the -- we see the global recovery will happen mostly in the second half of this year. As we see, we are executing the projects.

Understood. At the beginning of the year, you talked about adding some electricity sale assets to your portfolio on a selective basis with a focus on China. Can you give an update on how that process is going?

Yes. Starting early this year, we restarted our project development in China with many considerations. And we are confident we will build at least 100-megawatt commercial rooftop projects in China. Number one, we carefully select the reasons we have projects in China around the Yangtze delta region, the strongest economic growth in the whole China. The second is those behind-the-meter commercial rooftops provide very attractive return to the company. And more importantly, that is through our experience, we own about 150 megawatts commercial rooftops in China. We gained significant, good experience in China operating those assets. We also are well connected to understand offtakers. We carefully select the best offtakers to do the PPAs with them to make sure we have confident cash flow or the payment. So we expect more than 100 megawatts will be built in China, which will be added into our, what we call, light IPP model.

Okay. My last question, you very briefly addressed the input cost inflation at the beginning of the prepared remarks. I wanted to focus on not so much the modules, but the steel, the crackers and other steel inputs. How are you managing the sudden price increases in the steel supply chain?

Okay. It actually has several different reasons. Number one is we are -- our strategy is to sell more of our deals at NTP. So we push the procurement and this EPC installation to the end buyer. But the cost increase will definitely impact the end buyer's financial model. So the -- in one case, that the way, for example, in China and in Europe, back in Q1, before the price increases, we already made some nice move and built our inventory of the modules. That saves us a quite significant amount of dollars for the project in China and for the construction projects in Europe.

The second is our projects we are selling, either at NTP or some executed transaction at COD, are not looking at immediate construction. We are talking about starting either end of this year or next year. And everybody, including ourselves, I'm talking about everybody, meaning the buyers, the end owner of the projects, we all believe the increase of the cost is a short-term issue. With the opening up and expansion of the suppliers, we believe this issue will be minimized, the cost will get back to normal. So overall, price trend is still going down, not going up. That is why the conclusion of ours, we said it's a good news, the impact to us is minimum or none.

Our next question comes from the line of Amit Dayal from HCW.

Yumin, did you -- with respect to the 100-megawatt deployment plans in China for your electricity sales, did you say that you want to get this thing started in 2021 or completed in 2021? Could you clarify your comments, please?

Yes. The -- we actually have our first 20 megawatts under construction already. The good part -- we are planning to complete this 100 megawatts or at least 100 megawatts by the end of the year, this year.

So this should potentially contribute cash flows, et cetera, in 2022?

Yes, absolutely. And a little bit in 2021, too.

That's amazing. With respect to your...

We'll bring the project online -- we'll bring those small rooftops online starting as early as end of next month and starting mostly from July.

All right. Congratulations on that. With respect to your cash plan, how fast can you put this cash to work? I mean do you already have plans? Are you just waiting and watching to see how the market sort of reemerges post COVID? Can you give us any color on your thought process about how you want to use this cash? And then within that, with where the stock is, are there any thoughts about buybacks at these levels?

Okay. Let me answer the first part, and I'll ask Ke to address the second part. The -- we do have a plan to effectively utilize the proceeds we raised from the public market. We are adding -- plan to add 1 more gigawatts within this year. And we are doing the light IPP in China. We are starting our strategy on solar plus storage, an independent storage. So all those things are consuming money. Another thing is we are actively looking at strategic M&A opportunities. Currently, we have several targets being reviewed by the team in the late stage. So we are confident that the -- we'll use the cash we have in hand to grow the pipeline and provide the best return as we could to our investors. Ke, can you take the second part?

Sure. Amit, let me add, again, as our U.S. team expanding their pipeline, especially to the utility scale, we also need more cash to like [enterprising] deposits. And again, in Europe, we also need more cash for the good projects, which is, for example, in Spain, we need a [Greenbacker]. So we need a deposit of cash to secure the Greenbacker . And so all this, we are very disciplined to use this cash to expanding our projects to compete in a better way because we have strong cash position. And so the majority of cash, we'll use it to expand our business. In terms of buyback, again, the Board is contemplating, so we are studying this.

Okay. And with respect to M&A targets you are considering, are you going to stick to sort of the type of transactions you have already undertaken in the past? Or are you going to maybe diversify away from it a little bit? Any color on what type of M&A you may be pursuing would be helpful.

We are looking at mainly 2 or 3 different directions. Number one, definitely improve our project portfolios in the strategic market, especially in the U.S. and Europe, okay? The second is, we are also looking at our -- one of the most important strategies we initiated late last year. That is the storage sector. We are looking at not only the solar plus storage pipeline -- plus pipeline. But also looking at the possible team we can acquire. And more importantly, in some new markets, we plan not only driving some partnerships, but also to acquire some more organic way to acquire some teams with the pipeline to help us to grow in the new market. The new [bar] market, I mean this -- the couple of strategic countries, are an important market in Europe and several U.S. states.

Our next question comes from the line of Philip Shen from ROTH Capital Partners.

Yumin, earlier, you were saying that the impact of the increase in the input costs is minimum or none. And you had a great margin in Q1, so congrats on that. Just wanted to confirm that looking ahead, assuming these inputs remain elevated through the end of the year, you continue to believe that the impact is minimum -- minimal or none in Q2, 3 and 4. So can you give us some perspective on that?

Yes. That's our -- at least, at this current moment, we absolutely believe that the reasons are the -- we did NTP sale -- and those NTP sales -- NTP will start. Our EPC installation will not start immediately, okay? Except the -- some deals in the U.S. and some deals in the U.S. states will start sooner than later within this year. But most of the deals we are selling will not start until next year. When we talk to the buyers, at least their financial model sees minimum or no impact as everybody all believe, including ourselves, as I mentioned, this is a short-term thing, not a long term. And we hope by the end of the year or Q1 next year, this cost increase will be minimized.

Great. Yes. And it highlights I think the strength of your business model now with the focus on NTP sales as opposed to COD. So that said, you talked about how the projects don't start until next year. Some of our recent checks suggest that some -- we are seeing some projects that were supposed to be built next year being delayed into 2023. So the impact, actually, of a lot of this pricing is -- certainly for the larger scale utility-scale projects, I think they're contracting now for next year build. A lot of the kind of inputs have already been locked in for this year, so they can't push it off. So just curious if you see any risk of delays of either -- well, what kind of delays do you think you see for next year? Have you had any of those kinds of conversations with your customers about 2022 projects getting pushed into '23?

At this time, as the -- in our portfolio, we are monetizing this year. We -- seriously, we don't have those big utility-scale projects, except actually one of them. And when we talk to the end buyers, we are talking about the -- starting those utility-scale projects, construction literally from Q2, Q3, next year, okay? The -- at least, the portfolio, we are monetizing or we are selling. We do not see the need to delay that one until 2023. But the -- when we go to the second half, if the cost increase continues, if people's forecast is like longer than expected, the cost increase, then the -- we will give it another relook. But at this time, it's not really an issue for us.

Good. Okay. All right. For the Q2 period, can you name perhaps which projects do you expect to sell? I think, for example, you're looking to -- and sorry if I missed it, but I think you guys were looking for some projects in Spain that were targeted for sale in Q2. Were those already sold? For example, we're half -- more than half the way through Q2. And how many megawatts do you expect to sell in Q2?

This is a difficult question. Tough question. The -- we are in the process of selling both U.S. and European projects, including the long delayed, supposed to be closed last Q4's DOE in Spain. And we do have the offer handy, but they are waiting for the final approval from the government. And it may happen in Q2. But definitely, with very high confidence will happen within Q3, the project we talk about, the Spain project. But the -- all other deals are as planned in the closing of the U.S. and Europe, all as planned in Q2. We have several deals closing in Q2 and Q3.

Great. Okay. One last maybe housekeeping question on travel in your G&A. So obviously, with the travel restrictions from COVID, I'm imagining that your G&A was lower recently. And so as the world opens up, do you expect your G&A to increase meaningfully? Or is it going to be a slow increase? And -- or do you not expect an increase and will continue to work with Zoom and other virtual meeting platforms?

Phil, we're disciplined. Yes, we're disciplined about controlling costs. So again, as I mentioned in the first quarter, our G&A cost will still remain between $2 million and $2.5 million. So yes, we're disciplined about travel.

(Operator Instructions)

Our next question comes from the line of Marisa Hernandez from Sidoti & Co.

Just a quick housekeeping question. Can you give us some idea of what your capital expenditures would be in 2021?

Sure. Marisa, thank you. Again, I think the CapEx mainly for building of the China 100 megawatts and also the project in Europe. So right now, the whole year CapEx is still between $20 million and $25 million.

(Operator Instructions)

We have a follow-up question from the line of Pavel Molchanov from Raymond James.

Yes. I wanted to follow-up on Europe. The countries in your current late-stage pipeline, Poland, Hungary, Spain, France, Germany, U.K., are, I believe, the same 6 countries that you had at the beginning of the year. Do you anticipate adding any new opportunities in Europe in terms of entering a new market, either by yourselves or through the joint ventures like Eiffel?

Good question. The -- we are on the same page. We are preparing to go to 2 to 3 more countries as the opportunities in Europe is really -- we have received lots of great quality growth in many countries in Europe. And we -- but as you know, we want to be very focused. So we do want to go to 2 or 3 more countries. We are actually developing the local partnerships, including the joint development partnership and including some potential acquisition of the local teams, as I mentioned earlier. So we are considering expanding our activities to 2, 3 more countries in Europe.

(Operator Instructions) There's no more questions at this time. I would now like to hand the conference back to Mr. Yumin Liu. Please continue.

Thank you, operator. To conclude, we are committed to grow profitability, managing our operations efficiently and strengthening our financial position. We are energized by the opportunities in front of us. And I'm looking forward to updating you on our progress again in a few months. Thank you all again for your participation. This concludes our call today. You may all disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.