Emeren Group Ltd (SOL) 2020 Q4 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing. Thank you for attending ReneSola Power's Fourth Quarter and Full Year 2020 Earnings Conference Call. Please note that we are recording today's conference call. I will now turn over the call to Mr. Ralph Fong, Director of the Blueshirt Group. Please go ahead, Mr. Fong.

Thank you, Rachel, and hello, everyone. Thank you for joining us on today's call to discuss for the quarter and full year 2020 results. We released our shareholder letter before the market open today. It is available on our website. The the supplement 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, CEO of North America. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call 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, that are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described in the risk factors and elsewhere in ReneSola Power's filings with the SEC. Please do not place until reliance on these forward-looking statements, which reflect ReneSola's opinion only as of the day of this call.

ReneSola Power has been 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. And with that, let me now turn the call over to Mr. Yumin Liu.

Thank you, Ralph. And thank you, everyone, for joining the call. I'm very pleased to report our productive year for ReneSola Power. Despite unprecedented macro challenges, we built tremendous business momentum and made solid progress in our mission to become a leading and profitable global glass developer. Let me recap some of the key highlights of 2020.

First, our financial performance was solid. We were profitable with adjusted EBITDA of $70 million and GAAP net income of $0.07 per share, non-GAAP net income of $0.09 per share. As anticipated, revenue was down primarily due to the timing of the product sales. The closing of two sales in Europe were delayed into the first half of 2021. The Hungary sale was completed in March, and we are very confident that Spain sale will be completed.

Second, our financial position is stronger than ever through debt reduction and equity issuance. We reduced our total debt by more than $7 million during the year, a positive development considering the COVID-related micro challenges. We further shore up our balance sheet by utilizing the strong stock market to raise capital. During the year, we raised a total of $45 million through several stock insurers. The capital was and will be used to expand our project pipeline, penetrate the solar plus storage market for working capital and for potential M&A opportunities. We believe this capital infusions will enable us to execute our long-term strategic growth plan as we further consolidate our transformation to an asset-light solar project developer.

Third, we expanded our reach across Europe through several joint ventures and partnerships in Germany, the U.K. and Spain. The combined strength of the joint venture and partnerships will offer new opportunities to grow our global pipeline. I want to call out the partnership's (inaudible) investment group. We created a [51 49] joint venture company that intends to develop up to 1 gigawatt of solar projects in Europe over the next several years. We have the 51% stake while for (inaudible) capital for its 49%.

Fourth, we acquired assets from (inaudible) that includes solar plus storage projects. As we discussed on our last call, this transaction expanded our development pipeline by approximately 200 megawatts. We also added an experienced solar product development team. This deal enables us to deliver a more complete set of solution packages to our customers. It also gives us access to utility projects and development activities in multiple states. Those states include Pennsylvania, California, New York, Maine, Illinois and Arizona.

Fifth, building our acquisition of the assets from LOI, we signed a PPA with Valley Clean Energy and California-based public electricity provider. The project will add 26 megawatts of solar and 6.5 26 megawatt hour of battery storage. This is an important milestone for us. It is our first long-term PPA for our solar plus storage facility.

Sixth, we monetized a total of 86 megawatts of solar products in 2020. We sold projects in U.K., Poland, Romania, Hungary, China, Canada and the U.S. This showed strong execution by our team. These sales optimize our solar assets, enabling us to generate cash flow, realize profits and further strengthen our balance sheet.

Finally, we utilize our IPP assets to generate cash flow. Our IPP assets generate 182 million-kilowatt hour electricity, producing $24 million of recurring high-margin revenue. These assets reduced carbon emissions by nearly 129,000 metric tons in 2020. In sum, the momentum in our business is accelerating. The expanded pipeline of business activity reflects greater demand for price development, and we remain optimistic about our multiyear growth prospects.

Now let me spend a minute discussing why we are so optimistic about our growth prospects. The global solar power industry is large and growing. More corporations are committing to reduce their carbon footprint and intend to meet their sustainability objectives by using renewable energy sources. Our target markets are reasons where solar power usage is growing rapidly, supported by demand for green energy and favorable government policies.

Let me give you a few examples. First, Europe. The European Commission announced the so-called European Green deal, which is a set of policy initiatives with the goal of making Europe carbon neutral by 2050. This includes a proposal to be more aggressive in the reduction target for greenhouse gas emissions by 2030.

The European Union now wants to get (inaudible), down to 50% of 1990 levels. The 2030 target right now is 55%. Another example is the U.S. The Biden administration intends to make the U.S. 100% green energy economy with 9 zero-emission by 2050. This includes a plan to decarbonize the U.S. power sector by 2035, adopting renewable energy sources that can be deployed at scale is the only real way to meet this goal.

Finally, in China, the central government just initiated the policy to reduce the country's carbon downside emissions by at least 65% from 2005 levels by 2030 and to become carbon neutral by 2060. With our focus on Europe, the U.S. and China, we believe we are strategically positioned for growth. In Europe, we have major development activities across Spain, France, Germany, the U.K., Poland and Hungary. In the U.S., our late-stage projects are in Minnesota, Maine, Pennsylvania, Florida and New York, Utah and California. And we offer utility projects in North Carolina.

In China, our key geographic focus will be in (inaudible) River Delta area, which not only has attractive electricity factories, but also is one of the major metropolitan areas estimated to play a pivotal role in the country's future growth of the economy.

We intend to expand our IPP strategy and complete 100-megawatt of projects during 2021. Let me now update you on our project pipeline. At the year-end, our late-stage state pipeline was 1 gigawatt, up from 730 megawatts in third quarter 2020. We continue to direct resources to the market with the best profit potential. Our near-term objective is to add incremental product pipeline in our core markets, to reach 2 gigawatts by the end of this year. We also plan 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 project stands at around 350 megawatts, of which 122-megawatt community solar in Maine, Pennsylvania, Minnesota, New York. Additionally, we have projects under development with a mix of corporate, municipal and utility off-takers in other states, such as Utah, Florida, Maine and California. Meanwhile, we operate 24 megawatts of small-scale utility projects in North Carolina.

In Poland, shown on Slide 8, our key assets are a portfolio of project rights. We have a pipeline of 206 megawatts of ground-mounted projects under development and construction. Slide 9 refers to Hungary, where we also invest in small-scale DG projects. Our late-stage pipeline has several micro projects, each is 0.5 megawatt, bringing total microprojects capacity to about 49 megawatts in the country. Those projects are also under development.

Slide 10 and 11 detail our pipeline in France and Spain. We have 100-megawatt in France and expanded our pipeline to 95 megawatts in Spain, all of which are ground mounted and currently under development. We are getting attraction in Germany, as shown on Slide 12. We have a pipeline of 50 megawatts, all of which are ground market projects under development. In the U.K., shown on Slide 13, we have a pipeline of 150 megawatts, although, leases are ground-mounted under development. In addition to our development pipeline, we currently operate a portfolio of 173 megawatts of solar projects that generate high-margin recurring revenue.

As you'll see on Slide 13, our operating assets include 149 megawatts of commercial rooftops in China and 24 megawatts of utility solar in the U.S. in Q4, we sold 15.4 megawatts of operating assets in Romania and 4.3 megawatt solar rooftops in the U.K.

In conclusion, we entered 2021 with strong momentum, reflecting high demand in the markets we serve, the resiliency of our business model and excellent execution of our team. Let me now turn the call over to our CFO, Ke Chen for comments on our financial performance. Ke? Please.

Thank you, Yumin. And thanks again, everyone, for joining us on the call today. Our shareholder measure 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 we provide useful information about our operating performance that should be considered by investors, along with the GAAP measures. A non-GAAP to GAAP reconsideration is included in our shareholder letter.

Let's begin with our Q4 financial highlights on Slide 19. Revenue of $17 million was up sequentially and down year-over-year. Revenue was up from last quarter, simply due to timing of the project sales. As you know, our revenue comes vary significantly quarter-to-quarter because of timing. We judge our success over a long time period. That's without the quarter-to-quarter variation. Revenue this quarter was mainly from sales of projects in Poland and Hungary and also from power generation. I would like to emphasize sales of operating assets in Romania and the U.K. will not consider revenue according to the GAAP accounting standards. However, the combined transaction value was over USD 30 million.

Gross profit of $2.5 million was down both sequentially and year-over-year. Gross margin was 15% compared to 61% in Q3 and 27% in the same period last year. The decline was due to revenue mix. Moving down the PLN. We continue to demonstrate expense control, bring non-GAAP operating expense down 39% year-over-year and up 3% sequentially. Note that operating expense on a GAAP basis were down 50% sequentially. This was driven by other operating income of $8 million from the profitable sales of operating assets in Romania and in the U.K.

Offsetting that is the increase in SG&A expense associated with the write-off of some aged receivables. Non-GAAP operating income was $0.7 million, and GAAP operating income was $1 million. GAAP operating margin was 6%. Nonoperating expenses were down both sequentially and year-over-year. We had a foreign exchange translation gain, which was caused by the differentiation of the U.S. dollar. That's led to exchange gains on the balance sheet. As this result in GAAP net income attributed to ReneSola Power of $2.5 million, earnings per share on GAAP basis was $0.05.

Let's turn our attention to full year 2020 results. Revenue was $74 million, down 38% year-over-year. Keeping in mind that the $30 million gross sales of operating assets in Romania and the U.K. had no contribution to revenue. Project development revenue was approximately $50 million, driven by product sales in multiple countries, both importantly, U.S., Poland, Hungary and Canada. Electricity sales were $24 million, mostly from 108 million-kilowatt hours with electricity generated in China and Romania. Gross profit of $17 million was down 50%. Gross margin was 23% versus 29% last year. We expect gross margin to vary due to change in revenue mix and project sales geographical mix.

GAAP operating expenses for 2020 were $10 million, down from $35 million in 2019. The decrease reflects efforts to streamline our operations were prudent cost control and other profit generated mainly from sales of Romania and U.K. GAAP operating income was $7.3 million versus operating loss of $1 million last year. EBITDA was $15 million. Nonoperating expenses were $4.5 million, which includes interest base of $6 million and a foreign exchange gain of $0.8 million. The foreign exchange gain was primarily due to the depreciation of U.S. dollar against the local currencies, resulting in exchange gains on U.S. dollar dominated payables. GAAP net income attributed to shareholders in 2020 was $3.3 million compared to the net loss of $9 million in 2019. GAAP net income per share was $0.07.

Now let's review the balance sheet shown on Slide 21. At year-end of 2020, we had cash and equivalents, including restricted cash, of more than $40 million. In Q4, we used (inaudible) direct placements to raise capital that we will use for working capital and to grow our solar product pipeline. We raised $5 million in October and (inaudible) $20 million in December. In 2020, we raised a total of $45 million from the public market. This deal strengthens our balance sheet, provide capital flexibility and enhance our ability to execute our long-term strategic growth path. We paid off our long-term flowing in Q4. We had a short-term volume of about $32 million. Please note that nearly all of that is project-based and non-reports.

Let's cover 2020 guidance as shown on Slide 26. For the first quarter, we are guiding revenue in the range of $18 million to $20 million. And (inaudible) gross margin in a range of 10% to 11%. For full year 2021, we expect total revenue in the range of $90 million to $100 million and gross margin over 25%. And we expect a profitable full year 2021 with significant profit growth compared to 2020.

Our 2021 outlook has two key factors: First, the COVID (inaudible) and the global economy conditions remain highly uncertain. We continue to monitor how the health aspect of the pandemic are playing up as well as effect on the economy. We anticipate some slowdown in activity in some geographic regions in the first half of 2021. You can see the recent lockdowns in Germany, Italy and France, for example. Prudent demand that we factored variability into our outlook.

Secondly, we consider the normal frustration typical of the project within cycle. In summary, we have achieved consecutively 3 quarter profitability and the full year profitability in 2020. ReneSola now focus on (inaudible) solar markets, Europe, U.S. and China. With very strong balance sheet, we are very excited and very optimistic about our long-term profit (inaudible). With that, we would now like to open the call for any questions that you may have for us. Operator, please go ahead.

(Operator Instructions) Your first question comes from the line of Philip Shen of ROTH Capital Partners.

First one is, I think you talked about 300 megawatts of project sales for this year. Can you talk about roughly how many megawatts per quarter? It seems like for Q1, there's a skew of lower projects in that quarter. And it makes sense, given your commentary on what's happening within Europe. But I was wondering if you could talk also about the mix of the 300 megawatts between NTP type sales versus other types of sales? I'm guessing most of it NTP. And sorry if I missed it, but did you share when you expect to sell the Hungary project?

Okay. Thank you, Phil. We sold a total of 86 megawatts, including 3 projects or 3 portfolios of projects in China, Romania and Hungary -- sorry, China, Romania and U.K., those are operating assets. As Ke mentioned, it's not counting to the revenue. But those three portfolios, include Romania, 15.4% and 4.3% from U.K. and 23% from China. And the last two, Romania and U.K., happened both in Q4 and the China have in Q3. We also have the NTP and COD sales in various markets in the U.S., in Hungary, in other places. In Q1, Q2, Q3, almost every quarter, we have some small portfolio sales. Compared to our traditional COD sales are even operating asset sales. We now focus on -- more on NTP sales. The big difference of the two sales are: Number one, the development cycle or cycle of -- for the product in our hand is a lot shorter as NTP sell, as we don't do any installation work. The second is definitely, we don't do any financing, procurement installation, which minimize the risk associated. The third, the margin will be a lot higher on the NTP sale compared to COD sale. But the big -- another big difference is COD sale, the revenue normally is around 6 to 7x more of NTP sell, as we will not count the full installation CapEx into the revenue anymore.

So the -- as we do have a strong balance sheet, our strategy can be pretty flexible. If we see premium can be made throughout the installation, we'll do more of COD sales. But now as we see, in many markets, NTP sale is the more popular, or to us, is the preferred option will do more NTP sales.

Another question, sorry, another question, as I mentioned, the two projects we supposed to close in Q4, 1 in Hungary in Spain all got delayed to this year 2021. And the Hungary deal was closed 2 weeks ago and expect to close surely the Spain projects.

Okay. So they should -- well, Spain could actually spill into Q2 then, whereas Hungary is in Q1?

In Q1. And then Spain will be in Q2.

Great. Okay. I mean, of the 300 megawatts that you expect for this year, can you talk about how much per quarter? Do you expect it to be Q4 loaded or maybe Q3 loaded?

Actually, the most of the sales will be in Q3 and Q4. And we'll have several small sales in Q1, Q2. But mostly in terms of 2020.

In terms of 2022 -- no problem, in terms of 2022, in the past, you've talked about what the sales could be then. I know you haven't provided official guidance, but would you expect a similar run rate of 300 megawatts for '22? Or do you think there could be some acceleration?

We absolutely see our growth are accelerating, that the -- we -- by the end of last year, we talked about (inaudible). Please remember our development cycle are in typical of around 2 to 3 years. Considering some minimum or with experience team and track record, our fee rate can be pretty low. In average, we can absolutely monetize 300-plus megawatts a year and putting that logic into our portfolio by end of this year, 2021, when they have 2 gigawatts of portfolio. We talked about accelerating the monetization of the projects in a lot bigger number compared to the past.

Okay. Good. And when you think about the incremental gigawatt that you plan on adding to your pipeline, what percentage of that do you think will have storage?

We plan to build storage is the hot and also high demanding sector across the board. We see not only the U.S. but also in U.K., the Germany, Spain, and even in some traditional markets, we are active like in Poland and Hungary. The -- our team is dedicated to develop our capabilities in-house and build up the whole solution package, including solar plus storage plus the and also the independent storage facilities. We hope to build in the next couple of years, 1 gigawatt hour of solar plus storage or storage facilities. That is the pipeline we hope we can build up, and we are continuing our market access, building those PPAs or facilities.

And with all the capital that you've raised and congratulations on that, can you talk about your M&A outlook and kind of how you expect to deploy the capital?

Okay. We do have a very strong balance as we raised $45 million last year in 2020. Also, in January, we leased $290 million. The Mackie was a full strength to execute our long-term strategy. M&A is 1 of the core considerations as we do not only want to expand our pipeline in different markets, but also we want to expand our platform, building our experience team by acquiring experience teams like we did on the new world development team and also the -- together with the pipeline and also the building our organic strategic growth, for example, on the storage sector. The use of the $300-plus million of capital, we plan to absolutely continue expanding our solar pipeline, as we say, we're able to double our pipeline by the end of the year to 2 gigawatts. We also develop solar plus storage. We are building our 100-megawatt IPP assets by the end of this year in China, we are also doing -- hoping to do more meaningful organic acquisitions. And we are active looking at the market to find those good strategic targets.

I just want to add so I guess I want to add that under prudent of all these MA strategies, sir.

Okay. I appreciate that or. One last question, and I'll pass it on. As it relates to your expectations for OpEx and general and administrative expenses, G&A, it was relatively large in what do you -- how do you expect your OpEx to trend in the coming quarters?

I think, Phil, normally -- yes, normally, will be quarterly, we're between $2 million and $2.5 million this year.

Your next question comes from the line of (inaudible).

This is (inaudible) on for Pavel Molchanov. So I guess my first one of the 100 megawatts in IPP assets that you mentioned for 2021. I just wanted to clarify, is the entirety of that amount planned for China and then was just wondering if you could provide some additional details on kind of the opportunities you see there and what led you to go that direction?

Okay. Thank you. It's a very good question. China, if you pay attention to our development activities in the past 18 months, we haven't done any new development in the last 18 months in China because the -- in the past, all the solar renewable energy assets were expecting the garment big percentage of the government subsidies in the revenue stream, okay? The starting from this year or late last year, the great priority has been totally reached in China, and we are now developing new projects 0% relying on any subsidies from the government. And those projects are continuing our past price business, which is the commercial rooftop deals. Very high margin. We talked about the double digit -- high double-digit margins on a level basis. So selectively, we're going to use our capabilities and experience team to build those assets. And in general, our IPP asset margin we not only have recurring revenue, but also very high margin over an average 88% plus. Across the board, in other places like as I mentioned earlier, we have 24 megawatts small utility-scale projects in the U.S. and we also sold our IPP assets in Europe, we may selectively do some IPP to own some IPP assets in the future, but we remain to defy ourselves as a project developer, not a pure IPP.

That's very helpful. Absolutely. That was great detail. And then I guess, quickly, for my follow-up, I'm just wondering if it would be possible to get an update on the IFO Group JV, maybe either around kind of project timing or win a more formal agreement might be finalized there?

Yes. The IFO JV is the important initiative, we have started in about over 6 months ago. It's going smooth. We already set up the JV we are planning to inject the first about 400 megawatts into the JV very in the next few weeks or very shortly, okay? The -- as I mentioned also earlier, we plan to develop and monetize up to 1 gigawatt in this JV in the next several years, and all those deals are mainly European based.

(Operator Instructions) Your next question comes from the line of Amit Dayal from H.C.W.

With respect to the guidance to the -- just talking about the gross margin guidance for the year, you said -- 11% for the first quarter and 25% for the year. So are we doing 30% plus margins in Q2, Q3, Q4? Could you just give us a sense of how this should -- is expected to play out in terms of your margin performance?

Amit, the gross margin guidance, we said, is over 25%. Again, the fourth quarter, the guidance is a little bit low because, again, in the first quarter, is mainly COD sales. Again, as we focus on NGP sales in the second, third and fourth quarter, we will see much higher gross margin.

So for the non-COD sales, like what should we kind of keep in mind as the range for gross margins for that business?

I'll give you some data for 2020, our 2020 NTV sale, the gross margin is around 40%.

Okay. That's helpful. With respect to the energy storage portion of the business, it looks like this is going to become an important part of the story. Is the energy storage piece of these deployments also going to be part of the monetization effort? Or is there an opportunity to maybe pursue a PPA type model for this?

For energy storage at this time, it is -- we consider to monetize those assets.

Okay. Understood. We're going from 1 gigawatt to 2-gigawatt pipeline. Is most of this coming from Europe, the additional 1 gigawatt? Or is it a mix U.S. and Europe?

You are absolutely right. The Europe continues to be the heavy part of our new development. And in the 2 gigawatts, over 50% or even 60% will be from Europe. And we see tremendous strong growth in many, many countries across the board in Europe. And we are active in 6 countries. We are attracting 2 more countries. Those are all on the top 10 of the solar market in the whole Europe. And we believe we have our so experienced team to expand our market access to those new territories.

(Operator Instructions) Seeing no more questions in the queue, let me turn the call back to Mr. Liu to conclude the call.

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. We are 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.