Emeren Group Ltd (SOL) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Q3 2020 ReneSola Limited Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Gary Dvorchak. Thank you, please go ahead, sir.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss third quarter 2020 results. We released our shareholder letter after the market closed today. It is available on the 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, CEO of North America.

Before we continue, please turn to Slide 2. 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 risk factors and elsewhere in ReneSola Power's filings with the Securities and Exchange Commission. 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 U.S. dollars.

With that, let me now turn the call over to Mr. Yumin Liu, who will discuss the quarter's operating highlights. Yumin?

Thank you, Gary. And thank you, everyone, for joining the call. I will summarize our financial performance and review our operating highlights in the quarter. I will then turn the call over to Ke, who will cover financial results in more detail and will provide 2020 guidance. We will then open the call to questions.

Revenue came in at $9.7 million, which was at the high end of the guidance. Gross margin of 61% was well above guidance we provided on our last call. Our operating expenses on a GAAP basis was down more than 16% from a year ago, and we continue to manage costs prudently. As a result, we reported GAAP operating income of nearly $3 million. Importantly, we maintained a healthy balance sheet, providing the financial flexibility to propel growth in the quarters ahead. As of November 30, 2020, our total project pipeline was about 800 megawatts, including about 732 megawatts in late stage. Based on our activity level, we are confident we will achieve 1 gigawatt project pipeline by the end of this year. The momentum in our business is accelerating. And from a customer engagement perspective, we have been a significant level -- we have seen a significant level of business activity in the last several months.

I will now discuss recent operational highlights.

First, we completed the previously announced acquisition of certain assets from Nova Development Management last month. We used about $3.8 million of cash on hand to complete the acquisition, which gives us a pipeline of solar projects and an experienced team. The all-cash transaction aligns our strategic priorities with the interest of our current shareholders. And we believe this deal is complementary to our existing project development business. The development team we have acquired is based in California. They are a reputable, U.S.-based project developer that focuses on project development, project finance, EPC management and asset investment in the U.S. They have a pipeline of about 200 megawatts of projects under development, including 130 megawatts of middle- to late-stage projects. Their focus is small-scale utility projects across several states, including Pennsylvania, California, New York, Maine, Illinois and Arizona. The experienced project development team we have acquired will strengthen our position as a leading global solar energy developer and operator. Over the years, we have built a track record of success in developing small-scale projects, especially DG and community solar. However, we have not participated very actively in the utility-scale segment of the market. Because of that, we have virtually no overlap with the acquired development team. The acquisition of their solar assets is very complementary to what we do today.

The transaction is synergistic and additive in expanding our addressable market. Also, it provides us with immediate access to battery storage and enables us to deliver a more complete set of service capabilities to our customers. The acquisition of their project pipeline fits very nicely into our strategy to accelerate our growth and improve our profitability long term. Solar and battery storage have great potential in many markets internationally. We view this as a statistically compelling acquisition that increases our footprint in project development in the U.S. and significantly expands our addressable market.

Following the closing of the acquisition, this morning, we announced that we signed a solar plus storage PPA with California-based, Valley Clean Energy or VCE. VCE is a local public electricity provider formed by Yolo County and the cities of Woodland and Davis. The PPA has a duration of 20 years. The project is located in the town of Madison in Yolo County, California. We expect commercial operations by the third quarter of 2022. Importantly, the project will add 20 megawatts of solar power and 26 megawatt hour of battery storage. We are excited to build a strong relationship with VCE through this transaction. This project also marks a major milestone for us. It is our first long-term PPA for a solar-plus-storage system that will provide significant benefits to the local customers. In summary, this acquisition exemplifies the execution of our long-term strategy as we reallocate capital to accelerate growth and profitability.

Second, we set up multiple joint ventures in Europe in the past several months. Specifically, in late September, we entered into a strategic partnership agreement with Vodasun to co-develop and market ready-to-build, ground-mounted solar projects in Germany. Vodasun is based in Munich, Germany and is specialized in developing and constructing solar parks. In the near term, this JV intends to develop an initial project portfolio of 50 to 100 megawatts, long term, and expects to develop an additional 50 to 100 megawatts of new projects per year.

In October, we established a joint venture with Novergy to co-develop utility-scale projects in the U.K. Novergy is a project development solar -- solar project development platform specializing in the origination, development, design, optimization, construction and commissioning of solar projects in U.K. The joint venture expects to develop the current pipeline of 100 megawatts in the near term and intend to develop at least another 100 megawatt of utility-scale projects in the next couple of years.

Layering on top of that, we formed another JV in U.K. last month, as we highlighted in our press release, we entered into a partnership agreement with Innova to co-develop utility-scale projects in the U.K. Innova invests in and operates a diversified portfolio of renewable energy assets in U.K. They focus on utility-scale, ground-mounted and commercial rooftop solar installations located at agricultural, industrial and commercial sites. As part of the agreement, the JV company expects to develop the existing pipeline of 50 megawatts and plans to develop at least another 50 to 100 megawatts of utility-scale projects in the next few years.

Looking at these partnerships, I'm proud of our team and our business progress. We believe the combined strength of ReneSola Power and our partners will create tremendous synergy and provide new opportunities to further expand our presence in Europe. We also believe that these JVs will position us to grow our global pipeline in the next several quarters and beyond. It is also noteworthy that all these 3 portfolios have built-in storage options to meet the local customers' demand.

Third, we recently closed the sale of a portfolio of operating projects located in the U.K. to AtmosClear Investments, a European renewable energy and cleantech private equity group. The portfolio comprises 1,500 online residential rooftop projects located in Scotland, with a combined capacity of 4.3 megawatts. These projects are qualified under the feed-in tariff scheme and have been in operation since 2015. Importantly, this transaction, once again, demonstrate our ability to optimize our solar assets through strategic sales, enabling us to generate cash flow, realize profits and further strengthening our balance sheet.

As I mentioned earlier in my prepared remarks, we are committed to grow our project pipeline by 1 gigawatt by year-end. We have faced some challenges on project development delays as we navigate the COVID-impacted environment. While we are taking a more conservative approach, we are confident that we will add at least 800 megawatts this year, which will allow us to have over 1 gigawatt pipeline by the year-end, as shown on Slide 5.

Let's now discuss the highlights from certain key geographies. First, let's turn our attention to the U.S., shown on Slide 7. Our late-stage project pipeline stands at around 300 megawatts, of which 53 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 Utah and Florida. 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 56 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 about 0.5 megawatt, bringing total micro project capacity to about 12 megawatts in the country. Those projects are under construction and are expected to reach COD by the year-end. On top of that, we also added 28 megawatts of small-sized, ground-mounted utility-scale projects in the country.

Slide 10 and 11 detail our pipeline in France and Spain. We have 100 megawatt in France and 36 megawatts in Spain, all of which are ground-mounted and currently under development.

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

In U.K., shown on Slide 13, we have a pipeline of 150 megawatts, all of which are ground-mounted projects under development. Over the years, we have successfully developed 16 portfolios of small-scale projects and sold a total of 127 megawatts projects in the U.K.

In addition to our development pipeline, we currently operate a portfolio of 189 megawatts of solar projects that generate high-margin recurring revenue. As you see on Slide 15, our operating assets, including 149 megawatts of commercial rooftop in China, 24 megawatt of utility solar in U.S., 50-megawatt of ground-mounted in Romania, while we have sold 4.3 megawatts of rooftop projects in U.K. last month.

Before I turn the call to Ke, I would like to conclude with a few key strategic highlights.

We are advancing in the multiyear transformation process from a negative cash flow equipment maker to a positive operating cash flow and asset-light solar project developer. We realign our long-term growth strategy from focusing on our traditional market in China to a global expansion road map. We now focus on promising markets in the U.S. and Europe. Last year, we moved our corporate headquarters to Stamford, Connecticut, where our senior management team is now based. We are pleased with the operational progress we have made. With a growing pipeline of business activity, we see our momentum accelerating and remain optimistic about outlook for the remainder of 2020 and beyond. The global solar industry is large and growing. We are committed to our mission to become a leading global project developer by focusing on high-quality and high-return projects in the core countries.

Let me now turn the call 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 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 influenced 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 Q3 financial highlights on Slide 19. Revenue was $9.7 million, down sequentially and year-over-year. We expect this and in fact, revenue was at the high end of the guidance range. Revenue was down simply due to time of the project sales. As you know, our revenue can vary significantly quarter-to-quarter because of timing. We judge our success over longer time periods that smooth out the quarter-to-quarter variations. Revenue this quarter was mainly from the sale of electricity generated by our owned project in China, Romania, U.S. and U.K. As you know, electricity sale are high margin, so while gross profit was down both sequentially and year-over-year, gross margin of 61% exceeded guidance and was up significantly from last quarter and from the same period last year.

Moving down the P&L. We continue to demonstrate strong expense control, bringing non-GAAP operating expense down 19% year-over-year. We reported non-GAAP operating income of $4.5 million in the quarter versus $6 million last quarter and $14 million in the same period last year. Non-GAAP operating margin increased to 44% compared to 22% last quarter and 21% in the same period last year. Non-operating expenses were down year-over-year. We had a foreign exchange translation gain was caused by the depreciation of the U.S. dollar, which led to exchange gain on the balance sheet. All this results in non-GAAP net income attributed to ReneSola Power of $2.5 million and GAAP net income attributed to ReneSola Power of $2.1 million. Earnings per share on a GAAP basis was $0.043. Overall, we are satisfied with our operating performance considering the micro challenges.

Now let's review the balance sheet shown on Slide 20. At quarter end, we had cash and cash equivalents, including restricted cash, of more than $16 million. In early August, we established an at-the-market equity offering program, under which we sold an aggregate of USD 5 million of our ADS. Both long-term and short-term borrowing were slightly down. Please note that nearly all our debt is project-based and nonrecourse.

Subsequent to Q3, we did a lot of capital release in the registered direct offering of $5 million. We intend to use the net proceeds to expand our new project pipeline and for general working capital purpose. In addition, the proceeds will further strengthen our balance sheet, provide capital flexibility and further enhance our ability to execute our long-term strategic growth plan.

Now let's cover 2020 guidance as shown on Slide 25. For the fourth quarter, revenue in the range of $23 million to $25 million, reflecting more project sales and sequentially declined electricity sales due to normal seasonality. This mix should result in a gross margin in the range of 11% to 13%. For full year 2020, we continue to expect total revenue in the range of $80 million to $90 million and the gross margin in the range of 18% to 20%. And we do expect to be profitable for the fourth quarter and the full year 2020 on a non-GAAP basis.

Our outlook for the remainder of 2020 considers a couple key factors. First, the development of COVID-19 and global macro conditions remain highly uncertain. We continue to monitor how the health aspects of pandemic are playing out as well as the second-order effect on the economy. We had anticipated some slowdown in activity in 2020 and believe it's prudent to factor in broader variability in our outlook. Second, we consider fluctuations that typically occur due to normal unevenness associated with the project development cycle.

So 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) Our first question comes from the line of Philip Shen from ROTH Capital Partners.

Wanted to ask about the Q4 guidance. You recently announced the sale of a 4-megawatt project in the U.K. Can you share what are the projects you expect to sell in Q4? And what's baked into that Q4 guidance? How many megawatts are being sold at NTP and how many at COD in Q4?

Okay. The -- go ahead, Ke. You can take it.

Yes, sure. In Q4, first of all, the U.K. sales because it's a fixed asset on our balance sheet. So it won't record revenue, but it does provide us very good cash flow and profitability. So that's for U.K. And for other sales, mainly from Hungary and the COD project sale and Poland COD project sales.

Okay. Great. And is it fair to say that these projects are both in that 11% to 13% margin range?

Yes.

Okay. As we look into 2021, I know you have about 700 megawatts, which are late-stage projects. And then you have the 189 megawatts of operating assets. Historically, you've talked about roughly 1/2 being sold in '21 and 1/2 in '22. What is your latest view on how the sales of these projects could be split in '21 and '22?

The -- considering the success rate of the late-stage projects, we expect very high success rate on the late-stage portfolio. The -- we'll target conservatively selling several hundred megawatts per year. And narrow down numbers in 2021, 2022, we hope to monetize at least 200, 300 megawatts per year, as a minimum.

Great. And when you think about the 2021 sales, which regions would you expect has the highest probability of being sold? What's the short list of projects?

Truly, it's across the board. We expect sales in almost every market we have activities. In the -- all the core countries in Europe, we are active in 6 countries we have projects now. And also in the U.S. Every single country we expect sales.

Good. And for this year, you gave a 1 gigawatt pipeline target by the end of 2020. Do you have a similar target that you might be able to share? How big do you think your pipeline grows in spite of these sales exiting '21?

The -- in general, our principle absolutely is able to grow based on the available resources we have in our hand. But our general principle is to at least maintain an active 1 gigawatt portfolio in our hand. That means that the -- if we sell 300 megawatts a year, we need to at least add another 300 megawatts into the portfolio. While we intend to grow based on our activity level, we hope we can grow from the 1 gigawatt consistent project portfolio to a bigger one. But we will not really put up a number at this time. But the -- I believe that number will go up, not going down.

Great. Okay. And as it relates to Europe, there's been some news out that certain courts in Europe might enable retroactive feed-in tariff cuts. And I know you and I have talked about it a little bit. And just wanted to confirm that there's no impact to any of your existing projects. And philosophically, I know for your -- well, maybe you can help us understand what percentage of your existing operating assets depend on feed-in tariff? And so what might be at risk? And then going forward, what percentage of your assets or pipeline is based on PPA as opposed to feed-in tariff, so you can highlight how there's little risk going forward as well?

Thank you. It's an interesting question that the -- in general, or to the bottom line, there's no impact at all for those retroactive or potential cut on tariff, okay? For 2 reasons. Number one, the operating assets after the U.K. small deal sales, we only have the 2 projects in operation in Romania, okay? And the -- and by the way, that's also in the sales process. But the -- all other deals we are developing or constructing, we are not taking the ownership or keep the ownership after the COD. So for both of those, that in any market, when the government of the market decide to make the change or make the cut of the existing PPA, it will not impact our operation or not impact our development of the new projects. And by the way, another sign now there is the solar. We reached the lowest LCOE, our lowest number of going to the grid parity. So the -- in many of the markets in Europe, the buyers of our projects do not even require the PPA to be signed.

Right. Interesting. So Yumin, just a quick follow-up there. As you -- so basically, the risk for you is almost -- is very low. But do you see any issues for your customers? I guess if the buyers are not requiring any PPAs to be signed, it seems like it could be very low as well, but just want to confirm.

No. At this time, we don't see that. But definitely, the market varies or fluctuates based on the different financial terms or the the PPA terms our customers expect to have. But at this time, we still see strong demand (inaudible) try to buy our projects.

Great. And then when you think about battery storage, how many of your projects that you expect in 2021 may have storage with the sale? And what does the margin profile look like for those projects? Are they incrementally better with the batteries?

The -- it's a very interesting question. The -- we do see the growth of the big demand coming from customers in the bunch of markets we are active, for example, in the U.S., in Germany and U.K. And as I mentioned earlier, that the -- all those portfolios we have in U.K. and Germany have storage options. And also in the U.S., we have bunch of projects having storage options, and we have actively bidding into tenders or the bilateral discussions on the solar-plus-storage options we provide to customers, okay? The -- on the pure growth of the revenue and profit, solar storage option absolutely will add a big growth into the numbers. But on the margin side, I cannot really release much as the -- you ask a very interesting or key question: How quickly we can grow the battery options in our overall solar portfolios? But we are confident that will add significant growth into our -- both revenue and margins.

Okay. And on a percentage basis, is it -- does it dilute the margins, your existing corporate margins? Or do you think it might blend the margins higher?

Good question. I do not have an answer for you, but the -- as I said, on the growth side, it absolutely will help. On the margin, on the percentage, we'll wait and see. The -- I see, it will help, as long as the cost decrease on the battery side is aligned with our current expectations, which actually, we have a good understanding of the cost curve of both solar and storage at this time in-house.

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

Most of my questions have been asked. With respect to these JVs that you guys signed recently, are you already seeing some contribution in terms of the pipeline building? And when can we potentially see announcements from these JVs, adding to the pipeline you're highlighting?

Interesting question that the -- I do not think we will make those detailed announcement on the detailed level of the projects. Every day, in the past several months, we've been working actively with our partners on the portfolios. And we already have the existing portfolios we are working on, and we have already considered adding new pipelines into the joint venture. But from this time on, unless it is a big material change of the JV structure or the big addition of the pipeline, we do not intend to make those detailed-level or project-level announcement.

Okay. Understood. And with respect to sort of the U.S. opportunity with this acquisition, what are your thoughts on continuing to sort of be more involved in the community solar-sized projects versus moving to small-utility and then even maybe larger-utility opportunities? And what are the sort of challenges in doing this in the near term, if there are any?

A very good question that the -- after the acquisition of this, we call, utility-scale development team in-house into the house 2 weeks ago, we truly have 2 teams in-house. One teams continues their activities on small DG and community solar programs. And another one is this new team doing on the -- are spending time on the utility sector. And plus the both teams are also together working on storage options. And those are all under the leadership of our U.S. CEO, John, John Ewen. He is actually is with me. Can you comment on this question?

Sure. So the answer is obviously layered, but the quickest answer and easiest one, that is actually the most direct is, we have a capability based primarily in Minnesota with developers in the specific markets for community. And we can turn that machine, if you will, towards any market that looks interesting, whether it's in the Northeast, Southwest, wherever it might be on the community side. But to be frank, some of the states that we see community programs in now, we believe, have a lot of growth. Some of the states that we're already in, we believe, have what could be a finite opportunity. And that speaks to why having a footprint in small-scale utility is itself an opportunity. It is just like Yumin said at the beginning, in the remarks, it's a completely noncompetitive bolt-on to our current operations. So the utility world is truly a different world. We are not playing in the complete large, large-scale utility. We believe there's an opportunity in mid-scale utility, mid-scale utility with custom or unique opportunities and need for storage, where we can differentiate ourselves from the pack a little bit. And then opportunistic community solar continuation in the markets we're already in. Plus we're making attempts at land acquisitions in states that do not yet have community but look like they're primed for community. So there's no one solar to everybody, and we are playing in 2 markets where we believe there's spot growth around the United States.

Understood. Just one last one from me. Yumin, you said you potentially could convert 200 to 300 megawatts minimum per year going forward. What would be the maximum on this range? Is it 500, 600? Like -- and what would drive, sort of, you coming in at the low end of that range and coming in at maybe the higher end of that range?

Okay. Interesting. The 2 numbers, I think I can talk about. One is our project pipeline. I already mentioned that we will have 1 gigawatt on hand as a minimum or even grow the pipeline to a bigger number. Another number is our typical size of the deal is smaller. Like, although we do those 20, 30, up to 50 megawatts of deals. So the smaller deals represent a shorter development cycle. Most of the deals are within 24 months development cycle. I mean, development cycle, meaning from the time we take the project right through the time we sell or we sold the deal. The -- so that tells you that the -- with -- if we have 100% success rate, we should be able to monetize about 500 megawatts if I have 1 gigawatt portfolio. If, as I mentioned, we have a very -- expect a very high success rate, if we have an 80-plus percent of success rate, we should be able to do about 400 megawatts a year. That's what we see the growth of the company.

I understand. And to execute on this path, I guess, you should see some benefits from operating leverage also start to materialize. Do you need to add more resources to get this level of monetization underway? Or you should be able to handle it with the resources you have right now?

The resources, we talk about 2 things. One is people. People is our #1 important resources in the whole company. The way -- from one side, we are hiring every day. But on the other side, we try to do an efficient or effective cost control across the board, okay? As you see our numbers and especially the margin numbers. And for example, our pipeline in Europe was about like 100 to 200 megawatts. Now we double, triple, quadruple over the pipeline, while the number of people, we only add maybe -- not maybe, it's about 5 or 6 more, in the team members. So we try to improve the whole development process through our efficient cost control. And so we can more effectively utilize the human resources we have available in-house to do more deals. But on the other hand, on the financial resources, we are a small company. We have a little bit smaller balance sheet. As Ke mentioned, we have less than $20 million available we can spend. So how we can grow our pipeline and do more deals? That is, as Ke also mentioned, we have a bit less of the revenue. That's because we do more deals on NTP sale. As we all know, the when we do project business, revenue side can be as simple as 10x if you go from NTP sale to COD sale. And I, or the management of the company, we care more about the bottom line, the profit we can contribute to the shareholders or investors. We do care about the revenue for some countries, some reasons when the investors or buyers want to buy the deals, and by paying a premium to the COD sale, we will do it. Or else, to more effectively or efficiently use the available resources we have, the small financial resources, we're able to do more NTP sale. Did that answer your question?

Right. Yes, yes.

(Operator Instructions) There's no more question at this time. I would now like to hand the conference back to speaker, Yumin Liu. Please go ahead, sir.

Okay. Thank you, operator. To conclude, we are committed to growing profitability, managing our operations efficiently and strengthening our financial position. We are very excited about the opportunities in front of us and 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.