Emeren Group Ltd (SOL) 2020 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Power's Second Quarter 2020 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, sir. Thank you.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss second quarter 2020 results. We released our shareholder letter a couple of hours ago. It's available on our website. There's also a supplemental slide deck posted on the website that we'll reference during our prepared remarks.

On the call with me today are Mr. Yumin Liu, Chief Executive Officer; Mr. Ke Chen, Chief Financial Officer; 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 are in 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. We hope that all of you are staying safe and healthy.

COVID-19 continues to impact families, businesses and market worldwide and remains a headwind to the global economy. That being said, since our last quarterly report, we have seen a full return on normal activity in most of our operations around the world. I want to recognize the amazing efforts of our team for staying resilient as we navigate the current environment.

Before we discuss our Q2 results and operating highlights, I have some important and exciting news to share with you. Earlier this week, we announced the acquisition of the assets of an undisclosed product developer in the U.S. We are paying approximately $8 million only in stock and we'll get a pipeline of solar projects, the right to over $4 billion account receivables and an experienced team. We believe this deal is complementary to our existing product development business.

So who is the developer? Well, we cannot disclose the name until the deal closes. But we can say it is 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 100 megawatt of middle to late-stage projects. Their focus is on small-scale utility projects across several states, including Pennsylvania, California, New York, Maine, Illinois and Arizona. The experienced project development team we are acquiring will solidify our positions as a leading global solar energy developer and operator.

For those of you familiar with us, you know that we have a track record of success in developing small-scale projects, especially DG and community projects. Those are sweet spots for us, but we have not yet participated actively in the small-scale utility segments of the market. Because of that, we have virtually no overlap with this developer. As such, the acquisition of these solar assets is very complementary to what we do today.

The deal is additive in expanding our market opportunities, gives us access to battery storage and enables us to deliver a more complete set of services capabilities to our customers. Moreover, the acquisition of this project pipeline fits 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. This is a strategically compelling acquisition that increases our footprint in project development in the U.S. and significantly expands our addressable market.

In summary, this acquisition is a clear example of our long-term strategy taking shape as we redeploy our capital to accelerate growth and profitability.

Now let's turn our attention to Q2 results. 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.

Our revenue grew 93% from last year. Gross margin of 28.4% was well above the updated guidance we issued a few weeks ago. Our operating expenses were down by 16% from a year ago, as we prudently managed costs. As a result, we reported operating income of nearly $5 million. Importantly, we maintained a solid balance sheet, providing the financial flexibility to drive growth in the quarters ahead.

At quarter-end, our total project pipeline was about 700 megawatts, including 500 megawatt in late stage. Notably, we added approximately 50 megawatts and 40 megawatts of late-stage projects to our pipeline, Germany and Poland, respectively. We sold a project portfolio in Hungary, delivered the projects at COD and recognized revenue in Q2.

Our goal for 2020 is still to expand the pipeline by 1 gigawatts. Based on our activity level, we are on track to achieve our goal. Our optimism is built upon 3 key components, and we'd like to quickly review them.

First and foremost, we have a globally diversified project pipeline focused on high-growth markets. The global solar power industry is large yet continues to grow. Our targets are countries where solar power usage is growing rapidly, supported by favorable government policies and regulatory environment, coupled with demand for green energy. We leverage the dominant trend in our industry, small-scale projects with a high PPA feed-in tariff price.

As discussed, we have significant experience and solid track record of success in developing this type of projects, especially DG and community solar projects. That experience gives us a distinct advantage compared to large utility scale developers. This advantage is also a function of our outstanding team, which averages over 10 years' experience in our industry. Our executive management and project management teams have expertise in project management, project development, strategic investment and capital markets.

Our track record is excellent. Since starting our downstream business in 2012, we have successfully completed about 800 megawatt of small-scale projects. That means several hundreds individual projects. We have monetized about 600 megawatt while still operating 204 megawatt.

Importantly, we have the ability to grow beyond the current pipeline. As I mentioned, we intend to add another 1 gigawatts of projects to the current pipeline by the end of 2020.

Due to the COVID-19, we have faced some challenges and project delays. While we are taking a more conservative approach, we are confident, and we will add at least 800 to 900 this year, as shown on Slide 5.

Let's now discuss highlights from certain key geographies. First, let's turn our attention to U.S., shown on Slide 7. Our late-stage projects stand at around 168 megawatt, of which 53 megawatt 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 June of 2020, we announced Nautilus' acquisition of 10.4 megawatt community solar portfolio developed by our team in Minnesota. Like previous acquisitions, include the 21 megawatt purchase in 2019 and the two 13.3 megawatt acquisitions announced in 2017 and 2018, this portfolio also qualifies under Xcel Energy's community solar program in Minnesota. The portfolio is comprised of 8 single access tracker solar installations, is commonly referred as a solar garden. The projects are located in counties across the southern half of the Minnesota and are designed to produce enough energy to power over 1,450 homes. The portfolio is expected to come online by the fourth quarter by 2020.

Separately, we also announced the completion and the commercial operation of a 21-megawatt portfolio of community solar projects in Minnesota a couple of weeks ago. Those projects began commercial operation in July and August this year.

We are excited to have successfully developed these community solar projects in the U.S., generating positive operating cash flow and favorably contributing to EBITDA this year. Community solar remains an attractive market for us in the U.S., and we continue to execute on our strategy.

In Poland, shown on Slide 8, our key asset is a portfolio of project rates. We have a pipeline of 69 megawatt of ground mounted projects under development. As announced in July 2020, we successfully closed our bridge financing with Eiffel Energy Transition Fund to finance the construction of our 19 megawatt solar projects in Poland. This new facility provides an injection of EUR 10.6 million or USD 12 million of new capital. This is the second bridge financing that Eiffel Energy Transition Fund has provided to us to support our project development and execution efforts in Poland and Hungary.

Slide 9 refer to Hungary, where we also invest in small-scale DG projects. Our late-stage pipeline has a number of micro projects, each is 0.5 megawatt, bringing total capacity to about 12 megawatt in the country. All of those projects are under construction and expected to be connected to the grid in the fourth quarter of this year.

Slide 10 and 11 detail our pipeline in France and Spain. We have 71 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.

In the U.K., shown on Slide 13, we have a pipeline of 100 megawatt, all of which are ground mounted, under development. Over the years, we have successfully developed 16 portfolios of projects in U.K. and sold a total of 127 megawatt of projects.

In addition to our development pipeline, we currently operate a portfolio of 204 megawatt of solar projects that generate high-margin recurring revenue. As you see on Slide 15, our operating assets, including 160 megawatt of commercial rooftop in China, 24 megawatt of utility solar in U.S., 15 megawatts of ground mount in Romania and 4 megawatt of rooftop in U.K.

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

We are in a 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 the promising market in the United States and Europe. Importantly, we already obtained a leading market share in Poland and Hungary as well as certain states in the United States such as Minnesota and New York. Last year, we also moved our corporate headquarters to Stamford of Connecticut, where our senior management team is now based.

We are pleased with the operational progress we have made. I remain optimistic about outlook for the remainder of 2020 and beyond. Our optimism is founded on our globally diversified project portfolio, spanning multiple stages in both rooftop and ground mount. The global solar industry is large and growing. We are becoming a leading global project developer by focusing on high-quality and high-return projects in the core countries.

Let me now turn the call over to 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 comparison you need. I'm not going to repeat every number. Instead, I'm going to focus on the factors that influence the 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 GAAP measures. A non-GAAP to GAAP reconciliation is included in our shareholder letter.

So let's begin with our Q2 financial highlights on Slide 17. Revenue was up more than 20% sequentially and up 93% versus last year. As expected, revenue was in line with updated guidance we provide in our August 6 press release. Gross profit was up sequentially but down with last year. Gross margin exceeded the updated guidance we provide on August 6 and was up significantly from the last year -- last quarter. Revenue growth was largely a function of the Hungary sale from which we recognize revenue in Q2. The sequential increase in gross profit and gross margin was due to the mix of revenue, especially with the higher margin associated with the sales -- energy sale in China, Romania and the U.S.

Moving down the P&L. We continue to demonstrate strong expense control, bringing non-GAAP operating expense down year-over-year. Non-GAAP operating expense as a percentage of revenue decreased to 7% compared to 11% a year ago and 10% last quarter. We reported non-GAAP operating income of $6 million in this quarter, with non-operating loss (sic) [non-GAAP operating loss] of $0.7 million last quarter and a non-GAAP operating income of $9 million in the same period last year.

Non-operating expense were much lower sequentially although slightly up versus last year. We had a foreign exchange translation gain, was caused by the depreciation of U.S. dollar, which led to exchange gains on the balance sheet.

All this result a bottom line profit. We achieved net income about $3.1 million. Overall, we are very satisfied with our operating performance concerning the macro challenges.

Now let's review the balance sheet, shown on Slide 18. At quarter end, we had cash and cash equivalents, including restricted cash, about $12 million. We generated over $5 million cash from operation. Both long-term and short-term borrowing were down. We paid down our debt by $8 million in Q2. Please note all our debt is project-based and almost all is nonrecourse.

Following Q2, we established an at-the-market equity offering program in early August, under which we're selling up aggregate of $5 million of ReneSola common stock. We intend to use the net proceeds from sale of shares under this ATM program to expand our new project pipeline and for general working capital purpose. In addition, the proceeds will provide capital flexibility and further enhance our ability to execute our long-term strategy growth plan.

Now let's cover 2020 guidance, as shown on Slide 23. For the remaining 2 quarters 2020, we expect to maintain profitability on a non-GAAP basis. For full year 2020, we continue to expect total revenue in the range of $80 million to $100 million and gross margin in the range of 18% to 20%. And we expect to profitable for whole year 2020 on a non-GAAP basis. For the third quarter of 2020, we expect revenue in the range of $8 million to $10 million and a gross margin in the range to 38% to 42%.

Our outlook took into account that the development of COVID-19 and the global macro condition remain highly uncertain. We must see how the health aspect of pandemic play out as well as the second effect economics. We currently anticipate some slowdown in customer activity in 2020 and believe it's prudent to factor in a broad variability in our outlook.

With that, we will now like to open the call for any questions that you may have for us. Operator, please go ahead.

(Operator Instructions) We have the first question from the line of Philip Shen.

This is Justin Clare on for Philip today. So I guess, first off, I wanted to start with your Q2 results. It looks like you sold 12 megawatts of China DG assets in addition to the 10 megawatts of community solar in Minnesota and 15 megawatts in Hungary. So I just wanted to make sure I got that correct. Or is that -- or does that include all the assets that you sold in the quarter? And then can you share what the revenue contribution was for each of those asset sales and potentially the margin contribution as well if possible?

Okay. Justin, you're right. The -- we did sold about 12 megawatts in China. But for China, that asset sale is not going to be recognized in the revenue line and -- because that's the fixed assets. So it's actually contributed a little bit -- we're breakeven sale. So that's the contribution from China. For Hungary, we sold about 15 megawatts projects. You are asking the revenue contribution. Is that right or...

Yes. If you could share the revenue contribution and then what the gross margin was, we'd appreciate it.

Okay. Again, in terms of the project in Hungary, we don't disclose the actual deal, but the revenue contribution is roughly in the high teen so -- in this quarter for Hungary projects.

Okay. Great. And then I guess turning to your guidance, can you share which projects you plan to sell in Q3? So which projects are in the guidance there? And then for Q4, the implied guidance is, for revenue at least, about $23 million to $43 million, so a decent range there. I was wondering what gets you to the high end of that guide versus the low end of the guide. Are there specific projects that might slip into 2021 that you can maybe help us understand that?

Sure. This will go one by one. Okay. What's your first question? Again, you -- the first question is about Q3, right?

Yes. Just for Q3, what projects are you anticipating selling in that quarter and recognizing in the revenue?

Yes. In the third quarter, we do expect the revenue coming out the NTP sale in the U.S. And so that NTP sale is roughly around 12% to 15%. And we do have a project in Hungary, but we cannot -- at this moment, we estimate a partial recognition for that project. So it's around 18% to 22%. So that's the projection right now.

And I'll pick up the second question, Justin. We currently have many activities internationally in the core countries, not only in the U.S., in Poland, in Hungary, in other countries like Spain and France, okay? The -- we have -- 11 megawatts are to be under construction right now in Poland. And we'll start construction of another 8 megawatts, as we previously mentioned, that we closed the financing for the whole 19 megawatts in Poland. But the first 11 megawatts, we expect the sale closed by the end of the year. And also, we have a couple of portfolios in Hungary, the one Ke mentioned earlier that the under construction will recognize partial revenue and profit in Q3 but most will be in Q4. In Spain and France, we are also execute on project development and sales activities. We'll also recognize partial revenue and profit in both countries.

In U.S., same thing. We have portfolios in the sales process in several states, and we expect to close them by the end of the year. But the -- so many projects or portfolios are under sales process, and due diligence, construction, execution, all those things, especially under the challenges of COVID-19, we give the big range as the unforeseen risks or uncertainties or possible delays.

But just one -- in summary, we do have many activities. And many of them are under the sales process. That will go -- if everything goes smooth, in the ideal position, we will reach the high end or even supersede that number. But we want to be conservative, so we give the lower end guidance. Did that answer your question?

That's helpful. Yes, yes. No, that's helpful. And then I guess following up on that. I was wondering, could you speak a little bit more to the potential for delays as it relates to COVID-19 pandemic? Are you seeing any issues in the supply chain, regulatory approvals, permitting, labor shortages? Just -- I wonder if you could provide a little bit more detail as to where you could potentially see delays or if you're seeing issues right now.

The -- in general, we do see, in almost all aspects, we got impacted by COVID-19, but the -- we see less on supply chain. We see some in the construction, and we see a lot more on the development phase. As -- when people are doing the due diligence or even closing in the sales process, the due diligence efforts will be impacted by COVID-19. For example, our team, when we're acquiring deals, expanding our project portfolios, we need to do the, one, mandatory site visits. How to plan those site visits, that's a question -- or big question under COVID-19 scenario.

And same thing in the sales process, when we have to schedule lots of events not only on the virtual on computer, but we have to do it on face-to-face or physical situation. That could be delayed, okay? Most are around those part. But we see -- starting end of Q2, early Q3, in the last 2, 3 months, we see everything is coming back, including we don't see any delays or don't expect any delays on the supply chain, delivery of the modules, inverters, trackers and all those things. And we don't even see the delays of the construction. So we do see the risks and uncertainties, but we think we are managing them well at this time.

Okay. I guess then just shifting to the acquisition that you announced for U.S. assets. I was wondering, could you share how many shares that you are issuing in that all-stock transaction? I'm calculating something like 3.5 million shares potentially but if you could share what that number actually is.

At this time, before the deal closes, we cannot give the amount of shares we are in negotiation, as the team will finalize our detailed due diligence process and also the lots of other items need to be worked out in the month of September.

Okay. So just so I understand correctly, the number of shares has not been determined yet. You're still negotiating what that number will be.

We cannot disclose the details at this time. But the -- as we announced earlier this week, we see the acquisition just all stock and also the -- it's around $8 million total and including over $4 million account receivable in cash.

Okay. Got it. So then on the transaction, you're acquiring 200 megawatts of development-stage assets. Was wondering if you could share a little bit more on how far along those assets are in terms of development. And I guess when could you potentially start selling those assets? I know the transaction hasn't closed yet, but a sense for -- are those assets ones that you would sell at NTP and it could be somewhat near-term sales? Or are you planning to take those assets to complete the construction before you would sell, pushing the actual sale timing further out?

Okay. It's a good question. The -- in fact, the development portfolio is pretty big at the early stage. The -- we mentioned about 200 megawatts and also mentioned that above -- over 100 megawatt are middle to late stage, okay? The -- in our growth strategy, our sales process will start long before the NTP or close to NTP time period. Ideally, we are a small company. We want to exercise the sale at NTP without taking too much assets into the process.

So the -- for the 100 megawatts of late-stage projects, we -- if we close the transaction, we expect to sell them next year. And for the other early stages, it depends. We may have the final off-taker or PPA sign. When it's a big deal, we'll adjust when will be the best time to do the sales process. As in the past, we have done sales in multiple different stages, even early stage, at, before long, before NTP or NTP, or even after COD.

One thing I do want to say again, in this 100 megawatts of project portfolio, I mentioned middle to late stage, that will be solar plus storage projects. That is the beauty as I see this 100 megawatts or 200 megawatts project pipelines, as we believe we have great potential developing solar plus storage projects internationally, not only in the U.S. We have those opportunities in Germany, in U.K. and in several other countries in Europe. And also in the U.S., we have not only in certain states like California, Texas, Pennsylvania and New York. We have -- almost every states is coming up the ideas of solar plus storage. We see that as very strategic.

(Operator Instructions) As there are no further questions, I would like to hand the call back to presenters for any closing remarks.

Okay. Thank you, operator. Before we finish, let me mention that we will be presenting next Tuesday at LD Micro 500 Virtual Conference. There will be a link in our formal presentation in the IR section of our website. We will also host virtual one-on-one meetings.

To conclude, we are committed to growing profitability, managing our operations efficiently and strengthening our financial positions. We are very excited about the opportunities ahead 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.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect now. Thank you.