Emeren Group Ltd (SOL) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 ReneSola Ltd Earnings Conference Call.

(Operator Instructions) I must advise you that this 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.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss fourth quarter and full year 2019 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 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 and 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. 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'll discuss the operating highlights. Yumin?

Thank you, Gary, and thank you, everyone, for joining the call. I'm proud to speak to you today. This is my first earnings call since I joined the company several months ago, and I'm very excited. I see tremendous opportunities for our company as a pure-play project developer in the fast growing market.

We are now a completely new company. In 2019, we completed a multiyear transformation of our business. We have a new name, new leadership, new headquarters here in the U.S. and a new business model. We are operating profitably and shore up our balance sheet, creating a solid foundation for growth. We are solely focused on solar project development in the U.S. and Europe, which are the best markets in the world. Our company has never been in a better position to drive profitable growth.

To get started, I will summarize our financial performance and review our operating highlights. I will then turn the call over to Ke, who will cover financial results in more detail and will provide 2020 guidelines. We will then open the call to questions.

Our momentum strengthened in 2019. The solid financial and operating results demonstrate strong execution of the wise strategy. Revenue for the full year grew by 23%, excluding some noncash charges, which Ke will talk about shortly. We more than doubled non-GAAP net income attributable to the shareholders. More importantly, we generated $56 million of cash -- cash flow from operations.

We improved our balance sheet by significantly increasing our cash position and reducing debt, providing the financial flexibility to drive growth for the quarters and years ahead.

Operational execution was excellent during the year. We connected about 60 megawatts of projects, including 24 megawatts in the U.S., 17 megawatts in Europe, 7 megawatts of feed-in tariff projects in Canada and about 11 megawatts in China. At year-end, our total project pipeline was about 700 megawatts, including about 400 megawatts in late stage.

We are optimizing by directing resources to the markets with the best profit potential. As part of the efforts, we wrote down several projects in emerging markets that were not economically viable, freeing up resources to be directed -- redirected to other profitable markets.

At the moment, the best markets in the world, we believe, are Europe and U.S., where we see tremendous growth opportunities and we can identify high-quality projects.

Fourth quarter revenue of $26.5 million exceeded the high end of our guidance, while gross margin of 26.9% met our expectations. Ke will go over this and other details of our financial results later on this call.

I will now spend a few minutes talking about our competitive advantages, which position us for growth in the years ahead.

First, we have a clear and wise strategy. We developed profitable projects with very attractive returns, utilized an asset-light business model, applied our unique value-add experience at different development stages and sell our projects based on the buyers' need at different stages along the project development cycle.

Next, we have a globally diversified project pipeline focused on fast growing markets. The global solar power market is very large and yet it continues to grow. Our targets are countries where solar power usage is growing rapidly, supported by stable government policies and natural demand for green energy. Our main targets are the U.S., Poland, Hungary, Spain, France, U.K. and Germany. In the U.S., we're focused on 6 states, including Minnesota and New York. In Europe, we believe we are in the market-leading position in several countries, including Poland and Hungary. Our pipeline reflects our focus on these targets.

Third, we can grow beyond the current pipeline. We intend to add another 1 gigawatts of projects to the current pipeline by the end of 2020, as shown on Slide 5. I'm comfortable with this target, which we believe is realistic and achievable based on our solid experience and strong network in our target markets. In fitting with our strategy, the incremental projects will spread across multiple countries.

Another key competitive advantage is our outstanding management team. Our new team comprises highly skilled professionals with an average of over 10 years of experience in renewable energy industry. We have expertise in project development, project management, strategic investment and capital markets. Our track record is excellent since starting our downstream business in 2012. We have successfully completed several hundred small-scale projects totaling about 800 megawatts. We currently have 260 megawatts of solar projects in operation globally. And we successfully monetized about 600 megawatts of projects across different geographies at various stages.

First, we are a pure-play in the downstream segments of the solar value chain. We believe the dominant trend in our industry for next few years will be small-scale projects where -- with a high PPA or feed-in tariff price. We have significant experience and success in developing these sort of projects, especially distributed generation and community solar projects. That experience gives us a huge advantage compared to large utility-scale developers.

Finally, we have established solid relationships with multiple stakeholders in order to support our project development and investment activities. This includes customers, strategic investors and financing partners across the globe. I want to give you a couple of examples. In the U.S., we assisted a project development partner to obtain site control, permitting, interconnection and offtake agreement for the development of the large utility-scale projects. The partner carry the project forwards through the financing and construction phase.

In Europe, we formed a strategic partnership with a project owner and financier providing development services. Together, we have won a very competitive PPA tendering process for a 30-megawatt utility-scale project in south of France.

Now I want to highlight a few key geographies in more detail. First, let's turn our attention to U.S. As highlighted on Slide 7, our late-stage projects stand at around 193 megawatts, of which 71 megawatts are community solar in 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, Florida and Maine. In the meantime, we operate 24 megawatts of utility projects in North Carolina.

In Poland, shown on Slide 8, our key assets is a portfolio of project rights. During the quarter, we sold 26 megawatts of those awarded to us in 2018 auction. We now have a pipeline of 19 megawatt ground-mounted projects under development.

Slide 9 refers to our market in Hungary, where we also invest in small-scale DG projects. Our late-stage pipeline has a number of such micro projects. Each is 0.5 megawatt. We have a total capacity about 35 megawatts in the country. Of this late-stage portfolio, 15 megawatts are under construction and expected to be connected to the grid in the second quarter of this year.

In January, we entered into an agreement to sell the portfolio of this small-scale DG projects to Obton, a leading international solar investment company. This portfolio comprises 25 solar power plants under development with a combined capacity of 15 megawatts. These 25 small-scale projects are qualified under the Hungary 25-year CAT feed-in tariff scheme.

Slide 10 and 11 detail our pipeline in France and Spain. We have 42.5 megawatts in France and 37 megawatts in Spain, all of which are ground-mounted and currently under development.

In the U.K., shown on Slide 12, we are now actively pursuing a project pipeline of 200 megawatts, all of which are ground-mounted projects under development. Over the years, we have successfully developed 16 portfolios of projects in U.K. and sold a total of 120 megawatt of projects.

In addition to our development pipeline, we currently own and operate a portfolio of 216 megawatts of solar projects that generate high-margin recurring revenue. As you see on Slide 14, our operating assets, including 172 megawatts of rooftops in China, 24 megawatts of utility solar in U.S., 50 megawatts of ground mounted in Romania and 4-megawatt rooftop in U.K.

The China assets are concentrated in multiple eastern provinces with favorable development environments. As we further transform into an asset-light developer, we intend to monetize these China assets. This will enable us to further strengthen our balance sheet, reduce leverage and improve cash flow. We plan to redeploy that cash towards our core business of the project development in the U.S. and Europe.

In summary, our global diversified project portfolio spanning multiple stages in both rooftop and ground mount makes me possible -- positive on the opportunities ahead of us. 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 our core countries.

Before I turn the call over to Ke, I want to briefly comment on our industry outlook. Market research estimates that by 2040, the share of renewables in the energy market will increase to around 30% and will become the single largest source of global power generation. Europe continues to lead the way in terms of penetration of renewables. And renewable energy is expected to grow and account for more than 50% in the European energy market by 2040. Both Europe and the U.S. are expected to be the 2 key markets driving the growth of renewables in the next several.

In addition to the value of our business, we believe that we create significant environmental value and thus should be attractive to ESG-oriented investors. Our completed solar projects generate about 1,000 gigawatt hours of electricity a year. That power production reduce carbon dioxide emissions by about 700,000 metric tons a year. That's equivalent of removing 140,000 passenger vehicles from the road annually.

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

Thank you, Yumin, and thanks again, everyone, for joining us on the call today. Our shareholder letter and our supplemental slides contain all the finance figures and the comparison you'll need. I'm not going to repeat all the numbers. Instead, I'm going to highlight our financial performance for Q4 and the full year 2019 and a focus on analysis of the factors that influenced our results.

Our shareholder letter and other earning material include 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. Our non-GAAP to GAAP reconciliation is included in our shareholder letter.

Let's begin with our financial highlights on Slide 16. Revenue was $26.5 million compared to $66 million last quarter and $6 million in the same period last year. Revenue exceeded the high end of our guidance. Gross profit was $7 million, down from $16 million last quarter, but up from $3 million in the same quarter last year. Gross margin was 26.9% compared to 24.6% last quarter and 51% in the year-ago period.

Excluding the impairment charges and project write-down, the non-GAAP operating expense was $3 million, up from $2.3 million in Q3 and $2.5 million a year ago. Non-GAAP operating income was $5 million compared to $14 million last quarter and a loss of $2 million in the same period last year.

Non-GAAP net income attributed to shareholders was $4 million compared to $9 million last quarter and a loss of $1 million in the same period last year. Non-GAAP net income per share was $0.09 compared to $0.23 in the prior quarter and a loss of $0.03 in the year ago.

Let's turn our attention to full year 2019 results. Revenue is $119 million, up 23% year-over-year. Project development revenue was $90 million, driven by project sales in multiple countries, most importantly the U.S., Poland, Hungary and France.

Electricity sales were $29 million, mostly from 192 gigawatt-hours of electricity generated in China. Gross profit was $34 million, was up 22% year-over-year. Gross margin was 29%, essentially unchanged from last year. We expect the gross margin to vary due to changes in revenue mix and project sales, geographical mix.

Excluding the impairment charge and project write-down, our non-GAAP operating expense was $9 million, down from $10 million in 2018. The decrease reflects the efforts to streamline our operating -- operation where product cost control. In 2020, we expect to continue to scale our headcount, office expense and other overheads to current size of the company.

Non-GAAP operating income was $26 million, up 45% year-over-year. Adjusted EBITDA was $34 million, up 25%. Nonoperating expense was literally $10 million, which included expense of $9 million and foreign exchange loss of $1.3 million. The foreign exchange loss was primarily due to the appreciation of euro and U.S. dollar against the local currency, resulting in exchange loss on euro- and U.S. dollar-denominated payables.

Non-GAAP net income attributed to shareholders was $14 million compared to $7 million in 2018. Non-GAAP net income per share was $0.35 compared to $0.08 last year.

Now let's review the balance sheet shown on Slide 17. I'm proud that we strengthened our balance sheet in 2019 by generating cash and paying down debt. At the year-end, we had cash and cash equivalents, including restricted cash, about $25 million. This was up from $10 million at the last quarter. Fourth quarter cash flow from operations was $16 million, while our full year was $56 million. This was quite an achievement for the company.

At the year-end, long-term borrowing was $3 million, which was down $8 million during the quarter. You will recall that we have long-term liability related to failed sale-leaseback and financial lease liability of $47 million. This decreased $11 million during the quarter, as we sold the related projects in China.

Short-term borrowing was $34 million, was down $6 million during the quarter. Please keep in mind, all our debt is project-based and almost all those are nonrecourse. We have no debt at the corporate level.

Rest assured that my entire finance team is focused on further improving our balance sheet, and we're happy with the progress we made this year.

Before I provide our outlook for first quarter 2020, I will briefly comment on our share price. We believe our shares are undervalued when compared to our peers, as shown on Slide 22. From the standard point of the new buyer of our stock, our valuation is great. We believe we should attract both value and growth investors as well as ESG-focused funds. Bottom line, we're focused on operating efficiency and profitability, generating high return and generating good cash flow. We believe this can drive a higher valuation over time.

Now I will update you our guidance for 2020, as shown on Slide 23. First of all, we are monitoring the impact of the COVID-19 virus on our customer and business. We anticipate some slowdown in their activities in 2020, but the specific impact is difficult to assess at this time. Having said this, we believe it's put into factoring variability in our outlook. So for the full year 2020, we project total revenue between $80 million to $100 million and the gross margin in the range of 18% to 20%.

For the first quarter of 2020, we expect revenue in the range of $30 million to $33 million and gross margin in the range of 8% to 10%. This outlook also takes into account the frustration that typically occur due to normal unevenness associated with the project development cycles. We will we revisit our outlook on a quarterly basis.

With that, we'd now like to open the call for your questions. Operator, please go ahead.

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

I have 2 concurrent earnings call. So I may have missed a bunch of your remarks there, but I'll do my best to kind of interpolate. In terms of the U.S. and EU -- first of all, Yumin, nice to connect with you. It's been a while. So congratulations on the new position. And in your remarks, I think, Yumin, you mentioned that you're really focused on the U.S. and EU. But I think we're really about to enter a period of substantial difficulty in those 2 countries -- or sorry, those 2 regions. Italy shut down, but it's just a matter of time for the rest of the continent. And then U.S. is quickly shutting down as well, with many schools and so forth being closed. So how do you expect to -- I think you're targeting gigawatt of projects by the end of this year in the pipeline. Do you see some risk to that? It's a very fluid situation. So what are you hearing? Have you checked in with your partners in the past week? Are things slowing down for your potential partners, or is it still too early to tell?

Thank you, Phil. It's very nice to reconnect the -- I joined the company the day after our last earning call, but we're so excited. I just came back last Friday. The -- I visit our key offices and top 2 developers or joint development partners. I'm very confident that we'll achieve those 1 gigawatt of additional pipeline in those core markets.

To the point, answer your question that the -- I feel the majority of our development work will continue even under the difficult or sensitive environment. The sparsity in the Europe, we are looking at or even doing some serious due diligence work on several pipelines. So those are ongoing. With -- we may delay the site visits a little bit. We may see a possible delay of the construction work a little bit. It's a little bit too early to see the real impact from the situation. But the -- we do have some flexibility in the development cycle. And to be honest with you, one quick thing is, we are developing 40-year assets. So I feel confident that the -- in this whole year, the delay of this 1, 2, 3 or more months will not stop us or will not slow down our development activities to add this 1 gigawatts.

Okay, great. I was talking to some industry contacts last night. And here in the U.S., for the residential segment, the ABS market effectively has shut down. I think the banks are also not lending or extending new lines of credit. They're in the process of assessing risk and limiting risk. So to what degree do you think a slow credit market or a very tight credit market can impact your ability to deliver on the projects that you plan on selling or just your work overall this year in 2020, especially if your customers need access to capital to fund the acquisitions of your projects?

Phil, it's John in the U.S. So I think to the point on the development cycle, just the very nature of the long wavelength of our business, it makes it not subject to the -- to sort of instantaneous slowdowns. That said, I'd also add, we don't have any residential exposure at the moment. There's a potential down the road that we would seek subscriptions in some of these markets that would touch the residential market. But for the moment, we don't have any -- all of our community solar projects are basically subscribed by commercial off-takers, where those conversations take place. A, there's far fewer than in a residential situation, and they take place many times by analysis over e-mail, and you don't necessarily need to knock on a door to get those subscriptions. So that's on the development front.

Certainly, on the capital front, if there's a -- it's almost like we have to conceive that if there is a significant choking off of capital that underwrites projects. But here again, we're an NTP seller. A lot of times, the sales themselves are predicated on milestones that take place over many, many months. So because we're not focused on the exact -- we're not focused on the construction of the projects. It's like I can see that, yes, if there's a very long-term constraint on capital, that would affect our timing of sales. I don't think it would affect the overall volume of sales. We're still developing great projects all over the country. And I guess, I concede that there might be a derivative impact of tight credit, but it would take place over many months and therefore might be -- that slowdown might be blown out of the system by the time our milestones are met and we are actually financed or funded, I should say, through those project sales. But we have to concede that there is a connection there.

Phil, I'll add a couple of points about the European projects. We closed some financing for our Poland and Hungary projects. We will carry through the construction phase. And we also, as I mentioned earlier, that we sold one portfolio of 50 megawatts to Obton with the contract signed, and we already chat. They don't have any issue with the sensitive environment facing -- we are facing now. And also for the Poland projects, we plan to bring the 19 megawatts to construction within this year and finish some of them. The -- we are at very late stage of closing the financing. We have not received any challenges or special challenges from the financial institutions on the financing for Poland projects.

So at this time, more importantly that the -- I think our cash position is very strong from the company balance sheet. At the same time, the need for the financing for our small projects is still not that big. So the parties we are dealing with still have the confidence or all have the confidence to close the financing with us.

Okay, great. In terms of the 1 gigawatts by the end of this year, incrementally, I think you have about 400 megawatts of late-stage projects, right? So incrementally, you need to add 600 megawatts to that pipeline, assuming that 400 megawatts doesn't convert, and you might convert some of that this year. So can you give the geographic mix of that 600 megawatts that you plan on adding to balance sheet? What is perhaps by -- in terms of U.S. and Europe and maybe even specific countries in Europe?

The -- actually it's on one of our slides. The -- we will not only add 600 megawatts. Our figure of gigawatts is we add additional 1 gigawatt, just new 1 gigawatts. Okay? On slide 5, we talk about...

Okay. Is that Slide 5 we have a country breakdown?

Yes. Exactly.

Okay. All right. Yes, sorry about...

The majority, 70%, 80% will come from Europe. And about 200, 300 megawatts -- currently, we target 200 megawatts from U.S.

(Operator Instructions) There are no further questions at this time. I would now like to hand the conference back to you Yumin. Please continue.

Thank you, operator. The fundamentals for our project business continue to improve over the last few quarters. We will maintain our commitment to growing profitability, managing our operations and strengthening our financial position. We are very excited about the opportunities ahead of us, and we're looking forward to updating you on our progress again in a couple of months.

Thank you all again for your participation. This concludes our call today. You may all disconnect.

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