Emeren Group Ltd (SOL) 2024 Q1 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing by for Emeren Group Limited's first-quarter 2024 earnings conference call. Please note that we are recording today's conference call.

I will now turn over the call to Suzanne Wilson, Director of Investor Relations at Emeren Group. Please go ahead, Ms. Wilson.

Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our first-quarter 2021 results. We released our Shareholder Letter after the market closed today, and it is available on our website at ir.emeren.com. We also provided a supplemental presentation that's posted on our IR website that we will reference during prepared remarks. On the call with me today are Mr. Yumin Liu, Chief Executive Officer; and Mr. Ke Chen, Chief Financial Officer.

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 our Emeren Group'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 Emeren Group filings with the SEC.

Please do not place undue reliance on these forward-looking statements, which reflect Emeren Group's opinions only as of the date of this call. Emeren Group is not obliged to update you on any revisions to these forward-looking statements. In addition, please note that all financial numbers discussed on this call are unaudited. Also, please note, that unless otherwise stated, all figures mentioned during the conference call are in US dollars.

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

Thank you, Suzanne. Thank you, everyone, for joining our call today. I'll begin by providing an overview of our operational performance in Q1 2024, and Ke will discuss our financial results for Q1 and our outlook.

In Q1, we generated $14.8 million in revenue, marking a 15% increase year over year. Our gross profit soared to $4 million, more than doubling from the previous year with the gross margin reaching 27.2%. The operating loss was approximately $0.7 million, significantly reduced from last year. This substantial growth in revenue was primarily driven by our expanding Development Service Agreement or DSA business, which generated over $5 million in revenue.

Our effort to improve operational efficiency across all regions are paying off. We decreased operating expenses by over 50% through strategic cost control measures. That progress was offset this quarter by a $0.7 million write-offs of cancelled US early-stage projects due to our shifted focus on our advanced stage projects, and unrealized foreign exchange loss of over $3.2 million, which constituted the bulk of our net loss.

We'll give you a quick overview of each of our business models, starting with the quarterly primary catalyst, then we'll circle back with more details later. Our DSA initiatives contribute to a stable and predictable business model, enabling revenue recognition at early stage of the project movement. This approach is proving instrumental in managing risks and maximizing cash flow efficiency across the project lifecycle.

In Q1, DSA revenue accounted for 34% of our total, largely driven by battery energy storage system, or BESS projects in Italy. Looking ahead, we are working to broaden our DSA partnerships on a global scale. Concurrently, our BESS pipeline continues to grow steadily globally.

We recently signed a DSA agreement for our BESS projects in Southern Italy with Nuveen Infrastructure, formerly known as Glennmont Partners, one of the world's largest fund managers specializing in clean energy, aiming for a total power capacity of 199 megawatts or up to 1.59 gigawatt hours.

In April, we secured an additional agreement with Nuveen for 155 megawatts or up to 1.24 gigawatt hours of battery storage projects to bring the partnership total power capacity of 354 megawatts or up to 2.8 gigawatt hours.

In Q1, our IPP assets were the primary drivers of growth and profitability, contributing to 38% of our revenue with a gross margin of 44%. IPP continues to be a pivotal component of our business model, providing a dependable source of stable and predictable cash flows.

Our IPP revenue is balanced between Europe and China, with a modest presence in the US as of today. In Europe, we have 67 gigawatts of IPP assets that generate sustainable revenue. For legacy reasons, we have IPP assets in China, located in the five coastal provinces with favorable power prices, strong economies, and robust regulatory environments.

We are now fortifying those assets by adding battery storage to the portfolio. As of the end of Q1, our battery storage portfolio comprised 19 megawatt hours, all integrated into the Virtual Power Plant platform. The VPP platform owned and operated by Huaneng Power International, one of the largest IPP operators in China. The VPP market in China is expanding rapidly.

During the quarter, we continued to develop solar and storage projects. As of the end of Q1 2024, we had over 2.6 gigawatt of advanced-stage, high-quality solar projects. We maintain our expectation to monetize approximately 400 to 500 megawatts of projects in 2024 and beyond. By the end of Q1, our total energy storage project pipeline had increased to over 8 gigawatt or over 32-gigawatt hours.

In conclusion, we are optimistic about our revenue growth potential, which is fueled by strategic initiatives and a robust project pipeline and our ability to achieve gross margins of over 30%. We are also confident we can continue to lower operating expenses.

Now let me turn the call over to our CFO, Ke Chen, to discuss our financial performance and guidance. Ke?

Thank you, Yumin, and thanks, everyone, again for joining us on the call today. Our revenue of $14.8 million represented an increase of 15% year over year from Q1 2023, and a decrease of 66% from Q4 2023. The sequential decline was due to normal seasonality, while the year-over-year increase in revenue was primarily driven by our growing DSA business which accounted for 34% of our revenue.

Gross profit was $4 million, compared to $3.3 million in Q4 2023, and $1.6 million in Q1 2023. Gross margin was 27.2%, compared to 7.6% in Q4 2023 and 12.4% in Q1 2023. The gross margin improved sequentially, primarily driven by high-margin business contributed from DSA business.

Operating expenses were $4.7 million, an improvement from $9.5 million in Q4 2023 and comparable to $4.6 million in Q1 2023. Our Q1 operating expenses were impacted by a $0.7 million write-off of cancelled early-stage projects in the US.

Net loss attributed to Emeren Group Ltd. common shareholders was $4.4 million, compared to net loss of $8.1 million in Q4 2023, and net loss of $0.2 million in Q1 2023. Diluted net loss attributable to Emeren Group Ltd.'s common shareholders per ADS was $0.08, compared to diluted net loss of $0.15 in Q4 2023 and diluted net loss of $0.00 in Q1 2023.

Cash used in operating activities was $3.3 million, cash used in investing activities was $2.6 million, and cash used in financing activities was $8.4 million. Negative operating cash flow was primarily due to delayed payments from Polish projects.

Looking at our balance sheet. Cash and cash equivalents at the end of Q1 2024 were $55.1 million compared to $70.2 million in Q4 2023. Net asset value or NAV is approximately $6.05 per ADS. Our debt-to-asset ratio at the end of Q1 2024 was 9.99%, compared to 9.44% at the end of Q4 2023. Additionally, during Q1, we purchased approximately USD6.3 million worth of ADS.

Moving to our outlook. We anticipate that our Q2 revenue will fall within the range of $20 million to $23 million, with a gross margin between 40% and 45%. For the full year 2024, we confirm -- we reaffirm our expectation for revenue to range from $150 million to $160 million, and for a gross margin of approximately 30%. Additionally, we expect our net income for 2024 to be around $22 million, with consideration of foreign exchange impact, and expect earnings per ADS to be approximately $0.43.

We reiterate our expectation for our IPP revenue in 2024 to be between $24 million to $26 million, with a gross margin of approximately 50%. We expect gross margin contributed by DSA globally to be within the range of 15% to 20%.

With that, let's open up the call for any questions. Operator, please go ahead.

(Operator Instructions) Philip Shen, Roth MKM.

Hi, everyone. Thanks for taking my questions. Wanted to talk about your guidance. So Q1 was a little bit light. Q2 was also -- your guide was a little bit light versus our expectations. And so there's a big ramp in Q3 and Q4. I was wondering, because you plan on monetizing [400 and 500] (corrected by company after the call) megawatts in '24, what do you think the monetization might be by quarter, just to give us a rough cadence of the monetization? Thanks.

Sure, Phil. Again, like I said, we will confirm our full-year revenue guidance and gross margin guidance. Yes, we do expect a ramp up in the second half. And again, some of the project are under negotiation right now. So we do expect -- again, ramp up both in Q3 and Q4.

Right. So what do you expect to happen to allow for that ramp up? And what have the delay -- the reasons for the delay has been?

Again, for some of the approval delays, we still expect that, but we're expecting those to happen in the second half. And also again, we are executing some of the -- negotiate some of the contract right now and we expect those contract to be executed in Q3 and Q4.

Sorry, Ke. I'm not asking about the timing. I'm asking about the reasons for the delay. So in the US, I know there's a lot of reasons; interconnection, transmission queues, long lead time, high voltage equipment, high elevated rates, what else, labor constraints, EPC constraints, those are all resulting in delays in the US projects on the margin. What are you seeing in Europe? Are those the same issues in Europe? Or is it -- I'm imagining it's a different set of issues. So can you give us some color as to what is causing the delay?

Sure.

Or is it just bilateral negotiation time delays. Thank you.

Yeah. Let me deal with it. First of all, US, what you mentioned there is correct. But what we -- our focus in US is actually community solar. And again, we are focused on like, New York, for example. That delay actually helped us because some of the [letter's] added for NYSERDA, so allow us to get a better price. So instead of we sell their product in Q4, we already negotiated the contract locating better price. So the delay will help us in the Q2 -- starting Q2 and mainly in Q3 and Q4.

So US, you hit a good point there. But for Europe, I think is -- we continue to experience administration delay, for example, from Spain. But we expect those happen in Q4. And again, some of the project we mentioned in Hungary, we're expecting some delays, but we are, again -- expect those happen again in the second half.

Okay. So did you say there are administration delays? So it's based on the local government and the challenges that people might be having?

Yeah, some of the permit for Spain -- be specific. And they're also like more than -- like, up to 12 months delays in some of their regions, but we are pushing through all these approvals.

Okay. Okay. So there's a chance that these could extend as well, right? I mean, some of these challenges could sustain beyond '24. I mean, what's the potential that it could take longer than you think?

Again, our team is working very hard to minimize this impact. So like I said, we're renegotiating this contract, try to get this done in Q3 and Q4.

Let me add some color on this one, Phil.

Thanks, Yumin.

For example, Spain. We signed the contract SPA back to over six months ago, and we expect that to be done within Q1 timeframe or even as already as last Q4. But it happened as the Spain government issued a new rule, which allows the local admin office to have up to 14 months' time to get project approved based on the priority of the deal. So we now consider that's one of the deals we're supposed to close within the first half, but now it goes to second half or most likely will be in Q4, okay?

So that is one example and Hungary the same thing, that the every single deal we go, we went through the foreign buyer, it won't be under the local government policy. You cannot look into the local government regulation. It's not easy to sell to foreign buyers, so we have to switch local buyers and now we are in the process of the negotiation. So all those delays will happen. But we are fully, confident that those closing will happen in the second half.

Okay. Well, one last question. I'll pass it on. As it relates to the Polish payments, I guess that was an issue for Q1. What exactly was going on there? And then, do you expect that challenge to sustain in Q2 or even through the back half of the year? Thanks.

We are working with the buyers to settle this. So we're expecting they will pay us in June. So again, we are not expecting further delay anymore.

But what is the root cause of the issue? What happened?

Again, there is a PAC delay, like the local Polish government. Same thing. They have to prove this power plant to be connected, so there's so-called PAC certification, Phil.

Basically, the power plant needs to be constructed, receiving so-called PAC, performance acceptance certificate. And then after that one, we get paid. But there's -- another big thing is that the project center is in the final stage of closing its financing and it's supposed to be done within the next several weeks. So that's why Ke mentioned we expect the payment starting in June.

Okay, great. Best of luck as you get through the year. I'll pass it on.

Thank you, Phil.

Thank you.

Pavel Molchanov, Raymond James.

Thanks for taking the question. Zooming out first, are there any complications with module supply on either side of the Atlantic? And do you envision the supply situation worsening with the new tariffs announced in Washington?

Yes and no. That for the US as the good part of our story is we don't plan to do much of the EPC work in the US, as we flipped the deal before or at NTP. But we do have some considerations doing a small deal, which we are doing, which, all modules have been secured for small deal remain. So on that part that we are a lot less impacted. And but going to the future, that may limit many other utility scale players on the module supply. But in any case, we see that happen within weeks, but not really impacting us much. But for Europe, we don't see that yet. At this time, still, it carries through the very competitive pricing without any additional tariff. So that is why we need to be double triple our growth potential in Europe compared to what we are doing in the US.

Okay. When I look at your project pipeline, the advanced stage looks relatively balanced by country. The early stage is more than two-thirds Spain. What explains the scale of these early stage opportunities in the Spanish market?

That's a very interesting question that the Spanish market is one of the most focused market for our company in Europe, and we believe Spanish market still or continues presenting us good potential, okay? We have spent lots of time developing partnerships with local smaller developers. We also develop partnerships going forward with our joint venture partners, like Eiffel, to see if we can put more resources into the early stage all the way on the development, okay?

I will see that the Spanish market continues to be strong, especially, we learned that the Spanish government is considering adding battery storage into the market play. So with that new initiative, I'm looking confident about the growth.

Okay. Interesting. Last question. You've continued to repurchase shares. Obviously, the stock is still down quite a bit year to date. How much more cash are you willing to allocate towards buyback?

Pavel, we still have, I think, roughly $15 million left from the Board authorization. So that has been proved. So that's what we could use.

15. $15 million?

Yeah.

Okay. Thanks very much.

Thank you, Pavel.

Donovan Schafer, Northland Capital Markets.

Hey, guys. Thanks for taking the questions. So first, I want to ask for Spain for the storage project pipeline. So looking at the letter to shareholders from last quarter, there was about a gigawatt hour of battery storage, that was advanced stage for Spain. And then in this -- the letter for this quarter, it looks like that was essentially eliminated. It went from about a gigawatt down to 36 megawatts.

Is there -- and it looks like the early stage really jumped, which Pavel was kind of commenting on. I mean, it also went up for solar as well. So is that a reclassification from advanced stage for Spain to classify it back to bring it back down to early stage? Or what happened to that gigawatt of advanced-stage Spanish?

Donovan, thank you. It's a very interesting question, and also you hit the right spot. We are becoming more and more conservative in consideration of the global level interconnection bottleneck. Spain is also one of the countries or the markets facing the challenges of the interconnection issues.

So the way we pass through in all markets are conservative review, so-called recategorize our advanced stage or early-stage projects. And that resulted in this moving this 1 gigawatt all the way from advanced stage to early stage to be more conservative. That is the reason. We are continuing developing those projects, but nothing wrong.

But the only thing is that we foresee the interconnection approval delays, which is less optimistic than last quarter. That is why we moved that from advanced stage to early stage.

Okay. Okay. That's helpful.

But one thing, Donovan, I have to point out, our advanced stage pipeline in Europe is continuing growing. So we had more than last quarter in general.

Okay. Okay. And then turning to the solar pipeline. So for Germany, as we talk -- here, I'm looking at the early stage. So the advanced stage for Germany, that stayed the same. So it doesn't look like there's any movement there. But the early stage dropped from 690 megawatts to 360 megawatts.

And you mentioned there was a write-down or an impairment for early-stage projects in the US. But is there -- would that kind of thing trigger, I guess, first, what caused the reduction in Germany? But then secondly, why was that not also an impairment or a write down of some kind? Or did that have an impact on the financials?

Let me answer that, Donovan. Actually, we bid two projects in Germany, which we failed through. So we didn't win a bid. So that pipeline get removed. There is some small, very small impairment in Germany also, but that's very small compared to what we mentioned here in US. It's only like less than USD50,000.

Okay. Got it. And then just one more for me. You've got some IPP assets in China. You're doing some development work there. And you know there's I think you're still maybe Cayman Island based. You're not technically a US company.

But the question is there any risk of like retaliation or anything that could impact you guys? Someone already asked about modules applying to the US, but just in terms of inside China or even in European countries or other places where maybe you work with Chinese companies or source panels from China or anything, is there any risk of you guys being negatively impacted if the Chinese government were to take some kind of a retaliation against the United States?

No, I don't think so, and we don't see that either. Currently, solar market in China represent over 60% of the downstream market in the world. While the supply chain side, not only margins, but also battery storage, China represents over 80% or even a lot more, okay?

So, definitely, US 201 -- 301 tariffs will set some limitations or restrictions for China cell and potentially in the future the battery storage components coming to US. But as I answered Pavel's question that we grow not only very fast in Europe, but also we are, we are strategizing, not hoping that the, the 201, 301 US term will not impact our US activities.

But going back to China, definitely, we don't see any negative impacts as the China CapEx continue going down -- down and down. The battery storage goes to about $70 per kilowatt hour, come apple-to-apple comparison, and also the module goes to below $0.09. So everything looks so good and the market is strong and we feel confident that it's not bringing any negative impact to the company.

But Donovan, just to make a correction, we are BVI company. And again, we don't see the impact because we're running IPP business in China. All the off taker is individual enterprise in China, and in that five most economy high-coastal area. I don't see any impact because, those businesses are still ongoing.

Okay. All right. Thanks, guys. I'll take the rest of my questions offline.

Thank you.

Amit Dayal, H. C. Wainwright

Thank you. Good afternoon, everyone. So with respect to the heavier contribution -- with respect to the outlook coming in the second half, is there any particular projects that make up majority of these expected revenues in the second half? Just trying to see if there's any concentration risk with respect to any projects that you are looking to monetize in the second half?

Yes. Amit, I think we mentioned this Hungary project and that's the one we are actually under negotiation right now. So but we're confident it will happen in the second half.

Okay. Thank you. And the higher gross margins in 2Q you're expecting, is it -- again, just coming from the China business and the DSA revenues?

Yes. So for Q2, the higher margin, first of all, this is a higher season in terms of IPP for sure. So that helped with the margin. Secondly, we continue doing our DSA business, and the DSA business like we mentioned in the first quarter, bring stay at a high margin. And also we have, again, expect the projects some projects sale in Europe. Those are like NTP sales, so that meeting high margin. So overall, that's bringing the higher gross margin guidance.

Thank you for that.

Okay, understood. Thank you for that. Just last one, you do still have a pretty good balance sheet. I know in the last call you gave guidance that you might end the year with $100 million in cash. Is that still in play?

Of course, we are still confident about that at this point.

Okay. Then with that kind of balance sheet, do you think you might want to pursue more IPP opportunities given sort of the margin strength you're seeing with that segment?

Of course, like we mentioned this in the last few calls, we are light IPP business model to continue to identify high return IPPs, especially out of Europe. So we are, again, continue looking at those opportunities.

Okay. And that's all I have, guys. I'll take my other questions offline. Thank you.

(Operator Instructions) And I'm not showing any further questions in queue. I'd like to turn the conference back to Mr. Liu for any closing remarks.

Thank you, operator. Despite challenges such as high interest rate and the US Election cycle, we are strengthening our position in fast growing solar markets thanks to increasing demand for clean energy and supportive policies. Our expertise and strong industry partnerships are pushing us toward becoming a leading global renewable energy company. We are excited about solar energy's future and grateful to our employees, customers, partners and shareholders for their continuous support.

Thank you, again, for joining our call today. You may now disconnect.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.