ReneSola Ltd (NYSE:SOL) Q2 2023 Earnings Call Transcript

ReneSola Ltd (NYSE:SOL) Q2 2023 Earnings Call Transcript August 31, 2023

ReneSola Ltd beats earnings expectations. Reported EPS is $0.14, expectations were $0.1.

Operator: Hello, ladies and gentlemen. Thank you for standing by for Emeren Group Limited Second Quarter 2023 Earnings Conference Call. Please note that we are recording today’s conference call. I will now turn over the call to Mr. Yujia Zhai, Managing Director of The Blueshirt Group. Please go ahead, Mr. Zhai.

Yujia Zhai: Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our second quarter 2023 results. We released our shareholder letter after the market close today and 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 our prepared remarks. On the call with me today are Mr. Himanshu Shah, Chairman of the Board; Mr. Yumin Liu, Chief Executive Officer; and Mr. Ke Chen, Chief Financial Officer. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates and other information that might be considered forward-looking. These forward-looking statements represent 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 and Emeren Group’s 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 obligated to update you on any revisions to these forward-looking statements. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in US dollars. With that let me now turn the call over to Mr. Himanshu Shah. Himanshu?

Himanshu Shah: Thank you. Great to be here and good day to everyone. Strategically, Emeren is positioned well, and we do have a strong balance sheet. The two strategic acquisitions that we made 10 months ago in UK and Italy have been operationally accretive to our results. It says a lot about our disciplined acquisition methodology. Our equity buyback also has been accretive to our shareholder value. Out of our almost 5 gigawatt hour of storage pipeline and keen focus going forward, which is a step in the right direction. Our team is also executing well, as can be seen from our second quarter results. Now I would like to turn the call over to Yumin and Ke to talk about our operating results.

Yumin Liu: Thank you, Himanshu, and thank you, everyone, for joining our call today. I will begin by presenting a high-level overview of our second quarter 2023 results followed by an in-depth discussion on our guidance. After that, Ke will provide a comprehensive review of our financial results for Q2. We delivered a strong quarter and made good progress on our key strategic initiatives. Q2 revenue grew 312% year-over-year to $33.8 million, driven by strong contribution across all of our business lines. Gross margin was 37.4%, driven by improving mix of higher-margin projects, particularly in Europe, where we are benefiting from a tailwind of high energy prices. These results show a net income of $8.3 million, which was a record high for us in the last five years.

In our project development business, building on our successful track record in Europe, we sold two major projects in Poland and Hungary for a total of 62 megawatts. Following quarter end in July, we successfully closed the sale of an 11.5 megawatts solar project to the Swiss-based energy company, MET Group. This marked our first major product sale in Germany and it represents a significant milestone for our company, and Germany stands as one of the four most renewable energy markets in the world. In addition, during the quarter, we saw strong revenue and margin contribution from our recently acquired solar farm in Branston, UK due to the favorable energy prices. These results giving us confidence in our IPP strategy in Europe. Further, in Q2, we executed on our storage pipeline strategy and began the monetization process of our storage pipeline with an inaugural 260 megawatts of battery energy storage system projects in Italy.

This effort was part of our recently announced strategic partnership with Matrix, divided up to 1.5 gigawatts of portfolio of battery energy storage system in Italy. These solar storage system projects add a new revenue stream with attractive margins to our business and we look forward to sharing further progress in our upcoming quarters. Over the past two years, the European market has been our top strategic priority and we are very pleased with the progress we have made thus far. We have a very strong pipeline here and it continues to represent Emeren’s largest market opportunity going forward. In China, we continue to make progress in our realignment strategy to the rest of the world as develop, build, own or sell compared to the original strategy as develop, build, own as IPP.

Last quarter, we announced that we are refocusing our efforts to five coastal provinces that have the most favorable power prices supported by a strong economy and regulatory environment. We anticipate setting all of our solar assets outside of these five provinces and some in these five focus markets, which will help strengthen our balance sheet. In Q2, we successfully closed the sale of a portfolio of a rooftop distributed generation projects located in Henan Province, totaling 29 megawatts to CNNP Rich Energy, a prominent leader in the China’s renewable energy sector. We anticipate on closing the sale of additional projects in the upcoming quarters in Henan and Hebei provinces. Looking to the remainder of the year, we expect strong performance driven by project sales and contribution from our recent acquisitions.

Our full year guidance for net income continues to be between $22 million to $26 million, with gross margin anticipated to exceed 30%. For revenue, we now anticipate results to be near the lower end of the previously stated range of $154 million to $174 million due to the project timing. Our net income guidance reflects impressive annual growth of approximately 300%, a milestone we are extremely proud of as our focus remains on profitability given the volatile nature of our top line due to the project timing. We expect our Q3 revenue to be between $27 million to $30 million and gross margin to be in the range of 35% to 38%. Regarding our solar development and storage pipeline, over the course of quarter, we conducted a comprehensive review of our global project pipeline and implemented a standardized tier system that spans across both development and storage pipelines.

This refinement has led to the establishment of a more rigorous requirement for projects that are reported in our pipeline. As a result, we will now track a report an advanced-stage and an early-stage pipeline metric. The advance-stage pipeline represents projects with a significantly high likelihood of successful completion, thus serving as a reliable predictor of our future revenue. Meanwhile, the early-stage pipeline metric encompasses projects for which we have determined a reasonable probability of success. At end of 2023, we anticipate an advanced-stage solar project pipeline of at least 3 gigawatts, of which we now anticipate monetizing approximately 400 megawatts of projects in 2023. Beyond 2023, we are targeting to monetize 500 megawatts to 600 megawatts a year.

In addition, we expect an advanced-stage storage pipeline of 6 gigawatt hours by the end of 2023. In conclusion, we are optimistic about our revenue growth this year and beyond, driven by a robust project pipeline. Our strong position in rapidly growing solar markets fueled by rising clean energy demand, increased PPA price and supportive government policies further boosts our prospects. With expertise in solar project development an extensive industry network, and solid balance sheet, we are making significant progress towards becoming a leading global solar company. We are committed to delivering the value for our shareholders. Now let me turn the call over to our CFO, Ke Chen, to discuss our financial performance. Ke?

Ke Chen: Thank you, Yumin, and thanks everyone again for joining us on the call today. I will now go over our financial results for the second quarter. Our revenue of $33.8 million increased 312% year-over-year and 163% quarter-by-quarter. The growth in revenue was mainly driven by strong project sales in Europe and our IPP assets. Gross profit was $12.7 million and gross margin was 37.4%, up from $1.6 million and 12.4% in Q1 2023 and up from $3.7 million and 45% in Q2 2022. . Gross margin was at the high end of our guidance range primarily driven by improved mix of higher margin projects, particularly in Europe. Operating expense were $7.6 million, up from $4.6 million in Q1 2023 and up from $3.9 million in Q2 2022. The increase in operating expenses primarily resulted from the recognition of $2.1 million onetime loss from the divestiture of our China rooftop products in Henan Province.

Net income attributed to Emeren Group Ltd common shareholder was $8.3 million compared to net loss of $0.2 million in Q1 2023 and a net loss of $0.2 million in Q2 2022. Diluted net income attributable to Emeren Group Ltd common shareholder per ADS was $0.14 compared to zero in Q1 2013 and zero in Q2 2022. Cash used in operating activity was $2.4 million, which was mainly for the continuous development of Poland and Hungary COD projects. Cash provided by investing activity was $0.1 million. Cash provided by financing activity was $1.2 million. In terms of our financial position, cash and cash equivalents at the end of Q2 were $60.5 million compared to $66.7 million in Q1 2023. Our net asset value or NAV is approximately $5.98 per ADS. Our debt-to-asset ratio at end of Q2 2023 was 10.1% compared to 11.3% at the end of Q1 2023.

Lastly, regarding our stock buyback program, we purchased approximately $1.4 million of our common shares during the quarter and plan to continue to execute on the program over the coming quarters, which has about $15 million remaining in authorization. Now we would like to open up the call for any questions. Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions] One moment for questions. Our first question comes from Donovan Schafer with Northland Capital Markets.

Donovan Schafer: Hey, guys. Thanks for taking the question. I want to first start off with the storage pipeline because that really stood out for me with the target of hitting 6 gigawatt hours. At this point, that almost makes it seem in some ways even bigger than the solar pipeline, kind of depending on how you measure it. I mean I know that can only back up 6 gigawatts for one hour. So not really an apples-to-apples comparison. But so my first question is just the size of it. Does this reflect any kind of shift in strategy in terms of are you guys — are you trying to — are you moving towards being more of a storage developer than a solar developer or is a lot of this maybe combined? And my second question, following up on that is just a lot of this is around the storage market in Poland, it looks like.

You have the three gigawatts in your advanced-stage pipeline. So just is there something special about the market in Poland that makes it a good storage market? Do they have special incentives? Is it a high-demand market to get around grid congestion or securities concerns or what’s making Poland such a big part of that?

Yumin Liu: Okay. Very interesting questions. Number one, I will say that the storage, we initiated the storage development, storage project development back to about 18 to 24 months ago. And in the US, at the start, as literally speaking, US market is a pioneer of the storage development, starting like 2015, ’16. And Europe, we started also around 12 to 18 months ago on storage development. And we do see storage sector becomes a very strategic and important play for our whole company. I will not redefine the company as a storage company only, but it is a very important sector in our company. The second point is the major – two major markets we are developing storage in Europe are Poland and Italy. Even you did not ask, but Italy, just very recently, the government announced the full support to storage market, including upcoming clear policies how developers can develop and benefit from the support of the policies.

Poland has been a very strategic market, an important market for the company, too. One of the reason is Poland is moving from a centric of coal-fired production to a renewable energy country with the 80% plus percent of the coal-fired power production go into remote solar, wind and all other renewable energy. At the same time, they are in big demand of energy storage projects. That is why we committed to develop a base solar storage solar pipeline together with the storage pipeline. And we are confident that the country not only is in big demand but also, we see a big benefit developing those projects and provide good contributions to the company from those advanced-stage and early-stage storage pipelines.

Donovan Schafer: Okay. Thanks. That’s helpful. And then I want to talk about the 29 megawatts of rooftop projects that were sold in China. And I guess linking that to, there is a $2 million loss on disposable of PP&E in the EBITDA reconciliation. So just was that — was the loss — that $2 million loss attached to that sale of projects in China? And if so, just if you can talk at all about what kind of drove the loss on that? Was it — were these older projects from years past and solar panels may be more expensive? Were there some other factors? Just kind of — and maybe if that is likely to happen with other assets in China? Just trying to kind of connect the dots there and understand it a bit better, that would be great.