ReneSola Ltd (NYSE:SOL) Q4 2023 Earnings Call Transcript

ReneSola Ltd (NYSE:SOL) Q4 2023 Earnings Call Transcript March 28, 2024

ReneSola Ltd misses on earnings expectations. Reported EPS is $-0.15 EPS, expectations were $-0.09.
SOL isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Gary Dvorchak: Thank you, operator. And hello, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2023 results. We released our shareholder letter after the market closed 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. 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 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’s filings with the SEC. Please do not place undue reliance on these forward-looking statements, which reflect Emeren Group 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 in 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 now turn the call over to Yumin Liu. Yumin, go ahead.

Yumin Liu: Thank you, Gary. Thank you, everyone for joining our call today. I’ll begin by providing an overview of our performance in Q4 and the full year of 2023, followed by the main achievements. I’ll then talk about our project pipeline. After that, Ke will deliver a comprehensive breakdown of our financial results for Q4 and our guidance for 2024. We closed 2023 with $104.7 million revenue, 22.2% gross margin, and a $9.3 million net loss. These results were below our full year guidance, primarily due to the delays in closing the sales of six projects in the US and Europe, which are now expected to be pushed up to 2024. Our Q4 results were further impacted by several one-time items, including a $4.1 million adjustment to the earnout revenue at our 75 megawatt of projects in Poland, as well as a $5 million of write-offs of project cancellations and bad debt reserves.

Our projects continue to face delays due to a mix of rising interest rates, affecting financing terms, utility scale project delays stemming from transmission capacity challenges and regulatory uncertainty in the US and Europe. These challenges underscore the need for adaptability in our project financing strategies. The importance of early engagement with transmission and utility stakeholders, and close monitoring of regulatory development in the US and Europe. Despite these challenges, we are focused on executing our core solar project development strategy, diversifying our global footprint and advancing our position as a leading global renewable energy company. Turning to what we have achieved in Q4. First, we announced the sale of a 53.6 megawatts solar project portfolio in Hungary to Kronospan Douglas Renewables.

The portfolio includes six projects at various development stages, with four already operational as of today. This venture contributes significantly to Hungary’s photovoltaic capacity and aligns with Emeren’s mission to enhance solar energy infrastructure. Also, we acquired an 86 megawatts solar portfolio in Spain, comprised of 13 utility-scale projects. These projects are expected to significantly contribute to our energy production capacity, powering thousands of households and enhancing our storage capabilities. Further, we achieved a significant milestone by setting a 703 megawatt battery energy storage system or BESS project portfolio in Italy to Matrix Renewables under the Development Service Agreement or DSA, which, combined with the previous sale of the 260 megawatt in Q2, amounted to a total of 963 megawatt of BESS projects, with majority of the portfolio having an 8-hour duration under the DSA structure with Matrix.

This achievement marked a substantial advance towards the agreed portfolio target of 1.5 gigawatt in the DSA partnership with Matrix. Finally, we expanded our energy storage portfolio in China by acquiring a 10.8 megawatt hour energy storage portfolio. This acquisition comprised of six energy storage power stations in Zhejiang Province, enhances Emeren’s position in the China energy storage market. We plan to generate returns through energy arbitrage and participation in Virtual Power Plant scenarios, leveraging the facilities connected to Huaneng Power International’s VPP platform. This strategic move aligns with our global storage expansion and the growing VPP market in China. We acknowledge the results over the past two years have been unsatisfactory and we fully accept responsibility for not meeting investors’ expectations.

To address this, we have been working under our Development Service Agreement structured to recognize revenue and receive payments from early-stage projects in Italy in the past year and a half. This DSA model is now being implemented in more markets, including several countries in Europe and the US. This strategic move allows us to capitalize more effectively on our early-stage project portfolio. Compared to the traditional model of the revenue recognition and payment collection at the Notice-to-Proceed or NTP stage, a DSA enables us to better manage our returns and risks throughout the development process, optimizing the timing of the project completions and bolster cash flow. We also implemented strategic cost control initiatives throughout all regions aimed at enhancing efficiency and optimizing resource allocation.

These measures include workforce reduction, lean management policies, and halting certain greenfield developments to concentrate efforts and resources on advancing existing project portfolios. This shift aims to reduce overhead associated with new greenfield exploration and allocate personnel more effectively to projects with higher likelihood of success, improved profitability, and shorter development cycles. In addition, in February 2024, we announced that our Board of Directors approved an Accelerated Stock Repurchase, ASR program of up to $10 million. This Accelerated Stock Repurchase program underscored Board’s commitment to our shareholders and confidence in the company’s future growth. With our expertise in solar project development, strong industry network, and solid balance sheet, we are making significant progress towards becoming an industry-leading global solar and storage developer.

Our strategic focus remains on maintaining a lean cost structure and achieving sustainable profitability, while monetizing our extensive advanced-stage project pipeline. Looking forward to 2024 and beyond, we remain well positioned in the world’s fast growing solar markets that are benefiting from increasing demand for clean energy and supportive government policies and technology trends. The solar industry is experiencing strong tailwinds, driven by the global commitment to renewable energy and sustainability. Governments and corporations worldwide are setting ambitious targets for reducing carbon emissions, which in turn fuels significant demand for solar energy solutions. One of the most exciting developments in the renewable energy sector is the booming demand for solar power to support artificial intelligence, AI operations.

As AI technologies become increasingly integrated into our daily lives and business operations, the substantial energy needed to power these advanced systems is evident. Solar energy and battery storage, with their scalability and decreasing cost profile, are becoming a reliable source of power for these high-tech applications, further driving demand in the sector. Moreover, we are witnessing a surge in overall electricity and storage demand. The electrification of transportation, the proliferation of electric vehicles, and the increasing need for energy storage solutions are amplifying this demand. With strong demand for solar energy storage projects globally, we entered 2024 with around 3.1 gigawatt of high quality advanced-stage project pipeline.

We anticipate monetizing approximately 400 to 450 megawatts in 2024. Furthermore, we accumulated approximately 5 gigawatt independent storage project pipeline with 4 to 8-hour duration in the planning, which equals to 20 to 40 gigawatt hours at the end of 2023. We expect to begin accelerating monetization this portfolio in 2024. We expect 2024 full year revenue to be in the range of $150 million to $160 million. We expect gross margin to be approximately 30% and net income to be at least $26 million or approximately $0.50 per ADS. We anticipate our 2024 IPP revenue to be between $24 million to $26 million and the gross margin to be approximately 50%. We expect gross profit contributed by DSA globally to be at least $6 million. For the first half of 2024, we expect revenue to be in the range of $50 million to $55 million.

We expect gross margin to be approximately 30%. Finally, we expect our operating cash flow to be positive throughout the full year of 2024 and cash balance to exceed $100 million at the end of 2024. Now, let me turn the call over to our CFO, Ke Chen to discuss our financial performance and guidance. Ke?

Ke Chen: Thank you, Yumin. And I thank, everyone again for joining us on the call today. Our revenue of $44 million increased 71% year-over-year from Q4 2022 and 215% sequentially from Q3 2023. Revenue was lower than our guidance, primarily due to delays in closing the sales of six projects in the US and Europe, which are now expected to close in the first half of 2024. Gross profit was $3.3 million compared to $5.7 million in Q3 2023 and $6 million in Q4 2022. Gross margin was 7.6% compared to 40.8% in Q3 2023 and 23.3% in Q4 2022. The gross margin was lower than expected, primarily attributed to higher mix of EPC project revenue, as well as the previously mentioned project delays. Operating expenses were $9.5 million, lower than $9.6 million in Q3 2023 and higher than $7.2 million in Q4 2022.

Our Q4 operating expenses were impacted by $5 million of write-offs of projects cancellations and bad debt reserves, partially offset by savings from our cost reduction initiatives. Net loss attributed to Emeren Group Ltd’s common shareholder was $8.1 million, compared to net loss of $9.4 million in Q3 2023 and net loss of $1.7 million in Q4 2022. Diluted net loss attributable to Emeren Group Ltd’s common shareholder per ADS was $0.15, compared to diluted net loss $0.17 in Q3 2023 and diluted net loss of $0.03 in Q4 2022. Turn to our cash flow. Cash provided by operating activity was $2.9 million, cash provided by investing activity was $7 million and the cash used in financing activity was $7.9 million. Cash and cash equivalents at the end of Q4 2023 were $70.2 million, compared to $59.2 million in Q3 2023.

So we still have a very strong balance sheet. Net asset value, NAV is approximately $5.91 per ADS. Our debt-to-asset ratio at the end of Q4 2023 was 9.4% compared to 9.9% in Q3 2023. In terms of our share buyback program, we purchased approximately $3.4 million ADS during the quarter and plan to continue to execute on the share buyback program, which has approximately $7.6 million remaining in the authorization. In addition, in February 2024, we announced that our Board of Directors approved an Accelerated Stock Repurchase, ASR program of up to $10 million, of which, we have repurchased approximately $2.8 million ADS as of March 27, 2024. This underscore our commitment to shareholder value and our optimism about our future prospects. Moving to our guidance, we expect 2024 full year revenue to be in the range of $150 million to $160 million.

We expect gross margin to be approximately 30% and the net income to be at least $26 million or approximately $0.50 per ADS. We anticipate our 2024 IPP revenue to be between $24 million to $26 million and the gross margin to be approximately 50%. We also expect gross profit contributed by DSA globally to be at least $6 million. For the first half of 2024, we expect revenue to be in the range of $50 million to $55 million. We expect gross margin to be approximately 30%. Finally, we expect our operating cash flow to be positive throughout the full year of 2024 and cash balance to – exceed $100 million at the end of 2024. With that, let’s open our call for any questions. Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Philip Shen with ROTH MKM. You may proceed.

Philip Shen: Hey guys, thanks for taking my question. Hey, wanted to talk about the 2024 guidance. You guys missed last year, and you’re making adjustments to hit your goals for this year. One of them is this development service agreements. Can you give us a little more color on how that works? I know you’re trying to collect revenue in payments earlier, but what leverage do you have to allow that to happen? And can you just describe the structure versus what you guys had been doing before? So just give us a little bit of color on what you’re doing differently? Thanks.

Yumin Liu: Okay. Thank you, Phil. So very good question. DSA has been the form of structure in Italy market when we acquired the company called Emeren back to a year and a half ago. And we had in the structure of the Italian operation about seven to eight different DSAs. And those DSA partnerships are allowing us to provide early-stage product portfolios to the buyers based on development milestones. And the changes throughout the company is not only we execute continuously in Italy, those development milestones based on – development milestone based DSAs, for example, announced the almost 1 gigawatt of the DSA partnership with Matrix, but also we are implementing same DSA strategy throughout all regions, including other countries in Europe and US.

The whole operation or execution of DSA has three big benefits to the company. Number one, the DSA will allow us to recognize revenue for early-stage projects based on milestones of so called in our company structure, we have Tier zero to Tier four based on the announcement of the tiers, we will receive the milestone payments from the DSA partners. Those are non-refundable payments and we can recognize the revenue and profit immediately based on the achievements of the milestones. And the second is, that will balance our cash reserve as we will have received the cash based on the milestones. So the cash situation will be significantly improved in the company. The third, we can also very well balance our risk profile as we are now sharing the development risk with the buyer or DSA partner.

So although we are creating a very good winning situation, many parties are interested in partnering with us on the DSAs – under the DSA structure. But we do know that to get to the winning situation, we are offering a very favorable price at the DSA structure compared to the final NTP sale.

Philip Shen: Okay. So that –

Yumin Liu: And also, by the way, one more point is, we just guided that we will have minimum $6 million gross profit from the DSAs. That $6 million is under the current DSA structure. We have quite several DSA partnerships under negotiation. So that’s why we say minimum $60 million will be foreseen in the – from the DSAs in 2024.

Philip Shen: Right. So you mean for you to get these benefits. That means, your customer needs to get something as well. So I think I just heard you say that you charge them at a discount relative to what they would get at NTP and so they don’t have to pay as much by paying you guys earlier. Can you talk about what that discount is? Is it 5%, 15% or greater? Thanks.

Yumin Liu: That’s a very, very good question. That from market to market this discount will be different. But, in general, the buyer or a DSA partner is benefiting from the DSA in two things. One is, they are locking into the projects through the DSA, so they guaranteed they will have a portfolio they can work on at the NTP/RTB stage. The second is, they are also managing their risk profile, while we are leveraging the risk profile with them together. But they are also based on the milestone payments managing the risk profile. The third is, talking about the discounting price, instead of paying the one-time lump sum at the final NTP sale, now they are paying in milestones so they will get a discount. It’s a pretty good discount as I see it.

But more importantly, I would balance the two things together. One is, the discount price, but also another one is a lock into a project portfolio, especially in the seller’s market it’s not easy to find quality projects in the market. And now, the growth companies, especially the companies who are so eager to go into a market, they like those DSA structures so much.

Philip Shen: Okay. So do you expect to make other DSA announcements in the coming quarters?

Yumin Liu: Yes, absolutely. In fact, last month just announced another – actually, early this month, we just announced another partnership on the independent storage portfolio with Glennmont, one of the largest private investor in Italy. And more to come.

Philip Shen: What’s the magnitude? Sorry, what’s the magnitude of the typical DSA partnership that you can imagine? I mean, are we talking about 100 megawatts? Are we talking about 500 megawatts or gigawatt level? Thanks.

Yumin Liu: It’s always we have a big target. For example, with Matrix when we started DSA a little bit over a year ago, we were setting a target of 1.5 gigawatt of independent storage portfolio and now we are reaching about 1 gigawatt. And so the team is confident that we’ll put more than 500 megawatts into the Matrix’ DSA structure in the next several months. And same thing with Glennmont, the target is a lot bigger than the ones we work on and the team is working actively to close more deals under the DSA structure with Glennmont in the next few weeks.