Emeren Group Ltd

Ladies and gentlemen, thank you for standing by and welcome to Q3 2020 Venezuela Limited Earnings Conference Call. At this time, all participants are listening on the mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Gary DeBarge. Thank you. Please go ahead, sir.

Thank you, Operator, and hello, everyone. Thank you for joining us on today's call to discuss third quarter 2020 results. We released our shareholder letter after the market closed today. It is available on the 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 Yu, CEO of North America. Before we continue, please turn to slide two. 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 Renasola Power's opinions only as of the date of this call. Renasola 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 call are U.S. dollars. With that, let me now turn the call over to Mr. Yumin Liu, who will discuss the Court's operating highlights. Yumin?

Thank you, Gary, and thank you, everyone, for joining the call. 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. Revenue came in at $9.7 million, which was at high end of the guidance. Gross margin of 61%. was well above guidance we provided on our last call. Our operating expenses on GAAP basis was down more than 60% from a year ago, and we continue to manage costs prudently. As a result, we reported GAAP operating income of nearly three million. Importantly, we maintain a healthy balance sheet, providing the financial flexibility propel growth in the quarters ahead. As of November 30, 2020, our total project pipeline was about 800 megawatts, including about 732 megawatts in late stage. Based on our activity level, we are confident we will achieve one gigawatt project pipeline by the end of this year. The momentum in our business is accelerating, and from a customer engagement perspective, we have seen a significant level of business activity in the last several months. I will now discuss recent operational highlights. First, we completed the previously announced acquisition of certain assets from NOAA Development Management last month. We used about $3.8 million of cash on hand to complete the acquisition. which gives us a pipeline of solar projects and an experienced team. The all cash transaction aligns our strategic priorities with the interests of our current shareholders. And we believe this deal is complimentary to our existing project development business. The development team we have acquired is based in California. They are a reputable US-based project developer that focuses on project development, project finance, EPC management, and asset investment in the US. They have a pipeline of about 200 megawatts of projects under development, including 130 megawatts of middle to late stage projects. Their focus is small scale utility projects across several states, including Pennsylvania, California, New York, Maine, Illinois, and Arizona. The experienced project development team we have acquired will strengthen our position as a leading global solar energy developer and operator. Over the years, we have built a track record of success in developing small-scale projects, especially DG and community solar. However, we have not participated very actively in the utility scale segment of the market. Because of that, we have virtually no overlap with the acquired development team. The acquisition of their solar assets is very complimentary to what we do today. The transaction is synergistic and additive in expanding our addressable market. Also, it provides us with immediate access to battery storage and enables us to deliver a more complete set of service capabilities to our customers. The acquisition of their project pipeline fits very 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. We view this as a statistically compelling acquisition that increases our footprint in project development in the U.S. and significantly expands our addressable market. Following the closing of the acquisition, this morning we announced that we signed a solar plus storage PPA with California-based Valley Clean Energy, or VCE. VCE is a local public electricity provider formed by Yolo County and the cities of Woodland and Davis. The PPA has a duration of 20 years. The project is located in the town of Madison in Yolo County, California. We expect commercial operation by the third quarter of 2022. Importantly, the project will add 20 megawatt of solar power and 26 megawatt hour of battery storage. We are excited to build a strong relationship with VCE through this transaction. This project also marks a major milestone for us. It is our first long-term PPA for a solar plus storage system that will provide significant benefits to the local customers. In summary, this acquisition exemplifies the execution of our long-term strategy as we reallocate capital to accelerate growth and profitability. Second, we set up multiple joint ventures in Europe in the past several months. Specifically, in late September, we entered into a strategic partnership agreement with Vodafone to co-develop a market ready to build ground-mounted solar projects in Germany. Vodafone is based in Munich, Germany, and specialize in developing and constructing solar parks. In the near term, SGAV intends to develop an initial project portfolio of 50 to 100 megawatts. Long term, it expects to develop an additional 50 to 100 megawatts of new projects per year. In October, we established a joint venture with Norwergy to co-develop utility-scale projects in the UK. Norwergy is a solar project development platform specializing in the origination, development, design, optimization, construction, and commissioning of solar projects in the UK. The joint venture expects to develop the current pipeline of 100 megawatts in the near term and intends to develop at least another 100 megawatt of utility-scale projects in the next couple of years. Layering on top of that, we formed another JV in UK last month. As we highlighted in our precedes, we enter into a partnership agreement with Innova to co-develop utility-scale projects in the UK. Innova invests in and operates a diversified portfolio of renewable energy assets in UK. They focus on utility-scale ground-mounted and commercial rooftop solar installations located at agricultural, industrial, and commercial sites. As part of the agreement, the JV company expects to develop the existing pipeline of 50 megawatts and plans to develop at least another 50 to 100 megawatts of utility-scale projects in the next few years. Looking at these partnerships, I am proud of our team and our business progress. We believe the combined strengths of Renie Solar Power and our partners will create tremendous synergy and provide new opportunities to further expand our presence in Europe. We also believe that These JVs will position us to grow our global pipeline in the next several quarters and beyond. It is also noteworthy that all these three portfolios have built-in storage options to meet the local customers' demand. Third, we recently closed the sale of a portfolio of operating projects located in the UK. Through utmost clear investment, and European Renewable Energy and Cleantech Private Equity Group. The portfolio comprises 1,509 residential rooftop projects located in Scotland with a combined capacity of 4.3 megawatts. These projects are qualified under the Fijian Tariff Scheme and have been in operation since 2015. Importantly, this transaction once again demonstrate our ability to optimize our solar assets through strategic sales, enabling us to generate cash flow, realize profits, and further strengthening our balance sheet. As I mentioned earlier in my prepared remarks, we are committed to grow our project pipeline by a gigawatt by year end. We have faced some challenges and project development delays as we navigate the COVID impacted environment. While we are taking a more conservative approach, we are confident that we will add at least 800 megawatts this year, which will allow us to have over one gigawatt pipeline by the year end, as shown on slide five. Let's now discuss the highlights from certain key geographies. First, Let's turn our attention to the U.S., shown on slide seven. Our latest project pipeline stands at around 300 megawatts, of which 53 megawatts are community solar in Maine, Minnesota, and New York. Additionally, we have projects under development with a mix of corporate, municipal, and utility uptakers in other states, such as Utah and Florida. Meanwhile, We operate 24 megawatts of small scale utility projects in North Carolina. In Poland, shown on slide eight, our key asset is a portfolio of project rights. We have a pipeline of 56 megawatts of ground-mounted projects under development and construction. Slide nine refers to Hungary, where we also invest in small scale DG projects. Our late-stage pipeline has several micro-projects. Each is about half megawatt, bringing total micro-project capacity to about 12 megawatts in the country. Those projects are under construction and are expected to reach COD by the year end. On top of that, we also added 28 megawatts of small-sized ground-mounted utility-scale projects in the country. Slide 10 and 11 detail our pipeline in France and Spain. We have 100 megawatts 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 projects under development. In UK, shown on slide 13, we have a pipeline of 150 megawatts, all of which are ground-mounted projects under development. Over the years, we have successfully developed 16 portfolios of small-scale projects and sold a total of 127 megawatts of projects in the UK. In addition to our development pipeline, we currently operate a portfolio of 189 megawatts of solar projects that generate high margin recurring revenue. As you see on slide 15, our operating assets, including 149 megawatts of commercial rooftop in China, 24 megawatts of utility solar in US, 15 megawatts of ground mounting in Romania, while we have sold 4.3 megawatts of rooftop projects in UK last month. Before I turn the call to Ke, I would like to conclude with a few key strategic highlights. We are advancing in the multi-year transformation process from a negative cash flow equipment maker to a positive operating cash flow and asset light solar project developer. We realigned our long-term growth strategy from focusing on our traditional market in China to a global expansion roadmap. We now focus on promising markets in the US and Europe. Last year, we moved our corporate headquarters to Stanford, Connecticut, where our senior management team is now based. We are pleased with the operational progress we have made. With a growing pipeline of business activity, we see our momentum accelerating and remain optimistic about outlook for the remainder of 2020 and beyond. The global solar industry is large and growing. We are committed to our mission to become a leading global project developer by focusing on high-quality and high-return projects in the core countries. Let me now turn the call to our CFO, Ke Chen, for comments on our financial performance.

Thank you, Yiming, and thanks again, everyone, for joining us on the call today. Our shareholder letter and the supplemental slides contain all the figures and the comparisons 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 investor along with the GAAP measures. A non-GAAP to GAAP reconciliation is included in our shareholder letter. Let's begin with our Q3 financial highlights on slide 19. Revenue was 9.7 million down sequentially and year-over-year. We expect this. And in fact, revenue was at the high end of the guidance range. Revenue was down simply due to time of the project sales. As you know, our revenue can vary significantly quarter-to-quarter because of timing. We judge our success over longer time periods that smooth out the quarter-to-quarter variations revenue this quarter was mainly from the sale of electricity generated by our own project in china romania u.s and uk as you know electricity sale are high margin so while ghost profit was down both sequentially and the year-over-year cost margin of 61 percent exceeded guidance and was up significantly from last quarter and from the same period last year. Moving down the P&L, we continue to demonstrate strong expense control, bringing non-GAAP operating expense down 19% year-over-year. We reported non-GAAP operating income of $4.5 million in the quarter versus $6 million last quarter and $40 million in the same period last year. Non-GAAP operating margin increased to 44% compared to 22% last quarter and 21% in the same period last year. Non-operating expenses were down year over year. We had a foreign exchange translation gain was caused by the depreciation of the U.S. dollar, which needed to exchange gain on the balance sheet. All this resulted in non-GAAP-led income attributed to a renaissance power of $2.5 million. and gap-related income attributed to the power of 2.1 million. Earning per share on a gap basis was 4.3 cents. Overall, we are satisfied with our operating performance concerning the micro-challenges. Now let's review the balance sheet on slide 20. At quarter end, we had cash and cash equivalents, including restricted cash for more than 16 million. In early August, we established an added market equity offering program under which we sold an aggregate of US dollar 5 million of our ideas. Both long-term and short-term borrowing were slightly down. Please note that nearly all our debt is project-based and non-recourse. Subsequent to Q3, we did a lot of capital in the registered direct offering of $5 million. We intend to use that process to expand our new project pipeline and for general working capital purpose. In addition, the proceeds will further strengthen our balance sheet, provide capital flexibility, and further enhance our ability to execute our long-term strategic growth plan. covered 2020 guidance, as shown on slide 25. For the fourth quarter, revenue in the range of $23 to $25 million, reflecting more project sales and sequentially declining electricity sales due to normal seasonality. This mix should result in a gross margin in the range of 11% to 13%. For four year 2020, we continue to expect total revenue in a range of $80 to $90 million, and the gross margin in the range of 18% to 20%. And we do expect to be profitable for the fourth quarter and the full year 2020 on a non-GAAP basis. Our outlook for the remainder of 2020 considers a couple of key factors. First, the development of COVID-19 and the global macro condition remain highly uncertain. We continue to monitor how the health aspects of the pandemic are playing out. as well as the second order effect on the economy. We had anticipated some slowdown in activity in 2020, and believe it's prudent to factor in border variability in our outlook. Second, we consider fluctuations that typically occur due to normal unevenness associated with the project development cycle. So with that, we would now like to open the call for any questions that you may have lost. Operator, please go ahead.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for me to announce. If you wish to cancel the request, please press the pound or hash key. Our first question comes from the line of Philip Shen from Roth Capital Partners. Please ask your question.

Hi, everyone. Thank you for taking my questions. And I wanted to ask about the Q4 guidance. You recently announced the sale of a four-megawatt project in the UK. Can you share what are the projects you expect to sell in Q4 and what's baked into that Q4 guidance? How many megawatts are being sold at NTP and how many at COD in Q4? Thanks.

Okay. The, uh, go ahead, you can take it.

Yeah, sure. Uh, in Q4, uh, first of all, the UK sales, because, uh, it's a fixed asset on our balance sheet. So it won't regular revenue, but it does provide us very good cashflow and the profitability. So that's for UK. And, uh, for other sales, mainly from Hungary and, uh, uh, the COD project sale and the Portland COD project sales.

Okay, great. And is it fair to say that these projects are both in that 11 to 13 percent margin range? Yes. Okay, thank you, Ke. As we look into 2021, I know you have about 700 megawatts, which are late stage projects, and then you have the 189 megawatts of operating assets. Historically, you've talked about roughly half being sold in 21 and half in 22. What is your latest view on how the sales of these projects could be split in 21 and 22?

Considering the success rate of the late-stage projects, we expect very high success rate on the late-stage portfolio. We will target conservatively selling several hundred megawatts per year. And nail down the numbers in 2021, 2022, we hope to monetize at least two, three hundred megawatts per year as a minimum.

Great. And when you think about the 2021 sales, which regions would you expect has the highest probability of being sold? What's the short list of projects?

Literally, it's across the board. We expect sales in almost every market we have activities. In all the core countries in Europe, We are active in six countries. We have projects now and also in the US. Every single country with SPAC sales.

Good. And for this year, you gave a one gigawatt pipeline target by the end of 2020. Do you have a similar target that you might be able to share? How big do you think your pipeline grows in spite of these sales?

exiting you know 21 the in general our principal absolutely want to grow based on the available resources we have in our hand but the our general principle is to at least maintain a active one gigawatt portfolio in our hand that means that the if we sell 300 megawatts a year we need to at least add another 300 megabytes into the portfolio. While we intend to grow based on our activity level, we hope we can grow from the one gigabyte consistent price portfolio to a bigger one. But we will not really put up a number at this time, but I believe that number will go up, not going down.

Great. Okay. And as it relates to Europe, there's been some news out that certain courts in Europe might enable retroactive feed-in tariff cuts. And I know you and I have talked about it a little bit and just wanted to confirm that there's no impact to any of your existing projects. And philosophically, I know for your, well, maybe you can help us understand what percentage of your existing operating assets depend on feed-in tariff, and so what might be at risk, and then going forward, what percentage of your assets or pipeline is based on PPA as opposed to feed-in tariff, so you can highlight how there's little risk going forward as well. Thanks.

Thank you. It's an interesting question that the in general or to the bottom line, there's no impact at all for those retroactive or potential cut on tariff. For two reasons. Number one, the operating assets after the UK small deal sale, we only have the two projects in operation in Romania. And by the way, that's also in the sales process. But the other deals we are developing or constructing, we are not taking the ownership or keep the ownership off to the COD. So for both of those, in any market, when the government of the market decides to make the change or make the cut of the existing PPA, it will not impact our operation or not impact our development. development of the new projects. And by the way, another side note is the solar, we reached the lowest LCOE or lowest the number of going to the grid parity. So in many of the markets in Europe, the buyers of our projects

do not even require the PPA to be signed right interesting so you mean just a quick fault there as you so so the basically the risk for you is almost is very low but do you see any issues for your customers I guess if the buyers are not requiring any PPAs to be signed, it seems like it could be very low as well, but just want to confirm.

No, at this time, we don't see that. But definitely the market varies or fluctuates based on the different financial terms or the PPA terms that our customers expect to have. But at this time, we still see strong demands on the list of trying to buy our projects.

Great. And then when you think about battery storage, how many of your projects that you expect in 2021 may have storage with the sale? And what does the margin profile look like for those projects? Are they incrementally better with the batteries?

It's a very interesting question. We do see the growth of the big demand coming from customers in the bunch of markets we are active. For example, in the U.S., in Germany, and U.K. And as I mentioned earlier, all those portfolios we have in U.K. and Germany have storage options. And also in the U.S., we have a bunch of projects having storage options and we have actively bidding into tenders or the bilateral discussions on the solar plus storage options we provide to customers. On the pure growth of the revenue and profit, storage option absolutely will add a big growth into the numbers. But on the margin side, I cannot really release much as you asked a very interesting or key question, how quickly we can grow the battery options in our overall solar portfolios. But we are confident that will add significant growth into our both revenue and margins.

Okay. And on a percentage basis, is it – does it dilute the margins, your existing corporate margins, or do you think it might blend the margins higher?

Good question. I do not have an answer for you, but as I said, on the growth side, it absolutely will help. On the margin, on the percentage, we'll wait and see. I see it will help as long as the cost decrease on the battery side is aligned with our current expectations, which actually we have a good understanding of the cost curve of both solar and storage at this time year-house.

Great. Okay. Thank you, Yuming. I'll pass it on and we'll look forward to hearing more good news ahead. Thanks.

Thank you.

Once again, for those who would like to ask questions, please press star 1 on your telephone and wait for a name to be announced. Our next question comes from the line of Amit Dayal from HC Wainwright. Please ask your question.

Thank you. Most of my questions have been asked. With respect to these JVs that you guys signed recently, are you already seeing some contribution in terms of the pipeline building and when can we potentially see announcements from these JVs adding to the pipeline you've been highlighting?

Interesting question. I do not think we will make those detail announcements at the detail level of the projects. Every day in the past several months, we've been working actively with our partners on the portfolios. And we already have the existing portfolios we are working on, and we have already considered adding new pipelines into the joint ventures. But from this time on, unless it is a big material change of the JV structure or the big addition of the pipeline, we do not intend to make those detailed level or product level announcements.

Okay, understood. And with respect to some of the U.S. opportunity, you know, with this acquisition, you know, what are your thoughts on, you know, continuing to sort of, you know, be more involved in the community solar-sized projects versus moving to small utility and then even maybe larger utility opportunities? And what are the sort of, you know, challenges in doing this in the near term, you know, if there are any?

A very good question. After the acquisition of this, we call utility-scale development team, in-house into the house two weeks ago. We literally have two teams in-house. One team continues their activities on small DG and community solar programs, and another one is this new team doing or spending time on the utility sector. And plus, both teams are also together working on storage options. And those are all under the leadership of our U.S. CEO, John Evers. He's actually with me. Can you comment on this question?

Sure. So the answer is obviously layered, but the quickest answer and easiest one that is actually the most direct is we have a capability based primarily in Minnesota with developers in the you know the specific markets for community and we can turn that machine if you will towards any market that looks interesting whether it's in the northeast southwest wherever it might be on the community side but to be frank some of the states that we see community programs in now we believe have a lot of growth some of the states that we're already in we believe have what could be, you know, a finite opportunity. And that, you know, that speaks to why having a footprint in small-scale utility is itself an opportunity. It is, just like Yumin said at the beginning in the remarks, it's a completely non-competitive bolt-on to our current operations. So the utility world is truly a different world. We are not playing in the complete large, large-scale utility. We believe there's an opportunity in mid-scale utility, mid-scale utility with custom or unique opportunities and need for storage where we can differentiate ourselves from the pack a little bit. And then opportunistic community solar continuation in the markets we're already in, plus we're making attempts at land acquisition in states that do not yet have community but look like they're primed for community. So there's no one solar to everybody, and we are playing in two markets where we believe there's spot growth around the United States.

Understood. Thank you for that. Just one last one from me. You mean you said, you know, you potentially could convert two to 300 megawatts, um, minimum, you know, per year going forward. What would be the maximum on this range? Is it 500, 600, like, you know, and what, what would drive sort of, you know, you coming in at the low end of that range and coming in at maybe the higher end of that range.

Okay. Interesting. The, uh, Two numbers I think I can talk about. One is our product pipeline. I already mentioned that we will have gigawatts in hand as a minimum or even grow the pipeline to a bigger number. Another number is our typical size of the deal is smaller. Like although we do those 20, 30, up to 50 megawatts of deals. So the smaller deals represent a shorter development cycle. Most of our deals are within 24 months development cycle. I mean, development cycle meaning from the time we take the project right to the time we sell or we sold the deal. So that tells you that if we have 100% success rate, we should be able to monetize about 500 megawatts if I have a gigawatt portfolio. If, as I mentioned, we have a very, expect a very high success rate, if we have 80 plus percent of success rate, we should be able to do about 400 megawatts a year. That's what we see the growth of the company. I understand.

And to execute on this path, I guess, You should see some benefits from operating leverage also start to materialize. Do you need to add more resources to get this level of monetization underway or you should be able to handle it with the resources you have right now?

The resources we talk about two things. One is people. People is our number one important resources in the whole company. The way From one side, we are hiring every day. But on the other side, we try to do efficient or effective cost control across the board, as you see our numbers, and especially the margin numbers. And for example, our pipeline in Europe was about 1 to 200 megabytes. Now we double, triple, quadruple over the pipeline. while the number of people, we only add maybe, not maybe, it's about five or six more, the team members. So we try to improve the whole development process, do efficient cost control, and so we can more effectively utilize the human resources we have available in-house to do more deals. But on the other hand, on the financial resources, We are a small company. We have a bit smaller balance sheet, as Ke mentioned. We have less than $20 million available we can spend. So how we can grow a pipeline and do more deals? That is, as Ke also mentioned, we have a bit less of the revenue. That's because we do more deals on NTP sale. As we all know, the company When we do project business, revenue side can be as simple as 10 times if you go from NTP sale to COD sale. And I, or the management of the company, we care more about the bottom line, the profit. We can contribute to the shareholders or investors. We do care about the revenue. for some countries, some regions, when the investors or buyers want to buy the deals, and by paying a premium to the COD sale, we will do it. Or else, to more effectively or efficiently use the available resources we have, the small financial resources, we want to do more NTP sale. Did I answer your question? Right.

Yes, yes. Thank you.

Thank you.

Appreciate all the coloring. That's all I have. Thank you.

I'll get back into you. Once again, for those who would like to ask questions, please press Par 1 on your telephone and wait for me to denounce. Again, it is Par 1 to ask for questions. Ladies and gentlemen, it is star one to ask for questions. There's no more questions at this time. I would now like to hand the conference back to speaker Yiming Liu. Please go ahead, sir.

Okay, thank you, operator. To conclude, we are committed to growing profitability, managing our operations efficiently, and strengthening our financial position. We are very excited about the opportunities in front 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.