Emeren Group Ltd

Hello, ladies and gentlemen. Thank you for standing. Thank you for standing by for Minnesota powers fourth quarter and full year 2020 earnings conference call. Please note that we are recording today's conference call. I will now turn over the call to Mr. Ralph Fong, director of the Blue Shirt Group. Please go ahead, Mr. Fong.

Thank you, Rachel. And hello, everyone.

Thank you for joining us on today's call to discuss fourth quarter and four-year 2020 results.

We released our shareholder letter before the market opened today. It is available on our website.

There is also a supplemented slide deck posted on the website that we will reference during our prepared remarks. On the call with me today are Mr. Yiming Liu, Chief Executive Officer, Mr. Qi Chen, Chief Financial Officer, and Mr. John Nguyen. of North America. Before we continue, please turn to slide two.

Let me remind you that remarks made during this call include predictions, estimates, or other information that might be considered forward-looking.

These forward-looking statements represent Renaud Silver Power's current judgment for the future. However, they're subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in Randall Silver Power's findings with the SEC. Please do not place any reliance on these forward-looking statements, which reflect Randall Silver's opinions, only as of the date of this call. Randall Silver Power is not obliged to update you on any revisions to these forward-looking statements. Also, please know that unless otherwise stated,

all figures mentioned during the conference call, high in U.S. dollars. And with that, let me now turn the call over to Mr. Yunnan Liu.

Thank you, Ralph. Thank you, everyone, for joining the call. I'm very pleased to report a productive year for Inesola Power. Despite unprecedented micro-challenges, we built tremendous business momentum. and made solid progress in our mission to become a leading and profitable global product developer. Let me recap some of the key highlights of 2020. First, our financial performance was solid. We were profitable with adjusted EBITDA of $70 million and GAAP net income of $0.07 per share and GAAP net income of $0.09 per share. As anticipated, revenue was down primarily due to the timing of the project sales. The closing of two sales in Europe were delayed into the first half of 2021. The Hungary sale was completed in March, and we are very confident that Spain's sale will be completed. Second, our financial position is stronger than ever through debt reduction and equity insurance. We reduced our total debt by more than 7 million during the year, a positive development considering the COVID-related micro-challenges. We further shore up our balance sheet by utilizing the strong stock market to raise capital. During the year, we raised a total of $45 million through several stock insurers. The capital was and will be used to expand our project pipeline, penetrate the solar plus storage market for working capital and for potential M&A opportunities. We believe this capital infusion will enable us to execute our long-term strategic growth plan as we further consolidate our transformation to an SLA solar project developer. Third, we expanded our reach across Europe through several joint ventures and partnerships in Germany, the UK, and Spain. The combined strengths of the joint venture and partnerships will offer new opportunities to grow our global pipeline. I want to call out the partnership with Eiffel Investment Group. We created a 5149 joint venture company that intends to develop up to one gigawatt of solar projects in Europe over the next several years. We have the 51% stake, while Eiffel injected capital for its 49%. We acquired assets from NOVA development that includes Solar Plus storage projects. As we discussed on our last call, this transaction expanded our development pipeline by approximately 200 megawatts. We also added an experienced Solar Plus development team. This deal enables us to deliver a more complete set of solution packages to our customers. It also gives us access to utility projects and development activities in multiple states. Those states include Pennsylvania, California, New York, Maine, Illinois, and Arizona. First, building on the acquisition of the assets from NOAA, we signed a PPA with Valley Clean Energy, a California-based public electricity provider. The project will add 26 megawatts of solar and 6.5, 26 megawatt hour of battery storage. This is an important milestone for us. It is our first long-term PPA for our Solar Plus storage facility. Six, we monetized a total of 86 megawatts of solar projects in 2020. We sold projects in UK, Poland, Romania, Hungary, China, Canada, and the US. This shows strong execution by our team. These sales optimize our solar assets, enabling us to generate cash flow, realize profits, and further strengthen our balance sheet. Finally, we utilize our IPP assets to generate cash flow. Our IPP assets generate 182 million kilowatt hour electricity, producing $24 million of recurring high-margin revenue. These assets reduce carbon emissions by nearly 129,000 metric tons in 2020. In sum, the momentum in our business is accelerating. The expanded pipeline of business activity reflects greater demand for product development and we remain optimistic about our multi-year growth prospects. Now let me spend a minute discussing why we are so optimistic about our growth prospects. The global solar power industry is large and growing. More corporations are committing to reduce their carbon footprint. I intend to meet their sustainability objectives by using renewable energy sources. Our target markets are regions where solar power usage is growing rapidly, supported by demand for green energy and favorable government policies. Let me give you a few examples. First, Europe. The European Commission announced the so-called European Green Deal, which is a set of policy initiatives with a goal of making Europe carbon neutral by 2050. This includes a proposal to be more aggressive in the reduction target for greenhouse gas emissions by 2030. The European Union now wants to get GHG emissions down to 50% of 1990 levels. The 2030 target right now is 55%. Another example is the U.S. The Biden administration intends to make the U.S. 100% clean energy economy with net zero emission by 2050. This includes a plan to decarbonize the U.S. power sector by 2035. Adopting renewable energy sources that can be deployed at scale is the only real way to meet this goal. Finally, China. the central government just initiated the policy to reduce the country's carbon dioxide emissions by at least 65% from 2005 levels by 2030, and to become carbon neutral by 2060. With our focus on Europe, the US, and China, we believe we are strategically positioned for growth. In Europe, we had major development activities across Spain, France, Germany, the UK, Poland, and Hungary. In the US, our late stage projects are in Minnesota, Maine, Pennsylvania, Florida, and New York, Utah, and California. And we operate utility projects in North Carolina. In China, our key geographic focus will be in the Yangtze River Delta area which not only has attractive electricity sectors, but also is one of the major metropolitan areas estimated to play a pivotal role in the country's future growth of the economy. We intend to expand our IPP strategy and complete 100 megawatt projects during 2021. Let me now update you on our project pipeline. At the year end, Our latest pipeline was one gigawatt, up from 730 megawatts in third quarter 2020. We continue to direct resources to the market with the best profit potential. Our near-term objective is to add incremental pipeline in our core markets to reach two gigawatts by the end of this year. We also plan to monetize approximately 300 megawatts this year. Let's review highlights from certain key geographies. First, let's turn our attention to the U.S., shown on slide 7. Our late-stage project stands at around 350 megawatts, of which 122 megawatts are community solar in Maine, Pennsylvania, Minnesota, and New York. We have projects under development with a mix of corporate, municipal, and utility uptakers in other states, such as Utah, Florida, Maine, and California. Meanwhile, we operate 24 megawatts of small-scale utility projects in North Carolina. In Poland, shown on slide 8, our key assets is a portfolio of project rights. We have a pipeline of 206 megawatts of ground-mounted projects under development and construction. Slide 9 refers to Hungary, where we also invest in small-scale BG projects. Our late-stage pipeline has several micro-projects, each is a half a megawatt, bringing total micro-projects capacity to about 49 megawatts in the country. Those projects are also under development. Slide 10 and 11 detail our pipeline in France and Spain. We have 100 megawatts in France, and expanded our pipeline to 95 megawatts each day, all of which are ground mounted and currently under development. We are getting traction in Germany, as shown on slide 12. We have a plus pipeline of 50 megawatts, all of which are ground mounted projects under development. In the UK, shown on slide 13, we have a plus pipeline of 150 megawatts, all of which are ground mounted, under development. In addition to our development pipeline, we currently operate a portfolio of 173 megawatts of solar projects that generate high margin recurring revenue. As you see on slide 15, our operating assets include 149 megawatts of commercial rooftops in China and 24 megawatts of utility solar in the U.S. In Q4, we sold 15.4 megawatts of operating assets in Romania, and 4.3 megawatt solar rooftops in the UK. In conclusion, we entered 2021 with strong momentum, reflecting high demand in the markets we serve, the resiliency of our business model, and the excellent execution of our team. Let me now turn the call over to our CFO, Key Chen, for comments on our financial performance. Key, please. Thank you, Yiming, and thanks again, everyone, for joining us on the call today. Our shareholder letter and the supplemental slide 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 we provide useful information about our operating performance that should be considered by investors, along with the gap measures. A long gap-to-gap reconciliation is included in our shareholder ledger. Let's begin with our Q4 financial highlights on slide 19. Revenue of $17 million was up sequentially and down year-over-year. Revenue was up from last quarter simply due to timing of the project sales. As you know, our revenue can vary significantly quarter to quarter because of timing. We judge our success over a long time period. That's without the quarter to quarter variation. Revenue this quarter was mainly from sales of projects in Poland and Hungary and also from power generation. I would like to emphasize sales of operating assets in Romania and the UK were not considered revenues according to the GAAP accounting standards. However, the combined transaction value was over US$30 million. Growth profit of US$2.5 million was down both sequentially and year-over-year. Growth margin was 15% compared to 61% in Q3 and 27% in the same period last year. The decline was due to revenue leaks. Moving down the P&L, we continue to demonstrate expense control, bringing non-GAAP operating expenses down 39% year-over-year and up 3% sequentially. Note that operating expense gap increases were down 50% sequentially. This was driven by earlier operating income of $8 million from the profitable sales of operating assets in Romania and the UK. Offering that is the increase in SG&A expense associated with the write-off of some aid receivables. Non-GAAP operating income was $0.7 million, and GAAP operating income was $1 million. GAAP operating margin was 6%. Non-operating expenses were down both sequentially and yearly. We had foreign exchange translation gain, which was caused by the depreciation of the U.S. dollar. This led to exchange gains on the balance sheet. As this results in GAAP-led income attributed to Renaissance Power of 2.5 million, earning per share on GAAP basis was 5 cents. Let's turn our attention to full-year 2020 results. Revenue was 74 million, down 38% year-over-year, keeping in mind that the 70 million-plus sales of operating assets in Romania and the UK had no contribution to gravity. Projective gravity was approximately 50 million, driven by project sales in multiple countries, most importantly, US, Poland, Hungary, and Canada. Electricity sales were 24 million, mostly from 180 million kilowatt hours of electricity generated in China and Romania. Ghost profit of $17 million was down 50%. Ghost margin was 23% versus 29% last year. We expect ghost margin to vary due to change in revenue mix and the product sale geographical mix. Gap operating expenses for 2020 were $10 million, down from $35 million in 2019. The decrease reflects efforts to streamline our operating were put in cost control and other properties generated mainly from sales of Romania and the UK. GAAP operating income was $7.3 million versus operating odds of $1 million last year. EBITDA was $16 million. Non-operating expenses were $4.5 million, which includes interest expense of $6 million and foreign exchange gain of $0.8 million. The foreign exchange gain was primarily due to the depreciation of U.S. dollar against the local currencies, resulting in an exchange gain on U.S. dollar-dominated payables. Gap-led income attributed to shareholders in 2020 was 3.3 million compared to that loss of 9 million in 2019. Gap-led income per share was 7 cents. Now let's review the balance sheet shown on slide 21. At year end of 2020, we had a cash and equivalent, including district cash, of more than $40 million. In Q4, we used two richest direct placements to raise capital that we will use for working capital and to grow our solar project pipeline. We raised $5 million in October and a lot of $20 million in December. In 2020, we raised a total of $45 million from the public market. This deal strengthens our balance sheets, provides capital flexibility, and enhances our ability to execute our long-term strategic growth path. We paid off our long-term borrowing in Q4. We had a short-term borrowing of about $32 million. Please note that nearly all of that is profit-based and non-recourse. Let's cover 2020 guidance and show on slide 26. For the first quarter, we're guiding value in the range of 18 to 20 million and overall gross margin in the range of 10 to 11%. For full year 2021, we expect total value in the range of 90 to 100 million and the gross margin over 25%. And we expect a profitable full year 2021 significant profit goals compared to 2020. Our 2021 outlook has two key factors. First, the COVID-19 and global economic conditions remain highly uncertain. We continue to monitor how the health aspects of the pandemic are playing out, as well as the effects on the economy. We anticipate some slowdown in activity in some geographical regions in the first half of 2021. You can see the recent lockdowns in Germany, Italy, and France, for example. Who does demand that we factor board variability into our outlook? Secondly, we consider the normal frustration typical of the project learning cycle. In summary, we have achieved consecutively 3 quarter profitability and a full year profitability in 2020. We in the show now focus on three places of the market, Europe, U.S., and China. With very strong balance sheet, we are very excited and very optimistic about our long-term profitable goals. With that, we would now like to open the call for any questions that you may have for us. 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 your name to be announced. If you wish to cancel your request, please press the found or hash key. Once again, it's star and the number 1 on your telephone keypad. Your first question comes from the line of Philip Shen of Brock Capital Partners. Please ask your question.

Hey, guys, thanks for taking my questions. First one is I think you talked about 300 megawatts of project sales for this year. Can you talk about roughly how many megawatts per quarter? It seems like for Q1, you know, there's a skew of lower projects in that quarter, and it makes sense given your commentary on what's happening in Europe. but was wondering if you could talk also about, you know, the mix of the 300 megawatts between NTP type sale versus other types of sales. I'm guessing most of it's NTP. And sorry if I missed it, but did you share when you expect to sell the Hungary project? Thanks.

Okay. Thank you. Thank you, Phil. We sold a total 86 megawatts, including three projects or three portfolios of projects in China, Romania, and Hungary. Sorry, China, Romania, and UK. Those are operating assets. As Kerr mentioned, it's not counting to the revenue. But those three portfolios include Romania 15.4, and 4.3 from UK, and 23 from China. And the last two, Romania and UK, happened both in Q4, and the China happened in Q3. We also have the NTP and COD sales in various markets, in the US, in Hungary, in other places. In Q1, Q2, Q3, in almost every quarter, we have some small portfolio sales. Compared to our traditional COD sales or even operating asset sales, we now focus on more of NTP sales. The big difference of the two sales are, number one, the development cycle or cycle for the project in our hand is a lot shorter at NTP sale as we don't do any installation work. The second is definitely we don't do any financing, procurement, installation, which minimize the risk associated. The third, the margin will be a lot higher on the NTP sale compared to COD sale. But another big difference is COD sale, the revenue normally is around six to seven times more of an NTP sale. as we will not count the full installation capex into the revenue anymore. So, as we do have a strong balance sheet, our strategy can be pretty flexible. If we see premium can be made throughout the installation, we will do more of COD sales. But now, as we see, in many markets, NTP sale is the more popular or to us, it's a preferred option, we'll do more NTP sales.

Okay, thank you.

Sorry, another question. As I mentioned, the two projects we're supposed to close in Q4, one in Hungary, one in Spain, all got delayed to this year, 2021. And the Hungary deal was closed two weeks ago and expect to close shortly the Spain process.

Okay, so they should... Well, Spain could actually spill into Q2 then, whereas Hungary is in Q1. In Q1.

And then... Spain will be in Q2.

Great. Okay, Yuving, of the 300 megawatts that you expect for this year, Can you talk about how much per quarter? Do you expect it to be, you know, Q4 loaded or maybe Q3 loaded?

Actually, most of the sales will be in Q3 and Q4, and we'll have several small sales in Q1 and Q2.

Okay.

But mostly having loaded Q3 and Q4.

Okay, thank you. In terms of 2022, no problem. In terms of 2022, in the past, you've talked about, you know, what the sales could be then. I know you haven't provided official guidance, but would you expect a similar run rate of 300 megawatts for 2022? Or do you think there could be some acceleration?

We absolutely see our growths are accelerating. By the end of last year, we talked about gigabyte portfolio. Please remember our development cycle in typical of around two to three years. Considering some minimum or with experience team and track record, our failure rate can be pretty low. In average, we can absolutely monetize 300 plus megawatts a year. And putting that logic into our portfolio by end of this year, 2021, when we have two gigawatts of portfolio, we talk about accelerating the monetization of the projects in a lot bigger number compared to the past.

OK, good. And when you think about the incremental gigawatt that you plan on adding to your pipeline, what percentage of that do you think will have storage capacity?

We plan to build storage in the hot and also high demanding sector across the board. We see not only the U.S., but also in U.K., Germany, Spain, and even in some traditional markets we are active, like in Poland and Hungary. Our team is dedicated to develop our capabilities in-house and build up the whole solution package including solar plus storage and also the independent storage facilities. We hope to build in the next couple of years one gigawatt hour of solar plus storage or storage facilities. That is the pipeline we hope we can build up and we are continuing our market access building those PPAs or facilities.

Okay, great. And with all the capital that you've raised, and congratulations on that, can you talk about your M&A outlook and how you expect to deploy the capital?

Okay, we do have a very strong balance sheet as we raised $45 million last year in 2020. Also in January, we raised $290 million. that give us a full strength to execute our long-term strategy. M&A is one of the core considerations as we do not only want to expand our pipeline in different markets, but also we want to expand our platform, building our experience team by acquiring experience teams like we did on the NOAA development team and also together with the pipeline and also the building our organic strategic growth, for example, on the storage sector. The use of the 300 plus million dollar capital, we plan to absolutely continue expanding our solar pipeline. As we say, we want to double our pipeline by the end of the year to 2 gigawatts. We also give up solar plus storage. We are building our 100 megawatt IPP assets by the end of this year in China. We are also hoping to do more meaningful organic acquisitions. And we are active looking at the market to find those good strategic targets.

Okay. Bill, I just want to add... Bill, I just want...

I want to add that we are very disciplined and prudent in all these M&A strategies.

Okay, I appreciate that. One last question and I'll pass it on. As it relates to your expectations for OPEX and general and administrative expenses, G&A, it was relatively large in Q4. How do you expect your OPEX trend in the coming quarters?

I think we are normally, yes, normally we'll be, hopefully we'll be between 2 and 2.5 million this year.

Great. Okay. Thank you for that. And with that, I'll pass it on.

Your next question comes from the line of Graham Price. Please ask your question.

Hi. Good morning. This is Graham Price on for Pavel Molchanov, and thanks for taking my question. So I guess my first one, of the 100 megawatts in ICP assets that you mentioned for 2021, I just wanted to clarify, is the entirety of that amount planned for China? And then we're just wondering if you could provide some additional details on kind of the opportunities you see there and what led you to go that direction.

Okay, thank you. It's a very good question. China, you know, if you pay attention to our development activities in the past 18 months, we haven't done any new development in the last 18 months in China. because in the past, all the solar renewable energy assets were expecting the government big percentage of the government subsidies in the revenue stream. Starting from this year or late last year, the Great Parity has been totally rich in China, and we are now developing new projects zero percent relying on any subsidies from the government. And those projects are continuing our past practices, which is the commercial rooftop deals. Very high margin. We talk about the high double-digit margins on a labor basis. So selectively, we want to use our capabilities and experience team to build those assets, and in general, our IPP asset margin, we not only have recurring revenue, but also very high margin, over an average 80% and plus. Across the board, in other places, like as I mentioned earlier, we have 24 megawatts, small utility scale projects in the US, and we also sold our IPP assets in Europe, we may selectively do some IPP, to own some IPP assets in the future, but we remain to define ourselves as a project developer, not a pure IPP. Got it.

That's very helpful. Thank you. That was great detail. Thank you. And then I guess, quickly, to my follow-up. I'm just wondering if it would be possible to get an update on the Eiffel Group JV, maybe either around project timing or when the more formal agreement might be finalized there?

Yes. The Eiffel JV is the important initiative The initiative we have started in about over six months ago. It's going smooth. We already set up the JV. We are planning to inject the first about 400 megawatts into the JV in the next few weeks or very shortly. As I mentioned also earlier, we plan to develop and monetize up to a gigawatt. in this JV in the next several years. And all those deals are mainly European-based. Got it.

Perfect. Thank you very much. Thank you.

Once again, if you wish to ask a question, you may press 4 and the number 1 on your telephone keypad. Your next question comes from the line of Amit Dayal from HSCW. Please ask your question.

Thank you. Good morning, guys. With respect to the money items, we are just talking about the gross margin guidance for the year. It's taking 10% to 11% for the first quarter and 23% for the year. So are we doing 30% plus margins in Q2, Q3, Q4? Could you just give us a sense of, you know, how this is expected to play out in terms of your margin performance?

Amit, the gross margin guidance we said is over 25%. Again, the first quarter, the guidance is a little bit low because, again, in the first quarter, the main needs to be sale. Again, as we focus on NTP sale in the second, third, and fourth quarter, you will see much higher gross margin.

So for the non-COD sales, what should we kind of keep in mind as the range for gross margins for that business?

I'll give you some data for 2020. Our 2020 NTB sale, the gross margin is around 40%.

That's helpful, thank you. With respect to the energy storage portion of the business, it looks like this is going to become an important part of the story. Is the energy storage piece of these deployments also going to be part of the monetization effort or is there an opportunity to maybe pursue the PPA type model for this?

For energy storage at this time, it is we consider to monetize those accesses. OK.

Understood. We're going from one gigawatt to two gigawatt pipeline. Is most of this coming from Europe, the additional one gigawatt, or is it a mix, US and Europe?

You are absolutely right. continues to be the heavy part of our new development. And in the two gigawatts, over 50% or even 60% will be from Europe. And we see tremendous strong growth in many, many countries across the board in Europe. And we are active in six countries. We are attacking two more countries. Those are all on the top 10 of the solar market in the whole Europe. And we believe we have our so experienced team to expand our market access to those new territories.

Got it. Those are pretty much my questions. My other questions have been already discussed. I'll take my questions off here. Thank you.

Thank you. Thank you.

Once again, if you wish to ask a question, please press star and the number one on your telephone keypad. Once again, if you wish to ask a question, it's star and the number one on your telephone keypad. Seeing no more questions in the queue, let me turn the call back to Mr. Liu to conclude the call.

Thank you, operator. To conclude, we are committed to rural profitability, managing our operations efficiently, and strengthening our financial position. We are energized by the opportunities in front of us. We 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.