Emeren Group Ltd

Hello, ladies and gentlemen. Thank you for standing by Foreign and Solar Power's first quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please note that we are recording today's conference call. I will now turn over the call to Mr. Gary Dvorak, Managing Director of the Blue Shirt Group Asia. Please go ahead, Mr. DeFarge.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss first quarter 2021 results. We released our shareholder letter after the market closed today. It's available on our 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. Yu-Min Liu, Chief Executive Officer, Mr. Ke Chen, Chief Financial Officer, and Mr. John Yuen, President of North America. Before we continue, please turn to slide two. Let me remind you that remarks made during this column may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent Renatola 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 the risk factor section and elsewhere and Renasola Power's filings of the SEC. 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 in the conference call are in U.S. dollars. With that, let me now turn the call over to Mr. Human Lee. Human?

Thank you, Gary. And thank you, everyone, for joining the call. Before we discuss our Q1 results, let me quickly start by addressing the inflation of the commodity input costs, one of the key challenges facing the solar industry these days. The good news is, by far, the higher input costs have not been an issue for U.S. solar power. Now, let's turn our attention to Q1 results. I will summarize our financial performance and review our operating highlights in the quarter. I will then turn our call over to Ke, who will cover financial results in more detail and will provide 2021 guidance. We will then open the call to questions. Revenue was $22.8 million, up 39% sequentially and up 8% year-over-year. Gross margin of nearly 30% was well above expectations. Our operating income on GAAP basis was 4.1 million, up significantly both commercially and year-over-year. Adjusted EBITDA increased more than 250% from last quarter. Importantly, we reported our fourth consecutive quarter of profitability. Our development pipeline remains strong, ending the quarter with late-stage projects of over 1.3 gigawatts. Business momentum continues. The expanded pipeline of business activity indicates greater demand for project development, and we remain optimistic about our multi-year growth prospects. We continue to focus on profitable markets, including the U.S. and Europe. where we see tremendous growth opportunities with high-quality projects. Let me now discuss the recent operational highlights. First, we completed the sale of our 12.3 megawatt portfolio projects in Hungary to Optum, a leading international solar investment company in Denmark. The portfolio comprises 20 solar farms with a combined capacity of 4.3 megawatts. These 20 solar farms are now in operation and are qualified under the Hungarian 25-year CAAT feed-in tariff scheme. Second, we successfully closed the sale of a 10-megawatt portfolio of solar projects in Utah to Greenbaker Renewable Energy Company. The portfolio consists of three ground-mounted commercial distributed generation sites located in Utah. The projects are so-called behind the meter and will sell electricity directly to two optic parties. The projects were sold at the notice to proceed stage and Greenbaker will complete the construction and retain long-term ownership. Third, we executed the JV agreement with iPhone Investment Group last month. The collaboration between the two companies aims to accelerate the development and financing of our current and future solar projects across Europe. With the signing of the JV agreement, Wiener Solar Power and Eiffel Investment Group have created European Solar Energy Development JV. The initial portfolio will consist of 340 megawatts at the one stage development projects located in Poland, Spain, and France, which both partners will support and develop to reach ready-to-build stage. The joint venture company intends to fund the development of up to 700 megawatt of solar projects in the next three years across Europe. Fourth, we strengthened our financial position through debt reduction and capital raise in Q1. as shown in our balance sheet. We reduced short-term borrowings by $31 million in the quarter, a major achievement for us. Additionally, we further soared up the balance sheet, leveraging the capital markets to raise capital. In the first quarter, we raised $219 million through our registered direct placement of ADS. As a result, we significantly improved our capital structure and debt to asset ratio of 0.19. From a capital allocation standpoint, we intend to use the net proceeds to expand our Solar Plus pipeline, further penetrate the Solar Plus storage market for working capital and for potential strategic M&A opportunities. We believe the capital infusion will enable us to execute our long-term strategic growth plan as we further consolidate our transformation into an eyesight-light solar product developer. Fifth, we remain positive on our storage strategy. Energy storage is a large ongoing market. The solar storage assets we acquired from NOAA development management last year are highly complimentary to our existing business. Additionally, the acquisition provides us with access to utility projects and development activities in a number of states across the U.S. Building on the successful acquisition of the energy storage business from NOAA, we expect to grow our pipeline in the solar plus storage market. We are actively evaluating opportunities in both solar plus storage and independent storage facilities solutions in the US and UK. We are making good progress and looking forward to capture more market opportunities. Putting it all together, we are making great progress growing our business and achieving our mission to become a leading global product developer. I will now update you on our project pipeline. At quarter end, our late stage pipeline was 1.3 gigawatts, up from 1 gigawatt last quarter. We continue to direct resources to the markets with the best profit potential. Our objective is to add incremental project pipeline in our core markets to reach 2 gigawatts by the end of 2021. We also intend to monetize approximately 300 megawatts this year. Let's review highlights from certain key geographies. First, let's turn our attention to the US, shown on slide 7. Our latest project stands at 340 megawatts, of which 82 megawatts are community solar in Maine, Minnesota, and New York. Additionally, we have projects under development with a mix of corporate, municipal, and utility outtakers in other states, such as California, Pennsylvania, Florida, and Illinois. Meanwhile, we operate 24 megawatts of small-scale utility projects in North Carolina. In Poland, shown on slide 8, our key asset is the portfolio of project rights. We have a pipeline of 271 megawatts of ground-mounted projects under development and construction. Slide 9 refers to Hungary, where we also invest in small-scale DG projects. Our pipeline has a combined capacity of 42 megawatts in the country. Those projects are all under development. Slide 10 and 11 detail our pipeline in France and Spain. We have 100 megawatts in France. and expanded our pipeline to 180 megawatts in Spain, all of which are ground-mounted and underdeveloped. We are also getting traction in Germany, as shown in slide 12. We have a practical volume toppling 50 megawatts, all of which are ground-mounted projects underdeveloped. In the UK, shown on slide 13, we have a plus pipeline of nearly 210 megawatts, including ground-mounted projects and solar plus storage fields. All of those projects are under development. In addition to our development pipeline, we operate a portfolio of 173 megawatts of solar projects that generate high-margin recurring revenue, as you see on slide 15. Our operating assets, including 148 megawatts of commercial rooftops in China and 24 megawatts of utility solar in the U.S. In China, We are preparing to build at least 100 megawatts of commercial rooftop projects within 2021 and plan to operate them in our light IPP model. In conclusion, we are off to a solid start in 2021. The strong momentum reflects high demand in the markets we serve, the resiliency of our business model, and the excellent execution by our team. Let me now turn the call over to our CFO, Ke Chen, for comments on our financial performance. Ke? 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 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 long gap financial measures. We use long gap measure because we believe they provide useful information about our operating performance that should be considered by investor along with the gap measures. A long gap to gap reconciliation is included in our shareholder measure. Let's begin with our Q1 financial highlights on slide 19. Revenue of almost $23 million was up both sequentially and year-over-year. As expected, revenue was denied with the updated guidance we provided in our April 30th press release. As discussed, our revenue can vary significantly quarter-to-quarter because of timing. We judge our success over a longer time period that smooths out the quarter-to-quarter variation. Revenue this quarter was mainly from the sale of projects in Hungary, Utah, and Poland, and from power generation in China. Gold's profit of 6.8 million was up very significantly from last quarter and up from the same period last year. Gold's margin was almost 30%, compared to 12% in Q4 and 6% in the same period last year. The increase was due to higher contribution from NTP sales. Moving down the P&L, non-GAAP operating expense up 17% sequentially and up 4% in every year. GN expense was up due to the incremental cost associated with the capital rates in Q1 and the non-cash option expenses. Non-GAAP operating income was $4.6 million compared to non-GAAP operating income of $0.2 million in 4Q last year and non-GAAP operating loss of $0.7 million in first quarter 2020. GAAP operating income was $4.1 million and GAAP operating margin was 18%. Now operating expenses were up sequentially, but down year over year. We had a foreign exchange translation loss, which was caused by the depreciation of Europe and the Romanian realm against U.S. dollar. This led to exchange loss on the balance sheet. All this related to gap-led income attributed to regular power of 0.8 million. Earning per eight years on gap rates was one cent. Now let's review the balance sheet shown on slide 20. At the quarter end, we have cash and equivalents, including restricted cash of more than $300 million. It's about $4.5 per share. In Q1, we used a rate of direct placement to raise capital. that we will use to grow our project pipeline and for working capital. The deal has further strengthened our balance sheets, provided capital flexibility, and enhanced our ability to execute our long-term strategic goals plan. As Yiming mentioned, we significantly paid down our short-term borrowings in Q1, reduced short borrowing to $800K in Q1 from $32 million in Q4. Please note that nearly all our debt is project-based and non-recursive. Also, I would like to highlight that our debt-to-asset ratio is only 19%, a significant improvement in our capital structure. This also represented as well as the lowest debt-to-asset ratio when compared to other solar industry players. Now let's cover 2021 guidance as shown on slide 25. For full year 2021, we continue to expect total revenue in the range of $90 to $100 million and a gross margin of over 25%. And we are anticipating a profitable full year 2021 with significant profit goals compared to 2020. For the second quarter, we're guiding revenue in the range of $19 to $22 million and an overall gross margin in the range of 36% to 39%. 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 effects 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. That being said, we expect to see global recovery in a number of key markets, around the world in the second half of the year. In sum, we believe it's prudent to factor in the border variability in our outlook. Second, we consider the normal fluctuation typical of the project development cycle. Overall, we focus on straight back to the solar market, Europe, US, and China. We are very optimistic about our long-term popular goals. With that, We will open up the call for Q&A. Operator, please go ahead.

As a reminder, to ask questions, you will need to press star 1 on your telephone. To withdraw your question, please press the found or hash key. Please stand by while we compile the Q&A roster. Our first question comes from the line of from Raymond James. Please ask your question.

Thank you for taking the question. Based on the guidance that you are giving for Q2, it looks like approximately 60% of your full year revenue will be in the second half. And of course, that percentage varies from year to year, but last year it was the opposite. The first half was much more weighted. I'm curious what explains that change in the sequence.

Again, in the first half, there's more NTP sales. And again, in the second half, we will have more COD sales. So I think that... drive the revenue mix.

And that also explains why the implied gross margin in the second half will be lower compared to the first half.

I would say that in general, the margin will lower the NTP margin. But again, at this moment, we'll still try our best to achieve high margins.

Okay. At the beginning of the year... I'm sorry, go ahead.

No, please. I'm adding a point that, as we mentioned, COVID-19 still played some effect in the development cycle or in the execution of the projects. That's why that we see the global recovery will happen mostly in the second half of this year as we see they are executing the projects.

Understood. At the beginning of the year you talked about adding some electricity sale assets to your portfolio on a selective basis with a focus on China. Can you give an update on how that process is going?

Yes, starting early this year we restarted our project development in China with many considerations and we are confident we will build at least 100 megawatt commercial rooftop projects in China. Number one, we carefully select the regions we have projects in China around the Yangtze Delta region, the strongest economic growth in the whole China. The second is those behind the meter commercial rooftops provide very attractive return to the company. And more importantly, that through our experience, we own about 150 megawatts commercial rooftops in China. We gain significant good experience in China operating those assets. We also are well connected to understand the uptakers. We carefully select the best uptakers to do the PPAs with them to make sure we have confident cash flow or the payment. So we expect more than 100 megawatts will be built in China, which will be added into our, we call, light IPP mode.

Okay, thank you for that. My last question, you very briefly addressed the input cost inflation at the beginning of the prepared remarks. I wanted to focus on Not so much the modules, but the steel, the trackers and other steel inputs. How are you managing the sudden price increases in the steel supply chain?

Okay. It actually has several different reasons. Number one is our strategy is to sell more of our deals at NPP. So we push the procurement and its EPC installation to the end buyer. But the cost increase will definitely impact the end buyer's financial model. So one case that we, for example, in China and in Europe, back in Q1, before the price increases, we already made some nice moves. and build our inventory of the modules. That save us a quite significant amount of dollars for the project in China and for the construction project in Europe. The second is our projects we are selling either at NTP or some execute transaction at COD are not looking at immediate construction. We are talking about starting either end of this year or next year. And everybody, including ourselves, I'm talking about everybody meaning the buyers or the end owner of the projects, they all believe the increase of the cost is a short-term issue. With the opening up and expansion of the suppliers, we believe this issue will be minimized. The cost will get back to normal. price trend is still going down, not going up. That is why the conclusion of ours, we said it's good news. The impact to us is minimum or no.

Understood. Appreciate the perspective. Thank you very much, guys. Thank you.

Our next question comes from the line of Amit Dayal from HCW. Please ask your question.

Thank you. Good afternoon, everyone. Yumin, did you, with respect to the 100 megawatt deployment plans in China for your electricity sales, did you say that you want to get this thing started in 2021 or completed in 2021? Could you clarify your comment, please?

Yes. We actually have our first 20 megawatts under construction already. We are planning to complete this 100 megawatts or at least 100 megawatts by the end of the year, this year.

So this should potentially contribute cash flows, et cetera, in 2022?

Yes, absolutely, and a little bit in 2021, too.

That's amazing. Thank you.

We'll bring those small rooftops online starting as early as end of next month and starting mostly from July.

Oh, wow. Congratulations on that. Thank you. With respect to your cash plan, how fast can you put this cash to work? I mean, do you already have plans or are you just reading and watching to see how the market sort of reemerges post-COVID? Can you give us any color in your thought process about how you want to use this cash? And then within that, you know, with where the stock is, are there any thoughts about buybacks at these levels?

Okay, let me answer the first part and ask to address the second part. We do have a plan to effectively utilize the proceeds we raised from the poppy market. We are adding, plan to add one more gigawatts within this year. And we are doing the light IPP in China. starting our strategy on solar plus storage and independent storage. So all those things are consuming money. Another thing is we are actively looking at strategic M&A opportunities. Currently we have several targets being reviewed by the team in the late stage. we are confident that we will use the cash we have in hand to grow the pipeline and provide the best return as we could to our investors. Claude, can you take the second part? Sure. Let me add, again, as our U.S. team is expanding the pipeline, especially to the utility scale, we also need a more cash to, like, interconnection deposits. And, again, in Europe, we also need more cash for the good projects, which, for example, in Spain, we need a great bond. So we need to deposit cash to secure the great bond. And so all this, we are very disciplined to use this cash to expanding our project to compete in a better way because we have strong cash positions. So the Merchant of the Past will use it to sign our bills. In terms of buyback, again, the board is contemplating, so we are spotty this. Thank you. Okay.

And with respect to M&A targets you are considering, are you going to stick to sort of the type of transactions you have already undertaken in the past, or are you going to maybe diversify away from it a little bit to any color on what type of M&A Thank you.

We are looking at mainly two or three different directions. Number one, definitely improve our product portfolios in the statistical market, especially in the U.S. and Europe. The second is we are also looking at one of the most important strategies we initiated late last year, that is the storage sector. We are looking at not only the Solar Plus storage pipeline, project pipeline, but also looking at a possible team we can acquire. And more importantly, in some new market, we plan not only driving some partnerships but also to acquire some more organic way to acquire some teams with the pipeline to help us to grow in the new market. The new bar market, I mean, is the couple of strategic countries or important market in Europe and several U.S. states. Okay. Wonderful.

That's all I have, guys. Thank you so much.

Thank you.

Our next question comes from the line of Philip Shen from Ross Capital Partners. Please ask your question.

Hi, everyone. Thank you for taking my questions. Yiming, earlier you were saying that the impact of the increase in the input cost is minimum or none. And you had a great margin in Q1, so congrats on that. Just wanted to confirm that looking ahead, assuming these inputs remain elevated through the end of the year, you continue to believe that the impact is minimal or none in Q2, 3, and 4. Can you give us some perspective on that? Thanks.

Yes, that's our, at least at this current moment, we absolutely believe that. The reasons are we did NTP sale, and those NTP sales NPP will start, or EPC installation will not start immediately. Except some deals in the US and some deals in the US states will start sooner than later within this year. But most of the deals we are selling will not start until next year. When we talk to the buyers, at least their financial model sees minimum or no impact, and everybody all believe, including ourselves, as I mentioned, this is a short-term thing, not a long-term. And we hope by the end of the year or Q1 next year, this cost increase will be minimized.

Great. Yeah, and it highlights, I think, the strength of your business model now with the focus on NTP sales as opposed to COD. So that said, you talked about how the projects don't start until next year. Some of our recent checks suggest that we were seeing some projects that were supposed to be built next year being delayed into 2023. So the impact actually of a lot of this pricing is certainly for the larger scale utility scale projects I think you know they're contracting now for next year build and a lot of the kind of inputs have already been locked in for this year so they can't push it off so just curious if you see any risk of delays of either well what kind of delays do you think you see for next year have you had any of those kinds of conversations with your customers about 2022 projects getting pushed into 2023?

At this time, as in our portfolio, we are monetizing this year. Seriously, we don't have those big utility-scale projects except actually one of them. And when we talk to the end buyers, we are talking about starting those projects utility-skilled projects construction literally from Q2, Q3 next year. At least the portfolio we are monetizing or we are selling, we do not see the need to delay that one to 2023. But when we go to the second half, if the cost increase continues, if people's forecast It's like longer than expected, the cost increase. Then they will give it another re-look. But at this time, it's not really an issue for us.

Good. OK. All right. For the Q2 period, can you name perhaps which projects you expect to sell? I think, for example, you're looking to, and sorry if I missed it, but I think you guys were looking for some projects in Spain that were targeted for sale in Q2. Were those already sold? For example, we're more than half the way through Q2, and how many megawatts do you expect to sell in Q2? Thanks.

This is a difficult question, tough question. We are in the process of selling both U.S. and European projects, including the long delayed, supposed to be closed last Q4's deal in Spain. And we do have the offer handy, but we are waiting for the final approval from the government. And it may happen in Q2, but definitely with very high confidence will happen within Q3. The project we talked about, the Spain project. All other deals are as planned in the closing of the US and Europe, all as planned in Q2. We have several deals closing in Q2 and Q3.

Great. Okay. One last maybe housekeeping question on travel and your G&A. So, you know, obviously with... travel restrictions from COVID, I'm imagining that your GNA was lower recently. And so as the world opens up, do you expect your GNA to increase meaningfully, or is it going to be a slow increase, or do you not expect an increase? And we'll continue to work with Zoom and other virtual meeting platforms. Thanks.

Hi, Phil. Hi. Yeah, we're disciplined about the controller costs. So, again, as I mentioned in the first quarter, engineering costs will still remain between $2 and $2.5 million. So, yeah, we're disciplined about travel.

Okay, fantastic. Thank you, guys, for the questions. I'll pass it on. Thank you, Phil.

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. For those who would like to ask questions, you may press star 1 on your telephone and wait for a name to be announced. Our next question comes from the line of Marisa Hernandez from . Please ask your question.

Thank you and good afternoon. Just a quick housekeeping question. Can you give us some idea of what your capital expenditures would be in 2021? Thank you.

Sure. Maria, thank you. Again, I think the capex may be for building off the China 100 megawatts and also the project in Europe. So right now, the whole year capex is still between 20 and 25 million.

Thank you very much.

Again, for those who would like to ask questions, you may press star 1 on your telephone and wait for name to be announced. To ask questions, you may press star 1. For those who would like to ask questions, you may press star 1 on your telephone and wait for name to be announced. Once again, for those who would like to ask questions, please press star 1 on your telephone and wait for name to be announced. We have a follow up question from the line of from Raymond James. Please ask your question.

Yes, thank you. I wanted to follow up on Europe. The countries in your current late stage pipeline, Poland, Hungary, Spain, France, Germany, UK, are I believe the same six countries that you had at the beginning of the year. Do you anticipate adding any new opportunities in Europe in terms of entering a new market either by yourself or through the joint ventures like Eiffel?

Good question. We are on the same page. We are preparing to go to two to three more countries as the opportunities in Europe is really, we see lots of great quality growth in many countries in Europe. But as you know, we want to be very focused. So we do want to go to two or three more countries. We are actually developing the local partnerships including the joint development partnership and including some potential acquisition of the local teams, as I mentioned earlier. So we are considering expanding our activities to two, three more countries in Europe. Okay. Thank you very much. For example, yeah.

Again, for those who would like to ask questions, please press star one on your telephone, and great training to be announced. To ask questions, you may press star one. There's no more questions at this time. I would now like to hand the conference back to Mr. Yumin Liu. Please continue.

Thank you, operator. To conclude, we are committed to grow profitability, managing our operations efficiently, and strengthening our financial position. We are energized by 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.

This concludes this conference call. Thank you for participating.