Emeren Group Ltd

Q1 2024 Earnings Conference Call

5/23/2024

spk03: Hello, ladies and gentlemen. Thank you for standing by for Emron Group Limited's first quarter 2024 earnings conference call. Please note that we are recording today's conference call. I will now turn over the call to Suzanne Wilson, Director of Investor Relations at Emron Group. Please go ahead, Ms. Wilson.
spk09: Thank you, Operator, and hello, everyone. Thank you for joining us today to discuss our first quarter 2024 results. We released our shareholder letter after the market closed today, and it is available on our website at ir.mrin.com. We also provided a supplemental presentation that's posted on our IR website that we will reference during prepared remarks. On the call with me today are Mr. Yumin Liu, Chief Executive Officer, and Mr. Ka Chen, Chief Financial Officer. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent Emmering Group's current judgments for the future. However, they are subject to risk and uncertainties. That could cause action results to differ materially. Those risks are described under risk factors and elsewhere in Emmering Group filings of the SEC. Please do not place undue reliance on these forward-looking statements, which reflect Emarin Group's opinions only as of the date of this call. Emarin Group is not obliged to update you on any revisions to this forward-looking statement. In addition, please note that all financial numbers are discussed on this call are unaudited. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in USD dollars. With that, let me turn the call over to Mr. Yumin Liu. Yumin.
spk02: Thank you, Suzanne. Thank you, everyone, for joining our call today. I'll begin by providing an overview of our operational performance in Q1 2021. And Ke will discuss our financial results for Q1 and our outlook. In Q1, we generated 14.8 million in revenue, marking a 15% increase year-over-year our gross profit soared to $4 million, more than doubling from the previous year, with the gross margin reaching 27.2%. The operating loss was approximately $0.7 million, significantly reduced from last year. This substantial growth in revenue was primarily driven by our Expanding Development Service Agreement, or DSA, business, which generated over $5 million in revenue. Our effort to improve operational efficiency across all regions is paying off. We decreased operating expenses by over 50% through strategic cost control measures. That progress was offset this quarter by 0.7 million write-offs of canceled US early stage projects due to our shifted focus on advanced stage projects and unrealized foreign exchange loss of over 3.2 million. which constituted the bulk of our net loss. We'll give you a quick overview of each of our business lines, starting with the quarterly primary catalyst, then we'll circle back with more details later. Our DSA initiatives contribute to a stable and predictable business model, enabling revenue recognition at the early stage of the project development. This approach is proving instrumental in managing risks and maximizing cash flow efficiency across the project lifecycle. In Q1, DSA revenue accounted for 34% of our total, largely driven by battery energy storage system, or BESS, projects in Italy. Looking ahead, we are working to broaden our DSA partnerships on a global scale. Concurrently, our BAS pipeline continues to grow steadily globally. We recently signed a BSA agreement for our BAS projects in southern Italy with Norway Infrastructure, formerly known as Glenmont Partners, one of the world's largest fund managers specializing in clean energy, aiming for a total power capacity of 199 megawatts or up to 1.59 gigawatts. In April, we secure an additional agreement with Noveen for 155 megawatts or up to 1.24 gigawatts of battery storage projects. We bring the partnership total power capacity of 354 megawatts or up to 2.8 gigawatt hours. In Q1, our IPP assets were the primary drivers of growth and profitability. contributing to 38% of our revenue with a gross margin of 44%. IPP continues to be a pivotal component of our business model, providing a dependable source of stable and predictable cash flow. Our IPP revenue is balanced between Europe and China with a modest presence in the U.S. as of today. In Europe, we have 67 megawatt of IPP assets that generate sustainable revenue. For legacy reasons, we have IPP assets in China located in the five coastal provinces with favorable power prices, strong economies, and robust regulatory environments. We are now fortifying those assets by adding battery storage to the portfolio. As of the end of Q1, our battery storage portfolio comprised 19 megawatt hours, all integrated into the virtual power plant platform. The VPP platform owned and operated by Huanan Power International, one of the largest IPV operators in China. The VPP market in China expanding rapidly. During the quarter, we continue to develop solar and storage projects. As of the end of Q1 2024, we had over 2.6 gigawatts of advanced-stage, high-quality solar projects. We maintain our expectation to monetize approximately 400 to 500 megawatts of projects in 2024 and beyond. At the end of Q1, our total energy storage project pipeline had increased to over 8 gigawatts, or over 32 gigawatt hours. In conclusion, we are optimistic about our revenue growth potential, which is fueled by our strategic initiatives and a robust project pipeline, and our ability to achieve gross margin of over 30%. We are also confident we can continue to lower operating expenses. Now let me turn the call over to our CFO, Ke Chen, to discuss our financial performance and guidance.
spk04: Thank you, Yiming, and thanks everyone again for joining us on the call today. Our revenue of 14.8 million represented an increase of 15% year-over-year from Q1 2023 and a decrease of 36% from Q4 2023. The sequential decline was due to normal seasonality, while the year-over-year increase in revenue was primarily driven by our growing DSA business. which accounted for 34% of our revenue. Gross profit was $4 million compared to $3.3 million in Q4 2023 and $1.6 million in Q1 2023. Gross margin was 27.2% compared to 7.6% in Q4 2023 and 12.4% in Q1 2023. The gross margin improved sequentially, primarily driven by high-margin business contributed from DSA business. Operating expenses were $4.7 million, an improvement from $9.5 million in Q4 2023, and comparable to $4.6 million in Q1 2023. Our Q1 operating expenses were impacted by a $0.7 million write-off of canceled early-stage projects in the US. Lead loss attributed to Emerald Group LTD common shareholder was 4.4 million compared to lead loss of 8.1 million in Q4 2023 and lead loss of 0.2 million in Q1 2023. Diluted lead loss attributed to Emerald Group LTD's common shareholder per ADS was 8 cents compared to diluted lead loss of 15 cents in Q4 2023 and dilute that loss of $0 in Q1 2023. Cash used in operating activity was $3.3 million. Cash used in investing activity was $2.6 million. And cash used in financing activity was $8.4 million. Elective operating cash flow was primarily due to delayed payment from punished projects. Looking at our balance sheet. Cash at cash equivalent at end of Q1 2024 were 55.1 million compared to 70.2 million in Q4 2023. Net asset value for NAV is approximately 6.05 per ADS. Our debt to asset ratio at end of Q1 2024 was 9.99% compared to 9.44% at the end of Q4 2023. Additionally, during Q1, we purchased approximately US dollar 6.3 million worth of ADS. Moving to our outlook, we anticipate that our Q2 revenue will fall within the range of 20 to 23 million, with the gross margin between 40 to 45%. For the full year 2024, we reconfirm, reaffirm our Expectation for revenue to range from $150 to $160 million, and for gross margin of approximately 30%. Additionally, we expect our net income for 2024 to be around $22 million, with consideration of foreign exchange impact, and expect earning per ADS to be approximately $0.43. We illustrate our expectation for our IPP revenue in 2024 to be between 24 million to 26 million, with a gross margin of approximately 50%. We expect gross margin contributed by DSA globally to be within the range of 15 to 20%. With that, let's open up the call for any questions. Operator, please go ahead.
spk03: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Philip Shen with Rothkamp KM. You may proceed.
spk08: Everyone, thanks for taking my questions. I wanted to talk about your guidance. So, Q1 was a little bit light. Q2 was also, your guide was a little bit light versus our expectations. And so there's a big ramp in Q3 and Q4. I was wondering, you plan on monetizing 450 megawatts in 24. What do you think the monetization might be by quarter, just to give us a rough cadence of the monetization? Thanks.
spk04: Sure. Again, like I said, we will confirm our full-year revenue guidance and growth margin guidance. Yes, we do expect ramp-up in the second half. And again, some of the projects are under negotiation right now. So we do expect, again, ramp-up both in Q3 and Q4.
spk08: Right. So what do you expect to happen to allow for that ramp-up? And what have the reasons for the delays been?
spk04: Again, for some of the approval delays, we still expect that, but we're expecting those to happen in the second half. And also, again, we are executing some of the Negotiate some of the contract right now and we expect those contract to be executed in q3 and q4 Right, I'm sorry.
spk08: I'm not asking about the timing. I'm asking about the reasons for the delay so You know in the US. I know there's a lot of reasons, you know interconnection transmission cues Long lead time high voltage equipment. Yeah high elevated rates What else? Labor constraints, EPC constraints. Those are all resulting in delays in the U.S. projects on the margin. What are you seeing in Europe? Are those the same issues in Europe or is it? I'm imagining it's a different set of issues. So can you give us some color as to, you know, what is causing the delay?
spk04: Sure.
spk08: Or is it just bilateral negotiation kind of?
spk04: First of all, U.S., what you mentioned is correct, but our focus in U.S. is actually community solar. Again, we are focused on New York, for example. That delay actually helped us because some of the adders added for NICEDA, so allow us to get a better price. Instead, we sold our project in Q4. we already negotiate the contract, we're getting better price. So the delay will help us in the Q2, starting Q2 and the many Q3 and Q4. So US, you hit a good point there. But for Europe, I think we experience, continue to experience an administration delay, for example, from Spain. But we are expect those happen in Q4. And so, and again, some of the, project we mentioned in Hungary, we're expecting some delays, but we are, again, expect those happen again in the second half.
spk08: Okay, so did you say they're administration delays? So it's based on the local government and the challenges?
spk04: Yeah, some of the permits for Spain be specific, and their laws are like more than, like, up to 12 months delays in some of the regions. So, but we are pushing through all these approvals.
spk07: Okay.
spk08: So, but there, okay, so there's a chance that these could extend as well, right? I mean, some of these challenges could sustain beyond 24? I mean, what's the potential that it could take longer than you think?
spk04: Again, our team is working very hard to minimize this impact. So, like I said, we'll renegotiate this contract, try to get this done in Q3 and Q4.
spk02: Let me add some color on this one, Phil. Thanks, Jimmy. For example, Spain, we signed the contract, SPA, back to over six months ago. And we expect that to be done within Q1, or even as early as last Q4. but it didn't happen as the Spain government issued a new rule which allows the local admin office to not, to have 14 months, up to 14 months time to get project approved based on the priority of the deal. So we now consider that's one of the deals we're supposed to close within first half, but now it goes to second half or most likely will be in Q4. So that is one example. And Hungary, the same thing, that every single deal, we went through the foreign buyer. It will be under the local government policy. You cannot literally on local government regulation. It's not easy to sell to foreign buyers. So we have to switch local buyers. And now we are in the process of the negotiations. So all those delays will happen, but we are fully confident that those closings will happen in the second half.
spk08: Okay. One last question and I'll pass it on. As it relates to the Polish payments, I guess that was an issue for Q1. What exactly was going on there? And then do you expect that challenge to sustain in Q2 or even through Q3? the back half of the year. Thanks.
spk04: We are working with the buyers to settle this. So we're expecting the payoffs in June. So, and again, we are not expecting further delay anymore.
spk08: But what is the root cause of the issue? What happened?
spk04: Again, there is a pack delay, like the local Polish government, same thing. They have to pull this power plant to be collected. So there's a so-called PAC certificate, certification show.
spk02: Basically that the power plant needs to be constructed, receiving so-called PAC, performance acceptance certificate. And then after that one, we get paid. But there's another big thing is that the project is centered in the final stage of closing financing. and it's supposed to be done within the next several weeks. So that's why Kuro mentioned we expect the payment starting in June.
spk08: Okay. Okay, great. Best of luck as you get through the year. I'll pass it on.
spk03: Thank you, Phil. Thank you. Thank you. One moment for questions. Our next question comes from Pavel Malkinov with Raymond James. You may proceed.
spk14: Thanks for taking the question.
spk15: Zooming out first, are there any complications with module supply on either side of the Atlantic? And do you envision the supply situation worsening with the new tariffs announced in Washington?
spk02: Yes and no. For the U.S., as the good part of our story is, we don't plan to do much of the UPC work in the US as we flip the deal before or add the NTP. But we do have some considerations doing a small deal, which we are doing, which all the modules have been secured for a small deal in Maine. So on that part, we are a lot less impacted. And by going into the future, that may limit many other utility-scale players on the module supply. But in any case, we see that happen within weeks, but not really impacting us much. But for Europe, we don't see that yet. At this time, still, we carry through the very competitive pricing without any additional tariff. So that is why we literally double, triple our growth potential in Europe compared to what we are doing in the U.S.
spk15: Okay. When I look at your project pipeline, the advanced stage looks relatively balanced by country. The early stage is more than two-thirds Spain. What explains the scale of these early stage opportunities in the Spanish markets?
spk02: That's a very interesting question that the Spanish market is one of the most focused market for our company in Europe. And we believe Spanish market still or continues presenting us good potential. We have spent lots of time developing partnerships with local smaller developers. We also develop partnerships going forward with the with our joint venture partners like ECHO to see if we can put more resources into the early stage all the way on the development. I will see that the Spanish market continues to be strong, especially we learned that the Spanish government is considering adding battery storage into the marketplace. So with that new initiative, I am looking confident about the growth.
spk15: Okay, interesting. Last question. You've, you know, continued to repurchase shares. You know, obviously the stock is still down quite a bit year to date. How much more cash are you willing to allocate towards buybacks?
spk04: Probably we still have, I think, roughly 15 million left from the board authorization. So that has been proved. So that's what we could use.
spk15: 15, 1.5 million.
spk04: Yeah.
spk15: Okay. Thanks very much.
spk03: Thank you, Paolo. Thank you. One moment for questions. Our next question comes from Donovan Schaefer with Northland Capital Markets. You may proceed.
spk06: Hey, guys. Thanks for taking the questions.
spk05: So first I want to ask for Spain for the storage project pipeline. So looking at the letter to shareholders from last quarter, there was about a gigawatt of... a gigawatt hour of battery storage that was advanced stage for Spain. And then in this, the letter for this quarter, that was, it looks like that was essentially eliminated. It went from about a gigawatt down to 36 megawatts. Is there, and it looks like the early stage really jumped, which Pavel was kind of commenting on. I mean, it also went up for solar as well, but So is that a reclassification from advanced stage for Spain to classify it back to bring it back down to early stage? Or what happened to that gigawatt of advanced stage Spanish?
spk02: You know, Donovan, thank you. It's a very interesting question. And also, you hit the right spot. You know, we are becoming more and more conservative in consideration of the global level interconnection bottleneck. Spain is also one of the countries or the markets facing the challenges of the interconnection issues. So the way we pass through in all markets, our conservative review so-called recategorize our advanced stage or early stage projects. And that resulted in this moving this one gigawatt all the way from advanced stage to early stage to be more That is the reason that we are continuing developing those projects, but nothing wrong. But the only thing is that we foresee the interconnection approval delays, which is less optimistic than last quarter. That is why we moved that from the Wednesdays to early stage. But one thing, you know, Donovan, I have to point out, our advanced state pipeline in Europe is continuing growing. So we have more than last quarter in general.
spk05: Okay, okay. And then turning to the solar pipeline, so for Germany, as we talk, here I'm looking at... the early stage so the the advanced stage for germany that stayed the same so it doesn't look like there's any movement there but the early stage dropped from 690 megawatts to 360 megawatts and you you mentioned you know there was a right there was a right down or an impairment for early stage projects in the us but um is there would that kind of thing trigger you know i guess First, what caused the reduction in Germany? But then secondly, why was that not also an impairment or a write-down of some kind? Or did that have an impact on the financials?
spk04: Let me answer that, Donovan. Actually, we bid two projects in Germany, which we failed to. So we didn't win the bid. So that pipeline got removed. There is some small, very small impairment in Germany also, but that's very small compared to what we mentioned here in U.S. It's only like less than 50K U.S. dollar.
spk05: Okay, got it. And then just one more for me. You know, you've got some IPP assets in China. You know, you're doing some development work there. And, you know, there's, I think you're still, maybe Cayman Island based. They're not technically a U.S. company. But the question is, you know, is there any risk of sort of like retaliation or anything that could impact you guys? You know, someone already asked about modules applying to the U.S., but just in terms of, you know, inside China or even in European countries or other places where maybe you work with Chinese companies, or source panels from China or anything, is there any risk of you guys being negatively impacted if the Chinese government were to take some kind of a retaliation against the United States?
spk02: No, I don't think so, and we don't see that either. The current solar market in China represents over 60% of the downstream market in the world, while the supply chain side not only modules, but also battery storage. China represents over 80% or even a lot more. So the definitely U.S. 201, 301 tariffs will set some limitations or restrictions for China cell and potentially in the future, the battery storage components coming to U.S. But as I answered Pablo's question, that we grow not only very fast in Europe, But also, we are strategizing, not hoping that the 201, 301 U.S. term will not impact our U.S. activities. But going back to China, definitely we don't see any negative impacts as the China capex continues going down, down and down. The battery storage goes to about $70 per kilowatt hour. Apple to Apple comparison, and also the module goes to below $0.90. So everything looks so good, and the market is strong, and we feel confident that it's not bringing any negative impact to the company.
spk04: But, Donovan, just to make a correction, we are a BVI company. And again, we don't see the impact because we're running IPP business in China. All the off-taker is individual enterprise in China and the United Five most economic high-cost area. I don't see any impact because those businesses are still ongoing.
spk05: Okay. All right. Thanks, guys. I'll take the rest of my questions offline.
spk04: Thank you.
spk03: Thank you. One moment for questions. Our next question comes from Amit Dal with H.E. Rainwright. You may proceed.
spk13: Thank you. Good afternoon, everyone. So with respect to the heavier contribution, with respect to the outlook coming in the second half, is there any particular projects that make up a majority of these expected revenues in the second half? Just trying to see if there's any concentration risk. with respect to any projects that you are looking to monetize in the second half?
spk04: Yes. I mean, I think we mentioned this Hungary project, and that's the one we are actually under negotiation right now. So, but we confident it will happen in the second half.
spk10: Okay. Thank you.
spk13: And the higher gross margins in 2Q you're expecting, is it, again, just coming from the China business and the DSA revenues?
spk04: Yes. So for Q2, the higher margin, first of all, this is a higher season in terms of IPP for sure. So that helped with the margin. Secondly, we continue doing our DSA business. And the GSA business, like we mentioned in the first quarter, stay at a high margin. And also we have, again, some project sales in Europe. Those are like NTP sales, so that maintain high margin. So overall, that brings higher gross margin guidance.
spk12: Okay, I understand. Thank you for that.
spk13: This last one, you know, you do still have a pretty good balance sheet. I know in the last call you gave guidance that you might end the year with $100 million in cash. Is that still in play?
spk04: Of course. We are still confident about that at this point.
spk13: Okay. And then, you know, with that kind of balance sheet, do you think you might want to pursue more IPP opportunities given sort of the margin strength you're seeing, you know, with that segment?
spk04: Of course, like we mentioned this in the last few calls, we are like IPP business model to continue to identify high return IPPs, especially out of Europe. So we are, again, continue looking at those opportunities.
spk13: OK. That's all I have, guys. I'll take my other questions offline. Thank you.
spk03: Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. And I'm not showing any further questions in queue. I'd like to turn the conference back to Mr. Liu for any closing remarks.
spk02: Thank you, operator. Despite challenges such as high interest rates and the U.S. election cycle, we are strengthening our position in fast-growing solar markets. Thanks to increasing demand for clean energy and supportive policies, our expertise and strong industry partnerships are pushing us toward becoming a leading global renewable energy company. We are excited about solar energy's future and grateful to our employees, customers, partners, and shareholders for their continuous support. Thank you again for joining our call today. You may now disconnect.
spk03: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect. music music music you Hello, ladies and gentlemen. Thank you for standing by for Emrin Group Limited's first quarter 2024 earnings conference call. Please note that we are recording today's conference call. I will now turn over the call to Suzanne Wilson, Director of Investor Relations at Emrin Group. Please go ahead, Ms. Wilson.
spk09: Thank you, Operator, and hello, everyone. Thank you for joining us today to discuss our first quarter 2024 results. We released our shareholder letter after the market closed today, and it is available on our website at ir.mrin.com. We also provided a supplemental presentation that's posted on our IR website that we will reference during prepared remarks. On the call with me today are Mr. Yumin Liu, Chief Executive Officer, and Mr. Ka Chen, Chief Financial Officer. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent Emmering Group's current judgment for the future. However, they are subject to risk and uncertainties. That could cause action results to differ materially. Those risks are described under risk factors and elsewhere in Emmering Group filings of the SEC. Please do not place undue reliance on these forward-looking statements, which reflect Emarin Group's opinions only as of the date of this call. Emarin Group is not obliged to update you on any revisions to this forward-looking statement. In addition, please note that all financial numbers are discussed on this call are unaudited. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in USD dollars. With that, let me turn the call over to Mr. Yumin Liu. Yumin. Thank you, Suzanne.
spk02: Thank you, everyone, for joining our call today. I'll begin by providing an overview of our operational performance in Q1 2021. And Ke will discuss our financial results for Q1 and our outlook. In Q1, we generated 14.8 million in revenue, marking a 15% increase year-over-year. our gross profit soared to $4 million, more than doubling from the previous year, with the gross margin reaching 27.2%. The operating loss was approximately $0.7 million, significantly reduced from last year. This substantial growth in revenue was primarily driven by our Expanding Development Service Agreement, or DSA, business, which generated over $5 million in revenue. Our effort to improve operational efficiency across all regions is paying off. We decreased operating expenses by over 50% through strategic cost control measures. That progress was offset this quarter by 0.7 million write-offs of canceled US early stage projects due to our shifted focus on advanced stage projects and unrealized foreign exchange laws of over 3.2 million. which constituted the bulk of our net loss. We'll give you a quick overview of each of our business lines, starting with the quarterly primary catalyst, then we'll circle back with more details later. Our DSA initiatives contribute to a stable and predictable business model, enabling revenue recognition at the early stage of the project development. This approach is proving instrumental in managing risks and maximizing cash flow efficiency across the project lifecycle. In Q1, DSA revenue accounted for 34% of our total, largely driven by battery energy storage system, or BESS, projects in Italy. Looking ahead, we are working to broaden our DSA partnerships on a global scale. Concurrently, our BAS pipeline continues to grow steadily globally. We recently signed a BSA agreement for our BAS projects in southern Italy with Norway Infrastructure, formerly known as Glenmont Partners, one of the world's largest fund managers specializing in clean energy, aiming for a total power capacity of 199 megawatts or up to 1.59 gigawatts. In April, we secured an additional agreement with Novem for 155 megawatts or up to 1.24 gigawatts of battery storage projects, bringing the partnership total power capacity of 354 megawatts or up to 2.8 gigawatt hours. In Q1, our IPP assets were the primary drivers of growth and profitability. contributing to 38% of our revenue, with a gross margin of 44%. IPP continues to be a pivotal component of our business model, providing a dependable source of stable and predictable cash flow. Our IPP revenue is balanced between Europe and China, with a modest presence in the US as of today. In Europe, we have 67 megawatt of IPP assets that generate sustainable revenue. For legacy reasons, we have IPP assets in China located in the five coastal provinces with favorable power prices, strong economies, and robust regulatory environments. We are now fortifying those assets by adding battery storage to the portfolio. As of the end of Q1, our battery storage portfolio comprised 19 megawatt hours, all integrated into the virtual power plant platform. The VPP platform owned and operated by Huaneng Power International, one of the largest IPV operators in China. The VPP market in China expanding rapidly. During the quarter, we continue to develop solar and storage projects. As of the end of Q1 2024, we had over 2.6 gigawatts of advanced-stage, high-quality solar projects. We maintain our expectation to monetize approximately 400 to 500 megawatts of projects in 2024 and beyond. At the end of Q1, our total energy storage project pipeline had increased to over 8 gigawatts, or over 32 gigawatt hours. In conclusion, we are optimistic about our revenue growth potential, which is fueled by our strategic initiatives and a robust project pipeline, and our ability to achieve gross margin of over 30%. We are also confident we can continue to lower operating expenses. Now let me turn the call over to our CFO, Ke Chen, to discuss our financial performance and guidance.
spk04: Thank you, Yiming, and thanks everyone again for joining us on the call today. Our revenue of $14.8 million represented an increase of 15% year-over-year from Q1 2023 and a decrease of 36% from Q4 2023. The sequential decline was due to normal seasonality, while the year-over-year increase in revenue was primarily driven by our growing DSA business. which accounted for 34% of our revenue. Gross profit was $4 million compared to $3.3 million in Q4 2023 and $1.6 million in Q1 2023. Gross margin was 27.2% compared to 7.6% in Q4 2023 and 12.4% in Q1 2023. The gross margin improved sequentially, primarily driven by high-margin business contributed from DSA business. Operating expenses were $4.7 million, an improvement from $9.5 million in Q4 2023, and comparable to $4.6 million in Q1 2023. Our Q1 operating expenses were impacted by a $0.7 million write-off of canceled early-stage projects in the U.S. Lead loss attributed to Emerald Group LTD common shareholder was 4.4 million compared to lead loss of 8.1 million in Q4 2023 and lead loss of 0.2 million in Q1 2023. Diluted lead loss attributed to Emerald Group LTD's common shareholder per ADS was 8 cents compared to diluted lead loss of 15 cents in Q4 2023 and dilute that loss of $0 in Q1 2023. Cash used in operating activity was $3.3 million. Cash used in investing activity was $2.6 million. And cash used in financing activity was $8.4 million. Negative operating cash flow was primarily due to delayed payment from published projects. Looking at our balance sheet. Cash at cash equivalent at end of Q1 2024 were 55.1 million compared to 70.2 million in Q4 2023. Net asset value for NAV is approximately 6.05 per ADS. Our debt to asset ratio at end of Q1 2024 was 9.99% compared to 9.44% at the end of Q4 2023. Additionally, during Q1, we purchased approximately $6.3 million worth of ADS. Moving to our outlook, we anticipate that our Q2 revenue will fall within the range of $20 to $23 million, with the gross margin between 40% to 45%. For the full year 2024, we reconfirm, reaffirm our Expectation for revenue to range from 150 to 160 million, and for gross margin of approximately 30%. Additionally, we expect our net income for 2024 to be around 22 million, with consideration of foreign exchange impact. And expect earning per ADS to be approximately 43 cents. We illustrate our expectation for our IPP revenue in 2024 to be between 24 million to 26 million, with a gross margin of approximately 50%. We expect gross margin contributed by DSA globally to be within the range of 15 to 20%. With that, let's open up the call for any questions.
spk03: Operator, please go ahead. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Philip Chen with Rothkamp KM. You may proceed.
spk08: Hi, everyone. Thanks for taking my questions. I wanted to talk about your guidance. So, Q1 was a little bit light. Q2 was also – your guide was a little bit light versus our expectations. And so there's a big ramp in Q3 and Q4. I was wondering – you plan on monetizing 450 megawatts in 24. What do you think the monetization might be by quarter, just to give us a rough cadence of the monetization? Thanks.
spk04: Sure. Again, like I said, we will confirm our full-year revenue guidance and growth margin guidance. Yes, we do expect a ramp-up in the second half. And again, some of the projects are under negotiation right now. So we do expect, again, ramp-up both in Q3 and Q4.
spk08: Right. So what do you expect to happen to allow for that ramp-up? And what have the reasons for the delays been?
spk04: Again, for some of the approval delays, we still expect that, but we're expecting those to happen in the second half. And also, again, we are executing some of the Negotiate some of the contract right now and we expect those contract to be executed in q3 and q4 Right, I'm sorry I'm not asking about the timing.
spk08: I'm asking about the reasons for the delay so You know in the US. I know there's a lot of reasons, you know interconnection transmission cues Long lead time high voltage equipment. Yeah high elevated rates What else? Labor constraints, EPC constraints. Those are all resulting in delays in the U.S. projects on the margin. What are you seeing in Europe? Are those the same issues in Europe or is it? I'm imagining it's a different set of issues. So can you give us some color as to, you know, what is causing the delay? Sure. Or is it just bilateral negotiation kind of?
spk04: First of all, U.S., what you mentioned is correct. But our focus in U.S. is actually community solar. And again, we are focused on New York, for example. That delay actually helped us, because some of the adders added for NaSEDA, so allow us to get a better price. So instead, we sold our project in Q4. We already negotiated the contract. We're getting better price. So the delay will help us in the Q2, starting Q2 and the main in Q3 and Q4. So US, you hit a good point there. But for Europe, I think we experience, continue to experience an administration delay, for example, from Spain. But we are expect those happen in Q4. And so and again, some of the project we mentioned in Hungary, we're expecting some delays, but we are, again, expect those happen again in the second half.
spk08: Okay, so did you say they're administration delays, so it's based on the local government and the challenges?
spk04: Yeah, some of the permits for Spain be specific, and they announced more than, like, up to 12 months delays in some of the regions. But we are pushing through all these approvals.
spk07: Okay.
spk08: So there's a chance that these could extend as well, right? I mean, some of these challenges could sustain beyond 24? I mean, what's the potential that it could take longer than you think?
spk04: Again, our team is working very hard to minimize this impact. So like I said, we'll renegotiate this contract, try to get this done in Q3 and Q4.
spk02: Let me add some color on this one, Phil. Thanks, Jimmy. For example, Spain, we signed the contract, SPA, back to over six months ago. And we expect that to be done within Q1 timeframe, or even as early as last Q4. but it didn't happen as the Supreme government issued a new rule which allows the local administration admin office to not, to have 14 months, up to 14 months time to get project approved based on the priority of the deal. So we now consider that's one of the deals we're supposed to close within first half, but now it goes to second half or most likely will be in Q4. So that is one example. And Hungary, the same thing. That every single deal, we go through the foreign buyer. It will be under the local government policy. You cannot look into the local government regulation. It's not easy to sell to foreign buyers. So we have to switch local buyers. And now we are in the process of the negotiations. So all those delays will happen, but we are fully confident that those closings will happen in the second half.
spk08: Okay. One last question, and I'll pass it on. As it relates to the Polish payments, I guess that was an issue for Q1. What exactly was going on there, and then do you expect that challenge to sustain in Q2 or even through Q3? the back half of the year. Thanks.
spk04: We are working with the buyers to settle this, so we're expecting the payoffs in June. So, and again, we are not expecting further delay anymore.
spk08: What is the root cause of the issue? What happened?
spk04: Again, there is a packed delay, like the local Polish government, same thing. They have to pull this power plant to be collected So there's a so-called PAC certificate, certification show.
spk02: Basically that the power plant needs to be constructed, receiving so-called PAC, Performance Acceptance Certificate. And then after that one, we get paid. But there's another big thing is that the projects enter in the final stage of closing financing. and it's supposed to be done within the next several weeks. So that's why Kuro mentioned we expect the payment starting in June.
spk08: Okay. Okay, great. Best of luck as you get through the year. I'll pass it on.
spk03: Thank you, Phil. Thank you. Thank you. One moment for questions. Our next question comes from Pavel Malkinov with Raymond James. You may proceed.
spk14: Thanks for taking the question.
spk15: Zooming out first, are there any complications with module supply on either side of the Atlantic? And do you envision the supply situation worsening with the new tariffs announced in Washington?
spk02: Yes and no. For the U.S., as the good part of our story is, we don't plan to do much of the UPC work in the U.S. as we flipped the deal before or add the NTP. But we do have some considerations doing a small deal, which we are doing, which all the modules have been secured for a small deal in Maine. So on that part, we are a lot less impacted. But going into the future, that may limit many other utility-scale players on the module supply. But in any case, we see that happen within weeks, but not really impacting us much. But for Europe, we don't see that yet. At this time, still, we carry through the very competitive pricing without any additional tariff. So that is why we literally double, triple our growth potential in Europe compared to what we are doing in the U.S.
spk15: Okay. When I look at your project pipeline, the advanced stage looks relatively balanced by country. The early stage is more than two-thirds Spain. What explains the scale of these early stage opportunities in the Spanish markets?
spk02: That's a very interesting question that the Spanish market is one of the most focused market for our company in Europe. And we believe Spanish market still or continues presenting us good potential. We have spent lots of time developing partnerships with local smaller developers. We also develop partnerships going forward with the with our joint venture partners like Echo to see if we can put more resources into the early stage all the way on the development. I will see that the Spanish market continues to be strong, especially we learned that the Spanish government is considering adding battery storage into the marketplace. So with that new initiative, I am looking confident about the growth.
spk15: Okay, interesting. Last question. You've, you know, continued to repurchase shares. You know, obviously the stock is still down quite a bit year to date. How much more cash are you willing to allocate towards buybacks?
spk04: Pavel, we still have, I think, roughly 15 million left from the board authorization. So that has been improved. So that's what we could use.
spk15: 15, 1.5 million.
spk04: Yeah.
spk15: Okay. Thanks very much.
spk03: Thank you, Paolo. Thank you. One moment for questions. Our next question comes from Donovan Schaefer with Northland Capital Markets. You may proceed.
spk06: Hey, guys. Thanks for taking the questions.
spk05: So first I want to ask for Spain for the storage project pipeline. So looking at the letter to shareholders from last quarter, there was about a gigawatt of a gigawatt hour of battery storage that was advanced stage for Spain. And then in this, the letter for this quarter, that was, it looks like that was essentially eliminated. It went from about a gigawatt down to 36 megawatts. Is there, and it looks like the early stage really jumped, which Pavel was kind of commenting on. I mean, it also went up for solar as well, but So is that a reclassification from advanced stage for Spain to classify it back, to bring it back down to early stage? Or what happened to that gigawatt of advanced stage Spanish?
spk02: You know, Donovan, thank you. It's a very interesting question, and also you hit the right spot. You know, we are becoming more and more conservative in consideration of the global level interconnection bottleneck. Spain is also one of the countries or the markets facing the challenges of the interconnection issues. So the way we pass through in all markets, our conservative review so-called recategorize our advanced stage or early stage projects. And that resulted in this moving this one gigawatt all the way from advanced stage to early stage to be more That is the reason that we are continuing developing those projects, but nothing wrong. But the only thing is that we foresee the interconnection approval delays, which is less optimistic than last quarter. That is why we moved that from the Wednesdays to early stage. But one thing, you know, Donovan, I have to point out, our advanced state pipeline in Europe is continuing growing. So we have more than last quarter in general.
spk05: Okay, okay. And then turning to the solar pipeline, so for Germany, as we talk, here I'm looking at... the early stage. So the advanced stage for Germany, that stayed the same. It doesn't look like there's any movement there. But the early stage dropped from 690 megawatts to 360 megawatts. And you mentioned there was a write-down or an impairment for early stage projects in the US. But would that kind of thing trigger, I guess, First, what caused the reduction in Germany? But then secondly, why was that not also an impairment or a write-down of some kind? Or did that have an impact on the financials?
spk04: Let me answer that, Donovan. Actually, we bid two projects in Germany, which we failed to. So we didn't win the bid. So that pipeline got removed. There are some very small impairments in Germany also, but that's very small compared to what we mentioned here in the U.S. It's only like less than 50K U.S. dollar.
spk05: Okay, got it. And then just one more for me. You've got some IPP assets in China. You're doing some development work there. I think you're still... maybe Cayman Island based. They're not technically a U.S. company. But the question is, you know, is there any risk of sort of like retaliation or anything that could impact you guys? You know, someone already asked about modules applying to the U.S., but just in terms of, you know, inside China or even in European countries or other places where maybe you work with Chinese companies,
spk02: uh or source panels from china or anything is there any risk of you guys being negatively impacted if um the chinese government were to take some kind of a you know retaliation against the united states no i i don't think so and we don't see that either the uh currently solar market china represents over 60 percent of the downstream market in the world while the supply chain side not only modules, but also battery storage. China represents over 80% or even a lot more. So the definitely US 201, 301 tariffs will set some limitations or restrictions for China cell and potentially in the future, the battery storage components coming to US. But as I answered Paolo's question, that we grow not only very fast in Europe, But also, we are strategizing, not hoping that the 201, 301 U.S. term will not impact our U.S. activities. But going back to China, definitely we don't see any negative impacts as the China capex continues going down, down and down. The battery storage goes to about $70 per kilowatt hour. Apple to Apple comparison, and also the module goes to below $0.09. So everything looks so good, and the market is strong, and we feel confident that it's not bringing any negative impact to the company.
spk04: But, Donovan, to make a correction, we are a PVI company. And again, we don't see the impact because we're running IPP business in China. All the off-taker is individual enterprise in China and the United Five most economic high-growth area. I don't see any impact because those businesses are still ongoing.
spk05: Okay. All right. Thanks, guys. I'll take the rest of my questions offline.
spk04: Thank you.
spk03: Thank you. One moment for questions. Our next question comes from Amit Dal with HC Rainwright. You may proceed.
spk13: Thank you, Graf and everyone. So with respect to the, you know, heavier contribution with respect to the outlook, you know, coming in the second half, is there any particular projects that make up, you know, majority of these expected revenues in the second half? Just trying to see if there's any, you know, concentration risk with respect to any projects that you are looking to monetize in the second half?
spk04: Yes. I mean, I think we mentioned this Hungary project, and that's the one we are actually under negotiation right now. But we're confident it will happen in the second half.
spk10: Okay. Thank you.
spk13: And the higher gross margins in 2Q you're expecting, is it, again, just coming from the China business and the DSA revenues?
spk04: Yes. So for Q2, the higher margin, first of all, this is a higher season in terms of IPP for sure. So that helped with the margin. Secondly, we continue doing our DSA business. And the GSA business, like we mentioned in the first quarter, stay at a high margin. And also we have, again, some project sales in Europe. Those are like NTP sales, so that maintain high margin. So overall, that brings higher gross margin guidance.
spk12: Okay, I understand. Thank you for that.
spk13: This last one, you know, you do still have a pretty good balance sheet. I know in the last call you gave guidance that you might end the year with $100 million in cash. Is that still in play?
spk04: Of course. We are still confident about that at this point.
spk13: Okay. And then, you know, with that kind of balance sheet, do you think you might want to pursue more IPP opportunities given sort of the margin strength you're seeing, you know, with debt segmentation?
spk04: of course like we mentioned this in the last few course we are like IPP business model to continue to identify high return IPPs especially out of Europe so we are again continue looking at those opportunities okay so that's all I have guys I'll take my other questions offline thank you
spk03: Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. And I'm not showing any further questions in queue. I'd like to turn the conference back to Mr. Liu for any closing remarks.
spk02: Thank you, operator. Despite challenges such as high interest rates and the U.S. election cycle, we are strengthening our position in fast-growing solar markets. Thanks to increasing demand for clean energy and supportive policies, our expertise and strong industry partnerships are pushing us toward becoming a leading global renewable energy company. We are excited about solar energy's future and grateful to our employees, customers, partners, and shareholders for their continuous support. Thank you again for joining our call today. You may now disconnect.
spk03: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Disclaimer

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