ReneSola Ltd (SOL) Q4 2019 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. And welcome to the Q4 2019 ReneSola Ltd Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Gary Dvorchak. Thank you. Please go ahead. Gary Dvorchak Thank you, operator. And hello, everyone. Thank you for joining us on today’s call to discuss fourth quarter and full-year 2019 results. We released our shareholder letter a couple of hours ago and 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. Yumin Liu, Chief Executive Officer; Mr. Ke Chen, Chief Financial Officer; and Mr. John Ewen, CEO of North America. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ReneSola's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in ReneSola's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ReneSola's opinions only as of the date of this call. ReneSola Power is not obliged to update you on any revisions to these forward-looking statements. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in US dollars. With that, let me now turn the call over to Mr. Yumin Liu, who will discuss the operating highlights. Yumin?

Thank you, Gary. And thank you everyone for joining the call. I'm proud to speak to you today. This is my first earnings call since I joined the company several months ago and I'm very excited. I see tremendous opportunities for our company as a pure play project developer in the fast growing market. We are now a completely new company. In 2019, we completed a multi-year transformation of our business. We have a new name, new leadership, new headquarters here in the US and a new business model. We are operating profitably and have shored up our balance sheet, creating a solid foundation for growth. We are solely focused on solar project development in the US and Europe, which are the best markets in the world. Our company has never been in a better position to drive profitable growth. To get started, I will summarize our financial performance and review our operating highlights. I will then turn the call over to Ke who will cover financial results in more detail and we'll provide 2020 guidelines. We will then open the call to questions. Our momentum strengthened in 2019. The solid financial and operating results demonstrates strong execution of the why strategy. Revenue for the full year grew by 23%. Excluding some non-cash charges, which Ke talk about shortly, we more than doubled non-GAAP net income attributable to the shareholders. More importantly, we generated $56 million of cash flow from operations. We improved our balance sheet by significantly increasing our cash position and reducing debt, providing the financial flexibility to drive growth for the quarters and years ahead. Operational execution was excellent during the year. We connected about 60 megawatts of projects, including 24 megawatts in US, 70 megawatts in Europe, 7 megawatts of feed-in tariff projects in Canada and about 11 megawatts in China. At year-end, our total project pipeline was about 700 megawatts, including about 400 megawatts in late stage. We are optimizing by directing resources to the markets with the best profit potential. As part of the efforts, we wrote down several projects in emerging markets that were not economically viable, freeing up resources to be redirected to other profitable markets. At the moment, the best markets in the world, we believe, are Europe and the US, where we see tremendous growth opportunities and we can identify high quality projects. Fourth quarter revenue of $26.5 million exceeded the high end of our guidance, while gross margin of 26.9% met our expectations. Ke will go over this and other details of our financial results later on this call. I will now spend a few minutes talking about our competitive advantages which position us for growth in the years ahead. First, we have a clear and why strategy. We develop profitable projects with very attractive returns, utilize an asset-light business model, apply our unique value-add experience at different development stages, and sell our projects based on the buyers' need at different stages along the project development cycle. Next, we have a globally diversified project pipeline focused on fast-growing markets. The global solar power market is very large and here it continues to grow. Our targets are countries where solar power usage is growing rapidly, supported by stable government policies and natural demand for green energy. Our main targets are the US, Poland, Hungary, Spain, France, UK and Germany. In the US, we focus on six states, including Minnesota and New York. In Europe, we believe we are in the market leading position in several countries, including Poland and Hungary. Our pipeline reflects our focus on these targets. Third, we can grow beyond the current pipeline. We intend to add another 1 gigawatt of projects to the current pipeline by the end of 2020, as shown on slide 5. I am comfortable with this target, which we believe is realistic and achievable based on our solid experience, a strong network in our target markets. In fitting with our strategy, the incremental projects will spread across multiple countries. Another key competitive advantage is our outstanding management team. Our new team comprises highly skilled professionals with an average of over 10 years of experience in renewable energy industry. We have expertise in project development, project management, strategic investment and capital markets. Our track record is excellent since starting our downstream business in 2012. We have successfully completed several hundred small scale projects, totaling about 800 megawatts. We currently have 260 megawatts of solar projects in operation globally. And we successfully monetized about 600 megawatts of projects across different geographies at various stages. First, we are a pure play in the downstream segments of the solar value chain. We believe the dominant trend in our industry for the next few years will be small scale projects with a high PPA or feed-in-tariff price. We have significant experience and success in developing these sort of projects, especially distributed generation and community solar projects. That experience gives us a huge advantage compared to large utility scale developers. Finally, we have established solid relationships with multiple stakeholders in order to support our project development and investment activities. This includes customers, strategic investors, and financing partners across the globe. I want to give you a couple of examples. In the US, we assisted a project development partner to obtain site control, permitting, interconnection, and offtake agreement for the development of large utility scale projects. The partner carried the project forwards through the financing and construction phase. In Europe, we formed a strategic partnership with a project owner and financer, providing development services. Together, we have won a very competitive PPA tendering process for certain megawatt utility scale projects in South of France. Now, I want to highlight a few key geographies in more detail. First, let's turn our attention to US. As highlighted on slide 7, our late-stage projects stand at around 193 megawatts, of which 71 megawatts are community solar in Minnesota and New York. Additionally, we have projects under development with a mix of corporate, municipal and utility offtakers in other states, such as Utah, Florida and Maine. In the meantime, we operate 24 megawatts of utility projects in North Carolina. In Poland, shown on slide eight, our key assets is a portfolio of project rights. During the quarter, we sold 26 megawatts of those awarded to us in 2018 auction. We now have a pipeline of 19 megawatt ground-mounted projects under development. Slide 9 refers to our marketing in Hungary where we also invest in small scale DG projects. Our late-stage pipeline has a number of such micro projects. Each is 0.5 megawatt. We have a total capacity of about 35 megawatts in the country. Of this late stage portfolio, 50 megawatts are under construction and expected to be connected to the grid in the second quarter of this year. In January, we entered into an agreement to sell the portfolio of these small scale DG products to Obton, a leading international solar investment company. This portfolio comprised 25 solar power plants under development, with a combined capacity of 15 megawatts. These 25 small scale projects are codified under the Hungary 25-year CAT feed-in-tariff scheme. Slide 10 and 11 detail our pipeline in France and Spain. We have 42.5 megawatts in France and 37 megawatts in Spain, all of which are ground mounted and currently under development. In the UK, shown on slide 12, we are now actively pursuing a project pipeline of 200 megawatts, all of which are ground mounted projects under development. Over the years, we have successfully developed 16 portfolios of projects in the UK and sold a total of 120 megawatts of projects. In addition to our development pipeline, we currently own and operate a portfolio of 260 megawatts of solar projects that generate high margin recurring revenue. As you see on slide 14, our operating assets including 172 megawatts of rooftops in China, 24 megawatts of utility solar in US, 50 megawatts of ground-mounted in Romania; and 4 megawatt rooftop in UK. The China assets are concentrated in multiple eastern provinces, with favorable development environments. As we further transform into an asset-light developer, we intend to monetize these China assets. This will enable us to further strengthen our balance sheet, reduce leverage and improve cash flow. We plan to redeploy that cash towards our core business of project development in the US and Europe. In summary, our global diversified project portfolio spanning multiple stages in both rooftop and ground mounted makes me positive on the opportunities ahead of us. The global solar industry is large and growing. We are becoming a leading global project developer by focusing on high quality and high return projects in our core countries. Before I turn the call over to Ke, I want to briefly comment on our industry outlook. Market Research estimates that, by 2040, the share of renewables in the energy market will increase to around 30% and will become the single largest source of global power generation. Europe continues to lead the way in terms of penetration of renewables and renewable energy is expected to grow and account for more than 50% in the European energy market by 2040. Both Europe and the US are expected to be the two key markets, driving the growth of renewables in the next several years. In addition to the value of our business, we believe that we create significant environmental value, and thus should be attractive to ESG oriented investors. Our completed solar projects generate about 1,000 gigawatt hours of electricity a year. That power production reduce carbon dioxide emissions by about 700,000 metric tons a year. That's the equivalent of removing 140,000 passenger vehicles from the road annually. Let me now turn the call over to Mr. Chen for comments on our financial performance. Mr. Chen?

Thank you, Yumin, and thanks, again, everyone, for joining us on the call today. Our shareholder letter and supplemental slides contain all the finance figures and the comparison you need. I'm not going to repeat all the numbers. Instead, I'm going to highlight our financial performance for Q4 and the full-year 2019 and focus on analysis of the factors that influence our results. Our shareholder letter and other earning material include certain non-GAAP financial measures. We use non-GAAP measures because we believe it provides useful information about our operating performance that should be considered by investors, along with the GAAP measures. Our non-GAAP to GAAP reconciliation is included in our shareholder letter. Let's begin with our financial highlights on slide 16. Revenue was $26.5 million compared to $66 million last quarter and $6 million in the same period last year. Revenue exceeded the high end of our guidance. Gross profit was $7 million, down from $60 million last quarter, but up from $3 million in the same quarter last year. Gross margin was 26.9% compared to 24.6% last quarter and 51% in the year-ago period. Excluding the impairment charges and project write-down, non-GAAP operating expense was $3 million, up from $2.3 million in Q3 and $2.5 million a year ago. Non-GAAP operating income was $5 million compared to $14 million last quarter and a loss of $2 million in the same period last year. Non-GAAP net income attributed to shareholder was $4 million compared to $9 million last quarter and loss of $1 million in the same period last year. Non-GAAP net income per share was $0.09 compared to $0.23 in the prior quarter and a loss of $0.03 in the year ago. Let's turn our attention to full-year 2019 results. Revenue is $190 million, up 23% year-over-year. Project development revenue was $19 million, driven by project sales in multiple countries, mostly importantly the US, Poland, Hungary and France. Electricity sales were $29 million, mostly from 192 gigawatt hours of electricity generated in China. Gross profit was $34 million, was up 22% year-over-year. Gross margin was 29%, essentially unchanged from last year. We expect the gross margin to vary due to changes in revenue mix and project sales geographical mix. Excluding the impairment charge and project write-down, our non-GAAP operating expense was $9 million, down from $10 million in 2008. The decrease reflects the efforts to streamline our operation with our product cost control. In 2020, we expect to continue to scale our headcount, office expense and other overhead to cut current size of the company. Non-GAAP operating income was $26 million, up 45% year-over-year. Adjusted EBITDA was $34 million, up 25%. Non-operating expense was literally $10 million, which included expense of $9 million and foreign exchange loss of $ million. The foreign exchange loss was primarily due to the appreciation of the euro and US dollar against the local currency, resulting in exchange loss on euro and the US dollar denominated payables Non-GAAP net income attributed to shareholder was $14 million compared to $7 million in 2018. Non-GAAP net income per share was $0.35 compared to $0.08 last year. Now, let's review the balance sheet, shown on slide 17. Prior to that, we strengthened our balance sheet in 2019 by generating cash and paying down debt. At the year-end, we had cash and cash equivalents, including restricted cash, about $25 million. This was up from $10 million in the last quarter. Fourth quarter cash flow from operation was $16 million, while full year was $56 million. This was quite an achievement for the company. At year-end, long-term borrowing was $3 million, which was down $8 million during the quarter. You will recall that we have long-term liability related to failed sale leaseback and financial lease liability of $47 million. This decreased $11 million during the quarter as we sold the rate related projects in China. Short-term borrowing was $34 million, was down $6 million during the quarter. Please keep in mind, all our debt is project based. And almost all of those are non-recourse. We have no debt at the corporate level. Rest assured that my entire finance team is focused on further improving our balance sheet. We're happy with the progress we made this year. Before I provide our outlook for first quarter 2020, I will briefly comment on our share price. We believe our shares are undervalued when compared to our peers, as shown on slide 22. From the standpoint of a new buyer of our stock, our valuation is great. We believe we should attract both value and growth investors, as well as ESG-focused funds. Bottom line, we're focused on operating efficiency and profitability, driving high return and generating good cash flow. We believe this can drive a higher valuation over time. Now, I will update you our guidance for 2020, as shown on slide 23. First of all, we're monitoring the impact of the COVID-19 virus on our customer and business. We anticipate some slowdown in their activities in 2020. But the specific impact is difficult to access at this time. Having said this, we believe it's prudent to factoring variability in our outlook. So, for the full-year 2020, we project total revenue between $80 million to $100 million and a gross margin in the range of 18$ to 20%. For the first quarter of 2020, we expect revenue in the range of $30 million to $33 million and gross margin in the range of 8% to 10%. This outlook also takes into account fluctuations that typically occur due to normal unevenness associated with project development cycles. We will revisit our outlook on a quarterly basis. With that, we would now like to open the call for your questions. Operator, please go ahead.

[Operator Instructions]. Your first question comes from the line of Philip Shen of ROTH Capital Partners. Please ask your question.

Hey, guys. Thanks for the questions. I have two concurrent earnings calls. So, I may have missed a bunch of your remarks there. But I'll do my best to kind of interpolate. In terms of the US and EU – first of all, Yumin, nice to connect with you. It's been a while. So, congratulations on the new position. And in your remarks, I think, Yumin, you mentioned that you're really focused on the US and EU. But I think we're really about to enter a period of substantial difficulty in those two countries – sorry, those two regions. Italy's shut down, but it's just a matter of time for the rest of the continent, and then US is quickly shutting down as well, with many schools and so forth being closed. So, how do you expect – I think you're targeting a gigawatt of projects by the end of this year in the pipeline. Do you see some risks to that? It's a very fluid situation. So, what are you hearing? Have you checked in with your partners in the past week? Are things slowing down for your potential partners? Or is it still too early to tell?

Thank you, Philip. It's very nice to reconnect. I joined the company the day after our last earning call, but so excited. I just came back last Friday. I visited our key offices and talked to developers or joint development partners. I'm very confident that we'll achieve those 1 gigawatt of additional pipeline in those core markets. To the point, answering your question, I feel the majority of our development work will continue even under the difficult or sensitive environment. Especially in the Europe, we are looking at – are even doing some serious due diligence work on several pipelines. So, those are ongoing. We may delay the side wages a little bit. We may see a possible delay of the construction work a little bit. It's a little bit too early to see the real impact from the situation. But we do have some flexibility in the development cycle. And to be honest with you, one quick thing is, we are developing 40-year assets. So, I feel confident that, in this whole year, the delay of this one, two, three or more months will not stop us or will not slow down our development activities to add this 1 gigawatts.

Okay, great. Thanks for the color there. I was talking to some industry contacts last night. Here in the US, for the residential segment, the ABS market effectively has shut down. I think the banks are also not lending or extending new lines of credit. They're in the process of assessing risk and limiting risk. So, to what degree do you think a slow credit market or a very tight credit market can impact your ability to deliver on the projects that you plan on selling or just your work overall this year in 2020, especially if your customers need access to capital to the fund the acquisitions of your projects? Thanks.

Hey, Phil. It's John in the US. So, I think to the point on the development cycle, just the very nature of the long wavelength of our business makes it not subject to sort of instantaneous slowdowns. That said, I'd also add, we don't have any residential exposure at the moment. There's a potential down the road that we would seek subscriptions in some of these markets that would touch the residential market, but for the moment, we don't have any. All of our community solar projects are basically subscribed by commercial offtakers. Where those conversations take place, A, there's far fewer than in a residential situation and they take place many times by analysis over email and you don't necessarily need to knock on a door to get those subscriptions. So, that's on the development front. Certainly, on the capital front, it's almost like we have to concede that if there is a significant choking off of capital that underwrites projects. But here again, we're an NTP seller. A lot of times the sales themselves are predicated on milestones that take place over many, many months. Because we're not focused on the exact – we're not focused on the construction of the projects. It's like, I'll concede that, yes, if there's a very long-term constraint on capital, that would affect our timing of sales. I don't think it would affect the overall volume of sales. We're still developing great projects all over the country. And, I guess, I can see that there might be a derivative impact of tight credit, but it would take place over many months and, therefore, might be – that slowdown might be blown out of the system by the time our milestones are met and we are actually financed or funded, I should say, through those project sales. But we'd have to concede that there is a connection there.

Phil, I'll add a couple of points about European projects. We closed some financing for our Poland and Hungary projects. We'll carry through the construction phase. And we also, as I mentioned earlier, that we sold the one portfolio 50 megawatts to Obton, which the contract is signed and we already checked, they don't have any issue with the sensitive environment we're facing now. And also, for the Poland projects, we plan to bring the 90 megawatts to construction within this year and finish some of them. We are at a very early stage of closing the financing. We have not received any challenges or special challenges from the financial institutions on the financing for Poland projects. So, at this time, more importantly that I think our cash position is very strong from the company balance sheet. At the same time, the need for the financing for our small projects is still not that big. So, the parties we are dealing with still have the confidence or all have the confidence to close the financing with us.

Okay, great. Thank you both for that color. In terms of the 1 gigawatts by the end of this year, incrementally, I think you have about 400 megawatts of late stage projects, right? So, incrementally, you need to add 600 megawatts to that pipeline, assuming that 400 megawatts doesn't convert, and you might convert some of that this year. So, can you give the geographic mix of that 600 megawatts that you plan on adding to balance sheet? What is it perhaps in terms of US and Europe and maybe even specific countries in Europe? Thanks.

Actually, it's on one of our slides. We will not only add 600 megawatts. Our figure of gigawatts is we add additional 1 gigawatt. That's new 1 gigawatts. Okay? On slide 5, we talk about…

Is that slide 5 we have the country breakdown.

Yes. Exactly.

Okay. All right. Sorry about…

The majority, 70%, 80% will come from Europe and about 200 megawatts, 300 megawatts – currently, we target 200 megawatts from US.

Okay, great. With that, I'll pass it on. We can discuss more on our call back. Thanks.

Thank you.

[Operator Instructions]. There are no further questions at this time. I would now like to hand the conference back to Yumin. Please continue.

Thank you, operator. The fundamentals for our project business continue to improve over the last few quarters. We will maintain our commitment to growing profitability, managing our operations and strengthening our financial positions. We are very excited about the opportunities ahead of us. And we're looking forward to updating you on our progress again in a couple of months. Thank you all again for your participation. This concludes our call today. You may all disconnect.

Ladies and gentlemen, this concludes our conference call today. Thank you for participating. You may now disconnect.