ReneSola Ltd (SOL) Q3 2020 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to Q3 2020 ReneSola Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Gary Dvorchak. Thank you. Please go ahead, sir.

Thank you, operator, and hello, everyone. Thank you for joining us on today's call to discuss third quarter 2020 results. We released our shareholder letter after the market closed today. It's available on the website. There's also a supplemental slide deck posted on the website that we will reference during our prepared remarks. On the call with me today are Mr. Yumin Liu, Chief Executive Officer; and Mr. Ke Chen, Chief Financial Officer and Mr. John Ewen, CEO of North America. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ReneSola Power's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ReneSola Power's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ReneSola Power'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 U.S. dollars. With that, let me now turn the call over to Mr. Yumin Liu, who will discuss the quarter's operating highlights. Yumin?

Thank you. Gary, and thank you, everyone, for joining the call. I will summarize our financial performance and review our operating highlights in the quarter. I will then turn the call over to Ke, who will cover financial results in more detail and will provide 2020 guidance. We will then open the call to questions. Revenue came in at $9.7 million, which was at high end with the guidance. Gross margin of 61% was well above guidance we provided on our last call. Our operating expenses on GAAP basis was down more than 60% from a year ago, and we continue to manage cost prudently. As a result, we reported GAAP operating income of nearly $3 million. Importantly, we maintained a healthy balance sheet, providing the financial flexibility to propel growth in the quarters ahead. As of November 30, 2020, our total project pipeline was about 800 megawatts, including about 732 megawatts in late stage. Based on our activity level, we are confident we will achieve 1 gigawatt project pipeline by the end of this year. The momentum in our business is accelerating. And from a customer engagement perspective, we have been a significant level – we have seen a significant level of business activity in the last several months. I will now discuss recent operational highlights. First, we completed the previously announced acquisition of certain assets from Nova Development Management last month. We used about $3.8 million of cash on hand to complete the acquisition, which gives us a pipeline of solar projects and experienced team. The old cash transaction aligns our strategic priorities with the interests of our current shareholders. And we believe this deal is complementary to our existing product development business. The development team we have acquired is based in California. They are a reputable, U.S.-based project developer that focuses on project development plus finance, EPC management, and asset investment in the U.S. They have a pipeline of about 200 megawatts of projects under development, including 130 megawatts of middle to late-stages projects. Their focus is small-scale utility projects across several states, including Pennsylvania, California, New York, Maine, Illinois, and Arizona. The experienced project development team we have acquired will strengthen our position as a leading global solar energy developer and operator. Over the years, we have built a track record of success in developing small-scale projects, especially DG and community solar. However, we have not participated very actively in the utility-scale segment of the market. Because of that, we have virtually no overlap with the acquired development team. The acquisition of their solar assets is very complementary to what we do today. The transaction is synergistic, an additive in expanding our addressable market. Also, it provides us with immediate access to battery storage, enables us to deliver a more complete set of service capabilities to our customers. The acquisition of their project pipeline fits very nicely into our strategy to accelerate our growth and improve our profitability long-term. Solar and battery storage have great potential in many markets internationally. We build this as a statistically compelling acquisition that increases our footprint in project development in the U.S. and significantly expands our addressable market. Following the closing of the acquisition, this morning, we announced that we signed a solar plus storage PPA with California-based Valley Clean Energy or VCE. VCE is a local public electricity provider formed by Yolo County and the cities of Woodland and Davis. The PPA has a duration of 20 years. The project is located in the town of Madison in Yolo County, California. We expect commercial operation by the third quarter of 2022. Importantly, the project will add 20 megawatts of solar power and 26 megawatt hour of battery storage. We are excited to build a strong relationship with VCE through this transaction. This project also marks a major milestone for us. It is our first long-term PPA for our solar plus storage system that will provide significant benefits to the local customers. In summary, this acquisition exemplifies the execution of our long-term strategy, as we reallocate capital to accelerate growth and profitability. Second, we set up multiple joint ventures in Europe in the past several months. Specifically, in late September, we entered into a strategic partnership agreement with Vodasun to codevelop and market ready-to-build ground-mounted solar projects in Germany. Vodasun is based in Munich, Germany, as specialized in developing as constructing solar parks. In the near-term, this JV intends to develop an initial project portfolio of 50 to 100 megawatts long-term and expects to develop an additional 50 to 100 megawatts of new projects per year. In October, we established a joint venture with Novergy to co-develop utility-scale project in the UK. Novergy is a project development solar - solar project development platform specializing in the origination, development, design, optimization, construction, or commissioning of solar projects in UK. The joint venture expects to develop the current pipeline of 100 megawatt in the near-term and intends to develop at least another 100 megawatt of utility-scale projects in the next couple of years. Layering on top of that, we formed another JV in UK last month. As we highlighted in our press release, we entered into a partnership agreement with Innova to co-develop utility-scale projects in the UK. Innova invests in and operates a diversified portfolio of renewable energy assets in UK. They focus on utility-scale, ground-mounted and commercial rooftop solar installations located at agricultural, industrial and commercial sites. As part of the agreement, the JV Company expects to develop the existing pipelines of 50 megawatts and plans to develop at least another 50 to 100 megawatt of utility-scale projects in the next few years. Looking at these partnerships, I'm proud of our team and our business progress. We believe the combined strength of ReneSola Power and our partners will create tremendous synergy and provide new opportunities to further expand our presence in Europe. We also believe that these JVs will position us to grow a global pipeline in the next several quarters and year. It is also noteworthy that all these three portfolios add build-in storage options to meet the local customers demand. Third, we recently closed the sale of a portfolio of operating projects located in the UK to AtmosClear Investments, a European renewable energy and cleantech private equity group. The portfolio comprises 1,500 online residential rooftop projects located in Scotland, with a combined capacity of 4.3 megawatts. These projects are codified under the feed-in tariff scheme, and have been in operation since 2015. Importantly, this transaction, once again demonstrate our ability to optimize our solar asset through strategic sales, enabling us to generate cash flow, realize profits and further strengthening our balance sheet. As I mentioned earlier in my prepared remarks, we are committed to grow our project pipeline by a gigawatts by year end. We have faced some challenges and project development delays as we navigate the COVID impacted environment. While we are taking a more conservative approach, we are confident that we will add at least 100 megawatt this year, which will allow us to have over 1 gigawatt pipeline by the year end as shown on slide 5. Let's not discuss the highlights from certain key geographies. First, let's turn our attention to the US. So now slide 7. Our list is project pipelines stands at around 300 megawatts, of which 53 megawatt are community solar in Maine, Minnesota, and New York. Additionally, we have projects under development with a mix of corporate municipal utility operators in other states, such as Utah and Florida. Meanwhile, we operate 24 megawatts of small-scale utility projects in North Carolina. In Poland, so now slide 8, our key asset is a portfolio project rights. We have a pipeline of 56 megawatt of ground-mounted projects under development and construction. Slide 9 refers to Hungary, where we also invest in small-scale DG projects. Our late stage pipeline has several micro projects, each is about half megawatt. Bring total micro project capacity to about 12 megawatts in the country. Those projects are under construction and expected to reach COD by the year. And on top of that, we also added 28 megawatt of small size, ground-mounted utility-scale projects in the country. Slide 10 and 11 detail our pipeline France and Spain. We have 100 megawatt in France, and 36 megawatts in Spain, all of which are ground-mounted, and currently under development. We're getting traction in Germany as shown on slide 12. We have a product pipeline of 50 megawatts all of which are ground-mounted projects under development. In UK, so now slide 13; we have a pipeline of 150 megawatts all of which are ground-mounted projects under development. Over the years, we have successfully developed 16 portfolios of small-scale projects and sold a total of 127 megawatts of projects in the UK. In addition to our development pipeline, we currently operate a portfolio of 189 megawatts of solar projects that generate high margin recurring revenue. As you'll see on slide 15, our operating assets including 149 megawatts of commercial rooftop in China; 24 megawatts of utility solar in US, 50 megawatts of ground-mounted in Romania. While we have sold 4.3 megawatts rooftop projects in UK last months. Before I turn the call to Ke, I would like to conclude with a few key strategic highlights. We are advancing in a multi-year transformation process from a negative cash flow equipment maker to a positive operating cash flow and asset-light solar project developer. We realign our long-term growth strategy from focusing on large traditional markets in China to a global expansion roadmap. We now focus on promising markets in the US and Europe. Last year, we moved our corporate headquarters to Stamford, Connecticut, where our senior management team is now based. We are pleased with the operational progress we have made. With a growing pipeline of business activity, we see our momentum accelerating and remain optimistic about our outlook for the remainder of 2020 and beyond. The global solar industry is large and growing. We are committed to our mission to become a leading global project developer by focusing on high quality and high return products in the core countries. Let me now turn the call to our CFO, Ke Chen for comments on our financial performance. Ke?

Thank you, Yumin. And thanks again everyone for joining us on the call today. Our shareholder letter and our supplemental slides contain all the figures and the comparison you need. I'm not going to repeat every number. Instead, I'm going to focus on the factors that influence results. As I speak, please keep in mind that we will discuss certain non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investor along with the GAAP measures. Our non-GAAP o GAAP reconciliation is included in our shareholder letter. Let's begin with our Q3 financial highlights on slide 19. Revenue was $9.7 million down sequentially in year- over-year. We expect this and in fact, revenue was at the high end of the guidance range. Revenue was down simply due to time of the project sales. As you know, our revenue can vary significantly quarter-to-quarter because of timing. We judge our success over longer time periods that smooth out the quarter-to-quarter variations. Revenue this quarter was mainly from the sale of electricity generated by our own project in China, Romania, US and UK. As you know, electricity sale are high margin. So while our gross profit was down both sequentially and year-over-year, gross margin of 61% exceeded guidance. And it was up significantly from last quarter and for the same period last year. Moving down to P&L; we continue to demonstrate strong expense control, bringing non-GAAP operating expense down 19% year-over-year. We reported non-GAAP operating income of $4.5 million in the quarter versus $6 million last quarter and $14 million in the same period last year. Non-GAAP operating margin increased to 44% compared to 22% last quarter and 21% in the same period last year. Non-operating expenses were down year-over-year. We had a foreign exchange translation gain was caused by the depreciation of the US dollar which needed to exchange gain on the balance sheet. All this results in non-GAAP net income attributed to ReneSola Power of $2.5 million and GAAP related income attribute to ReneSola Power of $2.1 million. Earning per share on GAAP basis was $0.043. Overall, we are satisfied with our operating performance considering the micro challenges. Now, let's review the balance sheet shown on slide 20. At quarter end, we had cash and cash equivalents including restrict cash for more than $16 million. In early August, we established at the market equity offering program, under which we sold an aggregate of US $5 million of our ADS. Both long term and short term borrowing were slightly down. Please note that nearly all our debt is project based and the non recourse. Subsequent to Q3, we did a lot of capital raise in the registered direct offering of $5 million. We intend to use the net proceeds to expand our new project pipeline and for general working capital purpose. In addition, the proceeds will further strengthen our balance sheet provided capital flexibility and further enhance our ability to execute our long-term strategic goals plan. Now let's cover 2020 guidance as shown on slide 25. For the fourth quarter, revenue in the range of $23 million to $25 million, reflecting more product sales at sequentially declining electricity sales due to normal seasonality. This mix should result in a gross margin in the range of 11% to 13%. For full year 2020, we continue to expect total revenue in the range of $80 million to $90 million, and the gross margin in a range of 18% to 20%. And we do expect to be profitable for the fourth quarter and full year 2020 on non-GAAP basis. Our outlook for the remainder of 2020 considers a couple of key factors. First, the development of COVID-19 and the global medical condition remain highly uncertain. We continue to monitor how the health aspects of pandemic are playing out, as well as the second order effect on the economy. We had anticipated some slowdown in activity in 2020 and believe it's prudent to factor in broader variability in our outlook. Second, we consider fluctuations that typically occur due to normal unevenness associated with the project development cycle. So with that, we would now like to open the call for any questions that you may for us. Operator, please go ahead.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Philip Shen from ROTH Capital Partners. Please ask your question.

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

Okay. The - go ahead, Ke. You can take it.

Yes, sure. In Q4, first of all, the UK sales because it's a fixed asset on our balance sheet, so it won't record revenue, but it does provide us very good cash flow and profitability. So that's for UK. And for other sales, mainly from Hungary and the COD project sale and Poland COD project sales.

Okay, great. And is it fair to say that these projects are both in that 11% to 13% margin range?

Yes.

Okay. Thank you, Ke. As we look into 2021, I know you have about 700 megawatts, which are late-stage projects and then you have the 189 megawatts of operating assets. Historically, you've talked about roughly half being sold in 2021 and a half in 2022. What is your latest view on how the sales of these projects could be split in 2021 and 2022?

The - considering the success rate of the late-stage projects, we expect very high success rate on the late-stage portfolio. We will target conservatively, setting several hundred megawatts per year. And nail down the numbers in 2021, 2022, we hope to monetize at least two 300 megawatts per year as a minimum.

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

It's – literally, it's across the Board. We expect sales in almost every market we have activities. In the – all the core countries in Europe, we are active in six countries we have projects now and also in the U.S. Every single country we expect sales.

Good. And for this year, you gave a 1 gigawatt pipeline target by the end of 2020. Do you have a similar target that you might be able to share? How big do you think your pipeline grows in spite of the sales exiting 2021?

The - in general, our principle absolutely wants to grow based on the available resources we have in our hand. But the – our general principle is to at least maintain active 1 gigawatt portfolio in our hand. That means that the – if we sell 300 megawatts a year, we need to at least add another 300 megawatts into the portfolio. While we intend to grow based on our activity level, we hope we can grow from the 1 gigawatt consistent project portfolio to a bigger one. But the – we will not really put up a number at this time. But the – I believe that number will go up not going down.

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

Thank you. So interesting question that the – in general or to the bottom line, there's no impact at all for those retroactive or potential cut on tariff, okay? For two reasons. Number one, the operating assets after the UK small deal sale, we only have the two projects in your operation in Romania, okay? And the – and by the way, that's also in the sales process. But the – all other deals we are developing or constructing, we are not taking the ownership or keep the ownership after the COD. So for both of those, that in any market, when the government of the market decide to make the change or make the cut of the existing PPA, it will not impact our operation or not impact our development of the new projects.

Got it. So it doesn’t impact - please…

And by the way, another sign now there is the solar. We reached the lowest LCOE, our lowest -- the number of going to the grid parity. So the – in many of the markets in Europe, the buyers of our projects do not even require the PPA to be signed.

Right, interesting. So, Yumin, just a quick follow-up there. As you - -- so the – basically, the risk for you is almost is very low. But do you see any issues for your customers? I guess, if the buyers are not requiring any PPAs to be signed, it seems like it could be very low as well, but just want to confirm?

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

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

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

Okay, and on a percentage basis, is it -- does it dilutes the margin. So your existing corporate margins? Or do you think it might blend the margins higher?

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

Our next question comes from the line of Amit Dayal from H.C. Wainwright.

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

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

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

A very good question that the after the acquisition of this, we call utility scale development team in-house into the house two weeks ago; we literally have two teams in-house. One teams continues their activities on small DG and community similar programs. And another one is this new team doing -- are spending time on the utility sector. And plus, the both teams are also together working on the storage options. And those are all under the leadership of our US CEO, John Ewen, he is actually-- he is with me. Can you comment on this question?

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

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

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

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

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

There's no more question at this time. I would not like to hand the conference back to speaker, Yumin Liu. Please go ahead, sir.

Okay, thank you operator. To conclude, we are committed to grow, to growing profit profitability, managing our operations efficiently and strengthening our financial position. We are very excited about the opportunities in front of us and are looking forward to updating you on our progress again in a few months. Thank you, all again for your participation. This concludes our call today. You may all disconnect.

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