ReneSola Ltd (NYSE:SOL) Q3 2022 Earnings Call Transcript

ReneSola Ltd (NYSE:SOL) Q3 2022 Earnings Call Transcript December 1, 2022

ReneSola Ltd beats earnings expectations. Reported EPS is $0.05, expectations were $0.01.

Operator: Hello, ladies and gentlemen. Thank you for standing by for the ReneSola Power’s Third Quarter 2022 Earnings Conference Call. Please note that we are recording today’s conference call. I would now like to turn the call over to Mr. Yujia Zhai, Managing Director of the Blueshirt Group. Please go ahead, Mr. Zhai.

Yujia Zhai: Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our third quarter 2022 results. We released our shareholder letter after the market closed today and is available on our website at ir.renasolapower.com. There is also a supplemental slide deck posted on our 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 the 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 SEC. 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 obligated to update on any revisions to these forward-looking statements. Also, please note, unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to Mr. Yumin Liu.

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Yumin Liu: Thanks, Yujia, and good day, everyone. Thank you for joining our call today. I’ll give a high level summary of our third quarter results and then elaborate our recent strategic initiatives as well as provide an update our guidance. Then Ke, our company CFO, will review our financial results for Q3 in detail. After that, we’ll be joined by our U.S. CEO, John for Q&A. Beginning with our financial performance, Q3 results outperformed the high end of our guidance range and represents one of our best quarters in the last three years. Revenue grew 86% year over year to $28.9 million, gross margin was 29.6% and net income was $3 million compared to $711,000 a year ago. We achieved these results despite economic challenges and a strong dollar, which negatively impact our revenue and earnings from Europe and China by approximately $3 million.

Excluding this foreign exchange impact, results would have been even stronger with nearly $32 million revenue and over $5 million in net income. These results were driven by solid performance of our project pipeline and our IPP solar assets in the U.S. and China and the recently acquired 50 megawatt solar farm in Branston, U.K. We closed acquisition of Branston on September 30, the total transaction value was $41 million, of which $20 million was cash and $21 million was nonrecourse project finance. This acquisition marks the beginning of our European IPP strategy, which will add predictable and stable cash flows to complement our product sales business. PPA prices have been trending strongly across Europe due to energy shortages and favorable regulatory conditions.

In fact, we have already signed attractive multiyear PPA for Branston project through March 31, 2017, which we estimate will provide over $25 million EBITDA by the end of 2026. In addition to Branston, we completed the acquisition of Emeren on October 10, through an all cash deal of $16 million with earn out provisions. Emeren is an Italian based utilities scale solar power and battery storage company. They have over 2.5 gigawatts of projects under development in different stages, including over 2 gigawatt of solar projects and over 500 megawatt of storage projects. As part of our European IPP strategy, we decided to withhold 110 megawatt of project sales in Poland and Hungary that we originally planned to sell at NTP stage in Q4 2022. We will now construct these projects and operate them in our European IPP portfolio.

In October, we completed the first 10 megawatt across two solar farms in Hungary and expect the remaining 100 megawatt will be energized by Q3 of 2023. Because of the shift from sale to IPP, we will forego over $20 million revenue and $5 million to $6 million of net income in Q4 2022, but will gain significantly higher lifetime revenues and stable cash flows. We estimate the payback period for this IPP projects to be four years or less, while still retaining the optionality to sell these IPP assets in the future. Due to the strategic shift in Poland and Hungary and approximately $6 million of unexpected negative foreign exchange impact, we now expect our 2022 full year revenue to be in the range of $85 million to $90 million. We expect 2022 gross margin to be 25% to 30%.

For net income, we anticipate full year net income will be approximately $7 million to $8 million. Looking forward to 2023 and beyond, we have many things to be excited about. We have strong presence in the world’s fastest growing solar markets, thanks to growing clean energy demand, rising PPA prices and supportive government policies. In Europe we are excited about our newly acquired assets and growing IPP portfolios. For Branston, Emeren and 110 megawatts of IPP projects in Poland and Hungary, we have good visibility into 2023 and expect this assets to contribute approximately $35 million to $40 million revenue and $10 million to $15 million EBITDA. We are also aligning our China strategy to the rest of the world under one strategy of develop, own or sell.

Compared to the original strategy in China as develop, build, own and IPP. In the immediate near term, we are in the process of monetizing certain China projects and expect to close the sale before the year end. For our project development business, we expect to monetize approximately 400 megawatt of our mid to late stage pipeline in 2023. And we are targeting to achieve a total pipeline of 4 gigawatts by end of2023. To conclude, the future looks bright for solar energy and also definitely great for our company. We believe we are well positioned to capitalize on accelerating solar adoption across the world. Given our deep expertise in developing and operating solar projects, our extensive network of industry partnerships, our well-capitalized balance sheet and our unmatched track record in closing financing transactions and profitably monetizing projects, we are progressing steadily in our goal of becoming a leading global solar developer and operator.

With that, I’ll now turn the call over to our CFO, Ke Chen. Ke?

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Ke Chen: Thank you, Yumin. And thanks everyone again for joining us on the call today. As a reminder, a non GAAP to GAAP reconciliation is included in our shareholder letter. We use non GAAP measures because we believe that provider useful information about our operating performance that should be considered by investors along with the GAAP measures. Revenue was $28.9 million up 252% sequentially and 86% year over year, largely driven by our project development business in the U.S., strong EPC revenue in Poland and IPP solar assets. GAAP gross profit was $8.5 million, up from $3.7 million in Q2 2022 and $6.1 million in Q3 2021. The gross margin was 29.6%. Turning to our operating expenses. Operating expenses were $3.5 million compared to $3.9 million in Q2 2022 and $3.4 million in Q3 2021.

Net income attributable to ReneSola Power common shareholder was $3 million, diluted earnings per ADS was $0.04 compared to diluted net loss per ADS of zero in Q2 2022 and diluted net income per ADS of $0.01 in Q3 2021. Cash used in operating activity was $5.2 million, cash used in investing activity was $31.2 million and cash used in financing activity was $45.7 million. Cash used in operating activity were mainly driven by project expenditure for Poland, Hungary and U.S. NTP projects. Cash used in investing activity were primarily due to Hungary IPP and acquisition of Branston. Cash used in financial — financing activity primarily related to $42 million share repurchase transact on September 2, 2022 with ReneSola Singapore. Now let’s review the balance sheet.

Our cash balance as of September 30, 2022 was $123 million compared to $208 million at the end of Q2, 2022. The decrease was primarily due to the share repurchases, the Branston acquisition and project capital expenditure related to the construction of our IPP assets in Poland and Hungary. Our debt to asset ratio at end of Q3 increased to 12.8% compared to 8.3% in Q2 2022 as a result of nonrecourse debt acquired as part of Branston acquisition. Finally for guidance. We now expect full year 2022 revenue to be $85 million to $90 million, gross margin to be 25% to 30% and net income to be $7 million to $8 million. For Q4, we expect revenue to be $44 million to $49 million and gross margin to be 20% to 25%. Now we would like to open up the call for any questions.

Operator, please go ahead.

Q&A Session

Operator: Certainly. And our first question comes from the line of Philip Shen from ROTH. Your question please.

Philip Shen: Hey, guys. Thanks for taking my question. First one is on 2023. I know you haven’t given official guidance, but was wondering if you could talk about how much you might sell NPP next year? It sounds like you have plans to build 200 megawatts and keeping those on balance sheet in Europe by the end of 2023. So what’s the expectation for the other geographies? It sounds like China is going to be sold by this year. So what are the NPP expectations — NPP sale expectations for next year? And then total build out beyond 200 megawatts if you expect to take on assets in the U.S. that would be useful to know as well? Thanks for taking the question.

Yumin Liu: Hey, thank you, Phil. We do expect to close the year with 4 gigawatts of the pipeline by 2023. We also target to sell at NPP 400 megawatts in this pipeline. In addition, we plan to build 200 megawatts — to build a total 200 megawatts by the end of Q3, Q4 next year. That include the already existing 50 Branston and 10 megawatts in Hungary. So that means, we have 140 megawatts to go, including 100 megawatt is being planned and constructed in Poland and Hungary. And those are the big numbers. 400 megawatt sales, 200 megawatt IPP, 4 gigawatt of pipeline. And that 400 megawatt sales, including all three regions: U.S., Europe and China.

Philip Shen: Great. Okay. And then the 165 megawatts, is that expected to be sold all by the end of this year? Or do you think you’ll recognize — how much do you think you’ll recognize in Q4 in terms of the China IPP or China megawatt sales? And then how much do you think is in €˜23?

Yumin Liu: The majority will be in €˜23. We applied — as I mentioned, we applied the similar or same strategy, build — develop, build and sell or own, okay? In the past, in China, as we announced, like 18 months ago, we say, we’ll do everything in China on an IPP basis. But now we change it up to about two, three months ago, we will use the same model as we use in the U.S. and Europe. So we are in the process setting our first product portfolios in China, we will continue doing so in the year of 2023.

Philip Shen: Okay, great. And then for the 200 megawatts that you expect to build in Europe, you mentioned 50 is Branston spin and 10 is on Hungary. What’s the incremental amount of cash or equity that you would expect to invest in either that 140 or the 200?

Yumin Liu: For the first 100 megawatt in remaining part of the 100 megawatt in Poland and Hungary, we expect the equity portion of about $30 million and additional 40 to 50 megawatts that will take another $10 million to $20 million. So the total will be $40 million to $50 million for the total equity injection for the additional 140 megawatts of projects.

Philip Shen: Okay. Got it. And then historically, because your strategy before was to sell at NTP, you were not procurers or buyers of modules and tracker. Is it fair to say now that you’ll be in charge of the EPCs and you will make the module and track your procurement decisions in Europe?

Yumin Liu: Yes and no. In general, the answer is yes. In fact, even in 2020, 2021 and even this year, we are — we have been acquiring module trackers and making those EPC management, including the major procurement in Europe, not in the U.S. but in Europe and China, we do have those procurement obligations. But in 2023, we expect we’ll continue working on the necessary EPC activities, at the same time build our 100 megawatt in Poland and Hungary and continue doing either self-built or — self-develop and built 40 megawatts or more or acquire a couple of smaller size M&A — through M&A, acquired a couple of smaller sized operating projects in Europe. That is the target to go to 200 megawatts in Europe by the end of 2023.