Emeren Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 21, 2023

There are 8 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Emirates Group Limited Third Quarter 2023 Earnings Conference Call. Please note, we are recording today's conference call. I will now turn the call over to Mr. Yujia Zhai, Managing Director of Blue Shield Group.

Operator

Please go ahead, Mr. Zai.

Speaker 1

Thanks, operator, and hello, everyone. Thank you for joining us today to discuss our Q3 2023 results. We released our shareholder letter after market closed today and it's available on our website at ir.emarin.com. We We also provided a supplemental presentation that's posted on our IR website that we will reference during our prepared remarks. On the call with me today are Mr.

Speaker 1

Yumen Lu, Chief Executive Officer Mr. Ke Chen, Chief Financial Officer. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates and other information that might be considered forward looking. These forward looking statements represent Emeren Group's current judgment for the future.

Speaker 1

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 MRN Group's filings with the SEC. Please do not place undue reliance on these forward looking statements, which reflect Emeren Group's opinions only as of the date of this call. Emeren Group is not obligated 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 U.

Speaker 1

S. Dollars. With that, let me now turn the call over to Mr. Yumen Liu. Yumen?

Speaker 2

Thank you, Yujia. Thank you, everyone, for joining our call today. I will start by giving you a big picture look at how we performed in the Q3 of 2023. Then I'll delve into our product pipeline and our guidance. Following that, Ke will provide a We closed Q3 with revenue of $13,900,000 Gross margin of 40.8 percent and net loss of $9,400,000 Our revenue was below our guidance, mainly due to the timing of our final government approval for our 53 Megawatt Solar NTP product portfolio in Hanover.

Speaker 2

We expected to receive the approval based on the government official processing timeline before mid August. Had we received approval within their standard timeline, our revenue would have been near the low end of our guidance range. The good news is that we received government approval yesterday on November 20, 2023, and we will recognize the revenue in Q4. Our Q3 results were further impacted by several one time non cash expenses. First, we recorded $4,800,000 foreign exchange loss as a result of a strong dollar.

Speaker 2

2nd, we recorded $4,500,000 one time expense from impairment and write off of assets of several pending projects as a result of permitting challenges. In addition, we expensed $1,300,000 of development costs related to our pre tier projects that previously would have been capitalized under our old tiering system. Excluding these items, our bottom line performance would have been breakeven. Our $13,900,000 revenue for the quarter, we continue to benefit from our IPP assets, particularly our U. K.

Speaker 2

50 Megawatt Burnstone Project and our China 156 Megawatt Portfolio of rooftop solar assets, which combined generated $9,400,000 revenue in the quarter with strong margins. All over. In Q3, we successfully completed the reconnection of our first solar storage project in Ningbo, Zhejiang Province, China. This project has a capacity of 1.2 Megawatt Hour, operates behind the meter and is flat by a private local up taker. It has been strategically designed to yield high returns through daily price arbitration, emphasizing our commitment to sustainable and financially responsible energy services.

Speaker 2

In addition, We have a growing portfolio of projects in the planning and execution phase in China. The total and one stage pipeline of such 18 Megawatt Hour is all similar commercial and industrial sized storage projects, including several under construction. Furthermore, we recently announced a successful sale of a state of art portfolio comprising 5 Battery Energy Storage Systems, or BESS, in Italy to Matrix Renewable with a total capacity of 4 10 Megawatts. Our total storage project portfolio with Matrix now has a cumulative capacity of 3.8 kilowatt hours. We expect the product to achieve the ready to build status by late 2024.

Speaker 2

Since the announcement, we have been approached by several top tier renewable energy investment funds who are interested in partnering with us on our portfolio best projects. For North America, in Q3, our team continued focus on our strategic goal of Solar Storage Pipeline by acquiring new product sites and advancing the development of the existing product pipeline. We have grown our 1 stage storage pipeline significantly since last quarter to 3.8 Gigawatt Hour, which will contribute to our overall success. These solar storage projects are major milestones for us I represent a defining chapter in our journey towards becoming a leading global renewable energy company and a storage powerhouse. As part of our strategic plan, we plan to further expand our storage portfolio and our light IPP strategy.

Speaker 2

Furthermore, we remain steadfast in our commitment to executing our storage business strategies, solidifying our dedication to sustainable and innovative energy solutions. During the quarter, we also grew our advanced stage solar project pipeline. At the end of 2023, we anticipate an advanced day solar product pipeline of at least 3.5 Gigawatt, of which we anticipate monetizing approximately 400 megawatts to 500 megawatts of projects in 2024 and beyond. At the end of Q3, our Wednesday stores' product pipeline has increased to over 10 gigawatt hours. For the full year 2023, we now anticipate revenue to be in the range of $110,000,000 to $113,000,000 due to project timing.

Speaker 2

We expect net income to be between $3,000,000 to $4,000,000 with gross margin of approximately 25% to 28%. We expect our Q4 revenue to be between $50,000,000 to $53,000,000 gross margin to be in the range of 21% to 25% and net income to be in the range of $4,000,000 to $5,000,000 Now, let me turn the call over to our CFO, Ke Chen, to discuss our financial performance. Laurent?

Speaker 3

Thank you, Yiming, and thanks, Erwan Ghorn, for joining us on the call today. I will now go over our financial results for the Q3. Our revenue of $13,900,000 decreased 42% year over year from Q3 2022 and 59% sequentially from Q2 2023. The lower net guided revenue was primarily due to extended the permit approval process for 50 3 Megawatt NTP project in Hungary, which was elaborated by Yu Bin earlier. Gross profit was $5,700,000 compared to $12,700,000 in Q2 2023 and $4,500,000 in Q3 2022.

Speaker 3

Gross margin was 40.8%, above the high end of our guidance. Recorded a gross margin of 37.4 percent in Q2 2023 and 18.9% in Q3 2022. Operating expenses were $9,600,000 up from $7,600,000 in Q2 2023 and up from $3,500,000 in Q3 2022. The year over year increase primarily from $4,500,000 of one time expense from impairment and write off assets of several pending projects as a result of permitting challenges. In addition, we spent $1,300,000 of development costs related to our pre tier project that previously we would have been capitalized under our own tiering system.

Speaker 3

Net loss attributable to Ameron Group Limited common shareholder was $9,400,000 compared to net income of $8,300,000 in Q2 2023 and a net loss of $1,100,000 in Q3 2022. Diluted net loss attributed to Amerigroup Limited common shareholder per American Depository Shares or ADS was $0.17 compared to diluted net income of $0.14 in Q2 2023 and diluted net loss of $0.02 in Q3 2022. Turning to our cash flow statement. Cash used in operating activity was 4,600,000 Cash provided by investing activity was $10,100,000 and the cash used in financing activity was 6,700,000 In terms of cash position, cash and cash equivalent at the end of Q3 2023 were $59,200,000 compared to $6,500,000 in Q2 2023. Net asset value or NAV is approximately $5.77 per Our debt to asset ratio at the end of Q3 2023 was about 9.9% compared to 10.1% in Q2 2023.

Speaker 3

Furthermore, during the Q3, we purchased approximately 4,000,000 ADS And plan continue to execute on the share buyback program, which has approximately 11,000,000 remaining in authorization. With that, we would like to open up the call for any questions. Operator, please go ahead.

Operator

Thank you. We will now conduct the Q and A session. Our first question comes from Philip Shen from ROTH MKM.

Speaker 4

On the impairment, you had $4,500,000 of one time expense due to permitting challenges. Can you quantify the megawatts or gigawatts impacted? And also talk us through Which continent was that driven by, more U. S. Or Europe?

Speaker 4

And then also, on a go forward basis, Do you think there could be more impairments as we look into Q4 and through 2024? Thanks.

Speaker 3

Again, for the impairment, majority of those from U. S. And the write off of impairment, about 200 megawatts, The utility projects. And at this point, we don't expect any more write off in Q4.

Speaker 4

Okay. Thanks. What about 2024? Do you think there is Greater risk of permitting challenges in 2024? And what do you attribute these Challenges too, like what were the circumstances that caused these permits to become impaired?

Speaker 4

Thanks.

Speaker 2

I think in general, we look very positive in 2024. At this time, not only internally we tightened up the tier system. That is why we did a write off and also the review in good quality of our whole pipeline. But also, we do expect the tailwind from the policy front and from the execution by the team will be structured In 2024 across the board in both U. S, Europe and even China.

Speaker 4

Okay, got it. Thanks. Is there any way you can give us a little bit of color on what to That's for Q1 and Q2 of next year. I know you haven't provided any official guidance, but just from a qualitative standpoint, On a year over year basis, I got to think Q1 2024 is meaningfully higher. Do you think it's do we Is there some seasonality in Q1, so it's a little bit lower, but then Q2 kind of bumps back up?

Speaker 4

How should we think About the cadence for 2024? Thanks.

Speaker 3

Yes. We have not given any 2024 guidance, But we believe Q1 2024 were very strong because of timing of closing this project being pushed out in the Q1. So at this moment, we're very positive about the Q1. Let me add a note on this one.

Speaker 2

Normally, Q1 is a Slow quarter in the whole 4 quarters of the year. But as we are pushing conservatively, although we are still working on those closings now, but we expect the at Now, but we expect at least 3 closings will be pushed from Q4 this year to Q1 next year. That is why instead of a slow quarter in Q1, we expect a very strong quarter in Q1.

Speaker 4

Great. Okay. And then if you were to look at some of the history, do you think very strong is similar to Q2? Or do you think it's not That's right. Q2 of 2020.

Speaker 3

It will be like Q2, yes.

Speaker 4

Q2 'twenty three, okay, awesome guys. Shifting to Europe, PPAs there, what's the outlook? Do you expect on a go forward basis to have a little bit less pricing power, more pricing power? We've seen some pullback, but the pricing is still relatively elevated. So As we get through 'twenty four, do you think there's risk that pricing power in Europe becomes weaker or stronger?

Speaker 4

Thanks.

Speaker 2

We still see the offtake price remains to be very strong, especially in comparing the That's same numbers back to 3, 4 years ago. As we know that the CapEx is going down to the level even more competitive than 3, 4 years ago, while the offtake price is compared to 3, 4 years ago even higher. So that give us a better valuation of our projects. That's why we feel strong and more positive For the performance of 2024.

Speaker 4

Great. And as you think about your 2024 volume, I know there's no guidance, but conceptually, think about your Your view of 2024 today versus your view of 2024 2 months ago, is the view incrementally a little bit worse or

Speaker 2

In general, it will be a lot better, Not only because And what's

Speaker 4

driving that?

Speaker 2

Not only because we will push like 3 or even 4 Closings from Q4 to Q1 next year, and also we see the speed of execution not only by the team, but also by all level of the governments in Europe and U. S. Is picking up.

Speaker 3

And Phil, if you look at our pipeline storage, we started monetizing this year in 2020, but we will see big increase in 2024. So that's where our focus is.

Speaker 4

Great. Thanks for taking all the questions. I'll pass it on.

Operator

Thank you.

Speaker 2

Thank you, Pavel.

Operator

Next, we have Pavel Murchunov from Raymond James and Associates. Please go ahead.

Speaker 5

Yes. Thanks for taking the question.

Speaker 2

I think we lost you.

Speaker 5

The global financial crisis. I'm curious if you are observing the same level of savings in your Input costs, modules, inverters, batteries, how is that shaping on both sides of the Atlantic?

Speaker 2

I think I missed the first part of your question, but I understand your question really is about how the CapEx cut Our decrease of the CapEx will impact our operation. Is that the case?

Speaker 5

Yes, Exactly right. We're thinking about the declines in equipment costs.

Speaker 2

Okay. And we do have noticed that the CapEx is going down to the level about 3, 4 years ago or even lower. The Taco Bell module price is about 20%, 30% lower than 3 years ago. So that absolutely helped From our side, as we are taking significantly EPC activities in Poland and Hungary right now As the based on our original forecast, we are looking at a module price at least 20% higher than what we pay today, This is very good. Another one is that we do see on global basis, the oversupply of all supply chain is helping us not only cutting the CapEx, but also solidify the expectation from investors.

Speaker 2

As we see the value of our product pipeline with the core of our company is going up as of the lower CapEx. While as I mentioned earlier answering Phil's question, Not only in Europe, but also U. S, we see the offtake power price is higher even than 3, 4 years ago. That gives us the confidence that our valuation of the portfolio is not only there, but also is going up. The key now is for us, not only the management and the whole team of Ameren is to execute and continue our development activities across the board.

Speaker 3

Well, I just want to add, we are very strong in Poland and the Hungary market. If you look at the merchant price So those two countries today are still over €100 per month an hour. So very favorable for us to do party development in those countries.

Speaker 5

That's helpful. Let me Also ask about your IPP activities. Over the past year, you've Kind of clearly diversified your IPP footprint away from China, dollars 9,000,000 Quarterly revenue in both of the past two quarters. Should we look at that as a steady state For 2024 or will you continue to add Assets into your IPP asset base?

Speaker 2

Yes. Our IPP strategy, although we call that Live IPP strategy literally allow us to gain the stable level of cash flow From our IPP projects across the board close to about 240 Megawatts. And on top of that, If you look at the revenue or the profit from our assets, I will say Our IPP only stands for about 30% to 40% of the total, While our NTP and RTP product sales represent a major portion of our revenue expectation, That's another 40 some percent. And one exciting part of the company really goes to storage, With Weyfiebe, starting in 2024, our revenue and income, Conservatively, 15% to 20% will come from storage, and that one will continue to grow significantly, Hopefully, it can be doubled in 2025 or going continue going up in the 14 years.

Speaker 5

Got it. Electricity prices Have obviously come down substantially in Europe since the PPAs that you were signing 12 months ago. If you were to sign incremental PPAs in places like Poland or Germany over the next several months, would those be Attractive economics from a multiyear standpoint?

Speaker 2

It is a balanced act that from financing perspective, we like to sign up long term PPAs, But long term PPA price is not very attractive to us at this time. Short term PPA price, 1 to 2 year PPA price is still pretty high. As Curtis mentioned that across the board in Europe, we see around €100 for Megawatt Hours. That is a very attractive price, which is about 20% to 30% higher compared to 3 to 4 years ago. And if we want to sign up in the countries, as you mentioned, or in the countries we are active Pursuing projects or IPP assets, I'm looking at higher than $100 per megawatt hours.

Speaker 2

That is what I'm talking about as high as 120, 130, if I want to sign 1 to 2 year contract. At this time, we don't have any concern on that front as we are combining our operating profile from not only the NPP, RPP sale, but also our light IPP strategy. So going forward, we'll combine a Shorter term IPP, PPA strategy combined with an expectation of a long term In terms of helping on the financing side.

Speaker 3

Paul, just a reminder, our Bronson project in UK, we have signed 4 years GPA over £150, PPA price. So at this point, we're not needed to looking for any short term PPA right now.

Speaker 5

All right. Thanks very much.

Speaker 3

Thank you, Pavel.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Donovan Jaffray from Northland Capital Markets. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking the questions. I first want to ask about the sale of the 5 battery storage projects to Matrix this year or this quarter. Since in the release and the letter to shareholders today, you talked about how the R2D status Of these projects, it's not been achieved and it's not expected until late 2024. So it's not NTP, TP, not RTB, like at the time of the sale, but a point of sale much before that.

Speaker 6

So I was just kind of wondering what kind of pricing do you get when it's a sale this early in the process? I think we've talked about $0.10 to $0.20 At RTB, so if you're selling now, is this $0.05 a lot, something less than that? Just trying to get my understanding here.

Speaker 2

Hello, Donovan, that the I could not really release the number for the sale, but it is in the structure of Typical so called development service agreement and we have the contract with Matrix. We are onboarding Up to 1.5 gigawatt, not gigawatt hours of projects within next, I would say, 12 to 18 months. And we have onboarded almost half of that portfolio. And that is The two announcements as we talk about cumulative of what 3.8 gigawatt hours, okay? We are continuing developing those projects all the way based on the milestones, achieving the final RTP status by late 2024.

Speaker 2

While in the process for the next 12 months or so, we will be expecting Milestone payments with the progress of the development of the projects.

Speaker 6

Okay, that's helpful. And then so On the same following along the same thread, you talked about being approached by other top tier renewable energy investment funds, about doing something similar On more BESS projects, is your expectation that anything there is some of the interest here coming from this unique structure doing development as a service. And so Agreements with them would likely be in a similar type of an arrangement or is this more just a unique case with Matrix? And some of the other ones from Vamarin Legacy.

Speaker 2

It's different. Definitely, we are Considering the similar type of matrix structure, that's a DSA structure. And as we do have a big storage portfolio, as you See, by the end of Q3, we already accumulated over 10 gigawatt hours of advanced stage storage portfolio. And we have projects in all the major markets in Europe and U. S.

Speaker 2

And China. And we do Want to develop partnerships, including the PSA type of partnership or even possibly joint venture type of partnership with some major players in the market and these are being worked out. We hope we can present you guys some good news in the next 2, 3 months.

Speaker 6

Okay. That's helpful. And then Again, kind of I'm just digging further into this theme of these DSA agreements and what you've done with Matrix. How does that tie into You're talking about a goal of monetizing 400 to 500 megawatts per year. I mean Is the 400 megawatt to 500 megawatt goal starting in 2024, is that just in reference to solar project capacity?

Speaker 6

Or does this does it include projects like these? And in that case, then do you include it On kind of a megawatt basis for 2023 or does it not get included till 2020 4 because you're getting this DSA revenue. Just trying to think of how to tie how these types of arrangements Are tied together with the 400 megawatt to 500 megawatt goal per year?

Speaker 2

Okay. It's a very good question. In fact, that our 400 megawatts to 500 megawatts goal, our monetizing 400 megawatts to 500 megawatts does not include any storage. All the DSA, no matter in megawatt or megawatt hour counting, It's not in this 400 megawatts to 500 megawatts counting.

Speaker 4

As I see that.

Speaker 6

Okay. And then on the

Speaker 3

Go ahead.

Speaker 6

And are the 400 megawatts to 500 megawatts, is that strictly project sales or will there be cases where You're kind of counting megawatts, but it's including you're sort of doing EPC services Or is this all sort of is it more COD, more NGP, because of course that can have a very big impact?

Speaker 2

400 megawatts to 500 megawatts is mostly talking about our solar projects. Those are either the NTPRTB sale RCOD sale or we put into our IPP portfolio. Those with so called monetization And those 400 megawatts to 500 megawatts will be from the 3.5 gigawatt portfolio we are building up. And storage, as I mentioned earlier, starting 2024, even while we want to be conservative on the storage front, It looks like it will contribute a minimum 15% to 20% of the top line, bottom line to the company, But that's not counted in this 400 megawatts to 500 megawatts monetization.

Speaker 6

Okay. That is very helpful. And then just real quick, I'll ask about for the buybacks. You did $4,000,000 in this quarter. How are you thinking about buybacks going forward?

Speaker 6

Because on the one hand, We've talked before in the past before about how it's nice to have cash on the balance sheet when you're Interfacing with grid companies or utilities and give yourselves that credibility that you're not a company that's Here today, gone tomorrow, kind of the healthy balance sheet on the one hand and then of course on the other hand, the stock price It's so low right now versus your tangible book value. So that could make one argue for more buybacks. So I'm just kind of curious if you can give any color of how you guys are thinking about things right now?

Speaker 3

Yes, Donovan, we are very confident about our future. So we continue doing the buyback. So in Q4, Until yesterday, we bought additional 700 K shares. So we're confident. Secondly, we're also confident about our cash flow going back Up from Q3, we are again collecting cash payment in Q4.

Speaker 3

So our cash level should bring back up At least double digit number here. And so we are confident we can do both. And

Speaker 2

let me add a couple of points on this one that the starting Q4, Not only we are seeking a very strong Q4, even Q1 next year, but also we are looking at the very healthy Balance sheet. That is the cash flow positive operating cash flow positive will be achieved starting Q4 and going into Q1 next year. That is very, very we feel very comfortable by presenting those operating cash flow positive situation plus a very healthy balance sheet, which will start collecting cash from all fronts in the U. S. And Europe, specifically in the next 5 to 6 months.

Speaker 2

And that will enrich our balance sheet all the way up from the current level.

Speaker 6

Okay. That is very helpful. Okay, great. I appreciate all the color you guys. I'll take the rest of my questions offline.

Speaker 3

Thanks, gentlemen. Thank you.

Operator

Thank you. Next, we have Amit Dayal from HCW. Please go ahead.

Speaker 7

Hi, guys. Good afternoon. Thank you for taking my questions. So just on this cash topic, guys, How much are you expecting to collect over the next 2 quarters in cash?

Speaker 3

Again, we are expecting here at least $20,000,000 to $40,000,000 minimum. Okay. All right. Thank you.

Speaker 7

And then just in relation to the guidance, right, you're saying 3 closings pushed out to 1Q 'twenty four, does that amount to roughly the $30,000,000 to $40,000,000 that you were previously expecting to come through in Q4

Speaker 3

Please repeat your question about the revenue number again.

Speaker 7

So the 3 closings for the Q4 that are pushed out to the Q1 of 'twenty four, how much In dollars does that amount to? Is it $30,000,000 to $40,000,000 that was previously expected, you were going to come in?

Speaker 2

Yes.

Speaker 7

Okay. So nothing has been lost, basically just pushed out?

Speaker 3

You're right. We just have to push out this project closing in Q1.

Speaker 7

And these are just I don't know if you already mentioned these are all U. S. Projects or European projects?

Speaker 3

Yes. I will say half, half. Half from U. S, half from Europe. Okay.

Speaker 3

Thank you.

Speaker 7

And then With respect to the storage pipeline, it looks like it's going to be a big year for you in 2024. I know you're saying 15% to 20% of overall revenues. Is that based on attach rates Do the projects you have in the pipeline that you expect to sort of close on or are these Separate standalone storage opportunities for you guys?

Speaker 2

Those are the standalone independent storage facilities, not including the hybrid solar and fast storage.

Speaker 7

Okay. So there is potential upside, I guess, depending on what type of projects you closed To that number?

Speaker 2

I will say yes. The growth of independent storage portfolio is significant Across the board.

Speaker 7

Understood. And just maybe just a general comment on the industry. I mean, These push outs and any slowdown that you may be seeing, obviously some of it is related to the interest rate environment. How is the industry sort of grappling with all of this? And do you think next year can be a period of Smoother execution for you guys, just from a macro driver perspective than what you saw in 2023?

Speaker 2

I will say that the it is the delay of the closing is just based on The timing of the projects that we for example, that in Europe, at least 2 portfolios will be first. The team is still working on it and maybe lucky that we can close by the end of the year, but that would be a happy surprise. But conservatively, It will be closed and confidently it will be closed in Q1 next year. And slow execution, I do not think that will be the case. Although this year, it is happening to almost all sectors And we do have seen some slower execution from the investors.

Speaker 2

But we do have seen, as I mentioned earlier, The speed of all fronts is picking up.

Speaker 3

For me, the last thing I think you See this more credit given to the U. S. Community solar like The Treasury just gave additional 10% ITC in October. So some of this push out will help us in terms of profitability to closing next year.

Speaker 7

Okay. So some of this push out is also related to just some of the regulatory aspects of Yes. We're getting more concrete, I guess, going forward.

Speaker 2

Exactly. And also, Amit, I have to say that one of the closings in the U. S, We voluntarily decided to push that into Q1 because we decided to change the structure of the sale. Instead of doing NTP sale, we are trying to do a COD sale. But to do COD sale, we have to do the EPC procurement And owe everything as we do want to benefit from the CapEx savings.

Speaker 2

So, anyway, we do have foreseen that the 2024, not only Q1 will be strong, but also The whole year of 2024 will be a good year for the company.

Speaker 3

Okay. Thank you, guys. That's all I have.

Operator

Thank you. This concludes today's Q and A session. Thank you all for participating. We have closed the conference. You may now disconnect.

Speaker 2

Thank you, Vangi.

Operator

Thank you. Have a great day.

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Emeren Group Q3 2023
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