Emeren Group Q1 2023 Earnings Call Transcript

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May 31, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Ameren Group Limited's First Quarter 2023 Earnings Conference Call. Please note that we are recording today's conference call. I will now turn the call over to Mr. Yujia Zhai, Managing Director of The Blueshirt Group. Please go ahead, Mr.

Operator

Zhai.

Speaker 1

Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our Q1 2023 results. We will release our shareholder letter after the market close today. It's available on our website at ir. Amarin.com.

Speaker 1

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. Yuen Liu, Chief Executive Officer Mr. Craig Chen, Chief Financial Officer and Mr. John Yuan, CEO of North America.

Speaker 1

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 Ameren Group's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ from us. Those risks are described under Risk Factors and elsewhere in MRN Group's filings with the SEC.

Speaker 1

Please do not place undue reliance on these forward looking statements, which reflect Ameren Group's opinions only as of the date of this call. Emlen Group 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 the US dollars. With that, let me now turn the call over to Mr. Yumen Liu.

Speaker 1

Yumen?

Speaker 2

Thank you, Yujia, and good day, everyone. Thank you for joining our call today. I will begin by presenting a overview of our Q1 2023 results, followed by an in-depth discussion on our guidance. Zheng Ke, the company's CFO, will provide a comprehensive review of our financial results for Q1. Additionally, We are delighted to have our North American CEO, John, join us for the Q and A session.

Speaker 2

To start off, We closed Q1 with revenue of $12,900,000 gross margin of 12.4 percent and EBITDA of 1,800,000 Our Q1 revenue reflected solid contribution from our ITP and EPC business, driven partially by our recent acquisitions. However, delays in receipt of the final approvals And more conservative judgment in change of control in our RTB product sales business resulted in no revenue recognition during Q1 2023. In May, we completed The sale of 58 Megawatt solar farm projects in Poland, and this will be recognized in our Q2 results. Looking forward, under a more conservative judgment in change of control, we expect to recognize revenue for RTB product sales starting from Q2 and more in the second half due to the timing of expected final approvals of pending product sales. Accordingly, we expect our Q2 revenue to be about $38,000,000 to $40,000,000 and gross margin to be 32% to 35%.

Speaker 2

Our second half results will be driven by the expected closings of over 300 megawatt of product sales in Europe and U. S. For the full year, we iterated Our revenue expectation to be in the range of $154,000,000 to 174,000,000 And gross margin to be approximately 30% and net income to be between $22,000,000 to 26,000,000 Despite the temporary delays mentioned earlier, our product development business remains very strong fundamentally. We are experiencing sustained strong demand for solar projects on global scale. We entered 2023 with 3 gigawatts of high quality mid to late stage project pipeline, And we anticipate to monetize about 500 megawatt of projects in 2023.

Speaker 2

And we are targeting to 4 gigawatts by the end of 2023. And beyond 2023, we are targeting to monetize A minimum 500 megawatts to 600 megawatts a year. In China, we are making ongoing progress in our realignment strategy to the rest of the world as develop, build, own or sell compared to the original strategy of develop, Build Own SIPP. In conjunction, we are refocusing our efforts to 5 coastal provinces that have the most favorable power prices supported by strong economy and regulatory environment. Our plan is to Divest all of our solar assets outside of the designated 5 provinces as well as some assets within the specific target markets.

Speaker 2

This strategic move will help strengthen our balance sheet. In conclusion, we remain excited about revenue growth this year and beyond, Driven by our strong product pipeline, we are well positioned in the world's fastest growing solar markets that are benefiting from increasing demand for clean energy, higher PPA prices and supportive government policies. The future of solar energy is extremely promising, and we are positioned to fully capitalize on the accelerating adoption of solar technology across the globe. With our exceptional expertise in developing and operating solar projects, extensive network of industry partnerships, a strong financial position, We are making great strides towards our goal to become a top global solar company. We are thrilled about the bright future of the solar energy and are excited to be at the forefront of this incredible Transformation towards a more sustainable future.

Speaker 2

Now let me turn the call over to our CFO, Ke Chen, to discuss our financial performance in detail. Kurt, please.

Speaker 3

Thank you, Yiming, and thanks everyone again for joining us on the call today. I will now go over our financial results for the Q1. Our revenue of 12 point LINE Meeting nearly tripled compared to Q1 2022 and decreased by $12,800,000 compared to Q4 2022. The sequential decrease in revenue was primarily due to the 0 NTP revenue during the quarter, as well as lower revenue from EPC Business. And IPP at Q1 is typically our seasonally slowest quarter.

Speaker 3

Gross profit was $1,600,000 and the gross margin was 12.4%, down from $6,000,000 in Q4 2022 and up from $1,100,000 in Q1 2022. The lower sequential gross margin was mainly due to lower margin EPC servers recognized in Q1. Operating expenses were $4,600,000 down from $7,200,000 in Q4 2022 and up from $3,400,000 in Q1 2022. The sequential lower operating expenses were mainly attributable to lower G and A expenses, primarily due to a one time expense incurred in Q4 2022 related to the acquisition costs of Ameren Italy, changing auditor and other one time costs related to rebranding. Net loss attributable to Ameren Group Ltd.

Speaker 3

Common shareholders was 200,000 compared to $1,700,000 in Q4 2022 $1,700,000 in Q1 2022. Net loss attributable to Ameren Group Ltd. Common shareholders per ADS was 0 compared to $0.03 In Q4 2022 and the $0.03 in Q1 2022. Cash using operating activity was $23,700,000 which was primarily for the continued development of Poland and Hungary CLD projects. Cash using investing activity was $1,900,000 and cash using financing activity was 16,200,000 In terms of our financial position, cash and cash equivalents at the end of Q1 2023 was $66,700,000 compared to $107,100,000 at the end of 2022.

Speaker 3

The decrease was primarily due to a higher cash used in operating activities as well as finance activity of $16,200,000 for share buyback and the finance leasing loan payment. Our net asset value or NAV is approximately 5.85 per ADS. Our debt to asset ratio at end of Q1 2023 was 11.3% compared to 11.1% at end of Q4 2022. Moving to our share buyback program. We purchased $13,200,000 of our common shares during the quarter and intend to proceed with the execution of the share buyback program with $17,000,000 remaining.

Speaker 3

Now we would like to open up the call for any questions. Operator, please go ahead.

Operator

Thank you.

Speaker 1

Our first question

Operator

comes from the line of Philip Shen of ROTH MKM. Your question please, Philip.

Speaker 4

Hey guys, thanks for taking my questions. First one is on your 4 gigawatt pipeline Target by year end next year. For that incremental gigawatt, what would you expect that mix of business to come from or to be? How much Europe versus the U. S.

Speaker 4

Versus China or rest of world? Thanks.

Speaker 2

Thank you, Phil. The major part of the pipeline will continue coming from the strong Demand in Europe. And I will say the current percentage or the current portfolio percentage from Europe Remains to be similar to the end of the year. I would say in the 4 gigawatts, I would expect About 3 gigawatts will come from Europe and the another major part will be from U. S.

Speaker 2

And China represent about around 5% in the whole portfolio.

Speaker 4

Okay, great. Thanks, Yiming. So and then in terms of Europe, power pricing is down meaningfully. It seems like that's not impacting your pipeline or maybe it could. Do you expect any projects to become either uneconomic or more challenged with the lower pricing?

Speaker 4

Or do you think the uncertainty for gas pricing, because of the war and so forth could and should still drive very healthy demand? Thanks.

Speaker 2

In fact, we look at this thing from twofold. One is that the current merchant price, Although it's absolutely significantly lower compared to 12 months ago, but it is still higher than 2, 3 years ago. In most people, including us, our financial model, if you look at 2 years ago, In normal case with the merchant curve, you talk about €60, €70,000,000 per megawatt hour, Okay. And now the merchant price is higher than that price. And the demand is a lot bigger or stronger in the market.

Speaker 2

At the same time, we look at on the supply side, we absolutely have seen The job of the CapEx. Just recently, as everybody knows that the polysilicon price goes down And the module price continue goes down and the whole overall BOS price from the suppliers are going down. So on these two points, we do not see any projects, literally any project going uneconomical. And we still see high bid, high demand on the high quality projects.

Speaker 4

Okay. Thank you. One last one for me, staying with the topic here. Can you talk about the recent Auctions or sales processes that you've been hosting, how have they been In terms of numbers of bidders, quality of the bidders, maybe you can talk about the dynamics in the U. S.

Speaker 4

As well as Europe And maybe how that sales process might be changing? Do you expect to see more and more bidders still? Over the past Couple of years, that's been the trend, more and more kind of buyers for the projects. But have you seen that plateau? Or do you Do you see that grow and maybe just talk through and characterize the demand that you're seeing in general?

Speaker 4

Thanks.

Speaker 5

This is a

Speaker 2

very interesting question that the very good question, by the way, Phil. I will cover the Europe first and ask John to cover the U. S. Part. The absolutely, in general, including U.

Speaker 2

S, we still see a big demand, okay? In the market, even in some market, People predicted that they starting after summer, the demand will go slower or the bidders will be less. But I see currently the demand is very strong and for any portfolios as We expect to have at least 15 plus transactions to be closed within the next 8 months. And The current ongoing ones, either we do it by ourselves or we hire a broker to do it for us. Literally, we see a dozen as minimum or in most cases, 2, 3 dozens Bidding seriously onto our deals, okay?

Speaker 2

But for certain market, for certain portfolios, Smaller or big, at the end, we always struggle ourselves to pick the best ones. Normally, we go with 2, 3, At the end, we definitely pick 1 and be disappointed more. So the trend in general, as I see, it's a timing issue. Now it is still very, very good as money gain flow into the solar market, as I see it's Stronger than the people standing on the sidelines. John, would you comment on the U.

Speaker 2

S. Part in some detail? Go ahead.

Speaker 6

Can you hear me? Yes.

Speaker 5

Perfect. So, hey, Phil.

Speaker 6

It's important to make the distinction that in the U. S, We sell NTP projects. So physically, they have not yet been built, but they have all of their statutory rights to be built. By definition, The buyer that we go to is a pretty sophisticated buyer in the sense that they take on some level of engineering, design, procurement, And some of them do that internally, some of them have very strong relationships with panel manufacturers or engineering Providers and construction providers. So we don't it's not like you just turn that spigot on and instantly become both A financial wheelhouse and a construction engineering management and asset operator, so we focus on those accounts.

Speaker 6

So The number stays a little bit more constant. While there might be financial buyers that are buying assets in the secondary market or it's not technically a second I guess it could be called the secondary market of already constructed assets that have some operating history. That's the first point. And the second segregation is there are certain markets where we're challenged just because it's either a regulated market and folks So we know which accounts like certain types of assets, whether community or utility, Regulated, unregulated, the different power pools and markets that folks wish to own assets in. And that could be the distinction between the unregulated arm of a utility or a player that's highly sophisticated because they have their own power Purchasing and capability, that's a subtle kind of subcategory.

Speaker 6

But just in general, I would say the real answer to the question is, there's more demand than the number of people that we're comfortable taking deals to, meaning There's a potential pool of 40. We go to the 7 or 6 that really know the markets and we know that they like the market. As Yumen hinted at in his comments, I'd actually rather I don't need To go to everybody and have most people upset that they didn't win something with us, what we want is a high quality pool of folks who know the market and can It's not just getting highest bid, it's who can actually execute in a particular market. And we don't have perfect Insight there, but we have some decent data on who's doing what, where Based on talking to the accounts and talking to seeing what they're doing engineering wise, so I'd say right now still Demand outstrips our supply. If we had 5 times the number of projects, we'd be able to sell them.

Speaker 6

And that's a quick and dirty answer.

Speaker 3

Phil, I would like to add, like John said here, in Europe also we focus on RTB sales. Again, right now, People are still chasing high quality RTP ready projects. The demand is still very strong.

Speaker 4

Okay. Thanks to you all. I'll pass it on.

Speaker 3

Thank you, Phil.

Operator

Thank you. Our next question comes from the line of Donovan Your question please, Donovan.

Speaker 5

Hey, guys. Thanks for taking the questions. I first want to start with the mid to late stage pipeline, where you have it broken out by country and you give a range of expected sale dates or the date when a project to come online and generate revenue as an IPP project. And it looks like you have ranges that For quite a few countries, you have a range starting in 2023. We've got Poland, Hungary, Spain, France, Italy, the U.

Speaker 5

S. And China. I know in Poland, Hungary, the U. S. And China, you've got some projects there that could really be sold at any moment if the price is right, but I'm less familiar with the projects you have on the ground in Spain, France in Italy.

Speaker 5

Could you elaborate on those projects and what the likelihood is that there could be Sales in those countries in 2023, are they existing I mean, they're not IPP assets, are they all just sort of NTP? And you've got some that are tied up with a bow that could be sold or what is kind of that layout or the your situation in Spain, France and Italy for 2023.

Speaker 2

Thank you, Donovan. As I mentioned, In the remaining 8 months of the year, we will have we expect to have a minimum of 15, 16 different Portfolio sales in those countries. That include not only the country you mentioned, Poland, Hungary, But also in Italy, in Spain, in France, in Germany, in almost every single market, we have projects. We are setting those projects in most cases as RTB. RTB is the word European people mostly most likely to use instead of NTP.

Speaker 2

So the most of the deals are RTB sales In the countries, as I mentioned. And in China, it's the only country we sell deals as a COD. And in the U.

Speaker 5

S. So you're saying you actually expect that there'd be RTB sales in Spain, France, Germany and Italy this year?

Speaker 2

Yes, absolutely.

Speaker 5

Great. Okay. Fascinating. Okay. Sorry, I cut you off.

Speaker 2

And also another point, Donovan, that the as you see our business model, as we listed all the details Of the product portfolio in each country, we not only have the RTB sale model, but we also have IPP model. So in the cases of some portfolios, we are seriously considering to build those ourselves. So in some countries, we just will turn we say monetize, we will turn those development portfolios Into the IPP assets.

Speaker 3

Okay. Well, Italy, we also have developed several type of business. We Help third party to develop the projects.

Speaker 5

Right, right. Okay. And then I want to talk about I don't think we've touched on this for maybe a little while, is the idea of kind of Having a lot of these countries, there's this kind of land to grab going on, but instead of scrambling to grab land, you're trying to scramble to get to the front of the line for interconnections. And that can involve putting down a deposit and that was sort of the strength of your cash position before. Cash has come down a decent amount, but you can see that that's also being deployed in projects.

Speaker 5

And so you get kind of assets and projects in process on the balance sheet. So I'm curious if you can kind of paint a picture for us about how does this, like in a perfect world, I wish I could like look at a map and see, Okay. Yes, I think of it as like chips on a table, but it's a map and it's like, okay, Amarin has this many millions deposited in this spot, holding this interconnection and this mini here, holding that, so on and so forth. But absent that, I'm wondering if you can kind of Somehow paint a picture for us of where that cash is for interconnection deposits? Of course, I mean, it wouldn't be restricted cash.

Speaker 5

I'm guessing maybe it's tied up in the project assets, but can you give us a sense for how much Money is deployed in that kind of a deposit like capacity out there holding your place in some

Speaker 6

of these. Yes.

Speaker 3

That's indeed the city in the project assets on the balance sheet. It's roughly between $18,000,000 $20,000,000 And

Speaker 5

that's $18,000,000 $20,000,000 just kind of holding places. Yes, and it's all refundable. Okay. And is there a let's see. And I guess it would vary by country.

Speaker 5

So I'll have to dig into it with some more detail with you guys offline, but it'd be interesting to see how that translates, like I said, almost if you could Allocate that $20,000,000 on a map and say, with just $20,000,000 we've got X number of megawatts of prime real estate under our belt, but it's

Speaker 4

not going to be the easy thing

Speaker 5

to do on the call.

Speaker 2

Let me, Donovan, just give you a quick background about the Deposit and even the cash used, I'll ask her to give you the cash used in detail. But on the deposit side, U. S. Is the major spending of this $18,000,000 $20,000,000 as U. S.

Speaker 2

Literally speaking is the only country Demanding big interconnection deposit, okay. Other countries like in Spain and in some European countries like Spain, They do require interconnection deposit, but we use that in the form of the bond from insurance companies to cover those. So the deposit in the whole European market is smaller than the total use in the U. S. That's the first point.

Speaker 2

The second is the major part of the cash used was due to the decision by the management of sponsoring the construction of the projects in Poland and Hungary. Together with the closing of the sales of those projects in Poland, Hungary, We expect the cash will be coming back.

Speaker 4

Okay. Great. Okay.

Speaker 2

I have the confidence that we have a very strong financial position of the company, although I believe you asked the question based on Our current cash below $70,000,000 but we are expecting the big cash inflow From the execution of the sales on those projects under construction are being completed.

Speaker 5

Okay, great. And then with the new accountant and the restatement of 4th quarter, I think there was a project in Poland that probably looks like it's most likely going to get Yes, it may be the 58 megawatt or 38 megawatt project you already mentioned. But if that was sort of seems to be very nearly or effectively sort of done in the Q4, then I'm sort of assuming the associated cash use would have already been that's not something that would be restated for the Q4 because the cash side of things would stay the same. And so am I correct in assuming The incremental $20,000,000 some odd $1,000,000 in cash used in the Q1 for projects in Hungary and Poland, But that's actually for incremental projects in addition to the Poland project in the Q4 that was

Speaker 4

Yes. Yes, totally, you're right.

Speaker 5

Okay. We call

Speaker 3

it a 58 Megawatt project. We received the full payment just a few weeks ago. So that's not related to the cash we used in the Q1. The Q1 cash usage is other Poland COD projects and also Hungary COD project, which Yumi just mentioned, we're going to Monetize those and receive cash back from those projects in the coming quarter and the second half.

Speaker 5

Okay, great. And then my last question is just with, I'm not sure kind of what the exact right language to use this here, But I know you're currently listed in the U. S. As an ADR and you do the kind of foreign filing 20 F and 6 ks's. And as I understand it, I think it's like an SEC requirement or something that I believe Now that your investors are majority U.

Speaker 5

S. Investors, you're going to be required to do like regular 10 Q. Is there anything more to it? Is it just that you have to do those filings instead? Or is there a more formal process and does it involve actually not being an ADR anymore and being like a direct listed security?

Speaker 3

That's different from the direct listing. So first of all, there is a formal process. So we have to do 10 Q based on the Shareholder structure shows that the formal process, we will expect to starting to do it in Q1 2024. And again, but in terms of direct listing, that's different process. Okay.

Speaker 5

All right, great. I'll take the rest of my questions offline. Thanks guys.

Speaker 2

Thank you, gentlemen.

Operator

Thank you. Our next question comes from the line of Pavel Molchanov of Raymond James. Your question please Pavel.

Speaker 7

Thanks for taking the question. So first on Your U. S. Portfolio, we just saw the guidance from the treasury about What needs to happen for projects to get bonus tax credits for local content as well as low income community bonuses. Based on Your existing project pipeline in the U.

Speaker 7

S, do you anticipate being eligible for either the local content Or the low income community or both?

Speaker 5

Both.

Speaker 7

Yes. On both. On both.

Speaker 6

So we Obviously, when it was just guidance and it wasn't actually stated, we were still building into our sales structures Upside related to both of those components, right? So at the end of the day, what really ends up happening Is the buyers themselves have the best visibility into their own procurement, How they're going to manage local content, what the costs of implementing local content are going to be, the risk of tariffs on the other side, The cost of acquiring low income or LMI offtake, which obviously is positive and it pays for itself And it's a good thing. But that reflects itself in stronger bids to begin with. So they internalize, it's kind of like trading when You can't really tell if a bid has already got the Fed rate hikes or moves already embedded in the bid, but that pricing is priced in. Beyond that, we also structure into our deals upside related to them achieving Those specific, whether it's going from 30% to 40% ITC basis or achieving a certain offtake You know, mix or matrix in the off take, but to be frank, I find deals are best negotiated Right up to the point of sale and chasing somebody later for things that are underneath the hood of their shop like their exact tax equity deal and how they monetize credits and all that.

Speaker 6

I'd rather not As credits and all that, I'd rather not it's just it's more complicated to figure out post Fact or post sale exactly what ended up happening with their financing structure, but We do capture that upside in the form of specifically calling out if you get 40% ITC, we get We split the benefit or have some upside related to it. But first and foremost, for competitively bid projects, a lot of that is baked Into the bids, which is good. So it's kind of a little bit of both. And it's worth a lot. I mean, it's worth a lot.

Speaker 6

It's worth to us, it's worth without being too specific, it's worth tens of 1,000,000 of dollars of extra developer fee over the next X number of single digit years?

Speaker 3

Yes, Pavel, we just Saw this recently, the price jumped in recent weeks for our projects.

Speaker 7

Let me follow-up with kind of a CFO question, I suppose. Until today's earnings release, you reported adjusted EBITDA And adjusted net income and today I do not believe you included either Of those numbers, is that deliberate? And if so, why did you change that reporting method?

Speaker 3

Yes. It's just we don't have any adjusted in this quarter. So most of them are just GAAP. So that's not deliberate. It's just this quarter everything is GAAP.

Speaker 7

Okay. So You will be publishing adjusted EBITDA in the future when you have some special items.

Speaker 3

Yes, some special items. Yes.

Speaker 7

Okay. That's clear. Okay. Thank you, guys.

Speaker 2

Thank you, Pavel.

Operator

Thank you. Our next question comes from the line of Amit Dayal of H. C. Wainwright. Your question please, Amit.

Speaker 8

Thank you. Good afternoon, everyone. Most of my questions have been asked guys, but just a few from my side. How much of the 2Q revenue guidance is already delivered?

Speaker 3

I will say almost Over 60% has been delivered.

Speaker 8

Okay. Thank you, Kurt. And With respect to the 300 megawatts you are targeting to close in the second half this year, what are the risks we should be aware of in terms of these getting pushed Stout or not coming through not all of it not coming through this year?

Speaker 2

I do not Expect any of those not coming through. As for example, the ones, as I mentioned in my earlier early talk Yes. We are waiting for government approvals. For the ones we already signed the contract, we filed for government approvals, For example, in the country of Hungary, that the government will give us within 4 to 6 weeks the approval. So that's one example.

Speaker 2

As we are as we explained the last time when we filed the 20 F, We are, the whole company wide, taking a more conservative approach, recognizing revenue At the moment, we all believe should be recognizable. And that is how we delayed the recognition to the following quarter. But now we do not see anyone Which will pass through or slip through into 2024 yet.

Speaker 8

Okay. Thank you, Amy. Just last one for me. You touched on some of the cash related discussion earlier, but With sort of the visibility you have right now, where do you expect to end 2023 with respect to your cash position?

Speaker 3

Yes, Amit, we expect very significant increase from current level by end of this year.

Speaker 8

Can you share a range maybe or is that okay?

Speaker 3

Yes. It's around €90,000,000 to €100,000,000

Speaker 8

Okay. Understood. Thank you, guys. I will take another questions offline. Thank you.

Speaker 2

Thank you, Amit.

Operator

And thank you. Seeing no more questions in the queue, that concludes our call for today. Thank you, everyone. You may disconnect at this time.

Speaker 2

Thank you, Latif.

Operator

My

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