Emeren Group Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 20, 2024

There are 8 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Emeren Group Limited Second Quarter 2024 Earnings Conference Call. Please note that we are recording today's conference call. I will now turn over the call to Gary Dvorchak, Managing Director of The Blueshirt Group. Please go ahead, Mr.

Operator

Dvorchak.

Speaker 1

Okay. Thank you, operator, and hello, everyone. Thank you for joining us today to discuss Q2 2024 results. We released our shareholder letter before the market opened today, and it is available on our website at ir.emrin.com. We also provided a supplemental presentation that's posted on our IR website as well and we'll reference that during our prepared remarks.

Speaker 1

Yesterday, we filed our Forms 10 ks 10 Q, excuse me, for both the 1st and the 2nd quarters, so we are now fully compliant with SEC reporting requirements. On the call with me today are Mr. Yumen Liu, Chief Executive Officer and Mr. Ke Chen, Chief Financial Officer. Before we continue, please turn to Slide 2.

Speaker 1

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 materially. Those risks are described under Risk Factors and elsewhere in Emmering Group's filings with the SEC. 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.

Speaker 1

Ameren Group is not obliged to update you on any revisions to these forward looking statements. In addition, please note that all financial numbers discussed in this call are unaudited. Also, please note that unless otherwise stated, all figures mentioned during the call are in U. S. Dollars.

Speaker 1

With that, let me now turn the call over to Mr. Yumen Yu. Yumen, go ahead.

Speaker 2

Thank you, Gary. Thank you, everyone, for joining our call today. I'll begin by providing an overview of our operational performance in Q2 2024 and Koh will discuss our financial results for Q2 and our outlook. In Q2, our company achieved solid progress generating $30,100,000 in revenue. This performance was underpinned by gross profit of $9,400,000 translating to a robust gross margin of 31.2%.

Speaker 2

Operating profit was $3,000,000 and net income attributable to Ameren Group Limited was $400,000 These results reflect our disciplined approach to growth, particularly through the execution of our development service agreements, ESA, strategy across Europe and the U. S. Our relentless focus on improving efficiency across all regions has paid off, enabling us to maintain strong operating discipline and control cost effectively. Offsetting our solid operating profit, net income was reduced by around 2,000,000 dollars write offs related to canceled projects and unrealized foreign exchange loss of $800,000 Despite these setbacks, our ability to deliver a solid operating profit underscores the resilience and adaptability of our business model. In terms of our business lines, first, our DIC structure has established a stable and predictable business model, enabling us to monetize projects at the early stages of development and secure higher quality contracted revenue.

Speaker 2

This approach is crucial for managing risk and maximizing cash flow throughout the project lifecycle. By end of the Q2 of 2024, we had signed over 2 gigawatt of projects with 8 DSA partners in Europe to monetize this early and mid stage projects. The total contracted revenue of over $60,000,000 is expected to be recognized over the next 2 to 3 years based on the development milestones. In the first half of twenty twenty four, we achieved $8,200,000 of BSA revenue, already surpassing the full year of 2023 BSA revenue total of $6,500,000 Looking ahead, we are committed to expanding our DSA partnerships on a global scale, leveraging our expertise and track record to enter new market and forge strategic alliance. Currently, we have over 2 gigawatts of ESA contracts under negotiation.

Speaker 2

These contracts are expected to close within the next 6 to 8 months, bringing the company an estimated $100,000,000 in revenue to be recognized over the next 3 to 4 years. In parallel, our FaaS projects are gaining momentum, particularly in Italy. We recently finalized a DSA agreement for BaaS projects with PLT Energia, one of Italy's largest independent renewable power producer, specializing in wind and solar. This transaction comprises our BaaS portfolio totaling 3 94 megawatts, demonstrating the growth of our BaaS strategy in Italy, where we now have a total of 1.7 gigawatt BaaS projects in the DSA structure. In Q2, we signed a contract to sell our 42 Megawatt RTB solar project portfolio in Spain to CVE Espana, a subsidiary of French independent power producer CVE.

Speaker 2

Developed by Ameren since 2021, this diverse portfolio is comprised of 8 greenfield projects ranging from 5 to 6 megawatt. Together, these 8 projects will generate approximately 92.8 gigawatt hour per year of energy serving around 28,000 households in the region. The awarded carbon emissions will amount to about 20,000 tons of carbon dioxide per year. Additionally, in Q2, we completed the delivery of 13 Megawatt COD project in Hungary, further solidifying our presence in the country. This accomplishment builds on our December 2023 sale of a 53.6 Megawatt solar portfolio in Hungary to Kornaspen Dock Glass Renewables.

Speaker 2

These 6 projects set to power approximately 9,500 households reinforce our commitment to providing sustainable energy solutions across Europe. Furthermore, our IPP assets exhibited strong growth and profitability, contributing approximately 30% of our total revenue for the quarter. We continued to optimize the operation of our solar farms, including Branston in the UK. The IPP segment is a crucial component of our business model, providing a reliable source of stable and predictable cash flow. IPP revenue is balanced between Europe and China with a modest presence in the U.

Speaker 2

S. In Europe, we have 67 Megawatt of IPP assets generating recurring revenue. Our IPP assets in China, the majority of which are located in the 5 coastal provinces with favorable power prices, strong economies and robust regulatory environments are being fortified with the addition of battery storage projects. As of the end of Q2 2024, our battery storage portfolio in China comprised 26 megawatt hours, all integrated into our virtual power plant or by BPP platform, owned and operated by Huaneng Power International, one of China's largest IPP operators. Looking ahead of the remainder of 2024 and beyond, we are well positioned in many of the world's fastest growing solar markets.

Speaker 2

These markets are supported by rising clean energy demand, favorable government policies and advancing technologies. Our priorities include advancing early stage projects, securing additional DSA partnerships in Europe and the U. S. And optimizing strategies to maximize the value of our development pipeline. With that, let me turn the call over to our CFO, Ke Chen, to discuss our financial performance and guidance.

Speaker 2

Ke?

Speaker 3

Bob? Yes. Thank you, Yiming, and thanks everyone again for joining us on the call today. Our revenue rose to $30,100,000, doubling quarter over quarter, driven by significant growth in the EPC for COD projects development and DSA segment, fueled by project completion and increased demand for development services. Our revenue declined 11% year over year, primarily due to the reduced RTP sales in Europe.

Speaker 3

Despite these challenges, strong performance in COD and DSA highlights the company's strategic focus and operational resilience. Gross profit was $9,400,000 compared to $4,300,000 in Q1 2024 and $12,700,000 in Q2 2023. Gross margin was 31.2% compared to 29.6% in Q1 2024 and 37.4 percent in Q2 2023. The year over year decrease in gross margin was primarily due to shift in the revenue mix towards sales. Operating expenses were $6,400,000 down from $7,600,000 in Q2 2023, but higher than the $5,500,000 in Q1 2024, primarily due to around $2,000,000 write off related to canceled projects.

Speaker 3

Net income attributable to Ameren Group Ltd. Common shareholder was $400,000 a $6,300,000 rebound from a net loss of $5,900,000 in Q1 2024, though lower than $8,300,000 a year ago. This was impacted by around $2,000,000 write off related to cancel projects and unrealized foreign exchange loss of $800,000 Diluted net income attributable to Ameren Group Ltd. Comp shareholder per ADS was 0 point 1 dollars compared to diluted net loss of $0.01 in Q1 2024 and diluted net income of $0.14 in Q2 2023. Cash using operating activity was 2,200,000 dollars Cash using investing activity was $3,800,000 and cash provided by financing activity was $1,500,000 Moving to balance.

Speaker 3

Cash and cash equivalents at the end of Q2 2024 were $50,800,000 compared to $55,100,000 in Q1 2024. Net asset value or NAV is approximately $6 per ADS. Our debt to asset ratio at the end of Q2 twenty twenty four was 10.2 percent compared to 9.99% at the end of Q1 twenty twenty four. Shifting gears to our outlook. We anticipate that our Q3 revenue will fall within the range of $25,000,000 to $28,000,000 with gross margin between 35% and 38%.

Speaker 3

For the full year 2024, we reaffirmed our expectation for revenue range from $150,000,000 to $160,000,000 and for gross margin of approximately 30%. Additionally, we reaffirm our expectation for net income in 2024 to be around $22,000,000 Taking into account the impact of foreign exchange and we expect earnings per ADS to be a possibility $0.43 Operating profit is expected to grow in line with revenue with a continued focus on cost management and efficiency. While full year net income will be affected by the earlier write offs and foreign exchange losses, we remain confident in Genever's solid financial performance for the year. Additionally, we affirm our expectation for 2024 ITP revenue to be between $24,000,000 $26,000,000 with a gross margin of approximately 50%. We expect DSA revenue to be around $20,000,000 in the second half of twenty twenty four.

Speaker 3

With that, let's open up the call for any questions. Operator, please go ahead.

Operator

Thank you. Our first question comes from Graham Price with Raymond James. You may proceed.

Speaker 4

Hi, good afternoon and thanks for taking the questions. First one, just on the early stage pipeline, looks like Spain was revised down by about 1.3 gigawatts versus Q1. Just wondering what the reason was for that?

Speaker 2

Okay. It's a good question. And we are facing we have been facing some challenges in the approval process from the government in Spain, especially in some regions we have activities. And balancing the risk and award, the company decided to slow down or even cancel projects in some regions, okay? That is the reason we lowered our early stage pipeline in Spain.

Speaker 2

Literally, we canceled those projects.

Speaker 4

Got it. Understood. Then for my follow-up, I guess kind of a 2 parter on the DSA sales. First one, just looking at the second half forecast of $20,000,000 I was wondering what the quarterly cadence is there. And then looking at the contracted versus negotiated, it looks like you've got 2 gigawatts in kind of each bucket, but it looks like contracted is for $60,000,000 versus negotiated $100,000,000 So I was wondering if those that are still in negotiation or a bit more involved or later stage projects, just wondering why the difference in size there?

Speaker 3

Yes, Grant. Let me answer the first part and Yumi will answer the second part. The first part, we do expect $20,000,000 revenue coming out of DSA in the second half. And I will say half more than 50% has already contracted. And again, the second half less than the 50% is under negotiation.

Speaker 3

In terms of quarter over quarter, I think we could expect evenly distributed in the next two quarters. And I will answer you about the contract and the projected difference. Okay. Our existing PISAs mainly

Speaker 2

comes from the Italy market, okay? And now in the following months or the following as I mentioned 6 to 8 months, we have over 2 gigawatts of contracts or DSA contracts we target to close and that is on global scale, both on solar and also on the storage, including 4 to 5 countries in Europe and plus the U. S. That portfolio of 2 gigawatts also include not only early stage, but also some middle or even more advanced stages projects. That is why the DSA number will be a lot higher in some cases compared to the early stage ones.

Speaker 4

Got it. Okay, perfect. That's exactly what I was looking for. Thank you very much. I'll jump back in the queue.

Speaker 2

Thank you, Graham.

Operator

Thank you. Our next question comes from Philip Shen with ROTH Capital Partners. You may proceed.

Speaker 5

Thanks for the questions. We're taking the questions. Your implied Q4 revenue ramp is pretty high, about $84,000,000 And so wanted to understand how confident you feel in that implied Q4, given you reiterated your full year revenue number. And so what's the confidence level? How much conservatism is baked in?

Speaker 5

And what are the risks that you miss the target? Thanks.

Speaker 2

Thank you, Phil. It's a very, very good and challenging question too. As the team, the teams across the board has been working on those expected closings, literally speaking as early as 2, 3 months ago, even for the closings to be expected in Q4 or sometime may happen late Q3, okay? That is where our confidence come from. We are going to the direction closing the deals with the ones negotiation with the partners starting from as early as 2 to 3 months ago.

Speaker 2

Bunch of deals to be closed are under the due diligence process and bunch of them are on the accrual basis with some targeted buyers. Another point to be noted is we do have several COD plant COD sales, while those projects are either already COD in the past 1 or 2 months or will be COD within Q3, that is within next 45 days. So we have the confidence that those COD assets are so valuable and people are even today are visiting our COD sites. Okay. So we feel good by closing those deals.

Speaker 2

But definitely, as I see your question is challenging that we do have one deal in Europe. It's a pretty high revenue expectation and margin the same. So the I expect some risk, but at this time, we have very high confidence to close all those expected deals.

Speaker 5

Great. And that deal in Europe that has high revenue, can you share the megawatts, maybe what country it's in?

Speaker 2

We cannot go into that detail as those are on an inclusive basis with the buyers targeted buyers. And the I think by the time when we go into next earnings call, we do plan to give more details on the colosin targets.

Speaker 5

Okay, great. Thanks, Yiming. Shifting over to your $2,000,000 of write offs of canceled projects. I think you guys had a similar amount on the last quarter Q1 and wanted to see if we should expect $2,000,000 for this coming Q3, maybe even Q4. How much more is there?

Speaker 5

And what are the root causes of these canceled projects? Is it like you were saying earlier in terms of Spain, the government's changing some of the situation? Or is it like is it more concentrated in U. S. Or Europe, my guess is?

Speaker 5

So just give us some more color on what to expect ahead for the canceled and written off projects? Thanks.

Speaker 3

Yes. Bill, again, the specific write off related to U. S. Again, you probably know the challenge of interconnecting those kind of normal stuff happen in U. S.

Speaker 3

However, going forward, we are not expecting that especially in the second half, we don't expect any big write off going forward in the second half.

Speaker 5

Got it. Great. Thank you. And then one last thing, you guys talked about having $100,000,000 of cash by the end of 2024 in the past and being positive operating cash flow for the remainder of it for the year or at least certain quarters of this year. What's your I don't see we don't see it in this material for this quarter.

Speaker 5

Can you share if you think $100,000,000 is reasonable still by year end 2024? Or if not, what's the burn that you expect? And how much cash do you think you could have by year end? Thanks.

Speaker 3

Yes. Based on our forecast, again, we're confident about our outlook here. As we mentioned, you mentioned part of this COD sales will happen in the Q4. So we are still confident to collect all this cash by end of this year and also expect on a full year basis, we should be operating cash flow policy.

Speaker 5

Great. Appreciate that. Okay, I'll pass it on.

Speaker 3

Thank you, Phil. Thank you.

Operator

Thank you. Our next question comes from Amit Dayal with H. C. Wainwright. You may proceed.

Speaker 6

Thank you. Good afternoon, everyone. So, Yumen, with respect to the guidance for

Speaker 7

the remainder of the year, you're saying

Speaker 6

you could potentially do $28,000,000 in net income on roughly, let's say, dollars 100,000,000 to $110,000,000 to $120,000,000 in sales. I'm just trying to get a sense of what's driving this significant level of profitability for the revenues that you are expecting to recognize in the second half?

Speaker 2

I think the I will say 3 reasons coming to our confidence level. One is, as I mentioned, that we have worked on tons of expected closings starting over 2, 3 months ago. And we do expect to close them in the second half. The second is the significant part of the revenue may come or will come from the COD sales. And those COD are either reached or are to be reached within Q3.

Speaker 2

So the COD assets are pretty valuable and hotspot to be chased upon by buyers. And as I mentioned also that we even have 1 COD buyer visiting our site today. So those are all inclusive basis and we are so confident those will be done. And definitely, we have all those contracts, including TSAs under the negotiation, we believe we can close them.

Speaker 6

Understood. And my question is more on margins. So you feel that the price you will receive for these assets will support these levels of margin expectations that you have for the second half?

Speaker 2

Yes. Although COD margin is normally lower, but

Speaker 3

in general, our business model on the NTP or RTB sale plus PSA provide very healthy margin and including our IPP assets, those are also high margin deals. Amit, again, we talk about sales, but the margin, our main focus is still be on the RTP, NTP sale, both in Europe and the U. S. So margin contribution will also come from our strength of NTP, RSV cell plus DSA and IPP, which Yumi just mentioned. So we're confident about margin in the second half.

Speaker 6

Understood. Thank you for that. And related to that again, is any of this dependent on interest rates going lower, any of these deals in the second half? Are folks maybe waiting pencil these deals once they have clarity on where interest rates will head in the next few months?

Speaker 2

Very good question and very good point. I really hope that the buyers will pay a better price with a better interest rate or lower interest rate environment. And we believe that should be the case.

Speaker 6

Okay. Thank you. Just last one for me with respect to the DSA revenues, it looks like you're getting good traction on that front. Are these DSA revenues 30% gross margins or higher or lower? Can you give us a sense of what kind of gross margin we should expect from DSA revenues?

Speaker 2

I could not release this margin number, but it is absolutely a very good model. Literally speaking, in our company, I say there are 3 key words: solar, battery storage and DSA. It is very important to the company operation, but unfortunately, I don't think I can release the margin number. And by the way, as we are doing BSA in multiple countries also on both PV and storage projects, So the margin varies really pretty bigly.

Speaker 6

Okay, understood. So that's all I have to do. I will take my other questions offline. Thank you.

Speaker 2

Thank you very much.

Operator

Thank you. Our next question comes from Donovan Shafer with Northland Capital Markets. You may proceed.

Speaker 7

Hey guys. My first question is just for the 1.7 gigawatts of DSA contracts for BSS in Italy that you have. Is that a subset within the 2 gigawatts of contracted DSA that you have? So is the implication that 85%, 90% of the 2 gigawatts you have time contracted for DSA that 85% of that is BESS in Italy? Or are these like different buckets?

Speaker 2

You are right. In fact, it is the case. Our ESA under BaaS projects, storage projects represent over 80% of the whole DSA portfolio.

Speaker 7

Okay, got it. Helpful. Thank you. And then for let's see, the write off, can you clarify just what it was that triggered the write off? Was it specifically an interconnection delay?

Speaker 7

Or what was the specific bottleneck or parameter or event that triggered the write off?

Speaker 2

I think the write off comes mostly from it's by the way, it's a norm for any development company. When we have failed projects, then we have to have the write offs on the accrued G and As or the capitalized cost on the projects. But those $2,000,000 specifically are connecting to the interconnection non approval or challenges we are seeing, okay? Just as I mentioned, for example, in Spain, for example, in U. S, the interconnection approvals got delayed and delayed.

Speaker 2

So for some cases, some deals will have to be written off as of the those interconnection challenges.

Speaker 7

Okay. Got it. And then if I can squeeze one more in. In the past, you've talked about monetizing 400 megawatts to 500 megawatts this year. Is that and I noticed in the letter to shareholders, it says that the priority, let's see, it says that your priorities include advancing early stage projects, securing additional DSA partnerships in Europe and U.

Speaker 7

S. And maximizing value of development pipeline. So it's not does that include monetizing advanced stage? It just seems like advanced stage projects, you've got a lot of megawatts in the advanced stage category. Do you plan on monetizing those?

Speaker 7

Is that part of do you still see 400 to 500 monetization of advanced stage?

Speaker 2

Yes, absolutely true.

Speaker 7

And is it a priority?

Speaker 2

We did not really mention that because monetizing or selling the other one stage pipeline is in our we consider as normal business, okay? We have been doing so in the past years, but the DSA is new. So we mentioned the DSA more and especially monetizing are the ones in the early stage portfolio is also the focus, literally speaking in the last almost 12 months.

Speaker 5

Okay, okay. That's helpful. All right. I'll take the rest

Speaker 4

of my questions offline. Thanks guys.

Speaker 2

Thank you, gentlemen.

Operator

Thank you. Our next question comes from Graham Price with Raymond James. You may proceed. Graham, your line is now open.

Speaker 4

Hey, guys. Thanks. I was the first questioner, so you already got to mind. Thanks, Doug.

Speaker 2

Thank you, Graham.

Operator

Thank you. And I'm not showing any further questions at this time. I'd like to turn the conference back to Mr. Lu for any closing remarks.

Speaker 2

Thank you, operator. The solar industry is experiencing strong momentum due to the global commitment to renewable energy. This shift towards clean energy sources positions solar and battery storage as a key part of the future energy mix. The growing demand for solar power to support AI and blockchain operations is particularly exciting as these technologies require substantial energy and solar plus battery storage offers a scalable cost effective solution. In conclusion, the future of solar energy is promising and we are strategically positioned to capitalize on the accelerating adoption of solar and battery storage technology worldwide.

Speaker 2

With our expertise, industry partnerships and strong financial foundation, we are advancing towards our goal of becoming a leading global solar and battery storage company. We are enthusiastic about the future and proud to be driving the transition to a more sustainable world. Thank you again for joining our call today. You may now disconnect.

Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

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